On 5 October 1922 the estate of A.B. was sequestrated under the New South Wales Bankruptcy Act, and W. H. Palmer was appointed Official Assignee thereof. B. was a depositor in the Dubbo branch of the Commonwealth Savings Bank. On 23 November he produced his passbook at the Narromine branch (N.S.W.), made out a withdrawal form for £7 and otherwise complied with the Regulations framed under the Commonwealth Bank Act as to withdrawals and was paid the £7.

On 25 November the Official Assignee of the estate wrote to the Manager of the Dubbo branch stating that B.'s estate was, as mentioned above, sequestrated on 5 October, that he had in his possession the bankrupt's passbook showing that on the date of sequestration the bankrupt's account was in credit to the extent of £62, and requesting that a sum equal to this amount be remitted to him. The Official Assignee stated in his letter:

I have written to him (the bankrupt) calling upon him to refund £7 to me, being the amount he withdrew on the 23rd instant, but I reserve the right to insist on your Bank paying me £62.

It is pointed out by the Bank that the Official Assignee's letter of 25 November was the first notice the Bank had of the sequestration and that the payment was made in good faith.

The Governor of the Commonwealth Bank desires an opinion as to whether or not the Bank is liable for the £7 paid to the (bankrupt) depositor B.

The liability or otherwise of the Bank may be considered as to whether-

1. The Bank is free from liability on account of the Official Assignee (as stated by the Bank) not having intervened until after the payment of the money.

The principle laid down in Cohen v. Mitchell (1890) 25 Q.B.D. 262 [at p. 267] is that:

. . . until the trustee intervenes, all transactions by a bankrupt after his bankruptcy with any person dealing with him bona fide and for value, in respect of his after acquired property, whether with or without knowledge of the bankruptcy, are valid against the trustee.

It will be observed that the principle referred to above applies only to transactions after the bankruptcy (that is in this case after the sequestration) in respect of after-acquired property. Further the transaction must be bona fide and for value, but a dealing of the kind in question by a banker with his customer on current account was stated by Phillimore J. in In re Teale; Ex parte Blackburn [1912] 2 K.B. 367 not to come within the class of dealings had with the bankrupt after adjudication so as to be protected under the doctrine of Cohen v. Mitchell stated above.

2. Whether the Bank is protected under the New South Wales Bankruptcy Act.

The law as to the payment to bankrupt after an act of bankruptcy is stated by Lord Halsbury: Laws of England, Vol.11, Title-Bankruptcy, Art. 298:

... if money due to the bankrupt is, after an act of bankruptcy in a case which is not within the protection of s. 49 of the Bankruptcy Act, 1883, paid to the bankrupt or his agent, such a payment is invalid, and the debtor of the bankrupt can be obliged to pay over the sum again to the trustee, or the sum might be recovered from the agent.

The relation of the banker and customer is that of debtor and creditor.

By section 49 of the English Bankruptcy Act 1883 (now section 45 of the English Bankruptcy Act 1914 with amendments):

Subject to the foregoing provision of this Act with respect to the effect of bankruptcy on an execution or attachment, and with respect to the avoidance of certain settlements and preferences, nothing in this Act shall invalidate, in the case of a bankruptcy-

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(b) Any payment or delivery to the bankrupt,

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(d) Any contract, dealing, or transaction by or with the bankrupt for valuable consideration,

Provided that both the following conditions are complied with, namely-

1. The payment . . . contract, dealing, or transaction . . . takes place before the date of the receiving order; and
2. The person (other than the debtor) ... by, or with whom the . . . contract, dealing, or transaction was . . . entered into, has not at the time of the . . . contract, dealing, or transaction, notice of any available act of bankruptcy committed by the bankrupt before that time.

Section 57 of the New South Wales Bankruptcy Act (No. 25 of 1898) is, with slight verbal changes, the same as section 49 of the English Bankruptcy Act 1883 and provides that nothing is to invalidate in the case of bankruptcy any payment by the bankrupt to any of his creditors, any payment or delivery to the bankrupt, provided, to put it shortly, the transaction takes place before the date of the sequestration order and the person dealt with (other than the debtor) has no notice of any available act of bankruptcy committed by the bankrupt before that time.

The payment or dealing with the money (£7) in question is not within the protection of section 57 of the New South Wales Bankruptcy Act as it does not comply with the statutory conditions: viz. that it takes place before the date of the sequestration order. Section 57 relates only to transactions which took place before the date of the sequestration order; the transaction in question took place after the sequestration order.

Liability of a bank in respect of paying a bankrupt's cheque, if paid after the making of a receiving order, is referred to in the opinions of the Judges in the case already cited: In re Teale; Ex parte Blackburn. Section 45 of the English Bankruptcy Act 1914 re-enacting section 11 of the English Bankruptcy and Deeds of Arrangement Act 1913 (reproduced in the Commonwealth Bankruptcy Bill, clause 96⁽¹⁾) affords to bankers certain statutory protection which is not found in the New South Wales Bankruptcy Act 1898.

In view of the provisions of the New South Wales Bankruptcy Act 1898 and the cases cited, I am of opinion that the Bank, having paid the £7 after the date of the sequestration order-when the balance standing to the credit of the bankrupt had become the property of the Trustee-the payment made by the Bank was invalid and that, if the money is not refunded by this bankrupt, it could be recovered from the Bank.

The Governor of the Bank points out that the Bank has agencies at 3167 points throughout the Commonwealth and that, in the case of a bankruptcy it would be impracticable to advise all points to pay only to the Official Assignee.

The doctrine of notice, however inconvenient or impracticable it may be for the Bank, is that notice to a bank is notice to all its branches (allowing time for the course of post): Willis v. Bank of England (1835) 4 A. & E. 21; Morris v. National Bank of Australasia 13 N.S.W. L.R. 93 (P. C. appeal).

The Governor of the Bank understands that in several States the Government Savings Bank resisted similar claims to that cited above on the ground that the Bank was a Government instrumentality. The particulars of such cases, if any, are not available. The State Savings Banks appear to be performing very special functions for the State and generally the property and the moneys of the Bank are declared to be the property of the Crown or to be guaranteed by the Crown (cf. No. 2729 State Savings Bank Act 1915, Victoria, sections 6 and 29 and No. 48 of 1906, Government Savings Bank Act 1906 (N.S.W.), section 44). The Crown is not bound by an Act unless named therein and neither the New South Wales Bankruptcy Act 1898 nor the Victorian Insolvency Act 1915 (R. v. Griffiths 9 V.L.R. (L.) 45) bind the Crown.

The Commonwealth Bank by section 6 of the Commonwealth Bank Act 1911 (No. 18 of 1911) is 'a body corporate with perpetual succession and a common seal . . . and may sue and be sued in its corporate name'. There do not appear to be any reasons for supposing that the Commonwealth Bank as to general banking business is, in relation to the State Bankruptcy Acts, in any different position to the ordinary banks established in the various States. But the protection to bankers and others afforded by the State Bankruptcy Acts varies considerably. For instance, if the transaction referred to above had taken place in Victoria, the Bank would, it appears, have been protected under the Victorian Insolvency Act 1915.

In the case of Heiner v. Scott 19 C.L.R.381 at p. 402 Powers J. expressed the opinion that the Commonwealth Bank is constituted by the Commonwealth Bank Act a Commonwealth instrumentality to carry out savings bank business, which business he considered to be a governmental function in Australia. It was not necessary to decide this question for the purposes of the case and the matter was not referred to in the judgments of the rest of the Court. I do not think that the opinion expressed by Powers J. is sufficient ground for deciding that, for the purposes of the question now under consideration, the Commonwealth Bank is the Crown and entitled to the Crown's immunity.

[Vol. 19, p. 276]

(1)Enacted as section 96 of the Bankruptcy Act 1974