Robertson v Grigg [1932] HCA 29

Robertson v Grigg [1932] HCA 29 - HCA 1932 case summary — Zoe

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and obtained contracts with the Board. Miles tendered for various contracts and obtained three. On Ist September 1929 the following document was signed by Miles: "In consideration of George E. Grigg advancing me the sum of £1,000 to be used only and for the financing of main road contracts secured by me I agree to pay on same interest at the rate of 10 per cent calculated as from the date of each advance up to the above sum and from repayments to be made from progress payments as the work proceeds and the same are due from Main Roads Board"; and on 15th December 1929 Miles signed the following document : '' In continuance of agreement of September Ist in consideration of George Grigg advancing to me the further sum of £1,000 to be advanced as and when required and to be used only and for the carrying out of the main roads contracts secured by me I agree to repay same from progress payments as and when received and to pay interest at the rate of 10 per cent same to be calculated as in agreement of September Ist." Further, it was verbally agreed between Miles and Grigg that any subsequent advances should be on the same terms, and carry interest at the same rate, as stated in the documents already mentioned. On 22nd May 1930 Miles, at the instance of Grigg, gave the following order to the Main Roads Board: "I hereby authorize you to pay George E. Grigg all sums of money that may now be due or may hereafter become due to me from the local Government until further notice, and his receipts shall be a full and sufficient discharge for the same." On and between 2nd September and 23rd December 1929 Grigg advanced to Miles £1,282, and on and between 14th February and 13th June 1930 a further sum of £1,582 6s. 11d., in all £2,864 6s. 11d. Under the order of 22nd May 1930 the Main Roads Board paid to Grigg, in June and July of that year, a sum of £3,521 5s. 11d. On 9th August 1930 Miles executed a deed of assignment of his estate pursuant to the provisions of Part XI. of the Bankruptcy Act 1924-1930 to the appellant Robertson as trustee. Out of the sum of £3,521 5s. 11d. Grigg paid to Robertson as such trustee the sum of £562 13s. 4d.; the balance, £2,958 12s. 7d., represented the amount due to Grigg in respect of his advances to Miles and interest thereon. The trustee claimed that Grigg should

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of Australasia v. Hall (1) ). The learned trial Judge took the view that the transaction had the effect of giving a preference. The expression "' ordinary course of business" in sec. 95 (2) (b) means the ordinary course of business of the payer (King v. Greig ; Rechner, Claimant (2) ). The borrowing of the money must be in the ordinary course of the business of the borrower. The words " in the ordinary course of business" add a further condition. The point of the section is that the person obtaining the money must prove not only that payment is made with no improper motive, but that it was such a payment that, being made in a business being carried on by the borrower, it would not arouse any suspicion in the mind of thelender. If the section means " in the ordinary course of business" of the lender, there is nothing to show that it was part of the business of the respondent to lend this money, [Counsel referred to Tennant y. Howatson (3).] Whether the respondent took "in good faith and for valuable consideration " depends on whether at the time of payment to the respondent he had reason to suppose that Miles would not be able to pay his debts as they fell due, and the evidence establishes that at the time Grigg obtained the orders and got the payments he knew that there were other creditors whom Miles had difficulty in paying. The question is, did Grigg's knowledge constitute a reason to suspect that Miles was unable to pay his debts, and that he would obtain preference over the other creditors. On that point there is no finding of fact at all. The rule followed so far is that a de facto preference is sufficient to be hit by the section (Re Sanderson (4); Re Mazok (5)). The cases are discussed in the Australian Law Journal, vol. 1., at pp. 174, 211. The learned trial Judge was right in finding that there was here a preference within the first part of sec. 95, but where he dealt with sub-sec. 4 of sec. 95 he failed to take into account that the onus was on the respondent to prove that he was a payee in good faith, and he failed to make a finding that this transaction was made in good faith, and there is abundant ground for holding that it was not, as the respondent knew that the debtor could not pay his debts when they became due.

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Wilbur Ham K.C. (with him Davy and Coppel), for the respondent. Where there is a bankruptcy the provisions of sub-sec. 2 (b) of sec, 95 apply to protect the rights of a payee, &c., who comes within the terms of the sub-section. The expression "ordinary course of business" means the ordinary course of business transactions in general, and is not limited to the payee's or the payer's business, The expression means business transactions and carries the matter further than bona fide transactions. In order to get the benefit of the sub-section the transaction must not only be bona fide, but must also be in the ordinary course of business (Willmott v. London Celluloid Co. (1) ; Palmer's Company Precedents, 13th ed., Part IL., p. 714). This payment was for the purpose of carrying on business and was, therefore, protected. In any view the findings of the Chief Justice of Western Australia are sufficient to support the judgment. The Court of Bankruptcy, being a business Court, is invited to use its own knowledge to say whether this transaction is an ordinary business transaction or is a transaction of a suspicious nature. The fact that the order for assignment is in print points to its being an ordinary business transaction. Sub-sec. 2 (b) requires that the transaction should be in good faith. Being unable to pay his debts as they became due means that he was not able to pay from cash in the bank or able to borrow on ordinary security. It could not be suggested that the transaction was not in good faith if the debtor thought that he could get the money to pay. The effect of the contract must be that the payment would give a preference; otherwise it is not within the section. In this case everyone thought that there would be from £1,000 to £2,000 from the contract (Bank of Australasia v. Hall (2) ). There is nothing in the evidence to show that in this case the creditor knew or suspected that, if he were paid out of moneys falling due, the other creditors would not be paid. The Chief Justice found that at the time the creditor took the order he had no reason to believe that the other creditors would not be paid. The verbal arrangement entered into, coupled with the order, constitutes a valid equitable assignment, and brings the transaction outside the period of six months mentioned in sec. 95. There is a distinction between a contract to pay a sum of

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money and a contract to pay a sum from a particular fund. In the latter case there is a hypothecation of the fund pro tanto: it does not rest merely on contractual rights; equitable rights are attached to it (Palmer v. Carey (1) ). If this transaction were an equitable assignment it would come quite outside the period of six months mentioned in sec. 95. In order to come within sec. 95, de facto preference is not sufficient. There must be an intention to prefer as in the old fraudulent preference provision (Bank of Austral- asia v. Harris (2), Nunes v. Carter (3) and Sheldrick v. Aitken (4) ; but Levy v. Smith (5) and Humphery v. McMullen (6) are to the contrary). The effect of giving a preference implies that the debtor exercises discrimination. The word " preference " implies that the debtor weighs the claims, one against the other, and intentionally chooses to pay one and not to pay the other. The expression " having the effect of giving one creditor a preference over another" means that the intention must be carried into effect. These words indicate a conscious choosing of one over another. If preference under sec. 95 means fraudulent preference, then the provision in Part XI. which deals with deeds of assignment is in line with it. If it means de facto preference, then the position is different. If the provisions relating to preference under a deed of assignment are to be consistent with those under a compulsory sequestration under sec. 95, the preference must be fraudulent. On the other hand, if they are not consistent, the respondent is under Part XI., and is not necessarily bound by the construction of sec. 95. If the transaction is found to be fraudulent under Part XI., then the assignment will be set aside. The execution of the deed of assignment was an act of bankruptcy and therefore the question of preference will be considered under sec. 95. [Counsel referred to the Bankruptcy Act, sees. 166, 167, 168.] As to the Bills of Sale Acts - under the Constitu- tion these Acts are not now applicable so far as they touch upon matters covered by the Bankruptcy Act.

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debtor was unable to pay his debts as they became due, and that the effect of the conveyance, transfer, charge, payment or obligation would be to give him a preference over the other creditors." The learned Judge in Bankruptey had no doubt, nor have we, that Grigg, when he made the agreements with Miles and gave the order of May 1930, was under the impression that Miles would be able when his contracts were completed to pay all his debts and have a profit for himself. It is clear that Grigg was a purchaser in good faith and for valuable consideration. But was he a purchaser " in the ordinary course of business"? These words may be traced a long way back in bankruptcy law. Thus in Alderson v. Temple (1) and Rust v. Cooper (2), we find Lord Mansfield denying that acts in the ordinary course of business amount to fraudulent preferences. "Tf a bankrupt, in course of payment pays a creditor; this is a fair advantage, in the course of trade: or, if a creditor threatens legal diligence, and there is no collusion ; or begins to sue a debtor; and he makes an assignment of part of his goods; it is a fair transaction, and what a man might do without having any bankruptcy in view." "Tf, in a fair course of business, a man pays a creditor who comes to be paid, notwithstanding the debtor's knowledge of his own affairs, or his intention to break ; yet, being a fair transaction in the course of business, the payment is good; for the preference is there got consequentially, not by design." Again, Lord Blackburn, in Tomkins v. Saffery (3), says: " Now I think you must say that it is not with a view to give an undue preference, if a man makes a payment to a creditor in the ordinary course of business." And he instances the case of a man struggling on and making payments to keep his business going. See also Nunes v. Carter (4). Therefore, the test under sec. 95 of the ordinary course of business is not whether the act is usual or common in the business of the debtor or of the creditor, but whether it is "a fair transaction, and what a man might do without having any bankruptcy in view." The learned Judge in Bankruptcy found that the transactions between the parties in this case were in the ordinary course of business,

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respondent for a loan of £1,000. The debtor executed a short agreement by which, in consideration of the respondent advancing this sum to be used only for the financing of main road contracts secured by the debtor, he agreed to pay interest at 10 per cent calculated from the date of each advance and promised (correcting a verbal slip) that repayments should be "made from progress payments as the work proceeds and same are due from Main Roads Board." This document was dated 1st September 1929, and advances were made under it which by 3rd December 1929 amounted to £1,032. The respondent consented to make further advances and on 15th December 1929 the debtor executed another agreement. This document was expressed to be in continuance of the agreement of Ist September, and said that, in consideration of the respondent advancing the further sum of £1,000 to be advanced as and when required and to be used only for the carrying out of main roads contracts secured by the debtor, he agreed to repay the same from progress payments as and when received with interest at 10 per cent calculated as in the prior agreement. The respondent made advances from time to time, and according to the uncontradicted affidavit of the respondent, the debtor and he verbally agreed that any further advances in excess of the sum of £2,000 covered by the written agreements should be on the same terms and carry interest at the same rate. A loan made on 22nd May 1930 brought the principal sum lent over the amount of £2,000. In the end the total sum lent appears to have amounted to £2,864 6s. 11d. On 30th April, 22nd May and 3rd June 1930 the debtor gave to the respondent formal authorities directed to the Chairman of the Main Roads Board authorizing him to pay the respondent all sums that might then be due or might thereafter become due to the debtor from the local Government. The order of 22nd May 1930 alone seems to have been sent on by the Board to the Treasury, by which all payments were made in respect of the contracts. The Treasury repaid to the respondent at various dates on and after 6th June 1930 sums due to the debtor under his roads contracts which in all amounted to

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charge on such fund. Inasmuch as the agreements were for valuable consideration, it is unimportant that the fund was not in existence but was to arise in the future. No doubt the assignment or charge was by way of security and would operate in respect of each separate advance only from the date when it was in fact made. The period of six months within which preferences must be made to be affected by sec. 95, could not on any view be considered to commence earlier than 9th February 1930, and £1,282 had been lent before that date. In respect of this sum the respondent obtained a good equitable charge before the period of six months commenced. Within the period £1,582 6s. 11d. was lent in various sums. A charge was created in favour of the respondent in respect of each such advance as it was made, but the creation of the charge cannot be a preference within sec. 95 because it did not operate to prefer him in respect of any then existing debt. Upon the terms of sec. 95 the transfer of property or charge thereon made must be in favour of a creditor of the person unable to pay his debts as they became due, and it must have the effect of giving that creditor, or a surety for his debt, a preference. The relationship of debtor and creditor was for long the very foundation of the provisions of the bankruptcy law affecting preference, and, although exceptions have been introduced, the old rule otherwise remains and nothing can amount to a preference unless the person preferred is a creditor. Sec. 95 does not depart from this general principle. In making each separate advance on the faith of the agreement and thereby obtaining a charge in respect of the advance, the respondent did not obtain any benefit or advantage in relation to the past indebtedness. He did not deal with the debtor in his capacity of creditor. No pre-existing debt was better secured or otherwise affected by reason of any subsequent advance. There was, therefore, no preference to him as a creditor. For these reasons the appeal should be dismissed with costs.

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Judgment (75 paragraphs)

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