Richardson v Commercial Banking Co of Sydney Ltd [1952] HCA 8

High Court of Australia Dixon, Williams and Fullagar JJ. Richardson v Commercial Banking Co of Sydney Ltd [1952] HCA 8

ORDER Appeal dismissed with costs. Cross-appeal dismissed with costs. Costs to be set off.

Cur. adv. vult.

The Court delivered the following written judgment:—

March 11, 1952 Dixon, Williams and Fullagar JJ.

This is an appeal by the Official Receiver, as trustee of the estate of Harold Joseph Price, a bankrupt, from an order of the Federal Court of Bankruptcy declaring that, with one exception, various payments made by the bankrupt into his banking accounts with the respondent bank did not, as was alleged by the Official Receiver, constitute preferences within the meaning of s. 95 of the Bankruptcy Act 1924-1946. The exception is a deposit of £390 made on 17th October 1947, which the order declared to be a preference and void. Against this part of the order the respondent bank cross appeals. The order of sequestration was made on 12th November 1947 on a petition presented by the bankrupt himself on that day. The period therefore of six months within which a preference priority or advantage must have been given by a debtor, if its validity is to be open to attack under s. 95 (1), extends back to 13th May 1947 from 12th November 1947.

The bankrupt was a solicitor of the Supreme Court of New South Wales who had practised in the city of Sydney for about thirteen years. Although he practised in the city his banking business was done at the branch of the respondent bank at the suburb of Marrickville. There he had a private account, an "office" or ordinary business account and a trust account. He said that he began with the private account and then in 1937 opened the other two accounts. The reason he gave for banking in the suburbs was a ripening friendship with the local manager, one Commins, a friendship which proved disastrous. To Commins, however, it must for a time have been useful. For Price put a great deal of business in the way of the local branch. But Price, who was a gambler, got into deep water and resorted to all the time-honoured devices for keeping his head above the surface. He had lodged some securities for an overdraft upon his office account but he continually overdrew. He placed cheques drawn on his trust account, and in this and other ways he contrived to misappropriate sum after sum of his clients' and other trust moneys. Sometimes he paid trust moneys into his office account. There were occasions when he transferred moneys from his office account to his trust account. This, he said, was done for the most part to meet cheques he had given to clients upon the trust account. He borrowed money from clients and, with Commins' help, from customers of the branch of the respondent bank. He resorted freely to the use of accommodation cheques, sometimes other peoples' sometimes his own. He gained some advantage in the practice of this device by the possession of accounts in two other banks. In all this he expected the assistance and protection of his friend Commins and the latter seems to have done the best he could for him. But the head office kept a critical and suspicious eye on Price's accounts and it is evident that Commins would not honour cheques when the result would be to place the account too heavily in debit, and so disclose upon the record that he was doing more for his friend than for his bank. By the time the period of six months was reached with which this appeal is concerned a definite practice had been established between them for dealing with the daily situation. It was a course they followed for about two years before the sequestration order. Invariably, said Price, shortly before two o'clock in the afternoon, he would ring up Commins, when the cheques had come from the other banks for collection. There would then be a consultation as to what cheques could be dishonoured without too much danger, what could be met and how. "Where they were cheques it was very desirable to meet", he said in evidence, "that is dangerous cheques, if I had £500 in and I wanted £1000, I would have to try and see where I could get further money from. I discussed it with him; perhaps I would go to so and so or I had seen so and so that morning and that I could get a couple of hundred from him that afternoon or something like that". He added that the position of the trust account would be considered when the cheques in for collection were cheques upon the office account. Price was asked to tell the Court in general the conversations between Commins and himself about paying moneys. In answer he gave an example as follows:—"The account would be overdrawn by say £700 and there would be £300 worth of cheques coming in during the day." I would speak to him and I would not have the £300, I would probably say to him, "I have £100 in the office. I will get that out." He would say: "That will not be enough". I would say: "I cannot get any money from this one and that one", and he might say, "How about McEwan" or mention some other name and I would say, "I will see if I can't do something with them". He would say: "If you do not get me word that you can get £150 somewhere about five o'clock I will send all your cheques back". Nearly every day some one would go out to Marrickville with whatever Price had said he could lodge. The hours of business having ended, the amounts so lodged would for the most part be credited next day. The order of the entries in the passbook, even on the same day, often did not coincide with the order of events. Price said that when he gave his word about his obtaining money Commins accepted it because in those matters Price always told him the truth. He did what he said he would do or, if it became impossible, he told Commins. Commins and Price apparently regularly saw each other before the day's work began and no doubt this meant that Commins was fairly well informed in advance of what the day was likely to produce. In the end, as might be expected, Price was arrested for criminal misappropriation. This was on 16th October 1947 and his bank accounts were closed next day.