Re Cutts (A Bankrupt)ex parte Bognor ; Mutual Building Society v Trustee of T W Cutts

JurisdictionEngland & Wales
JudgeTHE MASTER OF THE ROLLS,LORD JUSTICE JENKINS,LORD JUSTICE HODSON
Judgment Date17 May 1956
Judgment citation (vLex)[1956] EWCA Civ J0517-1
Date17 May 1956
CourtCourt of Appeal
Re T.W. Cutts, a Bankrupt
Exparte Bognor Mutual Building Society
and
The Trustee of T.W. Cutts, A Bankrupt

[1956] EWCA Civ J0517-1

Before

The Master of the Rolls (Lord Evershed)

Lord Justice Jenkins and

Lord Justice Hodson

In The Supreme Court of Judicature.

Court of Appeal

MR W.A.L. RASBURN, Q.C, and MR MORRIS FINER (Instructed by Mr Denis Hayes) appeared on behalf of the Appellant Building Society.

MR MUIR HUNTER (instructed by Messrs Tarry, Sherlock & King) appeared on behalf of the Respondent Trustee.

THE MASTER OF THE ROLLS
1

The question in this appeal is whether a payment made on the 12th March 1954 of £3503, 7. 9, by the above-named debtor (whose adjudication occurred within six months thereafter, on the 6th September 1954) to the Appellants, Bognor Mutual Building Society (whom I will hereafter generally call "the Society) constituted what is commonly called a fraudulent preference within the scope of section 44 of the Bankruptcy Act, 1914, (As amended).

2

The facts of the case are fully set out in the Judgment of Lord Justice Jenkins which I have had the advantage of reading in advance; and my brother has also recited extracts from the evidence given, upon affidavit and orally, before the learned County Court evidence given, upon affidavit and orally, before the learned County Court Judge which I shall not take time by repeating. It will suffice, for the purposes of this Judgment, to state the few essential facts with their respective dates.

3

The debtor, until he was struck off the roll of Solicitors by order of the Disciplinary Committee of the Law Society on the 24th June 1954, carried on at all material times the business of a Solicit or in Bognor in Sussex. Among the clients of the debtor's firm tae Society (which had been founded in the days of the debtor's father in 1909) was among the most important. Its business was at all relevant times conducted in and from the debtor's office. The debtor, as his father had been before him, became a director and the Solicitor of the Society, capacities which he held at the time of the events shortly to be narrated. At that time also a clerk in the debtor's office, one Willmer, was the Society's Secretary. There was also at that time as an assistant in the debtor's office Mr R. C. Wintle, who had been admitted as a Solicitor in the year 1950 and who was also appointed a director of the Society in February 1953, about the same time as, or very shortly after, the sale by the debtor of the house originally called Greystones which was the occasion of the perpetration by the debtor of the fraud upon the Societyout of which this appeal has arisen.

4

This house, being then subject to a mortgage in favour of the Society for £3000, was sold by the debtor in January or February of 1953. For the purposes of completion to the purchaser, the debtor had obtained the execution of a discharge by or on behalf of the Society. It does not appear from the papers before us how this discharge was obtained or what form it took. But, in answer to enquiries which we made, we were informed during the hearing of the appeal that a discharge had been executed on behalf of the Society (not by the debtor himself or Wintle) as an escrow and was in the debtor's hands, presumably as Solicitor for the Society. Upon completion of the sale the debtor handed over the deeds, including the mortgage and its discharge, to the purchaser and received from him the purchase price. He did not, however, account to the Society for the sum due on the mortgage which he applied for his own purposes. He successfully concealed the fraud from the Society.

5

Unhappily, this fraud was not the only one of the debtor's misdeeds. He had also for a substantial period failed to comply with the Solicitors' Accounts Rules and had misapplied consider able some of his clients' moneys. These last-mentioned malpractices had come to the knowledge of the Law Society as a result of an investigation of his books conducted on the Law Society's behalf. That investigation had been completed one week before the payment challenged in these proceedings and immediately upon its completion the requisite application had been made to the Disciplinary Committee of the Law Society to strike the debtor's name off the Roll. The Law Society was not then or at any relevant time aware of the debtor's fraud upon the Building Society in regard to the mortgage on Graystones; nor was it at any relevant time aware of another fraud which the debtor had perpetrated on the Building Society which, is briefly mentioned hereafter.

6

It is not now in doubt (it has boon so found by the County Court Judgo) that in October 1953 Wintle become aware of the deficiencies on clients' accounts and of the debtor's a misapplication of the money due on the Graystones mortgage. It is equally not indoubt and has been found that Wlntle neither then nor at any other relevant time, though one of its directors, Informed the Society of the facts as to the discharge of the mortgage. What passed between Wlntle and the debtor from October 1953 onwards is a matter to which much, of the evidence was directed, but it is to my mind clear that the County Court Judge did not accept the evidence that Wintle had put pressure upon or extracted promises from the debtor in regard to repayment of the £3000 odd due to the Society. Wintle was also (necessarily) aware of the investigation carried out by the Law Society, He was aware of the result of that investigation in the first days of March 1954, including the application that the debtor's name should be struck off the Roll. At the beginning of April 1954 - that is, after the payment challenged in these proceedings had been made - Wontle entered into an agreement with the debtor in somewhat peculiar form providing that Wintle should either become the debtor's partner or acquire the firm's business - the alternatives depending upon whether, as a result of the pending application to the Law Sooiety, the debtor was or was not struck off the Roll. It is however to be netted that Wintle's participation in the firm had been under discussion for several years, and it was not seriously suggested or argued - end certainly not found - that the payment to the Society was made as a condition of Wintle's execution of this April 1954 document.

7

To one other matter I wish to refer since it does not in certain respects seem to me to be without significance. The matter of the discharge of the mortgage was not the only fraud which the debtor executed upon the Society. In the year 1937 the debtor had obtained from the Society a sum of £850 avowedlyfor the purpose of advancing it on the Society's behalf to one Collis upon mortgage. The doubts in fact applied it for his own purposes. This fraud - the details of which do not now matter - was successfully concealed both from the Society and from the Law Society. It came to light only upon its discovery by Wintle at the end of June 1954, and it was repaid (with all interest due) to the Society in July 1954. When the present application cave before the County Court Judge it included a claim also to set aside the July repayment as having been (like the payment now the subject of this appeal) a fraudulent preference. But with regard to the July repayment it is to be noted that the County Court Judge accepted the evidence put before him by the debtor and Wintle to the effect that it had been made under pressure and threats of criminal proceedings on the part of Wintle and the Society. The County Court Judge also accepted the additional explanation of the debtor that he regarded the sum in question as having been trust money in his hands and himself therefore under a special obligation to make restitution. But what to my mind is also by no means without some significance is this; if it is said that the-true inference from the facts proved and found is that the debtor paid the £3000 odd to the Society to avoid the risk of discovery of his fraud on the Society (unknown to the Law Society) and the serious consequences, for him, that would follow discovery - or, at least that such an inference Is as legitimate as the inference of intention to prefer - then it is to be noted that the debtor at that critical time for him did not also take any steps to repay the £850, equally then unknown to the Law Society; though (apart from any disclosure that Wintie might have made) discovery of the one was not more unlikely than discovery of the other, and the consequences in either case would be equally disastrous. I do not forget Wintle's knowledge of the £3000 matter: but, particularly since Wintle had already kept his knowledge to himself for four to five months it would,to my mind, have been highly improbable that he would have disclosed the matter to the Law Society where, for the debtor, the immediate and pressing danger lay.

8

The relevant wards of Section 44 (1) of the Bankruptcy Act are few end well-known. A payment deemed to be fraudulent and liable to be set aside under the sub-section is one "made… by any person unable to pay his debts as they become due from his own money in favour of any creditor with a view of giving such creditor… a preference over the other creditors…"

9

Though the language of the sub-section is, upon the face of it, straightforward and simple enough, the question of the applicability of the section to the facts of particular cases has not seldom proved in practice a matter of difficulty. So much appears clearly from the number of the eases containing judicial pronouncements upon the construction of the words now incorporated in section 44 and previously found in the corresponding section of the earlier Act of 1883, the principle expressed by the words being indeed earlier than its statutory adoption. I shall not attempt for myself any exhaustive exposition of the requirements of the sub-section: but, so far as those requirements are in...

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