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Decisions of the Superior Courts of New South Wales, 1788-1899

In re Mahony [1828] NSWSupC 31

insolvency, imprisonment for debt, ne exeat regno, habeas corpus, reception of English law, bankruptcy, equity, delays in

Supreme Court of New South Wales

Forbes C.J., Stephen and Dowling JJ, 9, 10, and 13 May 1828

Source: Dowling, Select Cases, Vol. 1, Archives Office of N.S.W., 2/3461

[p. 116]

[Friday 9 May.]

[To bring the party up to be examined touching his estate and affects under 4 G. 4. C. 96. s22[1 ] and upon the return of the writ an examination of the party, the court will appoint provisional trustees to collect in his estate and effects the party however, to be free from personal confinement in the meantime.]

In re Mahony

This person had carried on trade in the town of Sydney, and in the course of his dealings had contracted various debts.  To one of his creditors Cavenagh et an he had given two promissory notes payable at long dates for a larger amount   On a former day an application was made to the Court at the instance of this creditor for a writ of ne exeat regno[2 ] upon a suggestion that Mahony had purchased a vessel called the Java, had attempted to leave the Colony in a clandestine manner, and had expressed his intention of leaving the settlement not to return again.  It was further stated he had shut up his shop left nobody to conduct his business that he was taking away all his effects, and that he was in [p. 117] embarrassed circumstances and unable to pay his debts and meant to go away in order to defraud his creditors.  The Court did not think there was a sufficient debt in presenti[3 ] due to the applicant, to justify the issuing of a writ of ne exeat regno, but it being suggested that there was a writ out against the Defendant, the suit of Cooper and another, as returnable in two or three days the Court gave leave to the Plaintiff to take out another writ returnable instante, and the Defendant being arrested and brought into Court it was proposed that the 22nd sect of 4 Geo 4.C.96 should be set in motion against him and that in the meantime a provisional trustee should be appointed to collect and receive his estate and effects.  A person named Ellis Scott a creditor was accordingly appointed subject to the orders of the Court the Defendant was then remanded/not being ready [p. 118] to submit himself to examination) until a future day and it was ordered that in the meantime his creditors should be summoned.

[1828 Saturday 10 May In re Mahony]

At the sittings of the Court this morning.

Dr Wardell who appeared on behalf of Michael Mahony, stated that his client was not in Court pursuant to the order of the Court on a former day for that since then Mahony had been apprehended on a charge of feloniously taking away some of his own goods whilst in possession of the provisional trustee and that he was now in custody at the watch house.  He therefore applied for a writ Habeas Corpus ad testificandum[4 ] for the purpose of bringing him up to be examined to noting his estate and effects.  The Court [p. 119] said they would now enter into the merits of the ground on which the prisoner had been apprehended and a charge of felony; but they saw no objection to granting a writ of habeas corpus ad testificandum returnable instanter granted.

This person being brought up in Custody of the keeper of the watch house in obedience to the Habeas Corpus for the purpose of being examined touching his estate and effects, pursuant to the 4 9.4.C96. s22 a question arose as to the order of the proceedings.

Wentworth for the creditors claimed the right of beginning, first to examine the prisoner and second the creditors and other persons he might think proper, for the purpose of making out a case of insolvency.

Wardell submitted that [p. 120] the proceeding originally being exparte and the Defendant bring brought up to answer the prima facie case on which the Court was induced to act, the proper course was for him to begin by examining the Defendant; and calling witnesses to rebut the presumption of insolvency; but

The Court adverting to the terms of the 22nd Section of the act, and to the course of practice pursued in proceedings in Bankruptcy in England thought the creditors out to begin by establishing a case of insolvency.

The supposed insolvent was then examined at length; and the further proceedings were adjourned until Tuesday the 13 instant   In the meantime Mahony was admitted to Bail upon the charge of supposed [p. 121] felony himself in 200 pounds and two sureties in 100 pounds each.

As to the charge of felony, the Court resolved at once that there was no pretence for saying that the Insolvent by taking possession again of his goods after they were in the custody of the provisional Trustee, was guilty of felony.  At the utmost it was only a contempt of Court, or would deprive him of his certificate under the 23d section if it turned out that he was insolvent.

Dowling J summed up the case The Jury retired for a considerable time.  Verdict

Foreman says they cannot agree in their verdict.

Attorney General says he consents to the Jury being discharged from giving any verdict.

[p. 122]

[Tuesday 13th May]

Michael Mahony, being a trader in Sydney and purchased a vessel called the Java and fitted her out for a trading voyage to Timour, or such other place as he thought most advantageous for a Mercantile adventure.  In consequence of his having attempted to go on board the vessel for the purpose of leaving the Colony in a Clandestine manner, one of his creditors to whom he was indebted in a large sum of money upon promissory notes of long dates, but not then due for many months, applied to the Supreme Court for a writ of ne exeat regno in order to his obtaining security for the debt; but the Court thought that this writ could not issue inasmuch as it could be founded only upon a debt due in presente: It was then suggested that Mahony was [p. 123] insolvent circumstances, and at the instance of another creditor to whom there was a present debt due the Court gave leave for a writ to issue returnable instanter for the purpose of giving the Court jurisdiction to inquire into the state of Mahony's affairs under the authority of the 4 Geo 4.C.96.s.22.  A writ having issued accordingly, the Sheriff brought the Defendant into Court, when the Defendant by his attorney/Keith/ prayed time to answer such questions as might be put to him touching the state of his affairs.  In the meantime the Court with consent of all parties, appointed Mr Ellis Scott JP to be trustee, with authority to take possession of theJava then in the harbour about to sail for Timour.  Michael Mahony having been brought up a subsequent day was examined at length and the [p. 124] examination not being concluded the further proceedings were adjourned to this day, when it appeared from the defendants own statement and from other evidence,

That Mahony had purchased the Java for 1200 pounds had fitted her up for a voyage to Timour, putting on board a small investment for trade with that island; that he purposed embarking on board the vessel himself in a clandestine manner, having written a letter (which was intercepted) to the Captain desiring him to put to sea, after sending all strangers from the ship, and that he himself would join her at the heads; that he allowed an advertisement to remain at this time in the Sydney Gazette notifying to the public that he had opened a [p. 125] new establishment for vending groceries in Pitt Street that the notes and bills which he had given to his creditors would have been due long before his voyage out and home to Timour could have been completed that he had issued notes to his ships company for their wages, payable by himself in Sydney three days after the vessel should have sailed that he had formed a secret copartner ship with a Mr Eager but which was never carried with into effect; that on the very day the assignment to Mr Scott took place, he clandestinely made sale to Eager of a large quantity of his goods nominally for 600 pounds but in fact as a collateral security to Eager for an obligation which the latter had come under as a guarantee for the payment of a portion of the purchase money of the ship Java; that this assignment [p. 126] was executed at eleven at night; that he had clandestinely repossessed himself in the dead of night of a portion of the goods in his warehouse after possession had been taken by the Trustee: that he now returned in his schedule a grant of land as part of his estate and effects which he had in fact sold eighteen months since to a Mr James that although the balance sheet which he produced of debts and credits would show that he was not insolvent, yet that his goods were overrated in value, and that consequently he was really not insolvent circumstances.

After sifting the case at considerable length and hearing Wentworth for the creditors, and Dr Wardell for the alleged insolvent, Forbes CJ and Dowling J resolved that [p. 127] it was a case in which they ought to take recognizance of the question of solvent or Insolvent, and delivered their opinions to the following effect.

Forbes CJ  There is an important fact in dispute between Michael Mahony and his creditors, as to the true value of his estate and effects.  Upon this fact depends the whole question of his insolvency; and therefore the Court has come to the conclusion of referring it to some accredited officer of the Court with the assistance of competent persons, to inspect and appraise the goods and effects of the supposed insolvent, and report upon the value for the guidance of the Court.  Before however the order issued I wish to make a few remarks upon the grounds on which the [p. 128] Court has interposed its authority under the act in this case.  It is the first in which the fact of insolvency has been disputed and it becomes the more important to explain the views by which we are guided, lest they should be mistaken, and an erroneous precedent drawn, under the supposed sanction of the Court.

The 22nd section of 4 Geo4.C.96. under which this court exercises its jurisdiction in insolvent cases requires the Court whenever it shall appear at the return of process, that the party against whom process was issued, is unable to pay "his creditors" twenty shillings in the pound" to cause the creditors to attend the court by public notice, and to inquire into the fact of the insolvency of such party.  This is the whole substance of the law, and [p. 129] in the interpretation of Parliament, it become important to interpret the value of the word "creditor", as used in the act; whether it means all persons who are creditors by specialtes [sic] or bills not yet due, or only such persons as have demands actually due and payable.  I am of opinion that the word "creditors" was intended to apply to all persons who had certain demands although not actually due.  Parliament has used the word in this sense in several acts.  The 7Geo1.C.31. and 5Geo2.C.30.s.22. have so used it and as it was legislating in pari materia[5 ], and in the most general form of expression, it is within the fair rules of construing acts of parliament to assume that the legislature had in view the equitable principles of the bankrupt laws of England when it created the [p. 130] outline of an insolvent system of law for this Colony caused the word "Creditor", advisedly, and in the general sense it had used it in other acts, under these impressions, I am of opinion that the Court in inquiring into the question whether the debtor has the means of paying his creditors, must look to the creditors generally as well those who are creditors by specialties, notes and other instruments payable at a future day certain as those who are creditors for present debts.

In this view of the law there can be no doubt that the 22nd section of the New South Wales act does in truth enable any present creditor to bring the state of his debtors affairs before the Court and that the Court is bound to enquire into the state and say [p. 131] whether he is insolvent or not a very wide discretion certainly; but like all legal discretion, vested for wise purposes, and reposed under a confidence that the Court will exercise it in such a manner as to preserve the just interests of creditors and at the same time protect an honest debtor from an unfair and improper inquiry into his trade or business.  The Court, in the exercise of this very delicate and indeed difficult part of its authority will be guided by the circumstances which are made to appear either by the proofs of the petitioning creditors, or the examination of the debtor himself.  In fair bona fide cases where there is no intention either proved or fairly imputable, of avoiding the payment of debts, the Court will learn to protect a debtor from a declaration of insolvency and leave [p. 132] him at liberty to adjust his own affairs, in the fullest assurance that he must be enabled to do it with more economy, and in a manner more beneficial to his creditors than could be accomplished through the medium and instrumentality of the Court delegating its powers to trustees.  But if it appear that there has been an intention to evade payment, either by preferring particular creditors, or by taking measures to go out of the Colony, and the reach of the process of the Court; or by any other manner than may render the creditors less secure, the Court will look with a very jealous eye into the transaction, and if it be made to appear that the effects of the debtor, are not capable of meeting his demands, it will declare him insolvent, and place the management of his [p. 133] concerns in the hands of the trustees for the better security of the creditors.  The motives and the intention of the debtor, as manifested by his conduct, with reference to his creditors, will be the criterion by which the Court will be guided taking these motives this intention, with it to the consideration of the state of the debtors affairs it will be guided in coming to a conclusion as to the course it will adopt upon the question of insolvent or not insolvent this necessarily a question of fact, depending a good deal upon the determination of the Court, as to the ulterior course it may order to be pursued.  A great proportion of the effects of persons coming within the scope of the law, generally consists in merchandize and book debts, The value of these must depend in a considerable degree, upon the time that may be allowed in disposing of and collecting them.  So that by giving time it might happen [p. 134] that a debtor would be enabled to realize his effects and pay 20s in the pound when by bringing his affairs to a sudden close they might fall considerably short of the amount they might otherwise have realized it is in the adjustment of this part of its duty, which must necessarily be so important in its consequences to the party that the Court feels the greatest embarrassment.  In the discharge it must be guided by circumstances, and in the estimate of circumstances the presence or absence of fraud, must have a most important influence in its decision.  Does the debtor mean fairly and bona fide to pay his creditors?  This is the touch stone of the case.  In this view of the principle by which the Court should be guided, it becomes a question whether there has been [p. 135] any mark of fraud in this particular case.  I think the manner in which the debtor has been charged with embarking for a foreign port has not been satisfactorily cleared up.  The paper this day exhibited and admitted by him to be of his writing shews a caution, a mode of quitting the Colony not consistent with the common notoriety of such an important step in a resident trader, nor in fact with what is due from such a party to his creditors, taking away with him the chief part of his effects, and leaving his creditors as he unquestionably did without the means of recovering 10 shillings in the pound, for their admitted demands even by the realizing of the highest value of the good and effects he had left behind.  Quitting the Colony in this manner was a most important step.  By the bankrupt laws of England, departing the realm is in itself an act of bankruptcy, if the [p. 136] creditors be thereby defeated or delayed; and although the bankrupt laws, as such, do not apply here, yet the Court cannot but consider a step, which would have brought a trader within the operation of the bankrupt laws at home, as a circumstance in the case of very great importance and one which it must powerfully take into consideration in forming its opinion upon the solvency of the party and the expediency of leaving his affairs under his own management, or placing them in the hands of trustees for the greater protection of the creditors.  With the fact of the present defendant being about to depart from the Colony under the circumstances stated, the Court must look most narrowly into the case.  Again since the proceedings were commenced, with [p. 137] a view to look into the state of the defendants affairs, he has made a partial conveyance, of a very large portion of his stock in trade.  This is very like another act of Bankruptcy.  Taking these two strong facts into consideration, besides the many minor circumstances of just ground of suspicion and alarm.  I am strongly inclined to let the proceedings go on to a more particular inquiry, and to direct an inventory to be made of the effects and debts of the party, and a valuation with a view to the determination of the main fact, whether the assets are equal to the debts of the party.  The debts are admitted to be 3,644 pounds. the effects at their full value at 4,102 pounds. leaving a balance of 500 pounds.  But it has appeared that stock estimated at 1432 pounds. has been alienated at 600 pounds, and that the [p. 138] other effects are considerably overrated.  There are facts for reference, and a particular report; and we must therefore refer it to the Chief Clerk taking the assistance of two proper persons to enquire into the amount of the debts due from Mahony, and the value of the effects actually within his power and control, so as to be subject to the order of the Court and accountable to his creditors.

Dowling J.  After the most attentive consideration of the case, and an anxious desire to see some reasonable ground on which the Court could be justified in abstaining from taking cognizance of this as a case of insolvency, I have come to the conclusion that the course suggested by the learned CJ. is the proper one to be adopted as it respects the interests [p. 139] of all parties concerned.  For the reasons stated by His Honor, I am of opinion that the court has jurisdiction in a proceeding of this nature, under and by virtue of the extensive words of the 4G.4.C.96.s.22. - As a general principal, I should be very tender of putting into operation the extensive power then given to the Court, in a case where the affairs of a trader upon a nice calculation of amounts might not turn out to be strictly solvent; and in this case if it had appeared that the conduct of this gentleman was free from suspicion of an unfair intention towards his creditors even though he was not able to meet all demands.  I should have been very slow in giving my concurrence to a proceeding so detrimental to him as a trader.  We must take it now after the evidence we have heard that this estate [p. 140] is to a certain degree insolvent though not to that extent which had been originally surmised.  My judgement has certainly been influenced chiefly by a consideration of the intention of Mr Mahony manifested toward his creditors by his acts.  The question is, has his conduct been bona fide?  Now we find that this, gentleman has been detected almost in the very act of leaving this Colony in a clandestine manner, without the least previous notice to any (except one) of those persons most interested in the proceeding, namely, his creditors.  We find that this gentleman, though he keeps account books, yet they have not been kept in such a manner as would enable his creditors to asertain the real state of his affairs.  We find that [p. 141] he had formed a secret partnership, which now turns out to be colorable and not entered into for a bona fide purpose.  We find that after his affairs had been put into the hands of a trustee appointed by this Court, he resorts at the dead hour of night, to the indiscreet, not to say fraudulent step of endeavouring to carry off a large portion of his effects with every circumstance of clandestinely.  We find that at late hour of the same night, he makes a secret assignment to his supposed partner, of a large portion of his property in order to cover him against an obligation entered into by that individual on behalf of Michael Mahony for a creditor named Pittman.  We find that even in the conevetion [sic] of those notes or orders given for the payment of seamans wages, there is something at least suspicious; for we do not [p. 142] find, out of what fund those orders were to be paid, after the vessel had sailed with Mr Mahony on board.  These circumstances leave an impression on my mind (and I should have been well pleased to have had it removed) unfavourable to that integrity of intention which ought to influence a fair trader towards his creditors.  Suppose that the English Bankrupt laws were in operation in this Colony, it is clear that Mr Mahony had done no less than three acts, which would have been sufficient to support a commission of Bankruptcy first departing from his dwelling house secondly departing the realm, had he succeeded in his attempt; and third a fraudulent conveyance of part of his effects, to a supposed creditor by way of collateral security.  But though the English bankrupt [p. 143] laws are not here in force, yet I conceive we are at liberty to resort to these circumstances as lights to guide us in looking to theintention of this gentleman towards his creditors   having due regard to the whole matter as now presented to our consideration, I have come to the conclusion (however reluctantly) that the affairs of this gentleman must be referred to the Chief Clerk of the Court in the manner and for the purpose suggested by the learned Chief Justice.

After some further discussion, it was ordered by and with the consent of the creditors and of the supposed insolvent.

Ordered - That his affairs be referred to Mr Gurner the Chief Clerk Mr John McQueen and Mr S. Lyons (to assist) to ascertain the amount of his debts and credits and that the referees

[p. 144] do report to this court upon the question of solvency or insolvency and that in the meantime Mr Mahony be protected in his person from arrest pending such inquiry, and that he do afford every facility to the referees in making a full and true disclosure of his affairs.

===

In this case the Chief Clerk made his written report upon the affairs of Mr Michael Mahony, and it appeared therefrom that taking into account the goods and effects, and debts of the party that Mr Mahony was indebted in the sum of 1690,18.4¾ pounds which he had no funds to meet.  Unwin prayed that Mahony be declared insolvent under the 4 Geo.4.C.96.s.22.

Keith applied for time to traverse the [p. 145] accuracy of the report as to Mr Mahony's affairs but.

The Court (Forbes CJ. Stephen J and Dowling present) they thought they were bound by the report made by the referee, and therefore decreed Mahony to be insolvent, and suggested that,

Dr Moranbe appointed

Mr E ScottTrustees for the

Mr Robsonbenefit of the Creditors

Mahony to be in the meantime protected from arrest, as being a suitor of the Court.[6 ]

Notes

[1 ] The insolvency provision on which this case was based was enacted in the colony's constitution, the New South Wales Act (4 Geo. 4 c. 96, ss 22-23).  It was not repeated in the succeeding imperial legislation, (1828) 9 Geo. 4 c. 83.  The British government decided that insolvency, like foreign attachment, was better delegated to the New South Wales Legislative Council: the policy of the new legislation was discussed in Murray to Darling, 31 July 1828,Historical Records of Australia, Series 1, Vol. 14, pp 260f.

See also Sydney Gazette, 30 May 1828.  It said that Mahony was formerly employed by the mercantile house of Cavenagh and Robson, but left that position to become clerk in the Bank of New South Wales.  He then began business on his own account and took £1900 worth of goods from Cavenagh and Robson on his own bills at long date.  After trading for some time, he entered into partnership with others.  He later left the partnership, and appeared to resume trade on his own.  It was then that he apparently made preparations to leave the colony, still owing money to Cavanagh and Robson.  He was arrested under the equitable writ of ne exeat regno.

[2 ] Lest he or she leave the kingdom.  An equitable writ of arrest to prevent a person leaving the country.

The Sydney Gazette, 1 October 1829, stated that the defendant in a suit heard in September 1829 had been under the restraint of ne exeat for six years, the proceedings in chancery having been pending for the whole of that period.  It called for reform of equity.

Until the permanent Supreme Court took effect in 1824, the colony had a detainer system which restrained debtors from leaving until they received a clearance from the Judge Advocate's office.  Chief Justice Forbes continued the practice for some time after then, but had doubts about it: "This expedient as your Excellency will perceive was intended to be temporary and only to be continued until there should be a legislature in the Colony - it was adopted rather in compliance with the wishes of the Colonists than from any opinion of its utility - for in effect it gives a great deal of trouble to transient persons as well as to this Office and affords to real protection to the Creditor - it is besides an unauthorised measure and had been complained of openly in the Office as unlawful."  He proposed to the governor that the Governor's Order on which the practice was based should be revoked and the matter put before the Legislative Council: Forbes to Darling, 7 February 1826, Chief Justice's Letter Book , Archives Office of New South Wales, 4/6651, p. 68.  On an attempt to obtain something like a modern Mareva injunction, see Short and Berry v. Woolstencraft, 1828.

[3 ] In praesenti: at the present time.

[4 ] In order to testify.

[5 ] In pari materia: in the same subject matter.

[6 ] In Wapples v. Mahony, 1828, Dowling, Select Cases, Vol. 1, Archives Office of N.S.W., 2/3461, p. 166, the Court declared that "Where a defendant has been declared insolvent; the Court will not force a plaintiff to the trial of his actions ".

Later in 1828, the court gave permission to Mr Garling, "one of the sureties and mortgage securities" of Mahony, to prove a contingent debt in the estate: Dowling, Select Cases, Vol. 2, Archives Office of N.S.W., 2/3462, p. 32.  See also Sydney Gazette, 9 June 1828; and Australian, 13 June 1828, which said that the Java Packet sold for £950.

Published by the Division of Law, Macquarie University