Re La Rosa, F.C. & L.R. v Ex parte Norgard, R.S
[1989] FCA 316
•26 JUNE 1989
Re: FRANCESCO CANDELORO LA ROSA and LINDA ROBYN LA ROSA (Bankrupts) and
Ex Parte: ROSS STEWART NORGARD as Trustee in Bankruptcy of the Estate
And: RODPAT NOMINEES PTY LTD
No. 616 of 1988
FED No. 316
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
French J.(1)
CATCHWORDS
Bankruptcy - voluntary settlements - payment to third party - allegedly approved and supervised by major creditor - application by trustee to avoid settlement - whether estoppel or unconscionable conduct could be raised by settlee to confine benefit of recovery to minor creditors - transaction voidable not void - discretion by trustee - cases in which creditors may lose rights by conduct - whether estoppel by creditor may affect trustee - rule in Ex parte James - novel contentions - not untenable - application to strike out dismissed.
Bankruptcy Act 1966 sub-s.30(1)(b), s.56, s.120
Spencer Bower and Turner Estoppel by Representation 3rd Ed. at para.141
May on Fraudulent and Voluntary Dispositions of Property 2nd Ed. (1887) p 181
General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 90
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365
Meyers v Casey (1913) 17 CLR 90
Re: Trautwein; Richardson v Trautwein (1944) 14 ABC 61
Official Assignee v Khoo Saw Cheong (1913) AC 67
Storey v Lane (1981) 147 CLR 549
Price v Parsons (1936) 54 CLR 332
Driller v Smail (1968) VR 396
Re Hart Ex parte; Green (1912) 3 KB 6
Stapleford Collery Co. (Barrows' case) (1880) 14 Ch D 432
Re A Bankruptcy Notice (1924) 2 Ch D 76
Kok Hoong v Leong Cheong Kweng Mines Ltd (1964) AC 993
A.-G. of Victoria v Ettershank (1875) LR 6 PC 354
Davenport v R (1877) 3 App Cas 115
Re A disputed Adjudication (1860) 35 LT 449
Re Exchange Securities and Commodities Ltd (In Liquidation) (1988) 1 Ch 46
Ex parte James LR 9 Ch 609
Re Wigzell (1921) 2 KB 835
Re Thellusson Ex parte Abdy (1919) 2 KB 735
Re Richards Ex parte Lloyd (1936) 8 ABC 218
HEARING
PERTH
#DATE 26:6:1989
Counsel for the Applicant: Mr D. Ipp QC with Miss E. Henderson
Solicitors for the Applicant: Blake Dawson Waldron
Counsel for the Respondent: Dr. J.T. Schoombee
Solicitors for the Respondent: Bennett & Co.
Counsel for the Nominated Cross-Respondent: Mr H. McLernon
Solicitors for the Nominated Cross-Respondent: Robinson Cox
ORDER
The application to strike out paras. 12 and 13 of the amended defence is dismissed.
The applicant to pay the respondent's costs of the application to strike out to be taxed.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
On 26 August 1988, Francesco La Rosa and his wife, Linda, became bankrupt on their own petition presented under s.56 of the Bankruptcy Act 1966. Creditors' claims amount to $29,888,915 of which $29,635,000 is said to be owed to the Rural and Industries Bank of Western Australia. Prior to their bankruptcy the La Rosas had carried on in partnership two motor vehicle dealing businesses under the names G. & R. Auto Clean ("G. & R.") and Moor Motors ("Moor"). These proceedings are instituted by their trustee in bankruptcy. He seeks to recover from a motor vehicle trader, Rodpat Nominees Pty Ltd, payments totalling $2,842,500 made to it by G. & R. and Moor in April 1988. For these payments, it is said, constitute settlements of property by the bankrupts on Rodpat which were effected less than 2 years before the bankruptcy and were not made in favour of a purchaser or encumbrancer in good faith and for valuable consideration.
Rodpat is defending the claim partly on the basis that if there were a settlement the R. & I. Bank, which was closely involved in the impugned transactions, ought not to participate in the benefits of any recovery of moneys paid in those transactions and the amount of recovery should be limited to the sum necessary to satisfy the claims of other creditors and the costs of the bankruptcy attributable to them. The company has sought and been granted leave to amend its defence and seeks to file a cross-claim against the Bank. The trustee moves to strike out paras. 12 and 13 of the amended defence which under the alternative rubrics of unconscionable conduct and promissory estoppel, would limit the recovery as indicated.
Pleadings
(i) The Statement of ClaimIn the statement of claim it is alleged that the bankrupts were at all material times the proprietors of G. & R. and Moor. They were made bankrupt on presentation of their petition on 26 August and Ross Stewart Norgard became their trustee. Rodpat, it is said, carried on the business of a motor vehicle trader as Trustee for the Rod Ferguson Family Trust. The payments alleged to have given rise to the settlement, void by virtue of s.120 of the Act, are pleaded in paras. 7 and 8 and particularised in the first and second schedules to the amended statement of claim as follows:
First Schedule
Date Payments by Receipts by Net Amount G. & R. G. & R.
20 April
1988 $12,800,000 $12,000,000 $ 1,350,000 $ 1,500,000 $ 600,000 $14,150,000 $14,100,000 $ 50,000 Second Schedule
Date Payments by Receipts by Net Amount Moor Moor
20 April
1988 $12,000,000 $12,000,000 $ 1,500,000 $ 750,000 $ 542,500
$14,042,500 $12,750,000 $ 1,292,500 26 April
1988 $13,000,000 $11,700,000 $ 2,000,000 $ 1,800,000 $15,000,000 $13,500,000 $ 1,500,000 $ 2,792,500
On the dates set out in column 1 of the schedules, it is said that cheques for the amounts mentioned in column 2 were made out and delivered to Rodpat in exchange for cheques drawn by that company in the amounts specified in the third column. The net gain to Rodpat is shown in column 4. Rodpat, it is said, received the benefit of the transactions without being a purchaser or encumbrancer in good faith and for valuable consideration.
(ii) The Amended Defence
Most of the allegations in the statement of claim are admitted, including the crediting of the various cheques as set out in the first and second schedules. Otherwise the claim that the cheques were delivered to Rodpat in exchange for cheques in favour of G. & R. and Moor is denied (paras. 7 and 8). Rodpat does not admit receipt of any of the pleaded benefits and in any event denies that it was not a purchaser in good faith and for valuable consideration. Further, it contends that all transactions between the La Rosas and itself involving an exchange of cheques were performed as commercial transactions by Rodpat as a bona fide purchaser at Mr La Rosa's request to the advancement and advantage of the large scale and apparently successful business of the La Rosas (9(b)(i)).
This last contention, directed primarily to Rodpat's bona fides, is extensively particularised in the form of a narrative in numbered paragraphs. While not all of that narrative is relevant for present purposes, it is convenient to set out its essential elements. Between March and April 1988 it is said that Mr La Rosa in a series of transactions bought large stocks of motor vehicles from two motor auction houses in Perth, Australian Auto Auctions and Town Auto Auctions, "represented by" Mr Ferguson, the principal of Rodpat. These were resold to the same auction houses at a lower price. The transactions which involved the exchange of cheques are said to have been carried on with the "knowledge, consent, cooperation and under supervision of the Rural and Industries Bank of Western Australia" which was the La Rosas' banker. La Rosa is said to have impressed upon Ferguson that he and his wife had substantial funds and assets including, as at April 1988, stamped investment bonds held with the R. & I. Bank in the sum of $7 million. In April 1988 it is said that La Rosa purchased the two motor auction houses and in May produced bank cheques for $3.8 million and $2.6 million in payment of their purchase price.
The further contention is pleaded that valuable consideration was provided by Rodpat on the basis that by its cheques in favour of the bankrupts, it placed funds at their disposal on a short term basis which were used by them in their business dealings and in the operation of G. & R. and Moor. Mr La Rosa had, it is said, impressed upon Ferguson the need for the La Rosas "to create from time to time a debt situation in Australia so as to enable them to bring large sums of money available to them in Italy (Sicily) into Australia within the confines of exchange control regulation (sic) and the expediency of utilising the exchange of cheques to this end". The exchanges of cheques were all done in furtherance of that purpose. These allegations are further particularised.
The rationale for the transactions was allegedly described by La Rosa to Ferguson and also to the manager of the R. & I. Bank at Albany, Mr Dolling, early in March 1988 and again, in the case of Ferguson, at a meeting in mid April 1988 when sums of $80 to $100 million to come from Italy were mentioned.
Rodpat goes on by its defence to deny that the benefits said to have been received by it could constitute a settlement of property, pursuant to s.120 of the Bankruptcy Act "having been bestowed in the contemplation of the La Rosas and the Respondent for immediate disposal or consumption by the latter".
The first paragraph attacked by the applicant is para.12 which raises a plea of unconscionability based on the conduct of the R. & I. Bank. The R. & I. Bank, which was at all material times the banker to the La Rosas, is their major creditor, with a claim for $29,635,000 out of total creditors of $29,888,915. The impugned transactions are all said to have been carried out with its knowledge, consent, and co-operation and under its supervision. Particulars demonstrating its involvement or acquiescence are then set out. Further, it is pleaded that the Bank made representations to Ferguson to the following effect:
A. That the transactions in issue and each of them were valid and efficacious in all respects.
B. That the transactions in issue and each of them did not expose the respondent to financial risk.
C. Impliedly that the R. & I. Bank would not have recourse against the respondent for payment or recovery in respect of the sums of money involved in the transactions.
Particulars are given of each.
The representations, it is said, were made with the intention of inducing Rodpat to enter into the transactions and, alternatively, were made in circumstances where the R. & I. Bank, through its officers, knew that Rodpat would be so induced. (12(a)(iv)). And in 12(a)(v) it is said that Rodpat changed its position in reliance upon the representations by entering into the transactions and arranging its affairs on the basis that they were true and distributing receipts of the transactions to the beneficiaries of the Rod Ferguson Family Trust. Rodpat would therefore be detrimentally affected if the Bank were not precluded from asserting any claim contrary to the said representations and each of them. Reliance is also placed on the proposition that settlements avoided under s.120 of the Bankruptcy Act, are only avoided so far as is necessary to satisfy the debts of the bankrupts and to pay the costs of bankruptcy. The pleading then contends that the trustee acts in law as representative of the creditors of the bankrupt estate, including the Bank (12(b)(ii)). The Court ought not to allow the trustee as its officer, to insist upon a rule of law or equity in the administration of any estate under control of the Court where such insistence would produce an unjust or unconscionable result (12(b)(iii). In the premises it would be unjust and unconscionable for the Bank to participate or seek to participate in the proceeds of any payments that might be ordered to be made by Rodpat to the trustee (12(b)(iv). And the Court has a discretion in terms of s.30(1)(b) of the Act as to the remedy to be granted (12(b)(v)). In the event that the applicant establishes the case made out in the amended statement of claim, it is contended that Rodpat should not be ordered to repay any money in respect of any debt claimed by the R. & I. Bank against the trustee, but that it should only repay a sum representing the duly admitted debts of the creditors of the estate other than the Bank and the costs of the bankruptcy reasonably attributable to such creditors.
The same facts in essence are set up under para. 13 of the defence to support an estoppel against the Bank which it is said, binds the trustee who sues as representative of the creditors. The "equities and estoppels" arising by reason of the matters pleaded should be satisfied and upheld by ordering that any repayment by Rodpat to the trustee should not exceed a sum representing the duly admitted debts of creditors of the estate other than the bank and the costs of bankruptcy reasonably attributable to such creditors.
(iii) The Proposed Cross-ClaimThe cross-claim substantially relies upon the various matters pleaded in paras. 9, 12 and 13 of the defence and seeks the following relief:
1. A declaration that the cross-respondent is not entitled to participate in any shape or form in the proceeds of any moneys recovered by the applicant in the within proceedings.
2. An injunction restraining the cross-respondent from participating in any shape or form in the proceeds of any moneys recovered by the applicant in the within proceedings.
3. Further and/or alternative costs.
Statutory Framework
Section 120 of the Bankruptcy Act provides in the relevant parts:
"120(1) A settlement of property, whether made before or after the commencement of this Act, not being -
(a) a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or
(b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor, is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 2 years before, the commencement of the bankruptcy, void as against the trustee in bankruptcy. .
.
.
(7) Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired from the persons entitled to the benefit of the settlement, covenant or contract or from the trustee of the settlement the money or property the subject of the settlement, covenant or contract or an interest in that money or property.
(8) In this section, "settlement of property" includes any disposition of property."
Also relevant for present purposes is s.30 of the Act which provides, inter alia:
"30(1) The Court -
(a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part X or Part XI coming within the cognizance of the Court; and
(b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter. "
Principles Regulating the Strike-Out Application
These proceedings were instituted on 2 December 1988 by application supported by affidavit. The application was filed pursuant to r.102 of the Bankruptcy Rules. Those Rules make no express reference to the filing of pleadings. However it is provided by r.113 that where the Court is satisfied that the provisions of the Act and Rules relating to practice and procedure do not make provision with respect to the practice and procedure applicable in the circumstances of a particular case, the Court may give such directions with respect to the practice and procedure to be followed in that case as it considers necessary. Where, on an application such as the present there is a need to clearly define the issues, a circumstance exists in which the Court may direct the delivery of pleadings. And on 27 February 1989 directions were given that the application proceed on pleadings and that a statement of claim, defence and cross-claim and reply and defence to cross-claim be filed and served by the dates specified. A statement of claim and defence were filed pursuant to those directions and later amended. The most recent amendments to the defence were allowed without prejudice to the applicant's adjourned application to strike out certain parts of it. There is no specific provision in the rules for the striking out of pleadings or any part thereof, but I am satisfied that the Court is empowered by s.30 to say to a party that a particular proposition of law is untenable even if all facts relied upon to attract its application were to be proven. Further, in my view, it is empowered by the section to direct that a pleading invoking such a proposition should be struck out. As a matter of general principle, the Court in considering an application to summarily dismiss or dispose of a case or part thereof or to strike out part of a pleading, will apply the well established and restrictive criteria applicable in its wider civil jurisdiction. Those criteria are reflected in General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125 where, speaking of a motion to dismiss a claim on the basis that it disclosed no reasonable cause of action, Barwick CJ said at 129:
"...that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense"."
And those tests were supported by reference to the well-known passage in the judgment of Dixon J. in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 where it was said:
"A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process."
To require that a pleading be clearly untenable does not demand however that it be untenable at first glance:
"...I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." - per Barwick CJ (supra at p 130)
That a pleading involves novelty is a factor requiring caution in the application of the power to summarily strike it out. As Master Allen said in Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365 at 373:
"...a court at first instance should be particularly astute not to risk stifling the development of the law by summarily throwing out of court actions in respect of which there is a reasonable possibility that it will be found, in the development of the law, still embryonic, that a cause of action does lie. The risk of injustice to the plaintiff, which summary termination of his claim would entail, is real. One cannot predict, with firm assurance, what the future holds as the final formulation of the new development."
The same principles apply to novel propositions which arise in pleadings by way of defence.
The Attack on the Amended Defence
Consistently with the principles just outlined, it is neither necessary nor desirable that the Court should express any concluded view on those paragraphs of the defence which are impugned other than that they are tenable or not.
Paragraph 12 of the amended defence as already paraphrased, concludes with the proposition that in view of the Bank's conduct and involvement in the transaction, it would be unjust or unconscionable to participate in the proceeds of payment which Rodpat might be obliged to make to the trustee. The plea, if it is to succeed, requires that the Court, having found the transactions in question to amount to a settlement, should only direct payment to the trustee of sufficient of the moneys to meet the claims of creditors other than the Bank and to pay the costs of the bankruptcy (or, on the respondent's contention, such amount as can be attributed to the other creditors). It would also, it seems to me, necessarily involve the Court directing the trustee as to the application of any moneys so recovered so that it would not be available to meet the Bank's debt. This does not involve any attack on the Bank's claim that it is owed $29,635,000. The argument advanced by the applicant that the defences raised in paras.12 and 13 effectively impugn the Bank's entitlement to prove in respect of the full amount due to it, does not address the issues as formulated in those paragraphs. They do not involve or provide support for any proposition that the Bank is not entitled to prove in the estate as a creditor to the extent of the full amount owing to it. They do raise the issue whether the Bank should be entitled to benefit from any recovery of moneys paid by the bankrupts to Rodpat in 1988.
It is necessary to assume for the sake of argument that the transactions in question constituted a settlement or settlements in favour of Rodpat and subject to the avoidance provisions of s.120. Counsel for the trustee submitted that to establish a settlement avoidable under s.120, it would be necessary to show that the transactions were not made in favour of a purchaser or encumbrancer in good faith and that they were not made for valuable consideration. Thus, it was said, the assumption on which para.12 was pleaded was that the transactions were, from Rodpat's standpoint, made neither in good faith nor for valuable consideration. On this assumed factual substratrum no plea of unconscionability could be sustained for "no court of equity will aid a man to derive advantage from his own wrong" - Meyers v Casey (1913) 17 CLR 90, 124 (Isaacs J.).
Accepting that the onus of proving that the settlement is not exempted by para.(a) of s.120 rests on the trustee, the language of the section does not require that he do more than negative one or other of good faith or valuable consideration. Counsel claims support for a contrary view in Re: Trautwein; Richardson v Trautwein (1944) 14 ABC 61; (affd. on appeal to High Court (1946) ALR 129). The Argus Law Report of the High Court decision in this case gives no support for the proposition. The judgment of Clyne J. at first instance contains the following passage at p 75 relating to the operation of s.94 of the Bankruptcy Act 1924, the predecessor of s.120:
"...The onus is upon the trustee to prove that a settlement which he seeks to set aside was not made in good faith and for valuable consideration."
And the learned Judge cited in support of that proposition Official Assignee v Khoo Saw Cheong (1931) AC 67. But neither the passage quoted nor the judgment of the Privy Council required that the trustee must negative both elements of the exemption in order to defeat its operation. In my view the "and" linking "good faith" and "for valuable consideration" in s.120(a), is conjunctive not disjunctive and the absence of either factor precludes the operation of the exemption.
The trustee then contends that the Bankruptcy Act 1966 contains a legislative scheme for the recovery of the bankrupt's assets and their distribution to proved creditors (see ss.58, 82, 116, 120, 121, 122, 129 and 140) and that s.120 is part of that scheme. The trustee's right to recover, it is said, is statutory and not dependent in any way on the bankrupt's conduct. This submission leads to the proposition that no estoppel can be raised against the exercise of that right by the conduct of the bankrupt and a fortiori cannot be raised by the conduct of a creditor or creditors.
It can be accepted that the Act expresses the policy of the modern system of bankruptcy law "that provision is made for the appropriation of the assets of the debtor and their equitable distribution amongst his creditors, and for the discharge of the debtor from future liability for his existing debts" - Storey v Lane (1981) 147 CLR 549, 556 (Gibbs CJ., Mason, Wilson and Brennan JJ agreeing). But that general policy and the legislative scheme referred to do not set up a code or rigid boundaries which would prevent the Court in the exercise of its jurisdiction under the Act from giving effect to legal or equitable rights arising outside the framework of the Act but not inconsistent with its terms.
Sub-section 30(1)(a), like its statutory predecessor in s.25(1) of the Bankruptcy Act 1924, is a source of jurisdiction - Price v Parsons (1936) 54 CLR 332, 354 (Rich, Dixon and McTiernan JJ); Driller v Smail (1968) VR 396, 401 (Smith J.). Despite language narrower than its English counterpart, s.25(1) was construed as widely - Driller v Smail (supra) at 401. Sub-section 30(1) is in terms significantly wider than sub-s.25(1) dispensing as it does with the apparent condition on the exercise of jurisdiction under s.25 that the Court deems "it expedient or necessary to decide" the question "for the purpose of doing complete justice or making a complete realization and distribution of property in the case".
The jurisdiction conferred by sub-s.30(1) enables the Court to decide "all questions, whether of law or fact, in any case of bankruptcy or any matter under Part X or Part XI coming within the cognizance of the Court". The Court has authority therefore to decide questions arising at law or equity provided they arise in a case of bankruptcy or otherwise in a matter of the kind to which the sub-section refers. Sub-section 30(2) on the other hand, confers powers to be exercised by the Court in aid of its jurisdiction whether derived from sub-s.(1) or otherwise under the Act. The question whether issues of unconscionability or estoppel properly arise in the exercise of the Court's jurisdiction to decide issues in cases of bankruptcy will turn on the construction of the applicable provisions of the Act.
In this case the relevant provision is s.120. The constructional issue thrown up by the attack on paras. 12 and 13 of the amended defence is whether the trustee's rights of recovery can, consistently with the provisions of the section, be affected by a consideration of whether their full exercise would be unconscionable or consistent with an estoppel raised by conduct of a creditor or creditors.
Section 120 it is to be noted, does not render illegal the transactions it affects. Nor does it automatically avoid them or vest the settled property in the trustee. Its effect, like that of its English ancestor, s.47 of the Bankruptcy Act 1883, is to render the settlement voidable at the option of the trustee, who it is said, must apply to the Court for a declaration to that effect and for consequential relief - Re Hart Ex parte Green (1912) 3 KB 6, 10 (Cozens-Hardy MR), 12 (Buckley LJ). Nor does the entitlement to avoid exclude equities in favour of third parties:
"...every equity which has been acquired before the act of bankruptcy, which is the beginning of the bankruptcy, is to be respected, and is not in any way hit or interferred with by s.47" - In Re Carter and Kenderdines Contract (1897) 1 Ch 776, 784 Rigby LJ.
So far as the estoppel plea is concerned the trustee objects on general principles that the doctrine cannot be invoked to render valid a transaction which the legislature has on grounds of general public policy enacted is to be invalid. And in that connection reliance is placed upon the Stapleford Collery Co. (Barrows' case) (1880) 14 ChD 432; Re A Bankruptcy Notice (1924) 2 ChD 76 and Kok Hoong v Leong Cheong Kweng Mines Ltd (1964) AC 993. But in my respectful opinion none of these decisions is on point in the present case. In Barrow's case the Court rejected a submission that an estoppel could overcome the operation of s.25 of the Companies Act 1867. The section required all shares to be held "subject to the payment of the whole amount thereof in cash, unless the same shall been otherwise determined by a contract duly made in writing and filed with the Registrar of Joint Stock Companies at or before the issue of such shares". It was argued that in spite of the failure to file the relevant contract an estoppel had been raised. As to that Bacon VC said at 441:
"But the doctrine of estoppel cannot be applied to an Act of Parliament. Estoppel only applies to a contract inter partes, and it is not competent tor parties to a contract to estop themselves or anybody else in the face of an Act of Parliament."
In that case however, the position sought to be achieved by t he estoppel plea was inconsistent with the operation of the statute which could not be defeated by it.
Re A Bankruptcy Notice (1924) 2 ChD 76, was a case in which a number of creditors agreed to the dismissal of their bankruptcy petitions on the basis of an agreement signed by the debtor under which he assigned his property to trustees for the benefit of the creditors. The deed was not registered under the Deeds of Arrangement Act 1914 and was therefore void. The assent to the deed by the debtor and his creditors raised no estoppel as all knew the instrument to be invalid. No question of estoppel could therefore arise. And in Kok Hoong v Leong Cheong Kweng Mines Ltd (supra) there was a question whether a default judgment obtained by a plaintiff said to be a moneylender could raise an estoppel against a plea by the defendants that he had failed to comply with certain requirements of the Money Lenders Ordinance (1951) (Malaya). The Privy Council held that no estoppel could be used against such statutes as the Ordinance and the Bills of Sale Act and observed at 1016:
"In their Lordships' opinion, a more direct test to apply in any case such as the present, where the laws of moneylending or monetary security are involved, is to ask whether the law that confronts the estoppel can be seen to represent a social policy to which the court must give effect in the interests of the public generally or some section of the public, despite any rules of evidence as between themselves that the parties may have created by their conduct or otherwise. Thus the laws of gaming or usury...override an estoppel: so do the provisions of the Rent Restriction Acts with regard to orders for possession of controlled tenancies."
Here the trustee has a discretion. The transaction is voidable not void. In that regard it is helpful to consider the discussion of this question in Spencer Bower and Turner Estoppel by Representation 3rd Ed. at para.141 where it is said:
"...it is well established that it is impossible in law to suggest any principle which will preclude a party from alleging the invalidity of that which a statute has, on grounds of general public policy, enacted shall be invalid.
On the other hand the affirmative answer fails, and the estoppel is not defeated, where the transaction in controversy is one which the legislature has not rendered absolutely illegal or void, but only voidable..."
And in that regard the learned authors make reference to A.-G. of Victoria v Ettershank (1875) LR 6 PC 354 at 368; Davenport v R (1877) 3 App Cas 115 at pp 128-130.
There is authority for the proposition that creditors can by their conduct affect their rights under insolvency legislation. The second edition of May on Fraudulent and Voluntary Dispositions of Property says at p 181:
"Creditors may, under certain circumstances, lose their rights under the statute; they may be barred by acquiescence in a transaction which they might otherwise have avoided, and even mere notice of it will sometimes have the same effect....In the same way a creditor who has been a party or privy to an assignment, or who has acted in any way which would be equivalent to an assent, recognition, or approval of it, cannot set it up as an act of bankruptcy; nor can any person who claims through such creditor."
In Re A Disputed Adjudication (1860) 35 LT 449, Mr Commissioner Holroyd annulled an adjudication in bankruptcy where the petitioning creditor had verbally assented to the terms and provisions of a deed of assignment.
The trustee stands in certain respects as representative of the unsecured creditors. The proposition that, in the exercise of a statutory discretion for their benefit, he may be bound by an estoppel generated by one or more of them is not so obviously untenable as to justify its dismissal prior to a fuller consideration in the light of the evidence. In so saying I have due regard to the recent decision of Harman J. in Re Exchange Securities and Commodities Ltd (In Liquidation) (1988) 1 Ch 46 where his Honour held the liquidators of certain companies not to be estopped by representations in monthly reports raised by the companies. The plea of estoppel so far as it goes may be vulnerable to attack for lack of clarity, but that is a question best left to argument when the evidence is in. It does not merit the summary dismissal of the plea. There will be scope for considerable debate about the way in which the power of the Court under sub-s.30(1)(b) could be exercised to give effect to the estoppel alleged to have arisen as between Rodpat and the R. & I. Bank. Again, the fact that there may be scope for a debate on relief is not a basis for striking out the plea.
The assertion in para.12 that it would be unjust and unconscionable for the Bank to participate in the proceeds of any payment to be made by Rodpat to the trustee appears to rely in large part on the principle in Ex parte James LR 9 Ch 609 where it was said:
"A trustee in bankruptcy is an officer of the Court -- The Court, then, finding that he has in his hands money which in equity belongs to some one else, ought to set an example to the world by paying it to the person really entitled to it. In my opinion the Court of Bankruptcy ought to be as honest as other people."
The case concerned a loan made in ignorance to a debtor after he had been the subject of a receiving order. The Court ordered the trustee to repay the money to the lender. Although the Court of Appeal in Re Wigzell (1921) 2 KB 835 had obvious difficulty with a principle based on such debatable concepts as rules of honesty, it accepted that the principle was still good law - see also Re Thellusson Ex parte Abdy (1919) 2 KB 735 and Re Richards Ex parte Lloyd (1936) 8 ABC 218, 233.
As with the case of the estoppel plea, there are obvious questions that arise in connection with the extent to which the trustee's position is affected by the conduct of the relevant creditor and the nature of the relief that may be awarded to reflect the basis of the defence if it turns out to be successful. In my opinion, however, the door is open to the unconscionability argument apparent from para.12 of the amended defence and that it cannot said to be so clearly untenable that it ought to be struck out. For these reasons the application to strike out paras. 12 and 13 of the amended defence will be dismissed.
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