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The Pamphlet Collection of Sir Robert Stout: Volume 30

To his Excellency Sir Chas. Hotham, K.C.B., — &c., &c., &c

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To his Excellency Sir Chas. Hotham, K.C.B.,

&c., &c., &c.

Temple Court,



It is a common remark that a by-stander sees more of the game than the players. A new comer into the colony may be considered a by-stander at the colonial game; and it is in this character only that I feel warranted in offering a few suggestions of reform, upon an insulated topic, but one of much practical importance to the trading community.

I find on my arrival here that trade is at a very low ebb; in fact, almost stagnant. I knew before I quitted England that Melbourne credit was much shaken, and that shipments from Liverpool were made with great distrust. I even witnessed, in repeated instances, goods relanded at Liverpool which could not find a market here. No doubt many causes have combined to produce this state of things: the scarcity* of money, the inundation of moneyless adventurers, the check given to agriculture by the land-locking system, the improvidence of your Excellency's predecessor in the gold mining arrangements, and the derangement of all the accustomed operations—I might almost say of all the

* This fact has, I am aware, been challenged, but not by any to whose authority I feel bound to defer.

page 4 intellect of the colony—immediately following the gold discoveries, have each had a large effect in inducing the present panic; but it is essentially to wild speculation, and to fluctuating markets—always occasioned by wild speculation—that we must ascribe a state of commercial distress, such as I believe has not been very often rivalled in the history of colonial trade. In a country from which some fifteen millions of sterling gold have been sent home (but no' all exported)* within five years, the circulating medium consists far the most part of private bankers' notes; the value of money is so great that 20 per cent, can be obtained for interest; real estate can be bought for five years' purchase; the necessaries of life are raised to famine prices; and, with fewer inhabitants than Manchester, the failures are nearly as frequent as in all England!

It would be foreign to my purpose to analyse all the causes of this unnatural and anomalous position, or to determine the degree of influence which may justly be attributed to each of those that I have mentioned; but my professional business, short as my time here has been, has been of a nature to satisfy me that the wild speculation and the low state of commercial credit are, in great measure, attributable to the inefficiency of the colonial law and practice in matters of Insolvency. It is with a view to impress on the Colonial Legislature the necessity of a reform is that law and practice, as one of its most pressing measures on the arrival of the new constitution, that I venture to publish the following pages

It is obvious, on perusing the colonial insolvency acts, that the intention of those who framed them was to assimilate the law of insolvency in Australia to the law of bankruptcy in England; but probably from not being versed in the latter—being a branch of our general system of jurisprudence in which very few barristers practice—they have failed in giving to the colonial creditor, the advantages given to creditors by the English bank-

* Not an ounce sent home for investment can be properly said to be "exported;" it does not return in the shape of imports.

page 5 rupt law, in two material particulars: the creditor's rights are not equally protected, and the insolvent estate is not equally secured. I may, perhaps, propitiate attention to a dry subject by a statement likely to startle many, that, under the existing law, (as after much reflection, and much professional consultation, I feel obliged to read it) neither the Supreme Court, nor the Chief Commissioner, possesses any summary power of euforcing the surrender of an insolvent's property, either in the case of a spontaneous, or in that of a hostile sequestration of his estate; and yet it is a part of the daily practice to issue a warrant to seize it! It is at least left a point open to much doubt. It is the best apology, both for those who framed the colonial acts, and for those who administer them, that it is extremely difficult to say what is the actual law of insolvency in force in the Australian colonies. Part of the difficulty may arise from the Act of Parliament of the 9 Geo. IV., ch. 83. Previously to that act it was a common opinion in the profession, though not founded on any distinct authority, that the English bank ruptcy statutes did not extend to the colonies. The question was never argued, and, therefore, never was decided; but the 9 Geo. IV. in express terms, declared that all English law and statutes should be in force in the colonies where they could be so applied. The inconvenience of their application, when in many cases no machinery existed in the colonies for that purpose, has led the Supreme Courts at Sydney and Hobart Town to substitute the word "applicable" for "applied;" a latitude of construction clearly beyond the judicial power. There can be no doubt that under the 9 Geo. IV. all English law, so far as it then existed, and could be made applicable by construction, to the administration of justice in these colonies, became colonial law till altered by colonial legislation; and, among other statutes, the bankrupt act of the 6 Geo. IV., ch. 16, should have come into operation in Australia. But here the machinery was wanting, and to supersede the necessity of supplying that machinery, the Council of New South Wales passed the Act of Council of the 5 Vict. No. 17, page 6 after passing and repealing several previous insolvent acts of a yet more imperfect character. This act was amended by another Act of Council, the 7 Vict., No. 19, and the insolvent law of the colony now rests on these two acts, * subject to construction, however, according to the decisions of the English courts of law in analogous cases of difficulty. It has been assumed, and so generally admitted—but I think without due consideration—that the two colonial acts have virtually repealed the 9 Geo. IV., so far as respects the English bankruptcy statutes, that I shall take it for granted that it is so, however shallow the reasoning which sustains this position; but if we are thus relieved from the difficulty of consolidating two essentially different systems, it is still, in many instances, by no means easy to interpret the colonial acts by English authorities; it is like translating Italian by aid of a Latin dictionary. It would have been a much wiser course to have adopted the very words of the English statute, mutatis mutandis; for the bankruptcy law of the mother country is the growth of three centuries, during which long period it has been altered and amended in detail, though little in principle, so as to make it dovetail in with every other branch of our commercial law. As it is certain that under the 9 Geo. IV. the law of the colonies must, on the whole, continue identified with the law of England, and more especially as respects the commercial law of both countries, founded as it is on principles that are recognised and adopted in most maritime states, it would have been obviously more convenient to have taken the same system of bankruptcy administration, than to establish a new one which has still to be reconciled with a multiplicity of other laws received from the mother country.
And there was another reason for this course of not inferior weight. It is well understood that whenever a new point arises, our Judges are bound to decide it on the authority of similar cases:

* There are several subsequent acts, namely, the 8 Vict. No. 6 and No. 15, 10 Vict. No. 14, and 18 Vict. No 11; but they do not affect the principle, and but very slightly the practice, of the insolvency administration.

page 7 they do not create law pro re nata, but they declare what is the law; they take the accumulated intelligence of past ages for their guide, and the huge array of books in every lawyer's chambere, consists entirely of reports of decided cases, or text-books based upon those reports, because they are prepared by law reporters, and acknowledged by the courts to be correct. There are no such acknowledged reports published in the colonies, nor is it probable that there ever will be any for a very sufficient reason; the judicial authority of the colonial bench is not recognised in Westminster Hall. It cannot be supposed that I have any wish to disparage our colonial judges, when it is notorious that one or other of my family has presided on the judicial bench at Sydney almost from its institution; I would merely state as a fact, that the decision of a colonial court is not conclusive as a declaration of law; if quoted as an authority it may without indecorum or disrespect, be challenged at any time, on the authority of a reported case; I may go further than this; a decision of the colonial bench must be over-ruled spontaneously, by the very judges who pronounced it, should an acknowledged report of an opposite decision in the English courts arrive by the packet on the following day; it would be a high misdemeanor, in a colonial judge, if not excused on the ground of gross ignorance, knowingly to persist in declaring to be law, that which the superior courts at Westminster Hall had held not to be law: conseqently there is not much chance of any systematic law reporting being introduced into such of our colonies as are governed by English law.

But if colonial judges are always to be governed by English reports in their administration of the law, it seems necessarily to follow that colonial law should be assimilated as much as possible to the law of England. If there must needs be two roads, and one guide post must serve for both, the roads should, where practicable, be made parallel. It cannot be always practicable; local peculiarities may some times compel a divergence: the winter road may be shorter, but across a marsh; the summer road may avoid the marsh by a slight detour; but when this escape from page 8 difficulty has been accomplished, they ought again to approach each other, if the traveller has no other direction than the single sign post gives him: still more necessary will it be, if both roads must be so constructed as to fall in, or coincide with fifty cross roads that traverse the country in all directions. The legal paths of these colonies bear precisely the same relation to the legal roads at home, and the same principle, with the same occasional relaxation of the principle, ought to guide the construction of these legal paths. I urge it only in reference to one subject, the bankruptcy administration; but if the doctrine is sound, the suggestion may not be unworthy of attention, in fifty other matters which the new legislature of the colony must, very speedily grapple with. Nothing is more dangerous than for inexperienced hands to handle a new and gigantic power, in a different way from those who have hitherto wielded it. Few of us would like to remain in a stage coach, if the coachman were to have a locomotive substituted for his accustomed team of horses; but if we found him working the engine very differently from the practised engineer, I believe we should all jump out, at whatever hazard of breaking a limb.

My complaint is two-fold; that the present insolvency administration in the colony is not equally efficient with the bankruptcy administration at home, either in protecting the rights of creditors, or in securing the insolvent estate.

To enable a correct judgment to be formed on this, it is expedient to consider, in few words, what are the rights of creditors under the English bankruptcy system.

All the English law is, in common with the colonial insolvency law, founded on the broad principle that all the creditors come in equally. There are a few exceptions common to both systems; the 168th clause of our Consolidation Act allowing the court to order three months' wages or salary to be paid in full to the extent of £30, and the two following clauses allowing wages of a labourer or workman to be paid in full to the extent of 40s., and apprentice fees to a reasonable extent; a year's assessed taxes must also be paid in full, by the 166th clause; a year's rent by the 129th page 9 clause, and debts due to Friendly Societies, by the 167th clause; as regards salary or wages, the 42nd clause of the 5th. Vict., No. It, allows six months to be paid, and the 41st clause, allows six months' rent to be paid in full; but there is no colonial provision in the insolvency act for payment in full of any other debts, unless where they are partially secured; in which ease the 39th provides, in a circuitous way, for payments in full to the extent of the value of the security; with this trifling difference, the leading principle of the two systems appear to be the same; it is obvious that a most important right of the just creditor of a bankrupt is to exclude all claims that are not founded in justice, and I never yet knew a case, during an experience of more than thirty years of daily practice in bankruptcy matters, in which many unfounded claims were not preferred. To convey to your Excellency some idea of the extent to which this species of fraud is carried, I will mention one of the last cases in which I was retained, before I left England; a creditor claimed a right of proving against a bankrupt, on the balance of accounts between them, no less than £45,000; there were two partners bankrupt, one of whom who had been the active man in the business, was ready to admit the claim; the other who had been little more than a dormant partner, doubted it, but as the transactions between them and the creditors had been most extensive, it was extremely difficult for the official assignee to arrive at any satisfactory conclusion, whether the debt was due or not, so far as he had been able to analyze the books: under these circumstances, they gave me, what in our professional language is called, a watching brief; I put a few general questions to the creditor when he tendered his proof, merely to support an application for time to examine into the transactions on which it was founded. I elicited enough to induce the court to prosecute that examination for several days, and the result was that a balance of only £15,000 instead of £45,000, was found to be due, and this enormous reduction of the demands upon the estate was effected simply by the gross examination of the creditor.

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But it is expedient to explain why this and similar frauds are constantly practised; they are the result of collusion between the bankrupt and the creditor, for both are great gainers where the fraud is successful; if the creditor can prove for twice as much as is justly due to him, it follows of course, that he will be paid in full, though other creditors only get a dividend of 10s. in the pound; but he must purchase the silence of the bankrupt, and it is just as easy by the process usually adopted, to prove for three times the amount really due as for only double; the additional dividend beyond what suffices to pay the creditor, is paid over by him to the bankrupt, as a douceur for his silence; and the process of cooking up the fictitious proofs is very simple, and yet too often successful; it is effected simply by giving to the creditor a number of accommodation acceptances, these being made, apparently, to reach his hands through intermediate endorsements by men of straw, who have given similar accommodation paper to the bankrupt; he produces it as part of the assets of his estate, and though utterly worthless, it will often pass as a sufficient consideration to support the proof when tendered; of course all the parties to such frauds are liable to indictment, but where is the money to prosecute them to come from? By the 255th clause of the Consolidation Act, the bankruptcy courts are invested with a power of directing a prosecution at the cost of the estate, or even out of the general funds arising from the fees paid in bankruptcy; and in some very gross cases this has been done, but it is very seldom that the court will think it right to reduce a dividend by such an expenditure of the estate; and the rather because these fraudulent practices are so very frequent, that juries do not like to convict of an offence, of which it is probable that at some time or other, some of themselves have been guilty.

It is principally to guard against this practice of fraudulent proofs, that our courts of bankruptcy will never receive an affidavit of debt from a creditor who lives or carries on business within a reasonable distance of the court: unless prevented by serious illness, he must attend in person and prove his debt in page 11 public; it was always my own practice whenever I saw proof tendered by affidavit, to examine the solicitor who tendered it very closely as to the usual place of residence of the creditor, for instances were not unfrequent of a London creditor going to Liverpool or to Manchester, or vice versa, just about the time of a public meeting for the proof of debts, in order that he might be so described in his affidavit, and thus evade the necessity of personal attendance on the court; whenever I extracted enough from the solicitor to warrant suspicion of this trick, the courts invariably refused to receive the proof by affidavit, and availed themselves of the ample powers of investigation upon oath, given to them by the 46th clause of the Consolidation Act.

Still further to guard against the admission of fraudulent proofs, the 183rd clause of the Consolidation Act gives to the court a power to institute investigation, even after the proof has been admitted, and to summon the creditor for examination upon oath, and if not satisfied that the debt is justly due, to expunge the proof.

Again, by the practice of our bankruptcy courrs, though it is not specifically enjoined by the Consolidation Act, every creditor on proving his debt, must produce and exhibit to the court any document on which he rests his claim, and any collateral security which he may hold for it, such as a bond or bill of exchange; this is a very great advantage, not only because it sometimes assists in an investigation of the claim, but enables the assignee to ascertain, before he pays a dividend, whether the creditor has not received from other sources payments for which the estate is entitled to have credit; once more, the publicity which is afforded by oral proof in open court is sometimes very advantageous to the just creditors, because it brings out information, from third parties, of frauds that would otherwise remain unknown and unsuspected, or of partnership engagements that render some solvent party liable in respect of many of the bankrupt's transactions.

Another important right of an English creditor, under the bankruptcy system, is found in the summary process, by which, page 12 under the 78th and seven following clauses of the Consolidation Act, he can compel payment hi full, or security for a just debt, within seven days, as the only alternative for being declared a bankrupt.

There are several minor points in which the rights of creditors are most carefully guarded by the bankrupt law, but I shall only advert to one general head, the protection which is given throughout the Act, and especially by the 256th clause, against the bankrupt's frauds.

It is a fundamental principle in English law, and therefore of course in colonial law, that fraud vitiates a contract; in this respect there can be no difference between the two systems, and, in fact, the 74th clause of the colonial act, 5th Vict., No. 17, goes much further than the corresponding clause of the Consolidation Act, the 269th, in making the acceptance of any part of the estate, with intent to defraud the creditors, a transportable, instead of a fineable offence. The 70th clause, also, of the colonial act corresponds with the 118th and 120th clauses of the Consolidation Act, in authorising an examination of the wife, or any other person suspected to have any part of the insolvent estate in their possession; though it stops short of giving to the Commissioner the same most valuable power that is given to the bankruptcy courts by the 122nd and 123rd clauses of the Consolidation Act, of examining any person present in court, whether summoned or not, and of compelling any person examined to make instant payment of any debt which appears by his examination to be due to the estate. These powers are daily exercised in the English bankruptcy courts. It may be replied that nearly all these rights are secured to creditors by the colonial acts, and, in fact, as far as the letter of the acts goes, the reply, but only to a certain extent, would be just. The examination of creditors, of the bankrupt and his wife, and of third parties when summoned is permitted, but it is not conducted before the Supreme Court itself, but only by its ministerial officer, the commissioner.

It is far more in reference to the practical mode in which the bankruptcy act is administered than to the differences between the page 13 English and the colonial law, that I insist upon the superior protection of his rights which the creditor enjoys under the bankruptcy system. It has long been an acknowledged principle of bankruptcy law, that no person shall be protected from self-criminating questions by any rules of evidence; there is a proviso to this effect in the second colonial insolvency act, 7 th Vict., No. 19, clause 22; but the essential difference in the efficiency of the examination, whether of the bankrupt or of the third party, is found in the formality and the publicity of the English examinations. The bankruptcy courts are much larger than the Supreme, Court, and to all intents and purposes, public courts of the superior class; though with this peculiarity, which distinguishes them from the other superior courts of record that it is optional to the court, in almost all cases, to exclude or admit the public. The judges enjoy, by the statute, a rank next to the judges of the superior courts; they have not only a primary jurisdiction, but one from which appeal is so difficult, though not impracticable, that for most purposes their decision may be said to be final; and in keeping with this high judicial dignity and power, the proceedings of the court are severely regular; every examination is taken down in the form of question and answer, and in those courts in which I habitually practised, I induced the judges to number every question. No time is thought too long to expend on investigation, and days are often devoted ungrudgingly to the examination of even a single witness, where the subject is important. Though no precedency is given to the bar, the court is regularly attended by a bar, often numerous, and by a body of solicitors, who are required to conduct their cases in strict conformity with forensic usage. No solicitor is allowed to practice unless admitted on the roll of the court, from which he is struck off if he undertakes any cases but those which are strictly his own; a point on which he is sometimes interrogated, if suspicion arises. The court is surrounded by its officers; the registrar* occupies a seat below the judge; the official assignees

* The registrar stands in nearly the same relation to the Court, as the commissioner, here, does to the Supreme Court.

page 14 have desks on either side of the registrar; and several messengers are in attendance as ushers.

Contrast this with the administration of the insolvency court, at Melbourne: It meets in a close, confined apartment, not half the size of your Excellency's drawing-room; small as it is, it is blocked up with desks, barricades, tables, and seats, through which it is difficult to pass, while the creditors of different estates stand wedged together as closely as sheep in a pen; depositions are handed up by the dozen, without, so far as I could observe, any previous professional revision; here and there some creditor is conversationally examined, but nobody, except the Commissioner, can hear a word he says; the bankrupt, through his counsel, assumes the tone of an injured man, defying the power of the Commissioner, and the resentment of his creditors; points, that would excite a snsile in any court in England too significant for even forensic audacity to withstand, are raised and argued and indulgently entertained; and, to complete the humiliation of the scene, the Commissioner, whose dignity ought to be acknowledged and respected as judicial, is compelled to perform the functions of a platform or a pot-house chairman, and to desire "as many creditors as are in favour of the motion to hold up their hands"!!! Conceive, if it be possible to conceive, an English judge of the highest rank, or of any rank whatever, degraded to perform a part like this! All the formal appendages of a superior court add much weight to its proceedings in the public eye, and, coupled with the extreme severity of examination that is permitted, render a court of bankruptcy one of the most formidable of tribunals to a dishonest witness; and so in fact it is, for the very nature of the English bankrupt law is terrible; there is no analogy to it in any other branch of our jurisprudence. I may be permitted a short digression to illustrate it:—

A man, being in trade, owes a creditor £100; he receives a summons to attend the court within four-and-twenty hours to shew cause why he should not forthwith pay the debt; he cannot deny it, he cannot pay it, he cannot even give security for its payment, page 15 and seven days after he finds himself a bankrupt,; strangers enter his house and lay hands on all it contains; he has only a tolerated domicile under the roof which has sheltered him for years; his letters (they may be from wife or children) are intercepted at the post-office, and opened by officers of the court; he may not use his plate for his table, or take a book from his library, without permission from the messenger in charge; and in a few days he finds himself gazetted in every paper in the country as a bankrupt, and all his property, down to the smallest article of furniture, inventoried and advertised for sale. His first and wisest step is to surrender to the court and obtain its protection from arrest. This is never refused; indeed it may not be; but it is obtained upon terms that are not easy; he must be daily and hourly at the beck of the Official Assignee, and even of his clerks; he must work like a slave in balancing and explaining his books; he must account for every farthing he has received or expended from the last rest in his accounts, and, if required, for years previously; he is subject to examination on oath at the pleasure, not only of the court, but of every angry creditor; that examination is usually conducted by counsel in open court, and with a severity truly inquisitorial; his wife and children are often subjected to the same ordeal, to test the truth of his statements; nor is the wife privileged, as she is here, in respect of private conversation with her husband, if it effects the estate; he is allowed professional aid, but that aid is strictly limited to watch the legal propriety of the questions, and all questions are deemed proper that tend, even remotely, to discover the expenditure of a shilling; he is allowed to refer to his books, but to no other source of information, and in serious cases this examination is prolonged for days—sometimes adjourned for weeks, or even months—during all which time he is allowed only two or three pounds per week, doled out to him as a sort of judicial charity, when for years he may have been habitually, and perhaps legitimately, keeping his carriage and an establishment of servants. At last, when the ingenuity both of counsel and accountant is exhausted, he is at liberty to apply for page 16 his certificate; and, indeed, whether he applies or not, a day is fixed for the consideration of his title to it (a practice which the colonial law also sanctions), and then his examination is resumed, not merely into the disposition of his property, but into his general conduct; only so far restrained that, apart from the expenditure of money or effects, his morality may not be questioned. Here he is allowed the full aid of counsel, but only to say what can be said in explanation or mitigation, in reply to questions of an adverse nature. He obtains his certificate on such terms, or of such a class as seems right to the court, and is restored to society a capable man, so far as commercial capability can co-exist with utter destitution of capital and property, and with a character too generally tainted by the inaccurate newspaper reports of all that has passed previously; and even in this state of regeneration, he is still subject to be called upon at all times, to render further explanations of his affairs, if necessary.

Such is the position of a bankrupt under English law, and the innumerable and intolerable minor annoyances of a domestic character, incident to it, may well be conceived without description. I am far from approving of such extreme severity. On the contrary, I stated in my evidence to the Royal Commission last year, * that I believed that in many cases, its severity defeated its own object. But I think it is desirable to shew how anxiously the British legislature protects the rights of trade creditors, with a view to uphold the credit of trade. This colony is essentially a trading colony, and from circumstances, must always be so. Can it be less essential to uphold the credit of trade here, so far as the colonial interest is concerned? or can it be said that trade enjoys any credit here, when for the last twelve months there has been, even in our handful of population, an almost daily failure? From July to December in 1854, there were within a small fraction, 29 insolvents every month. During the current year, the number has been slightly diminished, but still the average is nearly 28

* Vide papers presented to Parliament in 1854 and published by its order under the title of "Bankruptcy Commission."

page 17 per month, which, excluding Sundays, is more than one a day.

It is worth remarking that while in 1841 and 1843, the Council of New South Wales was ingeniously framing a sort of piebald law of insolvency out of its own rude system and the English bankruptcy act of the 6 Geo. IV, unwisely endeavoring to patch up an old garment with new cloth, the mercantile community in England had already begun to complain of the utter inefficiency of even this Australian pattern of legislation! In 1848 the most searching investigation was instituted by parliament into the working of the bankruptcy system, and in the following year a bill passed, repealing all former acts on the subject, and remodelling the law, the court, and its process.

And again, such is the anxious attention given to this part of our law, intimately connected as it is with the commercial credit of the country, that in 1854, a second investigation was made into the working of the last act, when, in common with all who habitually practiced in the bankruptcy court, I was myself examined at great length, and on the evidence thus obtained from the profession, it was intended when I left home, to introduce another bill to amend the bankruptcy Consolidation Act of 1849! A young colony like Melbourne, promising soon to be the seat of immense trade, ought not to shew herself a laggard in the race of commercial improvements.

The difference between the bankruptcy law of England and the insolvency law of Melbourne may be thus tersely ex. pressed: The Consolidation Act was a creditors' bill: the 5 Vict. No. 17 was a debtors' bill: the one is too indulgent, the other too severe to the debtor: and the practice has followed the law in both cases. The insolvent act of the colony is in a few instances, more severe in its enactments than even the bankruptcy act of the mother country, but the former act is so utterly defective as a whole, and the administration of it is so deficient in summary authority and so little invested with judicial power, that were all its enactments ten times more severe, it would be a mere bugbear to the fraudulent trader. The clauses are in many instances, very page 18 unskillfully drawn, but, its faults are essentially those of omission; what relates to want of due security for the estate, I shall mention hereafter; at present I am only referring to the insufficiency of the protection given to the rights of just creditors.

The colonial insolvent acts contain no adequate provisions, indeed, in some sense, I may say none, for protecting just creditors from fraudulent claims in competition with them. I am warranted in assuming that the general practice of the commissioner is in conformity with his powers, such as the acts may have given, and these powers are little if anything more than ministerial. The 34th clause of the first act invests the Commissioner with a power to "receive proofs of debt;" but does not prescribe any form of proof. These words must be taken under the 16 Vict., No. 9, s. 8, to imply a power of examination on oath so far as regards establishing the debt in any form that the commissioner thinks advisable; but the 63rd clause, on which I shall presently remark, takes away professional vigilance and skill which under the English bankruptcy system, are found most valuable in checking the admission of fraudulent proofs; and in receiving proofs the commissioner does not sit as a judge, but rather as an inquisitor: his decision is not regarded as final, subject only to appeal, and appeal at the risk of heavy costs, but simply as ministerial; it carries no weight with it, because it is not judicial. And not being judicial, the commissioner has no power to go into evidence by cross examination of the creditor, ultra the mere matter of his proof; if the commissioner were a judicial instead of a ministerial officer, as is the case in bankruptcy, the argument which I have lately heard to the contrary, would be sound: but in no sense does he sit judicially, except in the matter of "receiving proofs," and in two or three other cases of minor importance specified in the acts. He may summon parties and examine them, and even commit them for unsatisfactory answers: he may commit for contempt for 14 days: but he is not the judge of a court; still less of a court of record; he cannot make or enforce orders binding on third parties; he cannot make rules for the practice in proceedings page 19 before him; he is in no sense, the judge of a court, but merely an officer of a court; he has, in himself, no jurisdiction in the legal sense of the word. He stands very nearly in the same relation to the Supreme Court, as a master in chancery does to the Chancellor in England; he possesses a reflected power and a reflected dignity, but no more, except in the very few instances in which the act gives him a sort of colorable independence. It has often been said, "there is much in a name." I never knew an instance of a mere title being more efficient than in this. It seems to have been supposed by those who drew the act, that the word "commissioner" carried with it some mysterious judicial power, ultra those specially confided in him by his commission, and from this seems to have sprung all the ambiguity of his position.

A similar error seems to prevail as regards the insolvent's position; or if it is no error, then it is a serious departure from the spirit of the English bankruptcy law. I have heard it contended before the commissioner that an insolvent is entitled, by virtue of his possible interest in the residue of his estate, should there be more than enough to pay his creditors in full, to cross-examine witnesses called by the assignees. Such a doctrine would be scouted in the bankruptcy court, and in my opinion, is untenable here. An insolvent where he spontaneously has recourse to the court, is stopped from saying that there may remain a surplus, for that would be denying his insolvency; and where the petition is hostile, he would be in like manner barred by the judgment of the Supreme Court finding that he is insolvent.

In bankruptcy he would have no locus standi whatever: by the vesting of the estate in the official assignee, the assignee acquires all the legal rights which the right of property can give, and even as regards the contingent residue, he would be trustee of it for the bankrupt: the bankrupt is bound to give to the official assignee all the information in his power, so as to enable him to call and examine witnesses and protect the estate of which he is trustee. In fact the bankrupt so far as he has a residuary interest, page 20 must appear by his trustee, and therefore by his trustee's counsel; and were he allowed to appear by a separate counsel in opposition to the assignee, it would amount to a cross-examination of his own witness, the assignee's witness being his own and in the same interest; this would be a violation of every principle of evidence. It is a matter of indulgence, not of right, to allow the protection of counsel even to a witness.—Ex parte Parsons, 1 Atk. 204.

The summary process for compelling immediate payment of a debt, known in English practice as a "trader debtor summons" is entirely ommitted in the colonial law, a process which, if introduced here, would annihilate half the business of the county courts.

Nor is any power, given to the chief commissioner or even to the Supreme Court, of ordering and enforcing immediate payment of any debt admitted to be due to an insolvent estate; nor of expunging a proof once admitted on the record, or of re-examining the creditor.

And even these omissions great as they are, and I could mention many more, are of inferior importance to the objectionable constitution of the quasi court. The jurisdiction of the Supreme Court itself is nowhere defined by the act, and rests only on such of its clauses as give it for special purposes; it cannot extend its powers beyond the four corners of the act by which they were conferred; unless it is considered that the doctrine quoted hereafter from Lord Eldon, applies, that in conferring the jurisdiction on the Chancellor, the legislature contemplated the exercise of his power in Chancery in cases omitted by the bankruptcy acts; but even if this view be admitted, though it is certainly open to argument, it will be found on referring to the reports, that Lord Eldon strictly limits this inferential jurisdiction to cases where the bankruptcy acts cannot be carried into execution without it. In other words it is not a jurisdiction ultra the acts, but in aid of the acts.

And as if it were the object of the colonial legislature, in full consciousness of the feebleness of the court, to protect it from troublesome surveillance, the 63rd clause of the first colonial act virtually, though not in terms, excludes professional aid: it sanctions the employ of attorneys in certain specified cases, but subjects them to such serious liabilities on very vague grounds, that even in the page 21 cases specified, no attorneys who are not in very needy circumstances, would willngly accept the retainer; and if they are excluded, of course the bar is excluded also. What insolvent, or what witness can stand in awe of a court so constructed? or, which is a far more serious question, what creditor can rely on such a court for full protection of his rights? Not many days since I saw in the news papers as many meetings before the commissioner advertised for one day us would have supplied an English court of bankruptcy with ample work for ten, if that work were properly done. Properly done it cannot be without professional assistance; it would be as easy for an architect to build a house without a bricklayer; I mean not to say a word disrespectful to the chief commissioner whom I have not the honour of knowing, and who is, I hear, highly esteemed; but this exclusion of all legal men reminds me of a certain colonial magistrate who, having no law library of his own was much bothered by an attorney who possessed the only volume of that class in the colony. He long tried in vain to get possession of it, but he watched for an opportunity of borrowing it from the attorney's wife during his absence from home, and at once threw it into the fire. After this his magisterial duties were discharged in peace, but with what measure of consistency or justice the story does not say.

The operation of this clause must necessarily be to exclude the attorneys from all interference with the business of the estate except in cases of actual litigation, whereas in bankruptcy, the official and trade assignees rarely take a step without consulting their attorney, and he has consequently, all the business of the estate to transact, except in the merely trading department" of sale. The attorney investigates every claim and every transaction on the books, and watches closely over every proof that is tendered, and traces very clue to concealed or misapplied funds that there is a chance of recovering. This clause therefore, is not merely insulting to an honorable profession, but detrimental to the interest of the creditors in the highest degree. It was to secure the full benefit of the attorney's personal assistance, that the bankruptcy acts gave to the attorneys in bankruptcy an equality of right with the bar, page 22 except so far as restricting them from advocating any cases but their own. The colonial acts just reverse this policy, and exclude them, with covert insult, from business for which no other class is so fit, and in terms that by implication charge dishonesty, on the whole body!

The other important right of creditors to full and severe examination of the insolvent, seems, on the whole, equally protected by the colonial and the English acts, except in those particulars to which I have been referring. I shall proceed to my other ground of complaint that the colonial insolvency law affords no adequate security for the collection of the estate.

And this proceeds entirely from the ignorance of the draughtsman. It is a singular fact, and the said draughtsman whoever he may be, is certainly, entitled to the apology, that previously to the Act of the 6th Geo. IV., the power of the Chancellor to compel by warrant the surrender of a bankrupt's property, only rested on inferential grounds, and not on special enactment. It was held by Lord Eldon to be given by implication, by the 13th of Elizabeth, which empowered the Chancellor to take order and direction of a bankrupt's person and estate, though there are no words in that statute that specifically empower him to issue a warrant to seize the estate; nor are there in any other bankruptcy act, from the time of Elizabeth to the 6th of George the Fourth. In reference to this question as to the source of the Chancellor's authority in bankruptcy, Lord Eldon thus expresses himself:—

"The bankrupt statutes are framed with a view to the "authority with which the Chancellor is entrusted in the exercise "of his ordinary jurisdiction, and when these statutes are silent "as to the mode of compelling obedience to the orders that may "be necessary for carrying their provisions into effect, it is "enforced by the general jurisdiction."—Anon, otherwise ex part Stevens, 14 Ves. 451.

And again in another case the same high authority, the highest in equity or bankruptcy law, says, "he had weighed well page 23 "the authority under which the Chancellor acts in bankruptcy, in "circumstances not specially provided for by the statutes, and he "was convinced that it was the intention of the legislature in "giving jurisdiction to the Chancellor, to give him power to use in "bankruptcy the authority used in causes in Chancery, where no "specific authority is given by the statutes."—Ex parte Bradley re Townshend, 1 Rose 203.

I think that it will not be contended that the Supreme Court, either at Sydney, where the colonial insolvent acts originated, or here, where they also operate notwithstanding the severance of the colonies, has any inherent or ordinary jurisdiction in bankruptcy, except such as has been specifically given by acts of Council. The Chancellor's jurisidiction was otherwise derived. As keeper of the royal conscience in his religious character—the Chancellor of former days being always "religious"—he was invested with the equitable jurisdiction of the Crown; and it was in reference to this inherent jurisdiction, by virtue of the office, that Lord Eldon considered the Chancellor entitled, by the act of 13 Eliz., to exercise it on all occasions where the statutes are silent' in order to carry out the new duties imposed upon him by that act. In other words, he held that the legislature imposed such duties on the Chancellor in preference to any other officer, because the Chancellor, as such, already possessed all the powers requisite for their proper discharge. But it is not so with the judges of the Supreme Courts; their powers are conferred by their commissions, but their functions are defined by legislation, and limited strictly by the same legislation. In Australia this legislation in matters of insolvency is contained in the. two acts of the 5 Vict., No. 11, and 7 Vict., No. 19, aided in some particulars by the other acts before-mentioned, and they cannot extend their powers by any process of construction beyond the limits of these acts. Had these acts contained any words of general import, investing the Supreme Court with "all the same powers in insolvency as were exercised by the Chancellor in bankruptcy," or had those acts never been passed, so as to leave the Supreme Court to apply the 6 Geo. IV. ch. 16 at its discre- page 24 tion, or subject to "declaratory ordinances," or had they followed the exact words of that, the then last bankruptcy statute, when the 9 Geo. IV., ch. 83 was passed, no question could have arisen as to the power of the Supreme Court, or of the Chief Commissioner, in either of these cases, to enforce the seizure of an insolvent estate by warrant. As it is, however, I believe that they have not such power, nor in fact any compulsory power of seizure by warrant at all, except such as may be exerted under the 18th, 19th, and 14th clauses of the second act, menacing serious consequences to the insolvent himself and to others, if, with intent to defraud the creditors, they alienate, conceal, or accept any part of the estate. It is true that the 21st clause of the first insolvent act gave to the Chief Commissioner a power of seizure, by warrant to his messenger, but gave it on the contingency of the estate being "placed under sequestration in his hands," (that is, as I understand the clause, being vested in him by the order of sequestration, for the concluding words of the third clause, "and by order under his hand "to place the same under sequestration in the hands of the Chief Commissioner," seem to me to preclude any other construction;) but the 14th clause of the second act vested the estate in the official assignee by virtue of his appointment, passing over the Commissioner altogether, and thereby precluded the happening of the contingency on which alone the warrant of the Chief Commissioner could issue, thus virtually repealing the 21st clause of the former act. Thus, as regards the Commissioner, he never acquires property or interest in the estate as trustee of it, and can exercise no rights of ownership in respect of it; nor can he exercise any judicial power in respect of it, for the only clause that specifically gives it to him is virtually repealed.

And the Supreme Court is in no better position, unless by adopting the doctrine already quoted from Lord Eldon, and which I think it cannot do for want of any but statutory authority. The Supreme Court may accept, but it cannot compel a surrender, even by its order of sequestration. To seize a man's property by warrant, except by the accustomed process of judgment and exe- page 25 cution, in an action at law or a suit in equity, is not within the power of any court, unless when it is specially given by statute. It would be too dangerous to allow any such power to be deduced by inference. In the cases before Lord Eldon, the question was only raised as to the right of summoning a witness in one, and of ordering a delivery of papers belonging to the estate in the other. I doubt if even as Chancellor he would have deemed himself possessed of authority to seize a bankrupt's estate by force, had not the 13 Eliz. expressly given to him and his commissioner "full power to take order and direction" with it, words which, in the quaint language of the time, had a most extensive signification.

I suspect that those who framed the act gave to the term "sequestration" a force that does not belong to it. According to its classical derivation it means only the deposit of property in the hands of a stakeholder. In Scotch law I believe that it has a more extensive meaning, and that there is a case in "Bell's Commentaries" to that effect; but according to English law, by which colonial construction must be governed, "the party sequestering has no jus ad rim, vel in re, the legal estate remaining in every respect as before," 1 P. Wins., 307. In the case of Colston v. Gardiner a case is cited where it had been ruled that if a man killed a sequestrator in the execution of such process, it is not murder, Cro. Eliz. 651.

But independently of these grave doubts as to the extent of the Supreme Court's authority, it is unquestionable that the absence of any judicial power in the Commissioner is productive of much inconvenience and loss. If he had the character and power of a superior judge in bankruptcy, he could not only summon and examine parties before him, when suspected of detaining the estate, but adjudicate on the ease, and order immediate surrender and sale of the goods detained; but under the present system the Commissioner is impotent: at most he can only refer the parties to the Supreme Court, and if that court is not equally impotent in law, as I suspect it is, it is in practice; in the present state of its business, the trial of such an issue might as well be made a remanet to the Greek Kalends.

page 26

I have witnessed two instances of the practical inconvenience of this conscious want of judicial power; in one the question was raised whether an insolvent partner could be ordered to leave the court, pending the examination of the other insolvent. The Commissioner, after consulting one of the superior judges, declined making the order, expressing a doubt whether he possessed the power; this doubt was, I presume, founded on the want of judicial authority, for the learned Commissioner could not be ignorant that it is the daily practice of the baukruptcy courts, or that it has been decided that either party has a right, at any moment, to require that unexamined witnesses shall leave the court.—Southey v. Nash, 7 C. and P. 632.

The only case in which a bankrupt is entitled, as of right, to be present at examinations, is when a witness or a creditor is examined whose evidence tends to surcharge the estate.

The other instance to which I have alluded, regarded the application to the examination of an insolvent, of the rule that parol evidence cannot be given of the contents of a deed where the deed is forthcoming. No doubt this rule applies on the examination of any ordinary witness, whether at nisi prius or in bankruptcy, but the rule in examining a bankrupt is that lie must satisfy" the mind of the court or be committed; and "it mnst be "intended that the questions which might be put by the "Commissioner, would be legal questions, "Nobes v. Mountain 7 Moore, 39. * The judges in bankruptcy have always considered that they are released from the strict rule of evidence just mentioned, and are entitled to satisfy their minds of the truth of the bankrupt's statements, by examining him without regard to the technicalities that exclude secondary evidence in certain cases.

I will illustrate the working of the present system by a case not purely hypothetical: an insolvent had 20,000 sheep on his

* See also ex parte Meymott, 1 Atk 200. Ex parte Barr, Cook, 437, Ex parte Oliver, 1 Rose, 407. Ex parte Bland, 1 Atk. 205. Ex parte Chates, Buck, 290, and many other cases to the effect that the court will not restrain the examination of a bankrupt.

page 27 run, but when the assignee enquired for them he found them in the possession of a relative of the insolvent, who claimed them under a deed executed long before the sequestration. The parties were examined before a Commissioner, and on those examinations, though most carelessly taken and more carelessly recorded, fraud was clearly established. The assignee thereupon demanded the sheep, but was refused; he applied to the Sheriff, but the Sheriff would not seize without an indemnity: he applied to the Commissioner, but the Commissioner could do nothing but refer him to the Supreme Court: he asked the creditors to indemnify, but they had lost enough already, and the result of all was that he was driven to compound the matter on the best terms he could, at a loss to the estate of £4,000. Three such cases have found their way into my chambers within a month: in our bankruptcy courts at home the sheep would have been taken by the messenger within an hour after judgment had been given, and the creditors would have had their full value. Again and again have I witnessed this course taken in similar disputes about furniture and bills of exchange. If the party gives notice of appeal, the court impounds the goods, but I never knew of an appeal where the Judge had in his judgment, declared fraud to exist.

It may be presumed that fraudulent liens, fraudulent settlements, fraudulent warrants of attorney and bills of sale, are not less frequent here than at home; then why should not the same remedies for the protection of the estate be adopted here?

I had noted down several pages of error or obscurity contained in these insolvency acts; I shall pass them over, lest my letter should be too long for half an hour's reading; but 1 believe that it would require clearer brains than can be found in Westminster Hall itself, to find a way through this labyrinth of legislation: it is the less necessary, for it is certain that the new legislature must sweep it all away, along with many other colonial cobwebs.

It stands to common sense that a system created substantially for another colony, and under circumstances so different from page 28 those in which Victoria now finds herself, ought no longer to prevail, even were these insolvency acts as perfect and perspicuous as they are the reverse. It mattered little comparatively, what the law might be when it was unnecessary to appeal to it half a dozen times in the year. But now, with bankruptcy business almost equal in amount and in importance to that of all England, it is indispensable to place it on a footing proportionably firm and large: this never can be done by any patchwork repairs.

My object in thus addressing your Excellency on a topic so foreign to your taste and reading, is to express a hope that you will avail yours elf of the power of your exalted position to ensure a reform co-extensive with the magnitude of the evil. The basis of that reform should be the substitution of the bankruptcy code of England in its entire form, with all its judicial independence, and so much of its machinery as the insolvency business of the colony requires. There is enough of it in this colony to occupy the whole time of a court created exclusively for its dispatch. There is a demand for this reform loudly expressed in every circle in the colony: the merchants, the traders, the members of all the professions, the landed proprietors, the agriculturists, and even the mechanics and artizans, are unanimous in their opinion, if I may trust the reports of many, that unless a decided change is speedily effected, the trade credit of the colony will be gone, and its commercial interests most seriously compromised.

If your Excellency announces in the usual form to the Legislative Council, the intention of the Government to introduce a bill for the purpose, I am persuaded that the announcement will be received with most grateful feelings, and place your Excellency's administration most high in the respectful affections of all the community.

I have the honor to remain,



Your very faithful servant


George Stephen.