Radio Corporation Pty Ltd v Bear [1961] HCA 26; (1961) 108 CLR 414 (12 May 1961)

HIGH COURT OF AUSTRALIA

RADIO CORPORATION PTY. LTD. v. BEAR [1961] HCA 26; (1961) 108 CLR 414

Bankruptcy

High Court of Australia
Dixon C.J.(1), McTiernan(2) and Fullagar(3) JJ.

CATCHWORDS

Bankruptcy - Preference - Transfer of property - Transfer of goods previously sold to consignment account - Avoidance of transfer - Effect of avoidance - Title of trustee - Relation back - Bankruptcy Act 1924-1955 (Cth), ss. 52 (c), 90, 95.

HEARING

Sydney, 1960, August 25, 26; 1961, May 12. 12:5:1961
APPEAL from the Federal Court of Bankruptcy.

DECISION

1961, May 12.
The following written judgments were delivered:-
DIXON C.J. This is an appeal from an order of the Federal Court of Rees as trustees of the estate of a bankrupt named Sydney Thomas Cowan, who before his bankruptcy carried on business as a retailer of television sets, radios and other electrical goods. The appellant, Radio Corporation Pty. Ltd., supplied him with goods. A creditor's petition for the sequestration of his estate was presented on 18th April 1957 and a sequestration order was made on 15th May 1957. The act of bankruptcy consisted in a declaration filed by the bankrupt on 17th April 1957 of his inability to pay his debts. In fact in February of that year his affairs had been taken over in the interest of creditors by a firm of accountants including as we were told at least one of the respondents appointed after sequestration as trustees in the bankruptcy. Moreover Cowan said in evidence that he had been in financial difficulties since 1955. The order under appeal deals with what is described by the order as a transfer of property of the value of 1,282 pounds 16s. 0d. on or about 30th November 1956 by the bankrupt to the appellant company and with payments of money to the appellant company between that date and the presentation of the petition on 18th April 1957 amounting to 2,514 pounds 8s. 6d. The appellant company is ordered to pay both these sums to the trustees. The order declares that the transfer of property to the value of 1,282 pounds 16s. 0d. on or about 30th November 1956 by the bankrupt to the appellants was a transfer of property made by the bankrupt who was then unable to pay his debts as they became due from his own moneys to the appellants and had the effect of giving the appellants a preference or priority or an advantage over the other creditors of the bankrupt and is void as a preference and as such constitutes an act of bankruptcy committed by the bankrupt pursuant to s. 52 (c) of the Bankruptcy Act 1924. The order proceeds to declare that the bankruptcy of the bankrupt shall pursuant to s. 90 of the Act be deemed to commence on or about 30th November 1956 being the date upon which an act of bankruptcy was committed by the bankrupt which date is within six months next preceding the date of the presentation of the bankruptcy petition upon which the sequestration order was made. It was then declared that 2,514 pounds 8s. 6d. was paid by the bankrupt to the appellant company between 30th November 1946 and 18th April 1957. (at p417)

2. From the foregoing it will be seen that the basis of the order appealed from is (1) the finding that on or about 30th November 1956 the bankrupt gave the appellant company a preference, (2) that as a result 1,282 pounds 16s. 0d. was repayable to the respondent trustees by the appellant company and (3) that after the commencement of the bankruptcy which by virtue of s. 90 must be taken accordingly to be 30th November 1956 2,514 pounds 8s. 6d. was paid to the appellant company so as to be repayable to the respondents as trustees in bankruptcy. The appeal depends upon the correctness of these steps. (at p418)

3. It appears that the bankrupt set up business in 1953 in Sylvania as a retailer of radio, television and other electrical instruments and goods. He obtained supplies from the appellant company. Associated with that company was another company called Universal Guarantee Corporation Pty. Ltd. or some like name which would enter into hire purchase agreements with customers who desired to buy goods on instalments. By November 1956 the indebtedness of Cowan, the bankrupt, to Radio Corporation Pty. Ltd. seems to have given some concern at all events to its credit manager whose name was A. E. Brittain. In or before May 1956 Cowan had opened another shop ; it was situated in Kingsway, Miranda. To this shop some of the stock had been transferred, about 1,000 pounds worth. Later in that year Cowan was ill for some months and that probably affected the business. At all events the whole business seems to have been transferred to the Miranda shop and the Sylvania account was closed off. Brittain as credit manager of the appellant company discussed the position with Cowan while he was ill and came to an arrangement as to the stock in hand as to the reduction of the account and as to future supplies. The arrangement was embodied in an ill expressed letter presented by Brittain and signed by Cowan the bankrupt. The date of signature is 27th November 1956. It is addressed to the directors of the appellant company. The meaning of the document is in many respects anything but clear to an uninformed reader but instead of setting out its text, it is perhaps better to state the effect of its clauses as I read them. It begins with a reference to a recent interview with the credit manager in which Cowan's account was discussed and a statement that he Cowan now wishes to confirm his proposal for the reduction of the account which proposal he submits for the directors' approval. Then follow five lettered paragraphs. The first appears to mean that he will pay cash on all future supplies of domestic sets, refrigerators, records and parts. The second that he will pay for future supplies of T.V. sets within seven days. The third paragraph I take to mean that the stock of Astor instruments which he then held would be disposed of to customers who would take the articles on hire purchase agreements made with the Universal Guarantee Corporation which would forward its cheques for the instruments to the appellant company. The fourth paragraph means simply that Cowan would pay 40 pounds weekly in reduction of his indebtedness to the appellant company beginning before the end of October. One or two only of such weekly sums were in fact paid. It is the fifth paragraph upon which the first matter in question chiefly turns. It is briefly expressed thus "Stock previously delivered to be transferred to Consignment A/c. as previously arranged". The letter ends with a certificate by Cowan that he has approximately 1,120 pounds of Astor stock at his premises at Miranda and that he had disposed of his other business at Sylvania, that he had no partners and that if he failed to carry out his obligations he would give a bill of sale over all his assets. As of 20th November 1956 the debit balance of Cowan's ledger account in his Sylvania shop, an amount of 1,544 pounds 18s. 6d., was transferred to his ledger account in respect of his Miranda shop. As of 30th November 1956 a credit entry was made in the latter account "Being transfer to Sid. Cowan as arranged 1,282 pounds 16s. 0d.". The entry carries a journal reference "TJ71" but the journal was not put in evidence. On the same day a new account in the customer's ledger was opened. It was in the name of "Sid Cowan, Sylvania Radio, Kingsway, Miranda". Typed in was the heading "Consignment Account. Trading as Sylvania Radio" and above that "Refer all debits and credits to credit manager". Lower two pencil notations appeared viz. "Watch" and "Sale or return". They were signed A. Brittain. The account opens as of 30th November 1956 and the second entry bears the same journal reference viz. "TJ71". It is a debit entry as follows : - "Being transfer as arranged 1,282 pounds.16.0". All these are of course accounts of the appellant company and Cowan did not see them but they are evidence against the company and may be used to determine the meaning and effect of the transaction. The fifth paragraph of the letter, brief as it is, would seem to mean that stock previously delivered to Cowan by the appellant company on terms which would make the goods his so that the company would be his creditor in respect of the price and he its debtor should be transferred to a consignment account. That meant that the goods ceased to be held by Cowan as his property : instead he held them on consignment from the company ; on sale or return, in the sense that he either sold them or they were to be returned to the company. When this is read with the third paragraph as to the Astor stock and that paragraph is considered with the certificate that Cowan holds approximately 1,120 pounds of Astor stock at Miranda (an amount which may well be contained in the 1,282 pounds 16s. 0d.) the inference arises that it was intended that Astor stock should be disposed of on hire purchase terms, the Universal Guarantee Corporation being used in the transaction so that the appellant company would receive the corporation's cheque for the goods which until they were so disposed of would simply be in the possession of Cowan on consignment. All this seems to be confirmed by the account. The transfer of the 1,282 pounds 16s. 0d. from the Miranda account to a new consignment account strongly supports the inference. It is true that there is an ordinary money entry as if for a debt. But it is not unnatural to use a ledger account in this way to note or record that the person against whom it is kept is responsible for goods in his custody or possession of that amount or value. Having regard to the headings it does not mean that he is presently a debtor in money to that amount. The credit of 1,282 pounds 16s. 0d. in the old account meant that pro tanto the indebtedness on that account was reduced and when that is considered with the letter the transaction seems clearly enough to amount to a re-vesting of the property in the goods on hand and a consequential discharge of Cowan's debt to the company for the price as a purchaser. It is true that subsequent debits and credits to the consignment account do not appear to maintain a proper theoretical discrimination as to the character of the account but that does not seem commercially inconsistent and for the purposes of the appellant company it served well enough and could not cause confusion. (at p420)

4. I can see no reason why the transaction should not be understood as an attempt to re-vest in the appellant company the stock in trade theretofore sold by it to Cowan and still on his hands unpaid for, leaving him as a bailee thereof holding on consignment or on terms that unless he sold it he returned it to the appellant company. The transaction so understood involved of course the discharge of the debt owing by Cowan to the appellant company. Considered apart from the subsequent effect of the order for sequestration bringing into play the provisions of s. 95 of the Bankruptcy Act, I see no reason why the arrangement should not be effective. Did this amount to a preference within s. 95? According to the argument for the appellant company the transaction even when so understood could not amount to a preference unless and until some of the goods were sold and the proceeds received by the appellant company. It was only then, so it was argued, that the transaction had the effect of giving the appellant company as a creditor a preference or priority or an advantage over other creditors within the meaning of s. 95. Upon consideration I have come to the conclusion that this argument is erroneous. At the moment when the ownership of the goods re-vested in the appellant company and Cowan's debt to it was to the extent of 1,282 pounds 16s. 0d. discharged the appellant company received a then present advantage. The debt to it was paid or discharged and in lieu of what had been an unsecured money claim the company became entitled to the property in goods estimated at an equivalent amount. It could terminate the bailment and possess itself of the goods when it pleased. It could claim the goods against an execution creditor and indeed it was protected by law against any disposition of the goods by Cowan in derogation of the company's claim. In fact it did not do any of these things and did not resume the goods into its possession. Ostensibly there was no change. But nevertheless the legal change gave an advantage. I am therefore of opinion that on or about 30th November 1956 there was a preference given by Cowan to the appellant company. That means that under s. 52 (c) of the Act there was a transfer of property constituting an act of bankruptcy. It also means that as against the present trustees in bankruptcy (the now respondents) the transaction agreed upon by the letter and evidenced by the accounts is void. Under s. 90 the bankruptcy must be considered as commencing on the date of the act of bankruptcy viz. 30th November 1956. Under s. 91 (i) the property of the bankrupt divisible among his creditors includes all property which belongs to or is vested in the bankrupt at the commencement of bankruptcy or is acquired by or devolves upon him before his discharge. What is the consequence of the invalidity of the transaction against the respondent trustees in bankruptcy? That question in effect is involved in the second of the three steps upon the correctness of which the appeal depends. The invalidity of the transaction as at 30th November 1956 meant simply that the property in the goods remained in the bankrupt Cowan as well as the possession and that his debt to the appellant company remained undischarged. As at that date did that involve any liability of the appellant company in respect of the goods? The goods had not been disposed of or consumed. No loss had been suffered by the bankrupt or inflicted on what may be called the retroactive title of his trustees in bankruptcy as a result of the merely notional re-vesting of the stock in the appellant company. The avoidance of that notional re-vesting left things as they were. All that happened up to that time was that a preference had been given and thereby an act of bankruptcy committed so that the subsequent bankruptcy commenced from that time. Had the sequestration taken place next day that is on 1st December 1956, the preference would have made no difference in the assets available for distribution among creditors. It is what happened afterwards that affects the result. But what happened afterwards is fully covered by the second part of the order requiring the repayment of 2,514 pounds 8s. 6d. Cowan went on trading until his business was taken over in February 1957, as apparently it was, in order that it might be conducted in the interests of his creditors. The proceeds of the stock represented by the amount of 1,282 pounds 16s. 0d. were carried into the account called the consignment account and no part of those goods was disposed of in favour of the appellant company or otherwise in a manner which would mean that the goods or their proceeds were not accounted for or that the goods got into the hands of the appellant company. The complaint of the appellant company's counsel is well founded that by adding the two figures together the company is charged twice cumulatively without justification. It appears to me that in the peculiar from of preference which the fifth paragraph of the letter gave the creditor the appellant company did not obtain the goods, otherwise than in point of bare title, or a monetary equivalent of the goods and ought not to be charged under that head with their value. A liability to repay 1,282 pounds 16s. 0d. did not arise under s. 95. But there was, as I think, a preference of the kind I have described and that means that s. 90 was brought into operation, with the result that from 30th November 1956 the dealings with the assets must be treated on the footing that they all took place after bankruptcy. There has been in the present case no attempt so far to rely upon the good faith of the appellant company whether under s. 95 (2) or s. 96, the reason doubtless being that Brittain the credit manager was fully aware of the inability of Cowan to meet his debts as they became due and was a party to what has been held a preference. The doctrine of relation back may therefore receive its full application. It is here that the third question arises. The effect of that doctrine was stated by Fletcher Moulton L.J. for the Court of Appeal in Ponsford Baker & Co. v. Union of London and Smith's Bank Ltd. (1906) 2 Ch 444, at p 452 in strong terms which are worth repeating. He spoke thus of the legal position of a man who has committed an act of bankruptcy : - "Until commission of the act of bankruptcy he was, of course, the beneficial owner of whatever assets he possessed, but by the act of bankruptcy his title to be regarded as such beneficial owner is no longer absolute, but is contingent on no bankruptcy petition being presented within three months" (here six months) "of the date of the act of bankruptcy which leads to a receiving order being made. If such receiving order be made the whole of the assets vest in his trustee as from the date of the act of bankruptcy. He is, therefore, in the position that should such a contingency occur he is from the date of the act of bankruptcy something less than a mere trustee of his assets for the creditors in his bankruptcy. Until this state of suspense has been removed either by a receiving order or by lapse of time, he has no right to deal with those assets that were in his hands, and can give no title in them to any transferee with notice. Similarly, with regard to the debts and other choses in action which form part of his estate, he cannot collect them or give a valid discharge for them, and anyone making a payment to him with notice of the act of bankruptcy does so at his peril." (at p423)

5. The respondents as applicants for the order made a case under the doctrine of relation back by putting in the ledger accounts in relation to the business of the bankrupt Cowan whether carried on at Sylvania or at Miranda. In effect it is the items of the latter which for this purpose matter. Items of payments to the appellant company between 17th December 1956 and 2nd March 1957 were taken out amounting to 2,526 pounds 18s. 6d. (a sum reduced by reason of certain discounts to the amount of 2,514 pounds 8s. 6d. adjudged to be paid to the trustees). The appellant company did not go into evidence and counsel for the respondent trustees takes the simple position that the ledger account is a prima facie admission of receipts and under the doctrine of relation back that is enough. It is at this point that the third of the questions arises. (at p423)

6. An inspection of the account causes some little misgiving as to the safety of the inference. It would seem that after 30th November 1956 goods to the amount of 2,145 pounds were supplied by the appellant company to the business and items may be seen on the other side of the ledger amounting to something over 880 pounds which look as if they were cash payments for some of these goods. There are payments made by the Universal Guarantee Corporation and there are payments after the business was taken over and conducted in the interests of the creditors. It may be that the benefit of what was done thus passed into the hands of the trustees in bankruptcy. To put it briefly the inferences of fact are left obscure. Possibly counsel for the trustees is right in his contention that if and when it is worked out the result would be that the amount of 2,514 pounds 8s. 6d. is payable. But I do not think that the matter should be left to guess-work. There is no clear presumption and no reliable inference as to the amount. I think the declaration and order in relation to the amount of 1,282 pounds 16s. 0d. should be set aside and unless the parties otherwise agree an inquiry should be had and an account taken to ascertain the amount repayable by the appellant company to the respondent trustees of the bankrupt estate in consequence of the dealings with the bankrupt after 30th November 1956 the date when the bankruptcy is deemed to have commenced. (at p423)

7. The order I would make is as follows : - Appeal allowed. The appellant's costs to be paid out of the assets of the bankrupt estate subject to any prior charges : the costs of the respondent trustees as between solicitor and client to be paid or retained out of the said assets. Set aside so much of the order of the Federal Court of Bankruptcy as declares that 2,514 pounds 8s. 6d. was paid by the bankrupt to the now appellant company between 30th November 1956 and 18th April 1957 and such moneys were the property of the now respondent trustees and as orders that the now appellant company do pay to the now respondents as trustees of the bankrupt estate the two respective sums of 1,282 pounds 16s. 0d. and 2,514 pounds 8s. 6d. and as deals with costs. In lieu thereof declare that inasmuch as the property the subject of the preference referred to in the preceding part of the order of the Federal Court of Bankruptcy was not in fact taken out of the hands of the bankrupt and handed over to the appellant company, or otherwise put in its beneficial possession and enjoyment or otherwise excluded from the business operations of the bankrupt the appellant company is not liable under s. 95 of the Act to pay the sum of 1,282 pounds 16s. 0d. to the respondent trustees. But inasmuch as the date of the commencement of the bankruptcy by virtue of s. 90 of the Act is 30th November 1956, order that unless the parties otherwise agree there be an inquiry as to the dealings with the property of the bankrupt including receipt of moneys belonging to him which were had by the appellant company on and after 30th November 1956 resulting in a liability to repay to the respondent trustees of the bankrupt estate any and what sums of money. Let such account be taken as may be found necessary. Let the result of such account be certified to the Federal Court of Bankruptcy. Remit the cause to the Court for further consideration and to make such order upon the motion consistently with this order as may appear just, including an order as to the costs of the motion and of proceedings under this order and upon further consideration. Liberty to the parties to apply to the Federal Court of Bankruptcy. (at p424)

McTIERNAN J. I agree in the order proposed by the Chief Justice and in his reasons and I have nothing to add. (at p424)

FULLAGAR J. I have found this an extremely difficult case, the difficulty being enhanced by the fact that the material before us is scanty and inadequate. I agree with the judgment of the Chief Justice, which I have had the great advantage of reading, but I wish to state my own view of various aspects of the case as I see it. (at p424)

2. The order under appeal declares that the bankrupt, Sydney Thomas Cowan, on or about 30th November 1956 transferred to the appellant company property of the value of 1,282 pounds 16s. 0d., that this transfer, he being then unable to pay his debts as they became due, had the effect of giving to the appellant company a preference, priority or advantage over his other creditors, and that it was therefore void by virtue of s. 95 of the Act. The order also declares that the said transfer was an act of bankruptcy by virtue of s. 52 (c) of the Act, with the result that, by virtue of s. 90 of the Act, the bankruptcy must be deemed to have relation back to, and to have commenced at, 30th November 1956. The order then recites that sums totalling 2,514 pounds 8s. 6d. were paid by the bankrupt to the company between 30th November 1956 and 17th April 1957, and orders that both the sum of 1,282 pounds 16s. 0d. and the sum of 2,514 pounds 8s. 6d. be paid by the company to the respondent trustees. The sequestration order was made on 10th May 1957 on an act of bankruptcy committed on 17th April 1957. (at p425)

3. By the middle of 1956 Cowan had become unable to pay his debts as they became due, and it is clear that this fact was known to the company some time before November 1956. Up to November 1956 goods had been supplied by the company to Cowan on terms that they should be paid for within thirty days of delivery. Goods delivered to Cowan thus became his property on delivery to him. His dealings with the company were recorded by the company in a customer's ledger account, to which the prices of goods sold by the company to Cowan were debited, and payments made by Cowan to the company were credited. On 27th November 1956 Cowan signed the letter on which the respondent trustees primarily founded their application for the orders in fact made by Clyne J. The full text of this letter is as follows:-

"The Directors of Radio Corporation Pty. Ltd.,
121 Crown Street,
Sydney.
Dear Sirs:
Following upon my recent interview with the Credit Manager
wherein my account was discussed I now wish to confirm my
proposal for the reduction of the account, which I submit for
your approval.
A. Cash for all Domestic Sets, Refrigerators, Records and
Parts.
B. Television Sets to be paid in seven (7) days.
C. All finance for stock of Astor held on hand by myself to
be treated through the Universal Guarantee Corporation
and cheques to be forwarded to your Company.
D. A weekly payment of forty pounds (40 pounds) per week;
1st payment to be made before the end of October.
E. Stock previously delivered to be transferred to

Consignment A/c. as previously arranged.

I also certify that I have approximately eleven hundred and
twenty pounds (1,120 pounds) of Astor stock at my premises at
Miranda and that I have disposed of my other business at
Sylvania, and that I have no partners whatsoever, and should
I fail to carry out my obligations in any regard will negotiate
a Bill of Sale over all my assets." (at p426)

4. The Universal Guarantee Corporation was a subsidiary of the appellant company, which financed retail sales of the appellant company's goods. (at p426)

5. On 30th November 1956 the company, without closing its current ledger account with Cowan, opened a new customer's ledger account under the heading "Consignment account, Sid Cowan, Sylvania Radio, Kingsway, Miranda". Above these words appear the typed words "Refer all debits and credits to Credit Manager", and below appears a note purporting to be signed by Mr. Brittain, which reads: - "Watch. Sale or Return." The initial entry in this account is a debit entry, dated 30th November 1956, of 360 pounds 12s. 0d. (probably representing two television sets supplied on that date by the company). Immediately following is a debit entry, also dated 30th November 1956, which reads: - "Being transfer as arranged - 1,282 pounds 16s. 0d.". On the same day a credit entry was made in the old current ledger account: - "Being transfer to Sid Cowan as arranged - 1,282 pounds 16s. 0d.". (at p426)

6. The old ledger account, as has been said, was not closed when the "consignment account" was opened, but only a few small entries relating to records and cash payments were entered in it after 30th November 1956. In February 1957, when representatives of the creditors took charge of Cowan's business, this account showed a debit balance of 2,519 pounds 6s. 2d. In the "consignment account" a considerable number of entries appear between 30th November 1956 and 31st March 1957. The debit entries (excluding the 1,282 pounds 16s. 0d.) show goods supplied (probably all, or almost all, being radio or television sets) to a total value of 2,145 pounds 9s. 0d. Credits are, with two exceptions, entered under the word "Cash", and the total amount of these credits is 2,505 pounds 6s. 6d. The two exceptions are entered under the name "Universal Guarantee". (at p426)

7. It may, I think, be accepted (in spite of an objection, which Clyne J. seems to have upheld) that stock was taken immediately after the letter of 27th November was signed, and that the price to Cowan of the Astor stock held was agreed to be not the figure mentioned in the letter but 1,282 pounds 16s. 0d. It would appear that, after Cowan's bankruptcy, the trustees obtained possession of so much of that stock as had not been sold before the making of the sequestration order. (at p427)

8. The argument for the respondent trustees, which appears to have been accepted at all points by Clyne J., proceeds by the following steps. 1. The effect of par. E of the letter of 27th November 1956, followed by the carrying to the new "consignment account" of the price (1,282 pounds 16s. 0d.) of the Astor stock held by Cowan on that date, was that, although Cowan remained in possession of it, the ownership of that stock was re-vested in the company. 2. This transfer of ownership of goods to the value of 1,282 pounds 16s. 0d. gave to the company a "preference, priority or advantage over the other creditors" within the meaning of s. 95 of the Act, and Cowan having become bankrupt within six months was avoided by that section. 3. The company is therefore bound to pay to the trustees the sum of 1,282 pounds 16s. 0d. 4. The transfer of ownership of the goods, because it gave a "preference", was an act of bankruptcy by virtue of s. 52 (c) of the Act. 5. By virtue of s. 90, therefore, Cowan's bankruptcy is "related back", and must be deemed to have commenced on 30th November 1956. 6. Between 30th November 1956 and the date of the sequestration order (10th May 1957) Cowan paid to the company, on account of his indebtedness to it, sums totalling 2,514 pounds 8s. 6d. 7. That sum, because it must be deemed to have been paid by Cowan after the commencement of his bankruptcy, must be repaid by the company to the trustees. (at p427)

9. There is, I think, much to be said for the view that this argument breaks down at the first step for the reason that what was done was not effective to re-vest the ownership of the goods in hand in the company. A re-delivery of possession is not necessary in order to establish a re-vesting of ownership. It would be enough to prove that Cowan's possession changed from that of an owner to that of a bailee. But a re-vesting of ownership must have involved the crediting to Cowan of the price with which he had been debited when the goods were delivered to him, and nothing was credited to him. There was merely a transfer of a debit of 1,282 pounds 16s. 0d. from one ledger account to another. The latter account showed simply, as the former account had shown before the transfer, Cowan indebted to the company in the sum of 1,282 pounds 16s 0d. Moreover, the other items in that account represent new goods supplied, and those goods were covered not by par. E but by pars. A and B of Cowan's letter. They were to be sold outright to Cowan on terms of cash on delivery or cash within seven days of delivery. (at p428)

10. Counsel for the trustees, although he agreed that an accountancy "purist" might have treated the position differently in his books, said that the debiting of the 1,282 pounds 16s. 0d. to Cowan in the "consignment account" was consistent with the ownership of the goods represented by that amount having re-vested in the company and with those goods being held by Cowan not as owner but as bailee. This may be so, but it is certainly open to argument that the only proper course for a Court to take is to treat the accounts as presenting the position which on their face they present. (at p428)

11. However, bearing in mind that the central element in the case is not the company's book-keeping but par. E of Cowan's letter, I have come to the conclusion that what was done in November 1956 did have the effect of re-vesting in the company the ownership of the Astor stock in Cowan's possession at that time. My reason for so thinking is that I am unable to see any point or purpose in the opening of the consignment account, the taking of stock, and the transfer to the consignment account of the price (1,282 pounds 16s. 0d.) of the stock found to be on hand, unless the object was to re-vest in the company the ownership of that stock. It is clear that Cowan wished to be supplied with further Astor stock, while the company desired a substantial reduction in the actual indebtedness of Cowan to it. The arrangement of November 1956 was designed with both these ends in view. Further stock was to be supplied by the company to Cowan, but on what were practically cash terms. Most, if not all, of Cowan's sales to customers would be on terms, and he was to sell to Universal Guarantee, which would pay out the company and enter into a hire purchase agreement with the retail customer. The desired reduction in Cowan's indebtedness was to be effected in two ways. First, Cowan was to pay 40 pounds per week off the amount standing to the debit of the old account after the transfer of the 1,282 pounds 16s. 0d. to the new consignment account. And, secondly, the goods on hand in Cowan's shop were to be held by him not as his own property but "on consignment", so that he would no longer be a debtor in praesenti in respect of those goods. It seems to me that it was a necessary and intended result of that arrangement that the company became the owner of the goods in question, and that Cowan, who had previously been the owner of those goods, became a bailee. The company was to have the goods instead of the price. The first step in the argument for the trustees must, therefore, I think, be accepted as correct. (at p429)

12. The second step must then, I think, also be conceded, though again I have felt difficulty about the position. (at p429)

13. According to the heading of the consignment account Cowan became a bailee of the stock on hand on terms of "sale or return", and Rule 4 in s. 23 of the Sale of Goods Act 1923-1953 (N.S.W.) provides : - "Where goods are delivered to the buyer on approval or on 'sale or return' or other similar terms, the property therein passes to the buyer - (a) when he signifies his approval or acceptance to the seller, or does any other act adopting the transaction ; (b) if he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact." Before the passing of the English Act of 1893 Jessel M.R. in Ex parte Wingfield ; Re Florence (1879) 40 LT 15 had said : - "What is the position of a man who has goods sent to him on sale or return ? The owner sends the goods to him with the option of keeping them, and that option the person to whom they are sent may exercise in one of three ways - he may say that he accepts them at the price named, or he may sell them, or he may keep them so long that it would be unreasonable that he should afterwards return them to the sender. If he attempts to sell the goods, he does so not as owner, but only as having an option to sell or return" (1879) 40 LT, at p 16 . To the same effect is what was said by Lopes L.J. after the passing of the Act in Kirkham v. Attenborough (1897) 1 QB 201, at p 204 . (at p429)

14. If the bailment to Cowan in November 1956 were really a bailment on sale or return within the meaning attributed to that expression by the cases and by the Act, might it not be said with much force that between November 1956 and May 1957 much more than a reasonable time for Cowan to exercise his option of returning the goods had elapsed ? On that view Cowan would have become again the owner of the goods, or such of them as remained in his hands, and it could not be said that the company had received any effective preference, priority or advantage. (at p429)

15. However, having regard to all the circumstances, I do not think it can be held that Cowan remained in possession of the goods on terms of "sale or return" in what may be called the technical sense of that term. The term is not used in par. E of Cowan's letter, which, as I have said, is the central element of this case, and I do not think that the parties ever agreed to anything except that the property in the goods on hand should re-vest in the company and that they should remain for the time being in Cowan's possession. While they remained in his possession, he had authority to sell them, but any sale by him would be a sale by him as agent for the company, and, until they were sold, the company could take possession of them, as its own property, at any time. That is what is ordinarily meant, I think, when goods are delivered "on consignment". Mr. Brittain may have thought that "sale or return" was synonymous with "on consignment", but, whether he did or not, I do not think he intended for a moment to use it in its Sale of Goods Act sense. For him the word "sale" in "sale or return" meant sale by Cowan, not sale to Cowan. It is for these reasons that I think that the arrangement of November 1956 had the immediate effect of giving to the company a preference, priority or advantage over Cowan's other creditors. It meant that the Astor stock on hand in Cowan's shop would not be available for the general body of Cowan's creditors, as it would have been before the arrangement was made. (at p430)

16. The third step in the argument for the trustees is that the sum of 1,282 pounds 16s. 0d. is payable by the company to Cowan's estate. Clearly, in my opinion, this does not follow. Section 95 of the Act does no more than avoid the re-transfer of ownership from the company to Cowan. It means no more than that, despite the arrangement of November 1956, the goods in question remained Cowan's property. If the company had ever taken possession of the goods or any of them, it would no doubt have had to restore them or pay their value. But it never did take possession of any of them. (at p430)

17. Of the remaining steps in the argument for the trustees it is only the last that gives rise to any difficulty. The fourth and fifth steps must be conceded. The giving of the preference or advantage to the company was an act of bankruptcy by virtue of s. 52 (c) of the Act, and Cowan's bankruptcy must, by virtue of s. 90, be "related back" and deemed to have commenced on 30th November 1956. The sixth step is matter of pure fact : the amount, 2,514 pounds 8s. 6d., represents, subject to certain small adjustments, the total of the sums paid by Cowan to the company and credited to him in the old ledger account (these are trifling in amount) and in the consignment account. But, with regard to the seventh and last step in the argument, it is impossible on the material before us to say that the total of the amounts credited in the consignment account, or any ascertained part thereof, is repayable by the company to Cowan's estate. (at p431)

18. In Cowan's letter of 27th November 1956 par. E dealt only with goods held in stock by Cowan on that date. The letter contemplated the supply to Cowan of further goods in the future, and pars. A and B dealt with goods to be supplied in the future. These were to be paid for either by cash on delivery or cash within seven days of delivery. It is possible - indeed it seems very probable - that some, if not most, of the amounts credited to the consignment account after the date of the arrangement represented cash payments for goods supplied after that date. The company could not be compelled to repay sums received by it by way of cash payments for new goods delivered to Cowan, because such payments would not have the effect of depleting Cowan's estate. So far as such payments are concerned, for everything that went out of that estate something equivalent came into it. I agree, therefore, with the Chief Justice that, in allowing the appeal, we should make an order for an inquiry and account. I agree also with the rest of the order proposed by his Honour. (at p431)

ORDER

Appeal allowed. Costs of appellant to be paid out of assets of bankrupt estate subject to any prior charges : costs of respondent trustees of the bankrupt estate as between solicitor and client to be paid or retained out of the said assets. Set aside so much of the order of the Federal Court of Bankruptcy as declares that 2,514 pounds 8s. 6d. was paid by the bankrupt to the now appellant company between 30th November 1956 and 18th April 1957 and that such moneys were the property of the now respondent trustees of the bankrupt estate and as orders that the now appellant company do pay to the now respondent trustees of the bankrupt estate the two respective sums of 1,282 pounds 16s. 0d. and 2,514 pounds 8s. 6d. and as deals with costs. In lieu thereof declare that inasmuch as the property the subject of the preference referred to in the preceding part of the order of the Federal Court of Bankruptcy was not in fact taken out of the hands of the bankrupt and handed over to the appellant company or otherwise put in its beneficial possession and enjoyment or otherwise excluded from the business operations of the bankrupt the appellant company is not liable under s. 95 of the Bankruptcy Act 1924-1955 to pay the sum of 1,282 pounds 16s. 0d. to the respondent trustees of the bankrupt estate. Order that inasmuch as the date of the commencement of the bankruptcy by virtue of s. 90 of the said Act is 30th November 1956 unless the parties otherwise agree there be an inquiry as to the dealings with the property of the bankrupt including receipt of moneys belonging to him which were had by the appellant company on and after 30th November 1956 resulting in a liability to repay to the respondent trustees of the bankrupt estate any and what sums of money. Let such account be taken as may be found necessary. Let the result of such account be certified to the Federal Court of Bankruptcy. Remit the cause to the Court for further consideration and to make such order upon motion consistently with this order as may appear just, including an order as to the costs of the motion and of proceedings under this order and upon further consideration. Liberty to the parties to apply to the Federal Court of Bankruptcy.