ON APPEAL FROM THE COURT OF BANKRUPTCY. Bankruptcy-Deed of assignment-Aderances by one person to another-Advances H. C. OF
made within six months of deed of assignment-Advances secured by charge on specific fund-" Ordinary course ofbusiness"-"Preference"-Person preferred not a creditor-" Book debts "-Bankruptcy Act 1924-1930 (No. 37 of 1924-No. MELBOURNE, 17 of 1930), sec. 95, Part XI.-Bills of Sale Act 1899-1925 (W.A.) (No. 45 of March 6, 7. 1899-No. 41 of 1925), secs. 5, 25, 31.
A debtor who had made three contracts for road construction assigned his estate to a trustee for the benefit of creditors pursuant to Part XI. of the Bankruptcy Act 1924-1930 on 9th August 1930. More than six months before, namely, prior to 9th February 1930, he had obtained advances under agree- ments to repay the money lent and any further advances, with interest, out of progress payments becoming due to him under the road construction con- tracts. Within six months, further advances were made to him pursuant to these agreements. Also within six months, he gave in favour of the lender orders in writing upon the road authority for payment of the money due under the contracts and these orders were honoured. The trustee applied to set the orders aside and recover the money received thereunder on the grounds (a) that the orders dealt with "book debts" and were void under the Bills of Sale Act 1899-1925 (W.A.), and (b) that they constituted a transaction which was a preference and, therefore, upon the assumption that sec. 95 of the Bank- ruptcy Act 1924-1930 applied to assignments under Part XI., were void against
Held, that the debts were not " book debts." Held, also, that the orders and the payments thereunder were not affected by sec. 95 (1) of the Bankruptcy Act
By Gavan Duffy C.J., and Starke and Evatt JJ., on the ground that, assuming sec. 95 to be applicable to the case of a deed of assignment executed under Part XI. of the Act, the transactions in this case were taken out of the operation of sec. 95 (1) by sub-sec. 2 (b) of that section
By Rich, Dixon and McTiernan JJ., on the grounds that, in relation to moneys lent before 9th February 1930, the transactions could not be affected by sec. 95 inasmuch as the respondent had obtained valid equitable assign- ments before the commencement of the period of six months specified in see. 95 (1); and in relation to moneys lent within that period, the creation of a charge within the period could not be a "preference" within sec. 95, because it did not operate to prefer the respondent in respect of any debt existing when the charge was created.
Per Gavan Duffy C.J. and Starke J. The test under sec. 95 (2) (b) of the Bankruptcy Act of the "ordinary course of business " is not whether the act is usual or common in the business of the debtor…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Robertson v Grigg [1932] HCA 29
Case
[1932] HCA 29
Decision Date
CaseChat Overview and Summary
The appellant, as trustee of an assigned estate under Part XI of the Bankruptcy Act 1924-1930, appealed from a decision of the Court of Bankruptcy. The dispute concerned payments made by a road authority to the respondent, which the trustee sought to set aside as an unlawful preference or, alternatively, as void unregistered assignments of book debts. The debtor had entered into road construction contracts and obtained advances from the respondent, agreeing to repay these advances from progress payments due under the contracts. Within six months of the deed of assignment, the debtor provided written orders to the road authority for payment of these moneys to the respondent, which were subsequently honoured.
The legal issues before the High Court were whether the written orders constituted void unregistered assignments of book debts under the Bills of Sale Act 1899-1925 (W.A.), and whether the payments made to the respondent constituted an unlawful preference under section 95 of the Bankruptcy Act 1924-1930. The trustee argued that the moneys payable under the contracts were book debts and that the transactions were either void under the Bills of Sale Act or constituted a preference under the Bankruptcy Act, as the respondent had received preferential treatment over other creditors.
A majority of the High Court held that the moneys payable under the road construction contracts were not "book debts" and therefore the orders were not void under the Bills of Sale Act. Regarding the preference claim, the Court, assuming section 95 applied to deeds of assignment under Part XI, found that the transactions were protected by section 95(2)(b) of the Bankruptcy Act. This sub-section exempts purchasers, payees, or encumbrancers who act in good faith, for valuable consideration, and in the ordinary course of business. The Court reasoned that the test for "ordinary course of business" was whether the transaction was fair and what a person might do without contemplating bankruptcy. The majority also noted that advances made more than six months before the assignment, secured by valid equitable assignments, were not affected by section 95.
The appeal was dismissed. The Court affirmed the decision of the Court of Bankruptcy, finding that the respondent had acted in good faith and for valuable consideration in the ordinary course of business, and that the equitable assignments of future moneys were validly created before the six-month period preceding the deed of assignment.