Barton v Official Receiver

[1986] HCA 44

HIGH COURT OF AUSTRALIA

Gibbs C.J., Mason, Wilson and Dawson JJ.

BARTON v. OFFICIAL RECEIVER

(1986) 161 CLR 75

6 August 1986

Bankruptcy

Bankruptcy—Property available for payment of debts—Voluntary settlements—Avoidance—Settlement void as against trustee if not in favour of purchaser for valuable consideration—Nominal consideration—Whether sufficient—Bankruptcy Act 1966 (Cth), s. 120(1)(a).

Decision

GIBBS C.J., MASON, WILSON and DAWSON JJ.: The respondent is the trustee in the bankruptcy of Thomas Barton, whose estate was sequestrated on 23 August 1974. He instituted proceedings in the Federal Court seeking, inter alia, a declaration that a payment of $170,000 made on 14 April 1973 by the bankrupt to the bankrupt's uncle Terence Barton ("the appellant") was void as against him by reason of the provisions of s.120(1) of the Bankruptcy Act 1966 (Cth), as amended ("the Act"). That subsection has been amended since the events in question. Its form at the relevant time and so far as material was as follows:

"120. (1) A settlement of property, whether made before or after the commencement of this Act, not being -

(a) a settlement made ... in favour of a purchaser ... in good faith and for valuable consideration; or

(b) ...

is, if the settlor becomes a bankrupt within two years after the date of the settlement, void as against the trustee in the bankruptcy."

It is not now disputed that the payment in question was a "settlement" within the meaning of s.120. Clearly it was, bearing in mind the broad definition of "settlement of property" in s.120(8) as including "any disposition of property" and the circumstances in which the payment was made. Although made in the form of a loan, no part of the principal was repayable for twenty years and the purpose of the loan was to enable the appellant to buy property in the form of a house and company shares. There being no contemplation of the immediate dissipation or consumption of the money, the established principles governing the making of a settlement were satisfied: see Williams v. Lloyd; In re Williams (1934) 50 CLR 341, at pp 364, 375; Re Hyams; Official Receiver v. Hyams (1970) 19 FLR 232, at pp 247-253.

2. The learned trial judge (McGregor J.) considered separately each of the three elements referred to in s.120(1)(a), namely, "purchaser", "good faith" and "valuable consideration". His Honour accepted that the appellant was a purchaser and was not satisfied that he had not acted in good faith. However, the judge found that valuable consideration was wanting and therefore made the declaration sought. The appellant appealed to the Full Court (Sweeney, Fisher and Lockhart, JJ.). Their Honours were unanimous in dismissing the appeal.

3. The appeal by special leave to this Court raises the short but important point as to the meaning of the phrase "for valuable consideration" in s.120(1)(a). In the course of argument, it was submitted for the respondent that a proper construction of the paragraph required that the three elements contained in the description "a purchaser ... in good faith and for valuable consideration" be read together in determining their application to the circumstances of a particular case. In our opinion the submission has considerable force because it will often be the case that the considerations touching each of the elements will overlap and thereby influence the conclusion as to any one element. Certainly one would expect this to be so with respect to the elements of "purchaser" and "valuable consideration". Cf., as to "good faith", Re Hyams, at p 256. However, it is unnecessary to pursue this aspect of the matter separately from a consideration of the argument presented for the appellant, although in coming to a conclusion we shall take as the appropriate phrase "purchaser ... for valuable consideration".

4. Sir Maurice Byers, counsel for the appellant, argued that the learned judges in the Federal Court had placed a wrong meaning on the words "valuable consideration" in s.120(1). It was common ground that some consideration had been given. The appellant in consideration of a loan of $170,000 had promised to repay the amount on the expiration of twenty years. Interest at the rate of 4.25% per annum was payable at five-yearly rests. Sir Maurice's argument was that this was sufficient by itself to constitute valuable consideration in law and that no more was required. Any consideration that makes the conveyance legally binding is sufficient. He relied on a recent decision of the House of Lords in the case of Midland Bank Trust Co. Ltd. v. Green (1981) AC 513, dealing with the protection provided by s.13(2) of the Land Charges Act 1925 (U.K.) to a purchaser against an unregistered land charge. Lord Wilberforce, in a speech with which the other members of the House agreed, said, at p.531:

"The argument is that the protection of section 13(2) of the Land Charges Act 1925 does not extend to a purchaser who has provided only a nominal consideration and that 500 is nominal. A variation of this was the argument accepted by the Court of Appeal that the consideration must be 'adequate' - an expression of transparent difficulty. The answer to both contentions lies in the language of the subsection. The word 'purchaser', by definition (section 20(8)), means one who provides valuable consideration - a term of art which precludes any inquiry as to adequacy. This definition is, of course, subject to the context. Section 13(2), proviso, requires money or money's worth to be provided: the purpose of this being to exclude the consideration of marriage. There is nothing here which suggests, or admits of, the introduction of a further requirement that the money must not be nominal".

Earlier in his speech, at p.528, Lord Wilberforce commented on the nature of the Land Charges Act. His Lordship said:

"The case is plain: the Act is clear and definite. Intended as it was to provide a simple and understandable system for the protection of title to land, it should not be read down or glossed: to do so would destroy the usefulness of the Act. Any temptation to remould the Act to meet the facts of the present case, on the supposition that it is a hard one and that justice requires it, is, for me at least, removed by the consideration that the Act itself provides a simple and effective protection for persons in Geoffrey's position - viz. - by registration".

5. On the other hand, each of the judges in the Federal Court has held that s.120 is to be construed in a commercial sense and that in the context of the section "valuable consideration" requires something more than merely nominal consideration which would suffice to support a simple contract at common law. While fully adequate consideration is not required, what is advanced must be real and substantial. In formulating this criterion their Honours found assistance in a body of doctrine developed in England in a series of decisions extending back to 1879. The precise point at issue has not previously come before this Court for consideration and the Court was not referred to any other relevant decision in Australia, save for a decision of Sweeney J. in Re Florance; Ex parte Andrew (1983) 52 ALR 339, to similar effect to that now under review.

6. In Ex parte Hillman. In re Pumfrey. (1879) 10 ChD 622 the question was whether a settlement by a trader, in consideration of the natural love and affection he bore to his wife, of certain leaseholds for the benefit of his wife and children was void as a voluntary settlement as against the trustee in the bankruptcy of the settlor. Section 91 of the Bankruptcy Act, 1869 (U.K.) was in terms similar to s.120(1) of the Act save that it referred to "Any settlement of property made by a trader ...". At first instance, the judge held that good consideration had been given for the assignment of the leaseholds because the trustees of the settlement had become liable to pay the rent and perform the covenants. The decision was reversed by the Chief Judge in Bankruptcy and his decision was affirmed by the Court of Appeal. At p.625, Sir George Jessel, M.R., with whose judgment the other members of the Court agreed, said:

"The only question is, what is the meaning of sect.91? Now, in the first place, the Bankruptcy Act is a special code of law relating to bankruptcy, as a general rule for commercial men, and we must therefore expect to find words used in it in the sense in which commercial men use them. In the next place, that the words of sect.91 are used in that sense is, I think, clear from the words themselves, independently of any other consideration. ... I think that in this section the word 'purchaser' means a 'buyer' in the ordinary commercial sense, not a purchaser in the legal sense of the word".

7. Hance v. Harding (1888) 20 QBD 732 was another decision of the Court of Appeal on s.91 of the 1869 Act. Here the settlor assigned an insurance policy to trustees on trusts for the benefit of his children in consideration of his father at the same time conveying certain leasehold property to the trustees on similar trusts. Lord Esher, M.R., saw the question whether the settlement was protected by s.91 as depending on whether the father could be considered a purchaser for valuable consideration within the section. His Lordship said, at pp.737-738:

"Then can he be called a purchaser? He has given something to get something for other persons, viz. the family of his son. He has given up his interest in certain leaseholds to induce his son to give up his interest in these policies. That being so, I think he is a purchaser from the bankrupt within the meaning of the section".

The Master of the Rolls then referred to the contrasting case of Hillman where the trustees of the settlement, though "they might in conveyancing law language be called 'purchasers', they had not given anything at all" (p.738). Sir James Hannen was of the same opinion, saying, in reference to Hillman, at p.739, that:

"Jessel, M.R., was dealing with a case in which the conveyance was purely voluntary, without any consideration moving from or to either of the parties: and with reference to that case his language must be interpreted as meaning that the word 'purchaser' must not be treated as a conveyancing term, but must be considered as applying to cases where there is a quid pro quo. Here there was an ample quid pro quo".

8. Sir Maurice sought to distinguish these two cases by reference to the fact that s.91 of the 1869 Act was confined to settlements by a "trader". However, it will be observed that in the passages we have cited (and which are those frequently cited in later cases) the Court's attention is focused on the word "purchaser" and the meaning to be given to it, and the Court's discussion in that regard proceeds without any explicit reference to the presence in the section of the word "trader". In Hance v. Harding an issue was raised as to whether the settlor was a trader but this issue was resolved quite independently of the issue touching the phrase "purchaser ... for valuable consideration".

9. The 1869 Act was replaced by the Bankruptcy Act, 1883, with s.47 repeating the words of s.91 save that any reference to trader was omitted. The section was considered by the Court of Appeal in In re Pope. Ex parte Dicksee. (1908) 2 KB 169. The bankrupt had made a settlement in favour of his wife and children in consideration of the wife refraining from taking proceedings against him in the Divorce Court. The Court held by majority (Cozens-Hardy M.R. and Fletcher Moulton L.J., Buckley L.J. dissenting) that, as stated in the headnote:

"In order to constitute a person a 'purchaser' for valuable consideration within the exception mentioned in s.47 of the Bankruptcy Act, 1883, it is not necessary that either money or physical property should be given; the release of a right, or the compromise of a claim, may be sufficient to constitute a person a 'purchaser' within the meaning of that section".

At p.172 the Master of the Rolls, with whom Fletcher Moulton L.J. agreed, said:

"It is decided by authority, which binds us, that the word 'purchaser' is equivalent to 'buyer' in the sense in which that word is used in commercial transactions - Hance v. Harding 20 QBD 732 - and, on the other hand, that it is something more than a conveyancing term and is not satisfied by a deed, such as an assignment of leaseholds, which might suffice to render the assignee a 'purchaser' within the statute of 27 Eliz. c.4: Ex parte Hillman. In re Pumfrey. 10 Ch D 622. I think it means a person who has given something in consideration of the settlement, or, to use the language of Sir James Hannen, a quid pro quo".

10. The next decision which it is necessary to note is that of Stamp J. in In re A Debtor, Ex parte The Official Receiver v. Morrison (1965) 1 WLR 1498; (1965) 3 All ER 453. The case concerned a voluntary settlement of a property subject to a mortgage by the debtor upon his wife. The legislative provision equivalent to s.120(1) of the Act which was invoked to void the transaction as against the trustee in the bankruptcy was s.42 of the Bankruptcy Act, 1914 (U.K.). At pp.1504-1505 of W.L.R.; p.457 of All E.R., his Lordship said:

"Holding as I do that the whole purchase price was provided by the debtor, subject only to this, that part of it was advanced on the security of that which was purchased and to which was added a life policy and a joint covenant, it would be a defect in section 42 if the transaction escaped its ambit. In construing the section, I must have regard to the fact that it is clearly framed to prevent properties from being put into the hands of relatives to the disadvantage of creditors, and as was said, in effect, by Sir George Jessel M.R. in Ex parte Hillman (1879) 10 Ch D 622, CA the section falls to be construed in a commercial sense".

Stamp J. went on to express the view that the consideration spoken of in s.42 must move to the debtor and replace the property extracted by the settlement from his creditors, but as we shall see this observation is later discarded as erroneous in the light of the decisions in Hance v. Harding and In re Pope, cases which were not drawn to the attention of his Lordship: see In re Windle (1975) 1 WLR 1628, at p 1637; (1975) 3 All ER 987, at p 994; In re Abbott (A Bankrupt) (1983) Ch 45, at pp 54,58.

11. In In re Densham (A Bankrupt) (1975) 1 WLR 1519; (1975) 3 All ER 726, Goff J. (as his Lordship then was) was directly concerned with the sufficiency of the consideration passing from a wife in respect of a settlement upon her of joint ownership of the matrimonial home. She had contributed something towards the purchase but less than half its value. After citing the passages to which we have referred from the judgment of Stamp J. in Morrison, his Lordship rejected, relying upon In re Pope, a submission that the valuable consideration referred to in the section must equal the value of the assets acquired, but nevertheless applied the principle that s.42 must be approached in a commercial sense. The conclusion was expressed as follows, at p.1529 of W.L.R.; p.736 of All E.R.:

"... I cannot think that the contribution by the wife, in respect of which she is in any event entitled to an appropriate aliquot share in equity, and which ex hypothesi affords nothing in relation to any larger share can, on these principles, be held to be valuable consideration within section 42".

12. In re Windle was another case of a settlement on a wife of a matrimonial home subject to a mortgage. Goff J., at p 1637 of WLR; p 994 of All ER, accepted that the three Court of Appeal cases - Hillman, Hance and Pope - taken as a whole establish that the expression "purchaser ... for valuable consideration" does not import a purchase in the strict sense of a contract of purchase and sale but it does postulate a person who in a commercial sense provides a quid pro quo. His Lordship found the observation of Stamp J. in Morrison, that s.42 is clearly framed to prevent properties from being put into the hands of relatives to the disadvantage of creditors, to be "very apposite" (p.1638 of W.L.R.; p.995 of All E.R.) and concluded that since the consideration passing from the wife was a mere personal covenant of indemnity in respect of a house where the equity of redemption was of value, it was not a sufficient quid pro quo to constitute valuable consideration for the purposes of the section.

13. The last decision to be reviewed is that of the Divisional Court comprising Vice-Chancellor Sir Robert Megarry and Peter Gibson J. in In re Abbott. This was a case of a wife relinquishing her property claim in divorce proceedings in return for payment to her of the entire proceeds of the sale of the jointly-owned matrimonial home up to 18,000, any surplus beyond that sum being shared equally with her husband. The attempt of the trustee in the husband's bankruptcy to void the transaction as a voluntary settlement of 9,000 failed on the ground that by relinquishing her property claim the wife was a purchaser for valuable consideration within s.42 of the Bankruptcy Act, 1914 of the husband's interest in the home. In the course of his judgment, Peter Gibson J., with whom Sir Robert Megarry V.C. agreed, extracted, at p.54, three propositions from the cases which we have reviewed:

"(1) The word 'purchaser' in section 42(1) means a buyer in the ordinary commercial sense, that is to say a person providing a quid pro quo ...

(2) The consideration moving from the purchaser need not replace in the hands of the debtor the consideration moving from the debtor ...

(3) The consideration given by the purchaser need not be equal in value to the consideration given by the debtor, though it must be valuable consideration in the commercial sense".

The Vice-Chancellor, in a short concurring judgment, referred briefly, at p.57, to the meaning of "purchaser ... for valuable consideration" in s.42:

"Plainly, 'good consideration', in the sense of the natural love and affection that a man has for his wife and children, is not enough. Nor is a merely nominal consideration, even though it would suffice to support a simple contract at common law. In the context of the avoidance of settlements by a trustee in bankruptcy, a 'purchaser ... for valuable consideration' must be someone who can not only be described as being a 'purchaser' but can also be said to have given a consideration for his purchase which has a real and substantial value, and not one which is merely nominal or trivial or colourable".

It will be observed that it was these words of Sir Robert Megarry which provided the precise terminology of the criterion adopted by the Full Court in the present case.

14. The first issue to be resolved is that concerning the proper construction of the phrase "purchaser ... for valuable consideration" in s.120(1)(a) of the Act. In our view, the answer is to be determined in the light of the purpose of the Act. In Midland Bank Trust, Lord Wilberforce was sensitive to the purpose of the Land Charges Act to provide a simple and understandable system of registration for the protection of title. That Act defined "purchaser" as one who provides valuable consideration - "a term of art which precludes any inquiry as to adequacy". The purpose of the statute would be frustrated if notions of adequacy were to be introduced, nor was there any incentive to do so because simple and effective protection was always available through registration.

15. On the other hand, the purpose of the bankruptcy legislation is very different. We see no reason not to accept the observation of Stamp J. in Morrison that s.42 of the English Act was clearly framed to prevent properties from being put into the hands of relatives to the disadvantage of creditors. Furthermore, we reject the contention advanced for the appellant that Sir George Jessel's statement in Hillman, that these words were to be understood in the sense in which commercial men would understand them, is to be put aside because s.91 spoke of a settlement "by a trader". The bankruptcy legislation did not change its basic character in 1883 when the reference to a trader was omitted from the new statute: it remained "a special code of law relating to bankruptcy, as a general rule for commercial men". Nor, of course, is there any reason to distinguish the Australian legislation from this general characterization.

16. It follows that in our opinion the observations of Lord Wilberforce are not pertinent to the issue now before the Court. They were directed to the construction of a conveyancing statute, whereas the Court is concerned here with social legislation the counterpart of which in England has consistently been construed differently over a long period. It is of interest to note that the Midland Bank Trust decision was cited to the Divisional Court in argument in In re Abbott but is not mentioned in the judgments.

17. It is true that the earlier decisions to which we have referred focus attention more on the word "purchaser" than on the words "valuable consideration" whilst in the more recent cases the reverse is true. As indicated in the early part of this judgment, we have considerable sympathy with the proposition that the words "purchaser" and "valuable consideration" should be held together as a single concept. One could then accept as of more general application Lord Wilberforce's statement that "valuable consideration" is a term of art which precludes any inquiry as to adequacy but find room in which to give effect to the beneficent purpose of the bankruptcy legislation by construing "purchaser" broadly in a commercial sense. A beneficiary under a settlement is not a purchaser within the meaning of the section unless he has given such valuable consideration as is sufficient in all the circumstances to make him a "buyer" in a commercial sense of the interest passing to him under the settlement. Unless there is good reason to the contrary, we believe it to be important in legislation of this kind to maintain a construction of the Australian Act which accords with English authority. We would therefore accept Sir Robert Megarry's formulation and endorse the Full Court's ruling that a "purchaser ... for valuable consideration" within the meaning of s.120(1) of the Act is one who has given consideration for his purchase "which has a real and substantial value, and not one which is merely nominal or trivial or colourable" (In re Abbott, at p 57).

18. The same approach has been taken in Canada, with the Appeal Division of the Nova Scotia Supreme Court construing a similar provision in the light of citations from Hillman, Morrison and Windle: Coopers &Lybrand Limited v. Murphy (1978) 27 CBR (N.S.) 54, at pp 60-63. See, also, in relation to a differently worded statute, Re Austin (a bankrupt) (1982) 2 NZLR 524, at pp 527-529.

19. It remains to consider whether the Full Court was correct in finding that the appellant failed to satisfy that criterion. In this regard, Sir Maurice pointed to the substantial amount of interest that would be payable over the period of the loan and also to the assumption by the appellant of some obligation to care for the elderly mothers of Mr and Mrs Alexander Barton respectively. On the other hand, an appellant who seeks to overturn concurrent findings of fact arrived at by all four judges who have considered the matter in the Federal Court faces a difficult task: State of South Australia v. Johnson (1982) 42 ALR 161, at p 167. It seems to us that every aspect of the transaction has been fairly analysed in the judgments below and we do not find it necessary to cover that ground again. Having regard to the very substantial size of the loan, the fact that it was unsecured, that it was made for a term of twenty years, that no part of the principal was repayable until the appellant was 82 years of age, his modest means, the fact that no interest was payable until five years had elapsed and then at a low rate of 4.25% per annum, and the effect of inflation, the finding of the Full Court that the appellant was not a "purchaser ... for valuable consideration" within the meaning of s.120(1) of the Act must be affirmed.

20. We would dismiss the appeal.

Orders

Appeal dismissed with costs.