Re Puntoriero, F.A. & anor; Ex Parte; Gagie, R.A. v Nickpack Pty Ltd
[1992] FCA 358
•03 JUNE 1992
Re: FERDINANDO ANTONIO PUNTORIERO and TONETTA PUNTORIER
Ex Parte: NICKPACK PTY. LIMITED
And: RICHARD ANDREW GAGIE
No. G725 of 1991
FED No. 358
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
Beaumont(1), Wilcox(1) and O'Loughlin(1) JJ.
CATCHWORDS
Bankruptcy - Deed of Assignment - s.122 Bankruptcy Act 1966 - preferential payments - equitable assignments - intention of parties - construction of agreement - absolute assignment and assignment by way of charge.
HEARING
SYDNEY
#DATE 3:6:1992
Counsel for the Appellant : Ms. C. Needham
Solicitors for the Appellant : P.A. Somerset and Co.
Counsel for the Respondent : Mr R. Bainton
Solicitors for the Respondent: Owen Hodge and Son
ORDER
THE COURT ORDERS:
1. That the appeal be dismissed.
2. That the appellant pay the respondent's cost of the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
This appeal, from a single Judge of this Court, questions whether certain payments were preferences within the meaning of s.122 of the Bankruptcy Act, 1966 (Cth) ("the Act") or whether, as the learned trial Judge found, they were made as a consequence of an equitable assignment of a future chose in action and in circumstances that protected them from the provisions of that section.
At a meeting of their creditors that was duly convened and held on 22 March 1989, Ferdinando Antonio Puntoriero and his wife Tonetta Puntoriero ("the debtors") were required to execute a Deed of Assignment pursuant to the provisions of Part X of the Act; they each executed the requisite Deed on the following day. The appellant, Richard Andrew Gagie, is the trustee of their assigned estates.
Sub-section 122(1) provides:
"A conveyance or transfer of property, a charge on property, or a payment made, or an obligation incurred by a person who is unable to pay his debts as they become due from his own money (in this section referred to as "the debtor"), in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors, being a conveyance, transfer, charge, payment or obligation executed, made or incurred:
(a) within 6 months before the presentation of a petition on which, or by virtue of the presentation of which, the debtor becomes a bankrupt; or
(b) on or after the day on which the petition on which, or by virtue of presentation of which, the debtor becomes a bankrupt is presented and before the say on which the debtor becomes a bankrupt;
is void as against the trustee in the bankruptcy."
Section 122 of the Act applies in relation to a deed of assignment as if a creditor's petition had been presented against the debtor by whom the deed was executed on the day on which the creditors' special resolution requiring the execution of the deed was passed (s.231).
During October 1988, that is, within the six month period, four payments totalling $100,000.00 were paid on behalf of the debtors to their creditor, the respondent. In the following month a further $100,000 was deposited on the debtors' behalf with a Building Society to the credit of the respondent. These are the challenged payments and the complex facts that preceded them must now be examined.
For some years the debtors had carried on business as market gardeners in rural New South Wales. Their main crop had been potatoes and from 1984 until 1988, the respondent, Nickpack Pty. Ltd, of which Nicholas Moraitis was the principal officer, had been a purchaser of their produce. It was Nickpack's case that it was, by agreement, the exclusive purchaser of the debtors' produce but they denied that claim. For the purposes of this appeal it is not necessary to examine the history of the dealings between the debtors and Nickpack in order to determine whether there was any exclusivity. It is sufficient to acknowledge that the debtors had, from time to time, sold some (at least) of their produce to Nickpack and that, based on this relationship, Nickpack had lent the debtors moneys from time to time to enable them to meet their farming and other expenses. These loans were to be repaid by Nickpack deducting appropriate amounts from the proceeds of the sales of produce that would otherwise have been paid by it to the debtors. The extent of that indebtedness is now disputed but Nickpack has claimed that by 1988 it had amounted to $218,802.68.
On 11 April 1988, the debtors entered into a written agreement with Anthony Ianelli as a consequence of which they agreed to sell Mr Ianelli the "potato crops now growing on the two farms" that were there identified. Nickpack, in due course, became aware of the debtors' change of produce merchant. Claiming that the arrangement with Mr Ianelli was a breach of its agreement whereby it was the exclusive purchaser of the debtors' produce, Nickpack, on 18 July 1988, instituted proceedings in the Equity Division of the Supreme Court of New South Wales ("the Equity Court"). In those proceedings, which named both the debtors and Mr Ianelli as defendants, Nickpack sought and on 29 July 1988 obtained injunctive relief. The material section of the order of the Equity Court was as follows:
"The Court orders that until further order -
1. The defendants and each of them be restrained from selling or taking any further steps to complete the sale of or from delivering any potatoes grown by the First and Second Defendants on the property known as 'Yamba', Farm 1715 Narrandera Road, Yanco or anywhere whatsoever to any person, firm or company, other than by or through the Plaintiff.
..."
The first and second defendants were, of course, the debtors and the plaintiff was Nickpack. Certain aspects of this order need to be emphasised as they will have a material effect in determining the outcome of these proceedings. First, Mr Ianelli was one of the defendants; thus he was restrained from selling those potatoes on hand (if any) that he had already purchased from the debtors prior to the date of the making of the order. Secondly, the debtors were restrained from selling any further potatoes to Mr Ianelli - they could only sell to or through Nickpack. Thus, whilst the order remained in force, Mr Ianelli was unable to buy any more potatoes from the debtors and was unable to sell those that remained on hand. However, subsequent negotiations between the parties led to a material variation of the Court's order of 29 July 1988. Based on certain undertakings that the debtors and Mr Ianelli gave to the Court, the order was varied to allow the debtors to sell their potatoes either through or to Nickpack or through or to Mr Ianelli. The undertakings so given are contained in the order of the Equity Court of 15 August 1988, the material parts of which read as follows:
"Upon the defendants and each of them by their solicitor and counsel respectively undertaking to the court that any monies received by any or all of them from any person, firm or corporation in respect of the potatoes grown by the first and second defendants (shall) be applied in the following manner:
(i) Up to $70.00 per tonne may be used to pay freight, insurance and ordinary selling expenses if incurred;
(ii) After the payment of any expenses referred to in paragraph 1 up to $70.00 per tonne, the first $100,000.00 to be paid to the plaintiff forthwith;
(iii) The next $100,000.00 to be paid into an account with the St. George Building Society its head office at Hurstville in the joint names of the solicitors for each of the parties and to be held together with any interest accruing on such monies in such account on trust for the plaintiff until the determination of these proceedings or further order;
(iv) After the payments have been made in accordance with sub-paragraphs (i), (ii) and (iii), the balance to be applied in such manner as may be agreed between the First, Second and Third Defendants.
The court orders that:
"Until further order the defendants and each of them be restrained from selling or taking any further steps to complete the sale of or from delivering any potatoes grown by the First and Second Defendants on the property known as 'Yamba' Farm 1715 Narrandera Road, Yanco or anywhere whatsoever to any person, firm or company other than by or through the plaintiff or to by or through the Third Defendant."
A comparison of the substantive section of this order shows that it is the same as the earlier order of 29 July 1988 save for the addition of the important words at the end - "or to by or through the Third Defendant" (i.e. Mr Ianelli). It is also a matter of significance that Mr Ianelli, in his capacity as a defendant gave, through his counsel, his undertaking to the Court. This undertaking, so far as it applied to Mr Ianelli was to the effect that any moneys received by him in respect of potatoes grown by the debtors would be applied by him in accordance with the terms of the undertaking. It is obvious that the debtors and Mr Ianelli were prepared to give their respective undertaking in consideration of Nickpack agreeing to the material variation to the earlier order of the Court; by virtue of that variation the debtors could sell their potatoes to Mr Ianelli who, in turn, could sell those potatoes that he had already purchased and make further purchases from the debtors.
It can easily be inferred that the order of the Equity Court of 15 August 1988 was, in turn, the manifestation of an agreement that had been struck between Nickpack, Mr Ianelli and the debtors. So much is clear from the document entitled "Short Minutes of Order" dated 12 August 1988. That document, although materially different in form is, in substance and effect, the same as the order of 15 August 1988; it bears the signatures of counsel for Nickpack, the solicitor for the debtors and counsel for Mr Ianelli and it obviously represents and was intended to represent the bargain that the parties reached on or about 12 August 1988. That bargain can be expressed shortly - and in neutral terms - in this fashion: in return for the undertakings that all three defendants were prepared to give, Nickpack would agree to the earlier order being varied so that the debtors could sell their potatoes to or through Mr Ianelli.
The argument that was advanced by the appellant-trustee that the Short Minutes did not constitute any agreement between Nickpack, Mr Ianelli and the debtors must be rejected. This argument emphasised (as was the fact) that all undertakings were in the form of undertakings to the Court - not merely undertakings inter parties. It is of course true that, as a matter of drafting technique, the "Short Minutes" of 12 August 1988 and the formal Order of 15 August 1988 could have included like undertakings between the parties; but their absence does not mean conclusively that no such undertakings were given or that no bargain was struck between the parties. In fact, common sense dictates that there must have been such a bargain, otherwise how is one to explain the existence of the Order of 15 August 1988 and its contents?
To express the parties' bargain in more assertive terms, one would be entitled to add that Nickpack's willingness to let Mr Ianelli buy the debtors' potatoes was conditional on the separate sums of $100,000.00 being paid in the agreed manner and further conditional on the promises of the debtors and Mr Ianelli to pay those sums being reinforced by being converted into undertakings to the Court.
Having concluded that the parties did in fact enter into an agreement on or about 12 August 1988, the next question is the proper classification of that agreement. Did it amount to an equitable assignment by the debtors of their potato crops (or of the proceeds of or of some of the proceeds of the sale thereof) in favour of Nickpack? Before addressing that question in detail, other relevant findings of fact of the learned trial Judge should first be summarised.
The debtors sold the whole of their 1988 winter crop of potatoes to Mr Iannelli through a series of deliveries that produced credits in their favour totalling $176,084.00. From this Mr Iannelli made the following payments to Nickpack:
10.10.88 $17,884.00 16.10.88 $47,732.00 25.10.88 $ 9,468.00 28.10.88 $24,916.00 $100,000.00
In addition, during November 1988 Mr Iannelli deposited $100,000.00 with the St. George Building Society. Of this amount, $76,084.00 represented the balance of the proceeds of the winter crop of potatoes and $23,916.00 was by way of a personal loan by Mr Iannelli to the debtors. Thus all payments that were made on behalf of the debtors were made within the relevant 6 month period. As to the figure of $23,916.00 the learned trial Judge made the following findings:
"A further $23,916, making up the required $100,000, was also paid into the building society account by Iannelli by way of a loan against the Puntorieros' summer crop. This crop (together with the proceeds of the sale of some pumpkins and onions), realised $198,078, more than sufficient to repay Iannelli for his loan. The balance appears to have gone to the Puntorieros or at their direction."
This finding was obviously based upon the evidence of Mr Puntoriero who, in his affidavit sworn on 12 December 1990 deposed as follows:
"Mr Ianelli said to me: 'You haven't got enough to pay the $200,000.00 to Nickpack from the sale of the winter crop. What do you want to do about it?' I said: 'There's the summer crop that's in the ground. It'll be ready for harvest in a month or so. Can you lend me the balance of the $200,000.00 to pay off Nickpack and you can repay yourself out of the proceeds of the summer crop?' He said: 'O.K.'. All of the summer crop was sold by Mr Ianelli."
The information that was before the Court concerning the proceeds of the debtors' winter and summer crops was summarised in two statements of account (presumably prepared by Mr Ianelli) entitled "Purchases from Puntoriero Produce" for the periods 10 July 1988 to 28 September 1988 and 10 December 1988 to 21 January 1989 respectively: (Exs H and I to the affidavit of Mr Puntoriero sworn on 12 December 1990). Before considering their contents, two observations should be made: first the Equity Court's order of 15 August 1988 related to all potatoes grown by the debtors; it was not limited to the 1988 winter crop. That Order and the preceding agreement between the parties had equal application to potato crops that were subsequent to the 1988 winter crop; secondly, the Equity Court's order did not extend to pumpkins or onions or other lines of produce or their proceeds of sale; it was limited to potatoes. The first statement (for the winter crop) contains a series of the dates, invoice numbers, weights and values. The values form a running total that amount to $176,084.00. Although the word "potatoes" does not appear in this statement it is quite clear that it reflects the sales by the debtors of their winter crop of potatoes to Mr Ianelli. The first 11 invoices, totalling $36,996.00 preceded the 29 July 1988, the date of the first restraining order. The next (the 12th) invoice was dated 14 August 1988; it and all remaining invoices bar the last three are subsequent to the date of the "Short Minutes" (12 August) but precede the commencement of the six month period. The last three invoices were dated 24, 27 and 28 September 1988 and amounted to $8,812.00.
A subsidiary argument that was advanced by the appellant was that, if all else failed, the appellant must recover the last mentioned sum of $8,812.00 by reason of the fact that these invoices were raised (and presumably the relevant sales of potatoes were made) within 6 months of the creditor's resolution that the debtors execute a Deed of Assignment. But such a proposition cannot possibly be right. If the events that occurred on or about 12 August 1988 amounted to an equitable assignment then, it being clear that there was consideration passing, the assignment of future property will be treated for all purposes as having come into effect when the agreement for assignment was made - not when the future property came into existence: In re Lind; Industrials Finance Syndicate Limited v Lind (1915) 2 Ch 345. In that case Swinfen Eady L.J. said at 360:
"It is clear from these authorities that an assignment for value of future property actually binds the property itself directly it is acquired - automatically on the happening of the event, and without any further act on the part of the assignor - and does not merely rest in, and amount to, a right in contract, giving rise to an action. The assignor, having received the consideration, becomes in equity, on the happening of the event, trustee for the assignee of the property devolving upon or acquired by him, and which he had previously sold and been paid for."
As Latham C.J. held in Palette Shoes Pty Ltd (in liquidation) v Krohn (1937) 58 CLR 1 at 14-15:
"... in such circumstances, the beneficial interest in the moneys, when received by the company, belonged to the plaintiffs and never to the company and... the company held the moneys in trust for the plaintiffs."
There are numerous examples of transactions that take place within the six month period which are immune from attack at the suit of the trustee. Burns v Stapleton (1959) 102 CLR 97 is a typical example. In that case, there was an oral agreement between the creditor and the debtor under which the creditor made a contemporaneous loan to and also sold some cattle on credit to the debtor; although it was an express term of the agreement that the debtor would give security by way of mortgages over his farms, some weeks passed before the mortgages were executed. Both the oral agreement and the execution of the mortgages occurred within the six month period. The High Court held that the relevant date for the purpose of determining the rights of the creditor was the date when the agreement was made and not when the mortgage was executed; at that date the moneys lent and the sale of the cattle were contemporaneous transactions and were therefore protected. Upon that line of authority it will not be a matter of concern that some of the invoices were raised within the six month period if the agreement which affected those invoices came into existence at a time and in circumstances which rendered the agreement immune from attack at the suit of the trustee in bankruptcy. In other words, if on 12 August 1988 - more than 6 months before the resolution for the execution of the Deed of Assignment - the debtors effectively executed an equitable assignment of property, either by way of charge or absolutely, the fact that an aspect of that lawful assignment was not concluded until the six month period had commenced to run will not, without more, strike down that aspect of the transaction.
The Statement of Account (Ex.I) established that the amount owing by Mr Ianelli to the debtors in respect of his purchase of their summer crop of potatoes was $135,058.00 - an amount well in excess of the $23,916.00 that Mr Ianelli advanced on behalf of the debtors. Although not expressly stated by his Honour in his reasons, a reading of the evidence and his judgment leads to the inference that Mr Ianelli protected himself by deducting the amount of $23,916.00 out of the summer crop; thereafter as his Honour said "(t)he balance appears to have gone to the Puntorieros or at their direction".
Thus it would seem that the fact that Mr Ianelli was originally the source of the advance of $23,916.00 is a matter of no consequence. That sum was, if not on the date when he made the advance, then on the date when he repaid himself, a payment made on behalf of the debtors within six months of the creditors' resolution that required the debtors to execute a Deed of Assignment. In other words the fate of the payment of $23,916.00 will be the same as that of the other payments, all of which were made within the same six month period. On the other hand, the Order of the Equity Court that led to the making of those payments and the agreement between the parties that led to the making of that Order were dated 15 and 12 August 1988 respectively and were therefore outside the six month period.
Agreements between debtors and their creditors relating to the payment of debts presently owing out of future moneys can, in appropriate circumstances, amount to equitable assignments which may either be by way of charge or absolute. As the Privy Council said in Elders Ltd v Bank of New Zealand (No.2) (1990) 3 WLR 1478 at 1483:
"The simplest form of an equitable assignment of a debt is an agreement by a debtor with a creditor that a debt due or to become due to the debtor from a third party shall be paid by the third party to the creditor."
The proper classification of the bargain that is struck between a debtor and his creditor is determined by ascertaining the intention of the parties at the time when they made their agreement: (Muntz v Smail (1909) 8 CLR 262 at 276 per Griffith C.J.). In that case the plaintiff, Muntz, the trustee of the insolvent estate of one Eyles instituted proceedings against the defendant Smail, seeking to impeach a transaction by which Smail, having sold certain cattle for Eyles, received and retained the proceeds. Smail's claim was that he had lent Eyles the money to purchase the cattle on condition that the cattle would not be resold without his consent and that when they were sold he would be repaid out of the proceeds of sale. It was contended that such an agreement, made before Eyles purchased the cattle, amounted in law to an equitable assignment of the moneys to be realised by their subsequent sale. In rejecting this argument the learned Chief Justice said that a review of the evidence failed to establish the requisite intention to assign. He concluded:
"It appears to me that the agreement to effect sales through the respondent was a mere collateral agreement. Although performance of it would have given the respondent the opportunity of protecting himself against loss by relating the purchase money of the cattle when passing through his hands, I do not find anything to suggest that the idea of assigning the future purchase money itself was present to the mind of their party."
In In the Matter of McConnell (1912) VLR 102, the creditor was able to defeat the claim of the trustee in Bankruptcy because the Full Court regarded him as a payee in good faith and for valuable consideration; but his argument that he was the assignee of an equitable assignment was unsuccessful. The creditor, a stock and station agent, lent the debtor moneys on the express condition that the debtor would sell his livestock through the agency of the creditor. The sale duly took place and the creditor deducted what was owing to him from the proceeds of sale. The written authorization that contained the debtor's undertaking to give the creditor "the sole conduct of my clearing sale" was classified by Madden C.J. as "an agency coupled with an interest".
Another example of an unsuccessful attempt to establish an equitable assignment was Carey v Palmer (1924) 34 CLR 380: (on appeal to the Privy Council Palmer v Carey (1926) AC 703).
In 1917 the respondent (the lender) agreed to advance money to the bankrupt so that he could purchase goods in order to carry on his importing business. The material term in the written agreement required the borrower to sell his goods as soon as possible and to pay the proceeds of sale into the lender's bank account. The respondent being in possession of moneys emanating from the bankrupt at the time of his bankruptcy in 1921 sought to retain them, claiming that the 1917 agreement constituted an equitable assignment of the proceeds of the sale of the bankrupt's goods. In the High Court Knox C.J. in his minority judgment had said at p 388:-
"The words of the agreement on which the appellant relies are apt to express a contract by the bankrupt to apply the money in the purchase of goods, to sell those goods, and to pay the proceeds of the sale into the appellant's bank account, but I can see nothing in them to indicate that the intention was to assign any interest in goods purchased by the bankrupt or to create either a charge over or a trust of such goods in favour of the appellant."
In the Privy Council, their Lordships agreed with the conclusion of the learned Chief Justice, by saying at p 707 that they failed "to find in the agreement any provision creating, contractually or otherwise, any right of property in either the goods or the proceeds of sale of the goods".
In Re Kelly; ex parte Young (1932) 4 ABC 258, the bankrupt had given to his stock agent a written authority to sell his wool and credit the proceeds to his account in partial satisfaction of his debt. In rejecting the argument that the authority amounted to an equitable assignment of the proceeds of the sale of the wool Lukin J. said at p 264:
"At the most it was an authority from the debtor to the company to pay to his credit in their account in the ordinary course of their business as theretofore had been done in accordance with a well-organised practice of stock and station agents referred to above."
The transaction that took place in August 1988 involving the debtors and Nickpack was peculiar in that it included Mr Ianelli as an integral member; his presence immediately distinguishes the simple debtor/creditor relationship that existed in the cases that have earlier been reviewed in these reasons. If the August transaction had been limited to the debtors and Nickpack one might have said that it was, at the most, a bi-partite arrangement whereby the debtors made a promise to pay their creditor out of the proceeds of the future sales of their potatoes and that they supported those promises by repeating them as undertakings to the Court. In that case, the transaction might have suffered the same fate as that in Muntz v Smail and the other cases to which reference has already been made. But the presence of Mr Ianelli, the third party, adds a new dimension to the arrangement. Elders Ltd. v Bank of New Zealand (supra) shows that the involvement of a third party (in that case, a deemed involvement by force of Statute) in a conventional arrangement between a debtor and his creditor can materially assist in coming to the conclusion that there was an intention to assign. In that case, the debtor executed a stock mortgage in favour of the plaintiff Bank. A provision in the security, clause 15, required that "all moneys payable in respect of the sale of any of the said stock... shall be paid to the bank". The defendant, Elders Ltd, a stock agent,sold some of the mortgaged stock and, having received the net proceeds of sale from the purchaser, retained it in satisfaction of moneys owing to it by the debtor. The Bank sued for the net proceeds claiming that clause 15 created an equitable assignment to the Bank by way of charge over the price payable by a purchaser of any of the livestock. The defendant was deemed to know of the stock mortgage and its contents by virtue of the provisions of the relevant New Zealand legislation. The Privy Council had no difficulty in classifying clause 15 as an equitable assignment.
Lord Templeman in delivering the advice of the Council said at pp 1480-1481:
"In the present case clause 15 gives to understand that the future proceeds of sale of mortgaged stock shall be made over by the grantor, to some third party, the bank. A promise by a debtor to a creditor that a sum owed or which will or may become due to the debtor from a third party shall be paid to the creditor by the third party is a clear is given for valuable consideration, in this case the grant of loan facilities to the grantor by the bank, and particularly where the debt assigned arises out of a disposition of property mortgaged to the creditor. Clause 15 contains an equitable assignment by way of charge of a future chose in action, namely the right of the grantor to receive from the purchaser the proceeds of sale of mortgaged stock sold to the purchaser. Clause 15 shows an intention that as the stock sold ceases to be charged to the bank, so the charge attaches to the proceeds of sale of that stock."
In the subject appeal there was also a promise by debtors (the Puntorieros) to their creditor (Nickpack) that sums of money then owed and which will or may become due to the Puntorieros from a third party (Mr Ianelli) shall be paid to the creditor (Nickpack) by the third party (Mr Ianelli). As the Privy Council said this "is a clear form of equitable assignment".
In assessing whether the parties intended to effect an assignment it is important to remember that no formality is required for an equitable assignment, merely "a clear expression of an intention to make an immediate disposition": (Norman v FCT, (1963) 109 CLR 9 at 30 per Windeyer J.). As Barwick C.J. said in Shepherd v Federal Commissioner of Taxation (1968) 113 CLR 385 at 391: "No form of words is required for an equitable assignment but it is necessary to find the expression of an intention to assign". Such an assignment need not purport to be an assignment: nor does it have to use the language of an assignment:-
"An equitable assignment does not always take that form. It may be addressed to the debtor. It may be couched in the language of command. It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is plain. All that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person." William Brandt's Sons and Co v Dunlop Rubber Co Ltd
(1905) AC 454 at 462 per Lord Macnaghten.
In Shepherd's case the taxpayer purported to assign to members of his family 90% of certain royalties that might accrue to him over the next 3 years. The Commissioner ignored the transaction and sought to levy income tax against the taxpayer on the whole of the royalties. In concluding that the taxpayer had made an effective assignment, Barwick C.J. classified the Deed Poll that the taxpayer had signed (and hence the intention of the taxpayer) in these terms:
"No doubt to speak of the subject matter of the gift as an amount of income to accrue from royalties would seem to support the conclusion that what is to be given is the property in the form of money produced by the promise to pay royalties. But the full description of the subject matter of the assignment is of 'the right' to such amounts - an unlikely expression to describe the money itself. In my opinion, it indicates that the taxpayer was not intending to promise that he would pay money measured by the amount of royalties accrued or that he was intending to assign the royalties themselves. Its use rather suggests, to my mind, that he was intending to place the persons he wished to benefit in the position of being able themselves to assert a right to receive the appropriate amounts from the licensee." (p 392)
This passage from the judgment of the learned Chief Justice can be conveniently applied to the facts of this case. The presence of Mr Ianelli and his willingness to join with the debtors in giving undertakings militates against a finding that the debtors were merely making a promise to pay their creditor as and when money crystallised in their hands from the proceeds of the sale of their potatoes. The involvement of Mr Ianelli and the undertakings that he gave meant that he, as the purchaser of the debtors' potatoes had bound himself to Nickpack to pay to or for the benefit of Nickpack and to the exclusion of the debtors moneys up to a total of $200,000. To paraphrase the language of the Chief Justice in Shepherd's case, the presence of Mr Ianelli and his commitment rather suggests that the debtors were intending to place Nickpack (the party they wished to benefit) in the position of being able itself to assert a right to receive the appropriate amounts from Mr Ianelli.
The events of 12 August 1988 amounted to an absolute equitable assignment to the value of $100,000.00 from the Puntorieros to Nickpack. The subject matter of the assignment was, in the first instance, book debts owing by Mr Ianelli to the value of $36,996.00, represented by the first eleven invoices and as to $63,004 (making a total of $100,000) the proceeds of the sale of future potato crops.
But the second $100,000.00 stands in a different category. Notwithstanding that it was expressed in the Order of 15 August 1988 to be held "on trust for the plaintiff until the determination of these proceedings or further order", it is obvious that this does not truly reflect an intended absolute assignment to the value of $100,000.00 in favour of Nickpack. The need to await the determination of the proceedings indicates that the parties had not reached final agreement on the amount owing by the Puntorieros to Nickpack. It was certainly $100,000.00 - and hence the absolute assignment; it may be more and it may be as much as $200,000.00. That explains why the second $100,000.00 was to be set aside; it meant that upon a taking of a final account, the amount found to be owing by the Puntorieros (up to a further $100,000.00) was intended to be secured to Nickpack. This therefore is not a case of paying money to a stake-holder or paying money into Court and authorities such as Commercial Banking Company of Sydney v Colonial Financier's of Australia Pty. Ltd. (1972) 20 FLR 220 do not assist. The correct conclusion is that the benefit of the proceeds of future potato crops was equitably assigned by way of charge for an amount to be determined up to but not exceeding a further $100,000.00. It was expected that the exact amount would be determined in the Equity proceedings in the Supreme Court (which have since been cross-vested to this Court). Those expectations have been dashed by the intervention of the Deed of Assignment. But that is not a matter that can be resolved on this appeal. These proceedings relate solely to the application that was brought by the trustee in Bankruptcy seeking declarations and consequential orders that the payments made by Mr Ianelli to Nickpack and to the Building Society were void. The learned trial judge correctly found that none of the payments was void against the trustee. Accordingly the only appropriate order for this Court to make is to dismiss the appeal with costs. In due course (if it has not already been done) it will be necessary for the trustee and Nickpack to resolve the amount of Nickpack's debt. When a final account has been taken, Nickpack will be entitled to so much of the money in the Building Society account as is necessary to see it paid in full (or the whole of those moneys whichever is the lesser); the trustee will be entitled to any surplus.
It should also be added that, even if no valid assignment had been made or security granted, it would still be necessary to consider whether, by reason of the mutual credit and dealings which took place between the parties, the exercise by way of set-off contemplated by s.86 of the Bankruptcy Act 1966 would need to be undertaken (see In re Rose, Ex parte Hasluck and Garrard (1894) 1 Mans 218; Gye v McIntyre (1991) 171 CLR 609; Rory Derham, "Some aspects of mutual credit and mutual dealings" (1992) 108 LQR 99).
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