Azzopardi, P. v & Bird, A.N

[1979] FCA 166

Re BIRD (AS TRUSTEE OF THE ESTATE OF ARCADIOU); Ex parte AZZOPARDI (TRADING AS
PAUL AZZOPARDI & Co.) (1979) 39 FLR 277
Bankruptcy

COURT

FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
C.A. Sweeney J.(1)

CATCHWORDS

Bankruptcy - Preference - Relation back to earlier act of bankruptcy - Payment received after threat of legal proceedings - Ordinary course of business - Void as against trustee - Bankruptcy Act 1966 (Cth.), ss. 115(2)(a), 123(2).

HEADNOTE

The respondent (R.) carried out sub-contract work for the bankrupt (B.) in March 1976 and May 1976, his usual terms being payment within fourteen days. B. made frequent promises to pay which he failed to honour. In June 1976 R. made a written demand for payment claiming $8,777.50 and stating that if the account was not paid within seven days it would be placed in the hand of his solicitors. On 25th August, 1976, R.'s solicitors wrote to B. stating that unless the sum was paid within ten days they were instructed to institute proceedings to recover the amount. Payment was not received until 29th September, 1976, and then only the amount of $4,000 was in fact paid. On 15th March, 1977, B. presented his own petition and by virtue of the provisions of s. 115(2) his bankruptcy was deemed to have relation back to and to have commenced at 20th September, 1976.

Held:(1) By s. 123(2) of the Bankruptcy Act 1966 (Cth.) R. bore the burden of proving, inter alia, that the transaction in question was in good faith and in the ordinary course of business.

(2) The payment here was received as a result of a solicitor's letter of demand; R. had failed to show that such a payment was received "in the ordinary course of business" within s. 123.

Re Bailey; Ex parte Law v. Austin (1952), 16 ABC 80, approved.

Re Hoare; Commins v. I. & R. Spies Investments Pty. Ltd., (1972-1973) ALR 1134, referred to.

Meaning of "in the ordinary course of business" discussed.

Robertson v. Grigg (1932), 47 CLR 257; Burns v. McFarlane (1940), 64 CLR 108; Downs Distributing Co. Pty. Ltd. v. Associated Blue Star Stores Pty. Ltd. (In Liquidation) (1948), 76 CLR 463, approved.

HEARING

Melbourne, 1979, July 18; August 15; December 19. #DATE 19:12:1979

APPLICATION.

Application by the trustee in bankruptcy of A. for a declaration that a payment made by A. to the respondent on 29th September, 1976, for $4,000 was void as against him as a preference or, alternatively, by virtue of the bankruptcy being deemed to have relation back to 20th September, 1976, and for consequential orders.

T. Irlicht (solicitor), for the applicant.

P.B. Murdoch, for the respondent.

Cur. adv. vult.

Solicitor for the applicant: T. Irlicht.

Solicitors for the respondent: Patrick J. Cannon, Testro & Coburn.

D. LEVIN

JUDGE1

December 19.

C.A. SWEENEY J. delivered the following written judgment.

In this application, as amended by leave, the applicant seeks the following declarations and orders: "(a) That payment made by the bankrupt to the respondent on 29th September, 1976, for $4,000 is void as against the applicant as trustee of the property of the bankrupt as being payment having the effect of giving the respondent a preference, priority or advantage over creditors of the bankrupt, or, alternatively, by virtue of the bankruptcy of the bankrupt having been deemed to have relation back to date 20th September, 1976, on which date the bankrupt gave notice to some of his creditors, namely, Gubbatta Nominees Pty. Ltd., trading as Highett Timber Co.; Tasmanian Board Mills Ltd.; trading as Country and Western; Guardian Investments Pty. Ltd.; Beneficial Finance Corporation Ltd. and Alliance Acceptance Corporation Ltd., that he has suspended or is about to suspend payment of his debts. (b) An order that the respondent pay to the applicant the sum of $4,000." (at p278)

1. The respondent based his notice of intention to oppose the application on the grounds: "1. That the payment made by the bankrupt to the respondent on or about 29th September, 1976, of the sum of $4,000 in respect of work and labour performed by the respondent for the said bankrupt, was received by him in good faith, for valuable consideration and in the ordinary course of his business. 2. That the payment made by the bankrupt to the respondent on or about 29th September, 1976, of the sum of $4,000 was a payment by the debtor to a creditor, was a transaction which took place before the date on which the debtor became bankrupt, and at the time it was so made the respondent had no notice of the presentation of a petition against the debtor and the transaction was in good faith and in the ordinary course of business." (at p278)

2. During the course of the hearing the respondent conceded that the bankrupt committed the act of bankruptcy alleged to have taken place on 20th September, 1976, and that at the date of the payment in issue the bankrupt was unable to pay his debts as they became due from his own money. His counsel, Mr. Murdoch, made it clear that his client's defence to the claim of preference based on s. 122 was limited to the contentions raised in par. 1 of his notice and in respect of the claim of relation back based on s. 123 he relied solely on par. 2. He conceded that, if the applicant succeeded in relation to the issues raised by these two paragraphs, he was entitled to the relief sought. (at p278)

3. The respondent filed an affidavit in which he gave his account of his dealings with the bankrupt. (at p279)

4. (His Honour then set out the affidavit and the contents of a solicitor's letter demanding payment of the bankrupt.) (at p279)

5. The respondent carried out work for the bankrupt in March 1976 on four building sites to a total value of $5,869.50 In early May he performed further work to a value of $2,908. All this work was carried out on terms of payment within fourteen days and the bankrupt made and broke frequent promises to pay the overdue amounts. (at p279)

6. In or about June 1976 the respondent made a written demand for the payment of the total amount due, which was $8,777.50, stating that if the account was not paid within seven days, it would be placed in the hands of the respondent's solicitors. (at p279)

7. No payment was received and on 25th August, 1976, his solicitors set out the amounts due and stated that "unless we receive your settlement offer with respect to the above outstanding sum in the amount of $8,777.50 within ten days from the date hereof, we are strictly instructed to expedite the institution of proceedings in order to recover this amount". (at p279)

8. Payment was not received until 29th September, 1976, and then only in an amount of $4,000, leaving an unpaid balance of $4,777.50. (at p279)

9. On 15th March, 1977, the bankrupt's own petition was accepted by the Registrar and pursuant to the provisions of s. 115(2) his bankruptcy "shall be deemed to have relation back to, and to have commenced at, the time of the commission of" the act of bankruptcy which the respondent conceded that the bankrupt had committed on 20th September, 1976, which was within the period of six months immediately preceding the date on which the petition was presented. (at p279)

10. The property divisible amongst the bankrupt's creditors, by reason of the provisions of s. 116, included the amount of $4,000 paid by him to the respondent on 29th September, 1976, unless the respondent discharges the burden placed upon him by s. 123 (2) of proving, amongst other things, that the transaction was in good faith and in the ordinary course of business. (at p279)

11. The meaning of the words "in the ordinary course of business" in s. 95 of the Bankruptcy Act 1924, the precursor of s. 122 of the present Act, has been considered in the High Court. (at p279)

12. In Robertson v. Grigg, Gavan Duffy C.J. and Starke J. said: "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'" (1932) 47 CLR 257, at p 267 . In the same case Evatt J. said: "The 'ordinary course of business' is not, I think, to be related to any special business carried on by either debtor or creditor but is concerned with the character of the impeached transaction itself" (1932) 47 CLR, at p 273 . (at p280)

13. In Burns v. McFarlane Rich, Dixon and McTiernan JJ. said: "But the expression as used in the Bankruptcy Acts is a wide one. . . . Unlike the expression found in the bills-of-sale legislation, viz., 'transfers of goods in the ordinary course of business of any trade or calling,' it does not require an investigation of the course pursued in any particular trade or vocation and it does not refer to what is normal or usual in the business of the debtor or that of the creditor" (1940) 64 CLR 108, at p 125 . (at p280)

14. In Downs Distributing Co. Pty. Ltd. v. Associated Blue Star Stores Pty. Ltd. (In Liquidation) Williams J. said: "It seems to me, therefore, that the expression refers to a transaction into which it would be usual for a creditor and debtor to enter as a matter of business in the circumstances of the particular case uninfluenced by any belief on the part of the creditor that the debtor might be insolvent" (1948) 76 CLR 463, at p 480 . (at p280)

15. In Re Bailey; Ex parte Law v. Austin (1952) 16 ABC 80, at p 85 Clyne J. expressed the opinion, with which I respectfully agree, that the words had the same meaning in s. 96 of the 1924 Act, which dealt with the protection of certain payments against the doctrine of relation back, as does s. 123 of the present Act. In my opinion the words "in the ordinary course of business" in ss. 122 and 123 of the present Act have that same meaning. (at p280)

16. One of the two payments which were challenged in Bailey's case was received by a creditor as a result of his solicitor's demands and it was held that it could not be regarded as having been received in the ordinary course of business (see also Re Hoare; Commins v. I. & R. Spies Investments Pty. Ltd. (1972-1973) ALR 1134 ). (at p280)

17. I am satisfied that the payment here in question was received as a result of the letter of demand by the respondent's solicitors and that the respondent has failed to show that the payment was received in the ordinary course of business, within the meaning of s. 123. (at p280)

18. It is not necessary to consider the question whether the respondent was a payee in good faith within the meaning of that section, or the claim of the applicant based upon s. 122. (at p280)

19. The court declares that the payment of $4,000 made by the bankrupt to the respondent on 29th September, 1976, is void as against the applicant as trustee of the property of the bankrupt and orders that the respondent pay to the applicant the sum of $4,000 together with his costs of an incidental to the application, including reserved costs, such costs to be taxed if not agreed. Liberty to apply is reserved to either party. (at p280)

ORDER

Declaration and order accordingly.