Payne v McDonald [1908] HCA 40; (1908) 6 CLR 208 (23 June 1908)

HIGH COURT OF AUSTRALIA

Payne Defendant, Appellant; and McDonald Plaintiff, Respondent.

H C of A

On appeal from the Supreme Court of Victoria.

23 June 1908

Griffith C.J., O'Connor, and Higgins JJ.

McCay, for the appellant.

Hayes and Power, for the respondent,

Griffith C.J.

The point raised on this appeal is one upon which, apparently, no argument was addressed to àBeckett J., for he does not mention it in his judgment. The point on which he decided the case was not pressed before us. The plaintiff's case is very simple. As established by the evidence it is this:—Some years ago she bought some property and it was transferred into her mother's name. Under those circumstances, if there were no more in the case, the mother was a trustee for her. On the mother's death the property passed to the defendant, and the plaintiff now asks that the defendant should transfer it to her, which àBeckett J. ordered him to do. The point now made is this:—When the property was bought in the mother's name, the plaintiff was indebted to certain creditors, and the property was so transferred to the mother with the view of defeating those creditors. There the allegations and the evidence end. It is said that, that being so, the plaintiff cannot get the property back. I apprehend the principle is that the Court will not assist a party to carry out an illegal transaction—that, if, in the course of the plaintiff's story, the relevant facts show an illegal transaction, the Court will not assist him. As James L.J. said in Taylor v. Bowers[1]:—"If it was merely a question for the first time to be determined upon principle, without authority, I should have no doubt in saying that the plaintiff was not obliged to rely upon the fraud for the purpose of recovering back the goods." In this case the plaintiff is not obliged to rely on anything except the fact that the land was transferred into her mother's name as trustee for her. I doubt, indeed, very much whether the doctrine ex turpi causâ non oritur actio applies at all to a case where the only illegality or impropriety alleged is an intent, not effectuated, to defeat creditors. Primâ facie, a man may do what he likes with his own property. Any restriction on his doing so is imposed by positive law, and there are a number of such restrictions to be found in the insolvency laws. Those laws are all, so far as I know, made for the benefit of creditors, and the restricted transactions are valid between the parties to them unless the creditors intervene. So that I doubt whether there is any foundation at all for the argument. If the mere fact that a transaction was entered into with intent to defeat creditors were sufficient to prevent a man from asserting any rights in respect of it, most extraordinary results would ensue. For instance, every fraudulent preference, so-called, would be an illegal transaction. Now, a fraudulent preference very often consists of a transfer of property to a creditor by way of security or mortgage. If the debtor becomes insolvent within (in Victoria) three months of the transaction, it may be impeached by the other creditors, but if he does not, it cannot be impeached. If, however, the transaction is illegal in its inception, as according to the argument it is, the mortgagor can never set up his right to an account against the mortgagee. That is so absolutely contrary to the whole scheme of the insolvency law that it cannot be the law.

Again, another well known doctrine is that, if there is an illegal intention, and property is conveyed to give effect to it, and before the purpose is carried out the contract is rescinded, the parties will be restored to their original position. It is not sufficient to allege the illegal intention without showing that the intention has been carried out. In the present case there is nothing in the pleadings or in the evidence beyond an allegation and proof of an illegal intention: there is nothing to suggest that effect has been given to that intention. So that the defence set up by the defendant fails on every ground.

The authorities said to be in favour of the defendant are, in my opinion, all against him, and I think the reasons I have given show why there never was any authority to the effect of the proposition now contended for on behalf of the defendant.

O'Connor J.

I am entirely of the same opinion, and desire to add nothing to what has been said.

Higgins J.

I should like to put my judgment explicitly upon this ground—that paragraph 11 of the defence, even if proved, is no defence—is in effect a demurrable plea to the statement of claim. I think the defence should have alleged and proved that the purpose of the plaintiff had succeeded in whole or in part. In addition to that, the facts necessary for the plaintiff's case, even if we could treat them as alleged, have not been proved. There was an intention on the part of the plaintiff to defeat her creditors. She intended to defeat her creditors, but there is no proof that she did defeat her creditors in the slightest degree. There is proof that she had creditors when the transaction took place, but if she had repented the very next day, the position would have been the same as it is now. On the day after the property was put into the mother's name the plaintiff might have repented, and said to her mother: "Give me back the property." That is exactly the position here. There is no evidence of any act done in pursuance of the fraudulent transaction that would prevent the plaintiff getting back her property. For ought that we know, she may be getting back the property in order to do justice to her creditors. I think that it is clear that the burden of proof to sustain an extraordinary defence of this sort—a defence under which the executor of the mother seeks to withhold from the plaintiff property which belonged to the plaintiff—lies upon the defendant. There may be some personal or family reasons which have influenced the defendant to take up this, at first sight, dishonest attitude, and therefore I make no comments on his conduct. But there can be no doubt that in any Court of law the plaintiff is entitled to get back her property.

Appeal dismissed with costs.

Solicitors, for appellant, Maddock & Jamieson.

Solicitor, for respondent, J. Hopkins.

[1] 1 Q.B.D., 291, at p. 298.