Bankruptcy Fraudulant preference-Intent necessary-Performance of pre-
existing agreement-Preferred creditor must be party to the transaction-
Actual act of bankruptcy necessary under section 32 of the Bankruptcy
Ordinance 1916

Statutes-Interpretation-English cases considered when English statute identi-
cal to Sudan statute being construed

In August, 1924, the Anglo-Egyptian Bank required its debtor, S. S.

Hakim and Co., to give better security for money owed, and accordingly
the debtor agreed to execute a deed of mortgage on certain specified prop-
erty if and when required to do so by the bank. At the time the property
was subject to a first mortgage, but in November 1924 the debtor made an
arrangement whereby the first mortgagee released the property and took
substituted security. On January 21, 1925 the debtor executed the deed of
mortgage as the bank had called upon it to do. Four days later the
debtor presented a petition for its adjudication in bankruptcy. The re-

. ceiver asked for the setting aside of the mortgage, or alternatively for hold-
ing the bank's mortgage to be subject to a prior charge in favour of the

* Court: Dun C.J., Davidson and Osborne 11.

general creditors equal to the amount of the first mortgage released in No-
vember, 1924.

Held: (i) Following English case law interpreting similar statutes to
the Bankruptcy Ordinance 1916, s. 31, that transactions are not voidable
under section 31 unless the dominant intent of the debtor is to give pref-
erence to. the creditor.

(ii) In particular, security given at the last moment before banJt,.
ruptcy is not a violation of the Bankruptcy Ordinance 1916, s. 31; when
the giving of the security is persuant to an antecedent agreement.

(iii) Although the bank knew of the debtor's insolvency and almost
certainty of bankruptcy when it procurred the execution and registration
of the mortgage, section 32 of the Bankruptcy Ordinance 1916 was not
violated because the firm had not yet committed an act of bankruptcy.

(iv) The bank's mortgage is not subject to a prior charge equal to the
amount of the released mortgage because there was no evidence of intent
to fraudulantly prefer the bank through the release transaction.

Bankruptcy Ordinance 1916, ss. 31 and 32.

Bankruptcy Ordinance 1929, ss. ,50 and 5l.

English Bankruptcy Act 1869, s. 92.

English Bankruptcy Act 1914, s. 44.

Appeal

April 8, 1926. Dun C.J.: The facts of this case are that in the
summer of 1924 the firm of S. S. Hakim and Company owed the Anglo-
Egyptian' Bank a large sum of money and the bank, wanted better
security. Accordingly on August 14, 1924 Salvator Hakim signed one
of the bank's printed forms of charge and deposit of deeds which re-
cited that he had deposited the documents specified in the schedule to
the intent that the property referred to in the documents might be
charged; by clause, 2 he charged the property with all the moneys
which should be or become owning by him to the. bank, by clause' ~
he agreed to execute a valid legal mortgage of the, property charged
if and when required "to secure all moneys for the time being due
or to become due to the bank on this security."

In . #ct no documents were deposited or mentioned and the
sched~' contained a list of the property charged; the deeds were in
the possession of a first mortgagee who has a registered mortgage. On,
the same date the bank applied by means of a printed form to the

, ~gistrar for the registration of a caution against dealings' with the
,'w property specified in the memorandum of charge; the caution was,
duly registered as on the August 11th 1924.

The memorandum of charge purports also to have been registered ,
on the Llth, but it is agreed that in fact it was not registered at all.

Some time in the middle of November, 1924 S. S. Hakim and
Company made an arrangement whereby the first mortgagee released
the property specified in the memorandum of charge and took sub-:
stituted security. On January 21, 1925 Salvator Hakim executed a
deed of mortgage of the property specified in the schedule to the mem-
orandum of charge reciting his ownership and the making and registra-
tion of the memorandum of charge and caution and the agreement to
execute a valid legal mortgage and that he owed the bank large sums
of money and the bank had called upon him to execute a legal
mortgage pursuant to his agreement and that this legal mortgage was
to be in addition to the security created by the said memorandum of
charge and caution for £E.12,OOO. The deed witnessed that pursuant
to the memorandum of charge and caution and in consideration of all
advances made or to be made and all moneys owing or to become
owing to the bank, Hakim charged the land. with the said sum.

This mortgage deed was registered on January 22, 1925 and be-
came first charge upon the property. On January 25th S. S. Hakim
and Company presented a petition for their adjudication in bankruptcy
on which an order of adjudication was made.

The receiver applied for the setting aside of the registered mortgage
and the caution Under sections 311 and 32² of the Brankruptcy Ordi-
nance 1916 as being either a fraudulent preference or a transaction
entered into after the bank had notice of an available act of bank-
ruptcy committed by S. S. Hakim and Company.

Alternatively he applied that the registered mortgage should only
be held valid subject to a prior charge in favour of the general creditors
for £E.2,OOO, the amount of the mortgage debt secured by the first
mortgage released in November, 1924 on the ground that the release
amounted to a fraudulent preference of the bank within the meaning
of section 31.

Section 31 of the Bankruptcy Ordinance 1916 is practically identi-
cal with sect)6'n 92 of the English Bankruptcy Act 1869, reproduced
in the lat,¢ English Bankruptcy Acts and now, with verbal altera-
tions, section 44 of the Bankruptcy Act 1914. It seems to m~ that
when .the legislature of the Sudan uses in an ordinance words in-

" ' '1 Editor's Note: Bankruptcy Ordinance 1916, sec. 31 was substantially're-
"enacted as Bankruptcy Ordinance 1929, s. SO.

• Editor's Note: Bankruptcy Ordinance 1916, sec. 32 was substantially re-
enacted as Bankruptcy Ordinance 1929, sec. 51 (See also section 49).

distinguishable in sense from those 'used in English legislation the legis-
lature of the Sudan must have intended to use them in the sense in
which the English courts have interpreted the corresponding words in
the English acts, and this court, though not legally bound, is morally
bound to consider and apply the decisions of the English courts.

There is no doubt that in January, 1925 S. S. Hakim and Com-
pany were unable to pay their debts as they became due out of their
'own money. There is probably little doubt that they were insolvent
from the early days of November, 1924.

The registered mortgage was executed within three months of the
bankruptcy and it gave a preference to the bank: over the other credi-
tors. It only remains to consider whether the debtor carried out the
transaction with a view of preferring the bank.

It is clear from the English cases that a transaction is not voidable
under this section unless the dominant view of the debtor is the giving
of the preference and that in these cases the court cannot apply the
principle that a man must be assumed to have intended the natural
consequences of his acts, but that the court must look to the state of
the debtor's mind.

There is a considerable number of cases which show' that where
the debtor has acted in pursuance of a pre-existing agreement he is
not to be considered as having had a view of giving a preference.

It was argued that every payment by a debtor to a creditor of a
debt already due is made pursuant to an antecedant agreement, but I
think it is sufficient to distinguish this case by saying that the agree-
ment was one of which the court would have decreed specific 'per-
formance at the suit of the bank.

There are English cases in which, as here, security was given for
a debt at the last moment before bankruptcy pursuant to an antecedant
agreement and in which it was held that the giving of the security did
not amount to a fraudulent preference. There is no evidence in this
case that Salvator Hakim had a view of preferring the bank and some
evidence that he regarded himself as bound under the memorandum of
charge to execute the mortgage.

It was argued for the receiver that this mortgage was not given
pursuant to the memorandum of charge because it was expressed to
be in addition to it. This argument requires the court to give weight
only to the words "in addition to" and not to consider the rest of the