Practitioners acting for trustees in bankruptcy should note that payments made by a debtor to a bailiff to avoid execution, where no seizure has occurred, are not protected by s 92 and may be recovered as preferences under s 95.
Later decisions that cite Rae v Samuel Taylor Pty Ltd
Decisions cited by Rae v Samuel Taylor Pty Ltd
RAE v. SAMUEL TAYLOR PTY. LTD. [1963] HCA 37; (1963) 110 CLR 517
Bankruptcy
High Court of Australia
McTiernan(1), Taylor(1) and Menzies(2) JJ.
CATCHWORDS
Bankruptcy - Execution creditor - Issue of writ of fi. fa. - Delivery to bailiff - No seizure thereunder - Payments to bailiff to avoid execution - Not proceeds of execution - Avoidance as preferences - Whether creditor "secured" - Sale of Goods Act, 1923-1953 (N.S.W.), s. 29 - Bankruptcy Act 1924-1959 (Cth), ss. 92, 95.
HEARING
Sydney, 1963, August 26, 27;DECISION
September 27.
2. At that time, Leslie was indebted to the respondent in the sum of 353
pounds for goods sold and delivered some sixteen months
before. Requests had
been made unsuccessfully by the respondent to Leslie for payment, but on 10th
November 1958 he gave to the respondent
his cheque for the amount of the debt.
The cheque was, however, dated 15th November 1958 and upon presentation it was
returned with
the endorsement "Post dated". Upon re-presentation it was again
returned, this time with the endorsement "Present again". A week
or so later
it was again presented when it was returned with the endorsement "Payment
stopped". Thereupon the respondent caused a
summons to be issued out of a
District Court for the amount of the debt and in January 1959 it obtained
judgment by default for 373
pounds 2s. 11d., that amount representing the
amount of the debt, interest and the costs of the default judgment. In the
same month
the respondent caused to be issued a writ of fieri facias addressed
to the bailiff of the District Court and it was duly delivered
to him for
execution. But execution did not take place. It appears that the bailiff
communicated with Leslie and requested him to
call at the bailiff's office.
There Leslie was told that there were several writs of execution outstanding
against him and Leslie
said that he could not "settle them in full but could
make a substantial down payment and do the same next week if any arrangement
could be made to" hold the writs. There were, in all, seven or eight writs in
the bailiff's possession and, according to Leslie,
"Samuel Taylor was second
or third in order from the top". In fact the writs were held by the bailiff
and Leslie made a number of
weekly payments to him. Presumably the payments
received by the bailiff were appropriated to the several writs in order of
priority
and according to the evidence, the amount of the respondent's debt
was paid to the bailiff as follows:
PoundsThere seems to be an error of one pound in these figures for the amount of the respondent's judgment, 373 pounds 2s. 11d., was paid by the bailiff to the Registrar of the District Court on 23rd June 1959 and this sum, less 12s. 6d. representing the bailiff's fee, was paid to the respondent on 14th July 1959. It will be observed that the first and second of the payments above set out were made by Leslie more than six months before the presentation of the petition upon which the sequestration order was made and, therefore, not only before any period of possible relation back but outside the period prescribed by s. 95 of the Act for the purposes of that section. (at p521)
31st April 1959.. 6 17 7
1st May 1959.. 160 0 0
20th May 1959.. 40 0 0
29th May 1959.. 150 0 0
5th June 1959.. 15 5 4
3. In these circumstances the trustee of the estate of the bankrupt sought declarations from the Court of Bankruptcy that the payments made by the bankrupt to the bailiff were void as preferences pursuant to s. 95 and, alternatively, that the bankruptcy be deemed to have related back to and to have commenced on 10th May 1959 and that, therefore, the payments made by the bankrupt after that date were, in effect, made out of moneys which pursuant to ss. 90 and 91 (1) were the property of the trustee. The learned judge refused to make any such declarations observing that in so far as the application was based upon the provisions of s. 90 it "must fail as it is based on the erroneous assumption that the bankrupt's bankruptcy must be deemed to have relation back and to have commenced on 10th May 1959." "In fact" his Honour said "it commenced on 10th November 1959". The learned judge then proceeded to deal with the claim under s. 95 and indicated that this must also fail for the reasons given by him earlier that day in another application by the trustee against a creditor of the bankrupt made in circumstances similar to those of the present case. An examination of these reasons reveal that his Honour, in effect, treated the moneys paid by Leslie to the bailiff as the proceeds of an execution and he relied upon a passage from the judgment of Dixon C.J. in McQuarrie v. Jaques [1954] HCA 76; (1954) 92 CLR 262, at pp 288, 289 . There, in speaking of the operation which should be given to the provisions of s. 92, the learned Chief Justice said: "On the other hand, it means that if money comes to the hands of the execution creditor in full or partial payment of the debt before any one of the above three things happens, he may keep it. He may do so notwithstanding that the execution has not been 'completed by seizure and sale'. Further, he may do so whether the money comes to him through the sheriff or is paid to him directly by or on behalf of the debtor" (1954) 92 CLR, at p 289 . (at p522)
4. With respect to the learned judge the observations made by Dixon C.J. in McQuarrie v. Jaques [1954] HCA 76; (1954) 92 CLR 262 were made with respect only to executions subsisting at the commencement of the bankruptcy and prior to the actual sequestration order. Indeed, it is clear from the reasons given in that case and from a consideration of In re Andrew (1937) Ch 122 and earlier English cases that provisions such as s. 92 have nothing to say with respect to executions completed prior to the commission of any available act of bankruptcy. Again, it was, we think, erroneous to regard the payments made by Leslie as the proceeds of an execution or in any way as flowing from the "benefit" of an execution as that expression is used in s. 92. Finally, it is clear that if any of the payments made by Leslie within the six months next preceding his petition (i.e. after 6th May 1959) constituted a preference under s. 95 it was an available act of bankruptcy and, by virtue of s. 90, the bankruptcy must be deemed to have had relation back to and to have commenced at the time of any such preference. This is of little importance in the case for if the payments by Leslie within that period constituted preferences they are void as against the trustee in bankruptcy whether the bankruptcy commenced on 6th November 1959 or 6th May 1959. We mention the matter, however, because it may be of some importance in the administration of the bankrupt's estate. (at p523)
5. In resolving the problems in the case it is, we think, convenient to consider, first of all, the character of the payments made to the bailiff. As already appears there was no execution. It is true that the writ had been issued and delivered to the bailiff but at Leslie's request it was held in his office and the moneys which he paid were paid to forestall execution. In no sense did the moneys paid represent the proceeds of an execution as may well be the case where, after seizure, moneys are paid to avoid sale and for a release of the debtor's goods (Bower v. Hett (1895) 2 QB 51, 337 ). Moreover, the payments made to the bailiff to avoid execution were, in truth and substance, payments made to the respondent for it is clearly established that the sheriff or bailiff to whom a writ of fieri facias is addressed and delivered has authority from the judgment creditor to receive the amount which the writ directs him to levy and that upon receipt of that amount or some part of it, the debtor is discharged either wholly or pro tanto (Rook v. Wilmot [1653] EngR 1098; (1590) Cro Eliz 209 (78 ER 465) ; Taylor v. Bekon [1793] EngR 1058; (1677) 2 Lev 203 (83 ER 519) ; sub nom.: Taylor v. Baker [1826] EngR 525; (1677) 1 Freem 453 (89 ER 338) ; Gregory v. Slowman [1852] EngR 979; (1852) 1 El & Bl 360 (118 ER 470) ; and McQuarrie v. Jaques (1954) 92 CLR, at p 275 ). Accordingly, we feel bound to conclude that the payments made on 31st April 1959 and 1st May 1959, totalling 166 pounds 17s. 7d., were made to the respondent more than six months before the presentation of the petition upon which the sequestration order was made but that the remainder of the payments were made to the respondent within that period and that they, in no way, represented the proceeds of execution. That being so, the provisions of s. 92 have, in our opinion, no relevance in the case. (at p523)
6. But, nevertheless, the respondent maintains that the payments made on 20th and 29th May 1959 and the 5th June 1959 were not preferences within the meaning of s. 95 and this contention is based on two grounds. First of all reliance is placed upon the provisions of s. 29 of the Sale of Goods Act, 1923-1953 (N.S.W.) which provides that a writ of fieri facias against goods shall bind the property in the goods of the execution debtor as from the time when the writ is delivered to the sheriff to be executed. This is a well-known provision and it is, of course, subject to the proviso that no such writ shall prejudice the title to such goods acquired by any person in good faith and for valuable consideration unless such a person had at the time when he acquired his title notice that such writ by virtue of which the goods of the execution debtor might be seized or attached had been delivered to and remained unexecuted in the hands of the sheriff. By virtue of s. 29 it is claimed that the respondent became a secured creditor upon delivery of the writ to the bailiff. But this contention is answered by the observations of Kitto J., concurred in by other members of the Court, in Hall v. Richards [1961] HCA 34; (1961) 108 CLR 84, at pp 91, 92 . We were not referred to this case during the argument but it is only too clear, in spite of the fact that the "binding effect" produced by the delivery of a writ of fieri facias to the sheriff has been somewhat loosely spoken of as a charge in cases where it was unnecessary to consider whether the judgment creditor was or was not a secured creditor, that a judgment creditor does not become a secured creditor for the purposes of the Bankruptcy Act until actual seizure of the debtor's goods. He may, of course, lose the benefit of his security if the execution remains uncompleted at the commencement of the bankruptcy. (at p524)
7. The other ground upon which it was denied that the payments in question constituted preferences within the meaning of s. 95 involved the assertion that the respondent was, in the language of the section, a "payee in good faith and for valuable consideration and in the ordinary course of business" and, accordingly, that the payments were not made under such circumstances as to lead to the inference that the respondent knew or had reason to suspect that Leslie was unable to pay his debts as they became due and that the effect of the payment would be to give him a preference, a priority or an advantage over the other creditors. This ground was but faintly argued and having regard to the circumstances in which the payments were made, and those which preceded payment, this contention must be rejected. Accordingly, we are of the opinion that it should be declared that the payments made on 20th May 1959, 29th May 1959 and 5th June 1959, totalling as far as we can see 206 pounds 5s. 4d., constituted preferences within the meaning of s. 95 of the Act and, therefore, void as against the trustee. (at p525)
MENZIES J. The appellants are the trustees of the bankrupt estate of R. E. Leslie. Leslie's business was that of a grocer and in the course of it he bought from the respondent goods to the value of 352 pounds 18s. 1d. He paid for these goods by a cheque which when first presented, was returned marked "Post-dated". When presented for the second time the cheque was returned marked "Present again". It was re-presented and was returned marked "Payment stopped". A summons was then issued out of the Metropolitan District Court and, judgment having been obtained by default, a writ of fieri facias was issued and forwarded to the bailiff at Lismore for execution. This was in January 1959 and it was proved that the bailiff had a number of other writs for execution against Leslie's goods. Just what arrangement the bailiff made with Leslie is not known but he did not seize the property of Leslie who in April, May and June made a number of payments to him. In the proceedings with which we are concerned it seems that the bailiff was paid 373 pounds 2s. 11d., being 365 pounds 15s. 9d., the amount claimed in the summons with costs, 6 pounds 14s. 8d. interest and fees 12s. 6d. Of this 166 pounds 17a. 7d. was paid before 6th May 1959 and the balance thereafter. The bailiff paid the 373 pounds 2s. 11d. into the District Court, Lismore, on 23rd June 1959. Of this sum 372 pounds 10s. 5d. was on the same day forwarded to the Metropolitan District Court, Sydney, wherefrom it was on 14th July 1959 paid out to the respondent. Leslie's estate was sequestrated on 10th November 1959 on his own petition dated 6th November 1959. The appellants applied to the Court of Bankruptcy for an order that the respondent pay them 373 pounds 2s. 11d. on the footing that the payments made by the bankrupt to the bailiff were preferential payments avoided by s. 95 of the Bankruptcy Act and in the proceedings it was proved that the bankrupt was unable to pay his debts as they became due from his own money in January 1959 and thereafter. Clyne J. dismissed the motion and this appeal is from his order doing so. The ground upon which his Honour decided in favour of the respondent was, in short, that the benefit of its execution was protected by s. 92 of the Bankruptcy Act and its protected rights could not be taken away by s. 95. (at p526)
2. I am, with respect, unable to agree with his Honour that in the circumstances the respondent obtained any protection from s. 92. A judgment creditor who has issued execution does not become a secured creditor until the writ is executed to the extent of seizure: Ex parte Williams; In re Davies (1872) LR 7 Ch App 314, at p 317 ; McQuarrie v. Jaques [1954] HCA 76; (1954) 92 CLR 262 , per Dixon C.J. (1954) 92 CLR, at pp 273, 288 and Fullagar J. (1954) 92 CLR, at pp 296, 297, 303 . Here there was no seizure and the respondent never became a secured creditor. Had it done so and had payments then been made, it might perhaps have been decided that such payments were made to prevent the sale of goods taken in execution and that s. 92 would apply notwithstanding that execution had not been completed by sale in the manner specified in s. 92 (2) (a). This is the point to which it seems to me that Dixon C.J. was directing his attention in McQuarrie v. Jaques (1954) 92 CLR, at pp 288, 289 in the passage upon which Clyne J. relied in his decision of this case. The Chief Justice's observations are, however, related to the case "where the writ of execution is delivered to the sheriff and the goods seized before the commission of the available act of bankruptcy proved" (1954) 92 CLR, at p 288 . See too In re Godwin (1935) Ch 213, at pp 220, 221 . Section 92 operates sometimes to the advantage and sometimes to the disadvantage of a judgment creditor. When an execution has been completed as therein provided, the judgment creditor is entitled to retain the benefit thereof against the trustee in bankruptcy notwithstanding the relation back to his title as provided in s. 90, provided that the completion of the execution precedes each of the three events stated at the end of sub-s. (1) of s. 92. This is what has been called the protective operation of the section. Where, however, a judgment creditor has obtained security by seizure under a writ, he may be deprived of the advantage of the security unless completion precedes each of the three events mentioned so that, for instance, if sequestration intervenes between seizure and sale, the judgment creditor may not be entitled to the benefit of the execution, i.e. his security. This is what has been called the restrictive operation of the section. The whole subject matter was exhaustively discussed in McQuarrie v. Jaques [1954] HCA 76; (1954) 92 CLR 262 and it is unnecessary to go over the ground again. I agree entirely with what Fullagar J. said at pp. 293-297 and 303 (1954) 92 CLR, at pp 293-297, 303 and, subject to the observation that a judgment creditor obtains security from seizure and not merely from the delivery of the writ to the sheriff for execution - as Kitto J. himself pointed out in Hall v. Richards [1961] HCA 34; (1961) 108 CLR 84 - I agree too with what his Honour said at pp. 306-308 (1954) 92 CLR, at pp 306-308 . From what was said in McQuarrie v. Jaques [1954] HCA 76; (1954) 92 CLR 262 it is apparent that s. 92 has no direct importance in this case. It has no direct operation to protect the payments made, as counsel for the respondent indeed recognized, and, because the execution was not carried to the point of seizure, this was not a case in which the appellants found it necessary to attempt to rely upon its restrictive operation. (at p527)
3. The position is then that the respondent, not being a secured creditor and having no statutory right to retain the benefit of the execution that it commenced, did obtain payments totalling 373 pounds 2s. 11d. at the time when the bankrupt was unable to pay his debts as they became due from his own money. These moneys were, it seems, paid to avoid execution. It was argued, however, for the respondent that s. 95 could not apply to any of the payments in question because, having been made by the bankrupt to the bailiff, they should not be regarded as payments in favour of the respondent. The law is, however, as stated in Halsbury's Laws of England, 3rd ed., vol. 16, p. 56: "The sheriff has authority from the judgment creditor to receive the amount to be levied, and can give a discharge". Here the bailiff did not execute the writ; he exercised his authority to receive the amount to be levied and, clearly enough, what he received was paid "in favour of" the judgment creditor. It was argued alternatively that the judgment creditor had proved that the payments were "in good faith and for valuable consideration and in the ordinary course of business" (s. 95 (2) (b)). To prove this the judgment creditor must have negatived reason to suspect that the bankrupt, when he made the payments in question to the bailiff, was unable to pay his debts as they became due and that the effect of the payments would be to give him a preference, priority or advantage over other creditors (s. 95 (4)). This was clearly not proved. Accordingly, despite Mr. Helsham's able argument to the contrary, I consider that s. 95 applied. (at p527)
4. The operation of the section in the present case is to avoid as against the appellants payments made within six months of 6th November 1959 (that is after 6th May 1959) if they were made when Leslie was unable to pay his debts from his own money and if they were in favour of the respondent and had the effect of giving the respondent a preference. The payments falling within this description and accordingly avoided by s. 95 total 373 pounds 2s. 11d. less 166 pounds 17s. 7d., viz. 206 pounds 5s. 4d. (at p528)
5. Accordingly I consider that the appeal should be allowed and it should be declared that payments totalling 206 pounnds 5s. 4d. are void against the appellants. (at p528)
ORDER
Appeal allowed with costs. Order of the Judge in Bankruptcy discharged. In lieu thereof declare that the payments made by the bankrupt on 20th May 1959, 29th May 1959 and 5th June 1959 and totalling 206 pounds 5s. 4d. constituted preferences within the meaning of s. 95 of the Bankruptcy Act 1924-1960 and, as such, are void against the trustees in bankruptcy. Respondent to pay the costs of the application before the Judge in Bankruptcy.