Re Rodney Steventon; Ex Parte David Ernest Willis Blackwell and John Maait

[1992] FCA 157

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a U D ~ ~ ~ N T NO. ..-..,. B-../..-.o~-e

IN THE FEDERAL COURT OF AUSTRALIA )

GENERAL DIVISION	1	No. NB 1086 of
BANKRrJPTc	Y DISTRICT OF THE STATE OF)	1990

NEW SOUTH WALES 1

RE:	RODNEY STBVENTON Bankrupt
EX PARTE:	DAVID EARNEST WILLIS
BLACRWEL'L as trustee
of the bankrupt estate
of Rodney Steventon
Applicant
AND:	JOHN HAAIT
Respondent

CORM:	WILCOX J
PLACE :	SYDNEY
DATE :	3 MAFICH 1992

EXTEHPORE REASONS FOR JUDGMENT

WILCOX J: This is an application by David Blackwell, as

said sum of $75,000.

trustee of the bankrupt estate of Rodney Steventon, firstly, for a declaration that the payment of the sum of $75,000 by the direction of the bankrupt to the respondent, John Hanna Maait on or about 17 March 1989 is void as against the applicant pursuant to s.122 of the Bankru~tcv Act 1966; and, secondly, for an order that Mr Maait pay to the applicant the

Although there has been a considerable amount of material put before the Court, the critical evidence is both short and uncontested. Rodney Steventon was made bankrupt on 19 June 1990 on the petition of one Angela Bell Needham. The act of bankruptcy on which MS Needham relied was the failure of the debtor to comply on or before 4 January 1989 with a bankruptcy notice issued by one Walter Dowling. It is agreed between the present parties that the debt to Mr Dowling was paid out at a later date. This date was well after 16 March 1989, the apparent date of the payment of the $75,000 in issue in the present proceeding.

The transaction between Mr Steventon and Mr Haait arises out of a loan made by Mr Maait to Mr Steventon in 1987. There was a considerable amount of detail about the circumstances of the loan and the representations which were made by Mr Steventon to Mr Maait when the transaction was entered into. But is not necessary for me to go to that evidence. It sufficient to say that a sum of $56,000 was loaned and this bore interest. Mr Steventon defaulted in his compliance with the agreed arrangements and, on 17 June 1988,

Mr Maait commenced a proceeding to recover the debt. He

obtained judgment on 19 August 1988.

Mr Maait issued a bankruptcy notice in relation to his judgment debt. It was served upon Mr Steventon on 2 November 1988. The bankruptcy notice required compliance within 14 days, but there was no compliance. Consequently, Mr Steventon committed an act of bankruptcy on 16 November 1988.

Mr Maait then caused a petition to be issued. It was served

on 15 December 1988 and was, therefore, pending when Mr Steventon committed a second act of bankruptcy: the failure to comply with the bankruptcy notice issued by Mr Dowling. Mr Maait's petition was dismissed by consent on 16 March 1989, the impugned payment of $75,000 being made at about that time and as a condition of Mr Maait's consent to the dismissal of the petition.

~t appears that Mr Steventon and his brother were beneficially entitled to a property at Burwood which had been the home of their late mother. The sum of $75,000 was paid to Mr Maait out of the proceeds of the sale of this property. The evidence includes a good deal of correspondence between the solicitors acting on behalf of the estate, solicitors acting on behalf of the Australia New Zealand Bank, which was a substantial creditor of Mr Steventon and/or companies controlled by him, and Mr Maait. The evidence makes plain that Mr Steventon was in financial straits in 1988. The bank had agreed to a reconstruction of the debt on the basis of

payments by him of $10,000 per month; but it appears that Mr	Steventon immediately defaulted and that no such payments were
made. It is also obvious that he was being pressed by Mr Maait and, as the evidence now discloses although this did not appear on the correspondence at the time, he also owed money to Mr Dowling and to MS Needham. I have no hesitation in finding that, as at the date of the payment to Mr Maait, Mr Steventon was unable to pay his debts as they became due from

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his own money. There is also no doubt that a payment was made	!
to Mr Maait, as a creditor, which had the effect of giving to	! -
Mr Maait a preference over other creditors. Accordingly,	1;
section 122(1) of the Bankruptcy Act is satisfied.	1 , 1 C.!
i I
These findings raise the question whether the case is affected by subs.(2). Subsection (2)(a) provides that nothing in the section affects the rights of a purchaser, payee or encumbrancer in good faith and for valuable consideration in the ordinary course of business. In this particular case, there was valuable consideration. But there is a serious question about whether the payment was made in the ordinary course of business.
In support of his envisaged argument that the payment was made in the ordinary course of business, counsel for Mr Maait sought to adduce oral evidence from his client to the effect that Mr Maait customarily loaned money to people, and that on some occasions he was paid only after initiating bankruptcy proceedings. Objection was taken to this evidence.
have been put in affidavit form so that counsel for the	There was a problem about presentation. The material should
applicant would have known the nature of the evidence and had
the opportunity of considering it and making such inquiries as	!
might seem useful. It was highly inconvenient for the evidence to be led orally at the hearing, without any prior intimation of its nature.
!

However, the objection which was taken went also to the relevance of the projected evidence. It was possible to discuss this with counsel and make a ruling in point of principle. Counsel said that the purpose of the evidence was to show that Mr Maait customarily did business in this way; accordingly it was, for him, correct to say that payment at the time of agreeing to a dismissal of a bankruptcy petition was an action made in the ordinary course of business.

I took the view that it was not material to ascertain how Mr Maait conducted his affairs, that the question whether a particular payment was made in the ordinary course of business had to be considered objectively by reference to the nature of the transaction. I had in mind the

statement made by Gavan Duffy CJ and Starke J in m v

m (1932) 47 CLR 257 at 267 that the question was not

whether the particular 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. ' " It seemed to me apparent that a

pending, to the petitioning creditor, pursuant to an agreement	payment, by a person against whom a bankruptcy petition is
that the petition would then be dismissed, could not meet the test of "ordinary course of business" as explained in Robertson v Griqq. On the contrary, it was clearly a transaction which was carried out with bankruptcy proceedings in view; not merely in view but in actual existence. Counsel for Mr Maait, very sensibly if I may say so, conceded that,

once this evidence was rejected, it was not possible for h m to maintain that the transaction was in the ordinary course of business or that subs.(2) applied to the case.

It seems to me that the trustee's application must succeed. One can always feel some sympathy for a creditor who is obliged by the operation of s.122 to repay moneys which were in fact owing to him; but one has to bear in mind the policy behind that section. In any event, once the material facts are found, an applicant trustee is entitled to an order. Accordingly, I make orders in accordance with paras 1 and 2 of the Application.

[Counsel addressed on costs].

Costs are sought on behalf of the trustee and I

think that the trustee is entitled to an order. Accordingly,

I order that the respondent, John Hanna Maait, pay to the

applicant trustee his costs of this application.

I certify that this and the preceding five (5) pages

are a true copy of the Reasons for Judgment

of the Honourable Justice Wilcox.

Associate: / & 2 k

Dated:  3 March '1992

APPEARANCES

Counsel for the Applicant:	M R Aldridge
Solicitors for the Applicant:	Ternes & Salier
Counsel for the Respondent:	E Wasileria

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Solicitors for tl~e Respondent:	John H Maait h CO
Date(s) of hearing:	3 March 1992