Barton v Official Receiver

[1984] FCA 368

Re: TERENCE BARTON
And: THE OFFICIAL RECEIVER
No. G417 of 1983
Bankruptcy
4 FCR 380

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Sweeney(1), Fisher(2) and Lockhart(3) JJ.

CATCHWORDS

Bankruptcy - avoidance of antecedent transactions - payment of money by way of loan - whether "a settlement" - whether made "for valuable consideration".

Bankruptcy Act 1966: ss. 120; 121

Bankruptcy - Preference - Whether settlement - Whether valuable consideration - Bankruptcy Act 1966 (Cth), s 120.

HEADNOTE

Held (per Sweeney and Fisher JJ): (1) A settlement, for the purpose of s 120(1)(a) of the Bankruptcy Act 1966 (Cth) is constituted by a loan which was made not so that the proceeds should be immediately dissipated or consumed but so as to enable the purchase of real and personal property to be retained by the borrower.

(2) (Per Lockhart J.) For a settlement within the meaning of s 120 of the Bankruptcy Act 1966 (Cth) the retention of the property in some sense must be contemplated and not its immediate dispersion. The mere obligation to repay the loss in twenty years was sufficient to satisfy the requirement of retention.

(3) (Per Sweeney and Lockhart JJ and, semble, per Fisher J.) A loan is not "made for valuable consideration" within the meaning of s 120(1) of the Bankruptcy Act 1966 (Cth) if the borrower has not provided consideration which had a real and substantial value amounting to a quid pro quo in a commercial sense.

HEARING

1984, June 7, 8; November 12. #DATE 12:11:1984

APPEAL

Appeal from judgment and orders of McGregor J.

J C S Burchett QC and W F Gibb, for the appellant.

C J Darvall QC and T P Lonergan, for the respondent.

Cur adv vult

Solicitors for the appellant: Dunkel & Co.

Solicitor for the respondent: Australian Government Solicitor.

GFV

ORDER

1. The order of the court made on 13 December 1983 that the appellant pay to the Official Receiver the sum of $170.000 be varied by reserving leave to the Official Receiver to apply to the trial Judge for appropriate orders as to how much of and when the said sum should be paid.

2. Otherwise the appeal be dismissed.

3. The appellant pay the costs of the Official Receiver of this appeal.

Orders accordingly

JUDGE1

This is an appeal from the judgment of a single judge of this court declaring that a payment made on or about 14 April 1973 by Thomas Barton (the bankrupt) to his uncle Terence Barton (the appellant) in the sum of $170,000.00 was "a settlement of property" within the meaning of s.120(1) of the Bankruptcy Act 1966 (the Act) and was not "made -- for valuable consideration" within the meaning of paragraph 120(1)(a) of the Act. It was ordered that the said payment was void as against the Official Receiver, that the appellant pay the said sum to the Official Receiver and that the appellant pay the Official Receiver's costs.

The Official Receiver had brought an application pursuant to ss.120 and 121 of the Act to avoid the payment. These sections in their 1974 form, as they applied to the transaction in question, read as follows:

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

(a) a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or

(b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor,

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

(2) (3) (4) (5) (6) (7) . . .

(8) In this section, "settlement of property" includes any disposition of property."

"121 (1) Subject to this section, a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is, if the person making the disposition subsequently becomes a bankrupt, void as against the trustee in the bankruptcy.

(2) Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired the property the subject of the disposition or any interest in that property.

(3) In this section, 'disposition of property' includes a mortgage of property or a charge on or in respect of property."

In relation to s.120, the learned trial judge held that there was "a settlement of property" in favour of "a purchaser" "in good faith" but not "for valuable consideration." In his notice of appeal, the appellant contended that his Honour erred in holding that the payment was "a settlement of property" and in holding that it was not "for valuable consideration." In its notice of contention the Official Receiver contended that his Honour erred in holding that the appellant was "a purchaser" and that the payment was "made - - in good faith." It can be seen, therefore, that each of his Honour's conclusions referred to in relation to s.120 was challenged before us.

In relation to s.121, the learned trial judge held that there was "a disposition of property" in favour of a person who acted "in good faith" but not "for valuable consideration" and not "with intent to defraud creditors". His Honour applied the reasoning stated in his consideration of s.120 to reach the conclusion that under s.121 the disposition was in favour of a person who acted "in good faith" but not "for valuable consideration." In its notice of cross appeal the Official Receiver contended that his Honour erred in holding that the disposition was not made "with intent to defraud creditors" and in holding that it was in favour of a person who acted "in good faith". Therefore, each of his Honour's conclusions referred to in relation to s.121, other than that the payment was "a disposition of property", was challenged before us.

In the course of his finding of fact his Honour said:-

"In April 1973, the Barton family included Mrs. Barton senior, her son Alexander Barton and his wife and her mother Mrs. Buchalter. The two older ladies were over 70 and Mrs. Buchalter was sick. Both died in 1975. These four lived at 187 Edinburgh Road, Castlecrag, near Sydney, the older ladies being cared for by Mrs. Alexander Barton with the assistance of an experienced nurse and some domestic help. Terence Barton, (now the appellant) brother of Alexander, lived with his wife in a unit at McMahon's Point. Thomas Barton, the bankrupt, son of Alexander Barton, and his wife (nee Bellamy) lived in an apartment at 21 Thornton Street, Darling Point, owned by A.T. Investments Pty. Limited (A.T.I.). It is said Mrs. Alexander Barton had looked after the elderly ladies for some years. It was proposed that the appellant, then aged 61 or 62, and his wife, should undertake this. Since these ladies, referred to as the grandmothers, had lived for some time at 187 Edinburgh Road, Castlecrag, it was suggested that it be appropriate they remain there and the appellant and his wife should also go to live there, Alexander Barton and his wife moving to other premises. The house itself was owned by Cordec Corporation Pty. Limited (Cordec). The evidence including that of the bankrupt was to the effect that over a period from mid 1972 to April 1973, there were conversations between Alexander Barton, the appellant and the bankrupt, including reference to the appellant and his wife taking over care of the grandmothers; Alexander Barton told the appellant he would need to buy 187 Edinburgh Road, Castlecrag, that the appellant said he did not have sufficient funds to buy the property unassisted whereat Alexander Barton said, "We will lend you the money." It was said that the necessity to buy the house was on the advice of a Mr. Grusman, a practicising barrister and a Queen's Counsel, who advised the Bartons and their companies, that the appellant who was not connected or associated with Cordec could not have the use of the house for nothing. There was also discussion as to lending the appellant money to purchase shares in Hawkesbury Developments Pty. Limited (Hawkesbury)

As part of the background it should be mentioned that on 4 April 1973 Messrs B.S. Smith and M.W. Burke were, pursuant to s.170(1) of the Companies Act 1961 (N.S.W.), appointed to investigate the affairs of thirty companies and later, a further thirty one companies referred to in annexures 1 and 2 to the First Interim Report on the Special Investigation of the Barton Group of Companies (the First Interim Report) dated 28 August 1973. All companies referred to in these reasons, except what are apparently Swiss Corporations, were mentioned and included in those annexures. Other evidence is to the effect that Alexander Barton, and probably the bankrupt, were intending to make an overseas trip in 1973 though the time for it had not been precisely fixed."

In April 1973 Mr and Mrs Alexander Barton and the bankrupt and his wife left Australia by air. Before their departure, the bankrupt and the appellant entered into a loan agreement in the following terms:-

"THIS DEED IS MADE the 14th day of April One Thousand Nine Hundred and Seventy Three BETWEEN THOMAS BARTON of 23 Thornton Street Darling Point New South Wales (hereinafter referred to as "the lender") and TERENCE BARTON of 154 Bellevue Road Double Bay New South Wales (hereinafter referred to as "the borrower").

NOW THE DEED WITNESSESS:

1. The lender shall lend to the borrower the sum of $170,000.00 the receipt whereof is hereby acknowledged upon the following conditions:-

(a) Interest shall be payable at the rate of 1/2% in excess of the rate from time to time paid by the Commonwealth Savings Bank to depositers who have deposited sums not exceeding two thousand dollars in that bank. Such interest shall be payable as to the first five years of the loan on the fifth annual anniversary of the date of the making of the loan and thereafter at five yearly intervals.

(b) The principal shall be repayable on the expiration of twenty years of the making of the loan."

The sum of $170,000 was paid to the appellant, who purchased the Hawkesbury shares for $50,000 and the house at 187 Edinburgh Road and its contents for $120,000. The appellant and his wife immediately moved into the house. It was expected that the appellant might derive income from those shares, which he could later sell at a profit, and so be put in funds to care for the two grandmothers.

On 23 August 1974 an order of sequestration was made against the estate of the bankrupt, of which the Official Receiver became trustee.

The appellant's first submissions on appeal related to the learned trial judge's finding that the Official Receiver had established that the appellant was not a purchaser "for valuable consideration."

His Honour began his consideration of this question by referring to a number of authorities dealing with the meaning of the words "for valuable consideration" in s.120 of the Act and in s.42 of the Bankruptcy Act 1914. (Eng), which is in terms almost identical with s.120. Those authorities included In Re a Debtor, Ex Parte The Official Receiver (Trustee of the Property of the Debtor) v Morrison (1965) 1 W.L.R. 1498 in which Stamp J. said at p.1505:

"In construing the section, I must have regard to the fact that it is clearly formed 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, the section falls to be construed in a commercial sense."

His Honour also referred to Re Windle (1975) 3 All E.R. 987 where at p.995 Goff J. cited this passage from Morrison's case.

In Re Windle a bankrupt had transferred to his wife the matrimonial home, subject to a mortgage but having a valuable equity of redemption. Goff J. held that the wife's covenant to indemnify the bankrupt against his liability under the mortgage could not be regarded as valuable consideration. He said at p.994:

"- - - for this purpose 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:"

In the earlier decision of Re Densham (1975) 3 All E.R. 726 Goff J. had held that a wife's contribution to the original purchase of the matrimonial home was not valuable consideration in a commercial sense and accordingly the interest conferred on her by her bankrupt husband constituted a settlement voidable under the section. At p.735-736 Goff J. said:

"I cannot say, therefore, that there was not a valuable consideration, because it did not equal the share given up by the bankrupt or cannot be evaluated so as to show that it did. However bearing in mind the approach to the section of Stamp J. in Morrison (1965) 3 All E.R. 453 and the views expressed in the cases to which I have referred, that one must look at it in a commercial sense, 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 the section."

Re Windle was applied by Brightman J. in Trustee of C.R. Spinks (in bankruptcy) v Dicker which is noted at 122 Sol Jo 791. Part of the note of the decision reads:

"However, the creditors had to be 'purchasers for valuable consideration' within the section and there had to be a quid pro quo in a commercial sense for the surrendered asset: see Re Windle (a bankrupt), ex parte Trustee of the Property of the Bankrupt v Bankrupt (1975) 1 WLR 1628. The only consideration moving from the creditors was the undertaking to give notice of proceedings. Any or all of the creditors could have given seven days' notice the moment the deed was signed and therefore the advantage to the debtor was a triviality. The quid pro quo was of no commercial value at all. There was no advantage in it to the debtor".

His Honour also referred to Re Abbott (1982) 3 All E.R. 181. In that case a wife compromised her bona fide claim to a property adjustment order under s.24(1) of the Matrimonial Causes Act 1973 (Eng) in return for the right to part of her bankrupt husband's share in the net proceeds of sale of the matrimonial home. The court held the wife to be a purchaser for valuable consideration.

Peter Gibson J. at p.184 summarised the effect of the earlier English cases as establishing three propositions: firstly, "The word 'purchaser' in s.42(1) means a buyer in the ordinary commercial sense, that is to say a person providing a quid pro quo:"; secondly, "The consideration moving from the purchaser need not replace in the hands of the debtor the consideration moving from the debtor:"; thirdly, "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:"

Sir Robert Megarry V-C at p.187 when considering the meaning of "valuable consideration" in s.42(1) of the English Act said:

"The question, then, is what that meaning is. 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 is in this sense that I understand the use of the phrase about providing a quid pro quo that is to be found in the authorities. In that phrase, I do not think that the word 'quid' is confined to some material asset which can or will replace in the hands of the debtor the asset of which he has disposed to the purchaser."

In my opinion, s.120(1)(a) requires the Official Receiver to show that the appellant had not provided consideration which had a real and substantial value, amounting to a quid pro quo in a commercial sense for the loan which was made to him. In a case such as the present it is helpful to see what the appellant obtained under the loan agreement and what he agreed to give in return.

What the appellant obtained under the loan was the immediate payment to him of $170,000.00, which he or his executor was required to repay in 1993 dollars, with no repayment of capital required before the expiration of 20 years.

What the appellant agreed to give in return included interest at a rate which his Honour found to be effectively 4 1/2%, upon evidence which he said was not contradicted. Before us there was some discussion as to the accuracy of that figure but it seems clear that the rate of interest from the date of the loan to the time of trial was of this order and for the balance of the term would have been likely to remain considerably lower than the normal interest rates payable on long term unsecured loans.

In considering the loan, it is permissible for the Court to apply its general knowledge of interest rates (see Wilson v Moss (1909) 8 C.L.R. 146 per Isaacs J at p.167,) general increases in the cost of living, but not of particular statistics (see Re Richardson 1920 S.A.S.R. 25), and the general inflationary trend in the economy (see National Trustees Executors and Agency Co of Australasia Ltd 1973 V.R. 610).

So regarded, the interest payable was very low, when considered at its face, or nominal value. When one looks at it in real terms, making allowance for likely future inflation over the life of the loan, even taking a view of the future favourable to the case for the appellant, the real rate of interest shrinks greatly, if it does not altogether disappear.

In addition, interest was payable at 5 yearly intervals. If one contrasts this even with interest payable annually, which would ordinarily be regarded as a term favourable to a borrower, the appellant was in effect to receive an interest free loan of the amount of interest that would have been payable, say at the expiration of the first year, for four years and corresponding interest free loans in respect of later years. The effect of this discounting factor upon the real return to the lender serves to emphasise the striking disproportion between what the appellant obtained under the loan agreement and what he agreed to give in return.

The covenant by the appellant to repay and the covenant to pay interest must be valued in the light of his age at the time of the loan, 61 or 62 his comparatively modest means, and the term of the loan. His Honour found that the evidence disclosed no great earning capacity by him "or prospects thereof or of his ownership of capital assets of such worth as to encourage one to form a favourable opinion of his ability to repay."

The appellant's agreement to care for the two grandmothers is to be considered in the context that he was not accepting the sole financial responsibility for them. He agreed to buy the house and move into it with his wife, in the place of Alexander Barton and his wife, but there was nothing to suggest that the financial support of other members of the Barton family for the ladies would not continue to be available. The appellant's financial position was seen as being much inferior to that of Alexander Barton and, indeed, of the bankrupt, who was, after all, making this loan to the appellant.

The family arrangement that the appellant would take care of the ladies is to be considered in this context and even taking it into account, together with the appellant's agreement to buy the house and shares at values which were not attacked as improper or inappropriate, there would, in my opinion, be no reason to disturb his Honour's finding that the appellant was not a purchaser "for valuable consideration" within the meaning of s.120(1)(a) of the Act.

The appellant also challenged his Honour's finding that the deed amounted to a settlement of property within the meaning of that enactment. Under s.120(8) "settlement of property" includes any disposition of property. "Property" means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.

The loan was not made to the appellant so that the money should be immediately dissipated or consumed. He received the right to the use of the money for 20 years and it was contemplated that he would apply if for the purposes of the purchase of designated real and personal property. The real property in turn was to be retained by him as a residence not only for himself and his wife but also for the two grandmothers. There remained an obligation upon him to repay the money.

In my opinion, the payment of the sum of $170,000 by the bankrupt to the appellant amounted to a settlement of property within the meaning of s.120 (see Re Hyams 19 F.L.R. 232 at 252 per Gibbs J, as he then was, and the citations there made).

In Re Ward (Sydney, 17 August 1984) Wilcox J. considered the English and Australian authorities on the meaning of "settlement" and drew attention to the fact that "settlement" is no longer defined as including a "conveyance or transfer of property" but as including "any disposition of property". His Honour expressed the view that it ought to be enough to constitute a settlement that the relevant transaction is a deliberate disposition of a capital fund, saying that "it ought to be immaterial whether the settlor contemplates that the capital fund will be held indefinitely in specie, converted to some other form of capital or spent by the settlee. However this may be, it is not necessary to determine this case by reference to any wider interpretation of the word 'settlement' than that indicated in the authorities to which I have referred". In the case before us, it is unnecessary to decide whether a wider interpretation is justified, but if the question were to arise, there is clearly, if I may say so with respect, a great deal to be said in favour of that interpretation.

By leave, the appellant also argued two grounds not included in his notice of appeal. The first was that his Honour erred in ordering the appellant to pay the sum of $170,000 to the Official Receiver in the absence of any finding that payment of this amount was necessary to satisfy the debts of the bankrupt and the costs of the bankruptcy.

In my opinion, this contention is well founded (see In re Macdonald ex parte McCullum 1920 1 KB 205 at 212). I would vary his Honour's order by deleting the order that the appellant pay the sum of $170,000 to the Official Receiver by reserving leave to the Official Receiver to apply to his Honour, pursuant to the liberty which was reserved, for an appropriate order as to payment.

The second ground argued by leave was that "his Honour erred in ordering the appellant to pay the whole of the costs of a long hearing a great part of which was directed to issues upon which the appellant succeeded. "In the course of that hearing his Honour heard a great deal of evidence and he said of the appellant that he was not a witness whose testimony on disputed matters he would readily accept and that he had formed "an unfavourable view of his credibility and indeed of his motives."

I would not disturb the order for costs.

I do not find it necessary to decide the other questions raised.

Save for the variation of his Honour's order set out above, I would dismiss the appeal with costs.

JUDGE2

In this matter I have had the opportunity to peruse the draft reasons of Sweeney J. I agree with him that the appeal should be dismissed and generally with his reasons. There is no need for me to repeat the facts which he has set out and which I adopt. I will merely indicate briefly my findings on the principal matters in issue.

I agree with the trial judge and with Sweeney J. that the transaction in question was a "settlement of property" within the meaning of s.120 and s.121 of the Bankruptcy Act 1966 ("the Act"). That transaction was essentially a payment of money upon certain specified terms and conditions, in particular the condition that an equivalent sum was to be repaid at the expiration of 20 years. This latter condition amply complies with the requirement of Dixon J. in Williams v Lloyd (1933) 50 C.L.R. 341 at page 375 that "the retention of the property in some sense must be contemplated and not its immediate dissipation or consumption". At that time "settlement" was defined as including "any conveyance or transfer of property". There is little doubt that by subsequently defining it to include any "disposition of property" the legislature intended to expand the ambit of the term. As Megarry V.C. said in Re Abbott (1982) 3 All E.R. 181 at page 187

"But the 1914 Act has understandably cast its net wide. Under s.42(4)8 the payment is a 'settlement' because that word includes 'any conveyance or transfer of property'; and under s.167 'property' includes 'money'."

By its amendment to the definition of settlement the Australian legislature has clearly indicated that it intended to cast the net yet wider.

The respondent contended that the trial judge erred in holding that the appellant was a "purchaser". However, bearing in mind, in particular, the wide scope given to the meaning of "settlement", I have no doubt that the trial judge was correct in his finding and there is little profit in the circumstances in debating the matter further.

The principal question argued before us and upon which this appeal falls for determination is whether the consideration provided by the appellant for the payment to him of $170,000 was "valuable consideration" as required by the Act. Megarry V.C. in Re Abbott supra construed this requirement as consideration "which has a real and substantial value, and not one which is merely nominal or trivial or colourable". If one adds to this the requirement that the consideration must be viewed "in a commercial sense" (Re Densham (1975) 3 All E.R. 726 per Goff J. at 735-736), a critical assessment of the aggregate of the items of consideration here leaves little doubt as to the correct answer. It is of course accepted that the consideration is not required to be adequate or sufficient. But it is not proper in my view to consider each term upon which the loan was made separately and divorced from other terms. In other circumstances the duration of this loan or the rate of interest might be commercially acceptable and of real and substantial value. However when the terms are considered together there is no doubt that the consideration in this matter was merely nominal and in fact illusory. An unsecured loan of a substantial sum for 20 years to a person 62 years of age with limited means is immediately suspect. This suspicion is compounded when it is apparent that the rate of interest was that normally applicable to a small sum of money repayable on demand or short notice. It is thus a rate which in present circumstances takes no account and makes no provision for inevitable depreciation in the value of money during the term of the loan. The fact that the lender received no payments of interest until the expiration of the first and each subsequent five year period of the loan confirms that this consideration is both trivial and colourable. The consequence of the transaction was that the estate of the bankrupt available to creditors was effectively diminished, for all practical purposes, to the extent of $170,000. The fact that the transaction was alleged to be a family dealing, with the appellant agreeing to care for elderly relatives during an unspecified period, does little in my opinion, to establish that the consideration should be assessed as valuable. The fact that the consideration is capable of monetary quantification means that it is more able to be critically assessed than if it was consideration in the nature of a forbearance to sue or compromise of a dispute. The trial judge in my opinion correctly concluded that the consideration was not valuable.

The respondent challenged the trial judge's finding that the settlement was made in good faith and his finding that, in relation to s.121, it was not made with intent to defraud creditors. I would agree with the latter finding, as there was no evidence that at the date of the settlement the bankrupt, and indeed the appellant, could have reasonably been aware that the bankrupt had any creditors. The trial judge also was of opinion that the requirement that the purchaser should be "a purchaser in good faith" was established, or more correctly that the respondent had failed to prove to the contrary. I agree with this finding if the sole test of bona fides was that relied upon by the trial judge, namely that "existence of knowledge or suspicion of an inability to pay debts as they fall due negatives good faith". This test was taken from the judgment of Latham C.J. in Downs Distributing Company Ltd. v Associated Blue Star Stores Pty. Ltd. (In liquidation) (1948) 76 C.L.R. 463 @ 472. In that case however the High Court was considering "good faith" in the context of the preferential payments provisions in s.95 of the then Bankruptcy Act. It has been said that these words do not necessarily have the same meaning in other sections of the Act (See Williams on Bankruptcy 18th Edition p.375 McDonald, Henry and Meek, Australian Bankruptcy Law 5th Edition p.320) and that under the sections dealing with avoidance of settlements they mean "absence of dishonesty or of any conscious attempt to defraud any other person". If this be the case, there is much to be said for a wider review of the present transactions beyond merely considering their impact upon the interests of the bankrupt's creditors. In this regard I note that Buckley L.J. in Re Pope (1908) 2 K.B. 169 at 174 said that the "words 'in good faith' exclude colourable transactions" and also that the expression normally means that dealings are made with honesty and propriety.

In this present matter the inference can fairly be drawn that the purpose of the transactions was to remove from two of the Barton family companies the only valuable or potentially valuable assets of the group, namely the Castlecrag dwellinghouse and the shares in Hawkesbury Developments Pty. Ltd. Such withdrawals took place very shortly after investigators had been appointed to these companies under the Companies Act 1961 (N.S.W.) By arranging the transactions the bankrupt and his father as directors not only ensured that these assets were vested in friendly hands, but also that the bankrupt's loan accounts with the two companies became virtually worthless. The trial judge found that the appellant's participation in the transactions "was that of an acquiescent at the behest of the bankrupt and Alexander Barton" and that he would not readily accept the appellant's evidence. In my opinion this inference as to the real purpose of the transactions can fairly be drawn and the evidence of the appellant would not persuade one to the contrary. However in the circumstances of this matter it is neither necessary nor desirable to form any concluded view, particularly as this as the purpose of the transactions does not appear to have been put to the participants. It is also proper to observe that to approach "good faith" in this manner may well not accord with the view of Gibbs J., as he then was, in Re Hyams, Official Receiver v Hyams (1970) 19 F.L.R. 232 at page 256 where he said that "in good faith", in the context of the predecessor to s.120, means "without notice that any fraud or preference contrary to the statute is intended". However it was not necessary on the facts of that case to decide whether a wider meaning can in appropriate circumstances be given to the words.

Finally I agree with Sweeney J. that the appellant should not be ordered to pay the full amount of $170,000 to the respondent, but only so much as is required to discharge the obligations of the bankrupt. But for this necessary variation in the order of the trial judge, the appeal should be dismissed with costs.

JUDGE3

April 1973 was a busy and eventful month in the Barton household. Alexander Barton lived in a house, No.187 Edinburgh Road, Castlecrag ("the house") with his wife and their mothers - Mrs. Barton Snr. and Mrs. Buchalter. The two older women were over 70 years of age and Mrs. Buchalter was sick; they both died in 1975. Mrs. Alexander Barton cared for the older women. The house was owned by a company, Cordec Corporation Pty. Limited ("Cordec"), of which Mr. Alexander Barton and his son, Thomas Barton, ("the bankrupt") were directors and shareholders.

Terence Barton, the appellant, is a brother of Mr. Alexander Barton. In April 1973 he was 62 years of age and lived with his wife in a flat at McMahons Point.

From about mid 1972 to April 1973 Mr. Alexander Barton, the appellant and the bankrupt discussed from time to time the possibility of the appellant and his wife living in the house and taking over the care of Mrs. Barton Snr. and Mrs. Buchalter. It was envisaged that the appellant would buy the house and, as he did not have sufficient funds, to do this. Mr. Alexander Barton would arrange a loan to the appellant to enable this to be done. It appears that senior counsel advised the Bartons and their companies that the appellant could not have the use of the house for nothing as he was not associated with Cordec. There was also discussion among the Bartons about the possibility of the appellant being lent sufficient funds to purchase shares in a company, Hawkesbury Developments Pty. Limited ("Hawkesbury"), also apparently a company in which members of the Barton family had interests. The object of the loan was to enable the appellant to derive income from the shares to enable him to help look after the older women.

On 4 April 1973 inspectors were appointed by the Attorney-General of New South Wales, pursuant to s.170(1) of the Companies Act (N.S.W.) 1961, to investigate the affairs of a large number of companies in which Mr. Alexander Barton and the bankrupt were interested including Cordec and Hawkesbury.

Saturday, the 14th to Tuesday, the 17th April 1973 were very busy days for the Bartons. On the Saturday, two meetings were held at the house; one being a meeting of Cordec and the other a meeting of Inexco Pty. Limited ("Inexco"). Mr. Alexander Barton and the bankrupt were directors and shareholders of Inexco. The appellant was an alternate director for Mr. Alexander Barton and the for bankrupt in Cordec and Inexco. It is not entirely clear whether the meetings were of directors or shareholders; but nothing turns on this. The meetings were apparently arranged with some urgency. Present at both meetings were Mr. Alexander Barton, the bankrupt and Mr. I.M. Moore, a solicitor who was then acting for the bankrupt and the appellant. Mr. Moore was also secretary of the two companies. A resolution was passed at the meeting of directors of Cordec that the house and its contents should be sold to the appellant for the sum of $120,000. A resolution was passed at the meeting of directors of Inexco that the shares owned by it in Hawkesbury ("the shares") be sold to the appellant for the sum of $50,000.

On the same day a deed of loan was executed by the bankrupt as lender and the appellant as borrower whereby the bankrupt lent the appellant $170,000. The material provisions of the deed are as follows:-

"THIS DEED IS MADE the 14th day of April One Thousand Nine Hundred and Seventy Three BETWEEN THOMAS BARTON of 23 Thornton Street Darling Point New South Wales (hereinafter referred to as "the lender") and TERENCE BARTON of 154 Bellevue Road Double Bay New South Wales (hereinafter referred to as "the borrower").

NOW THE DEED WITNESSES:

1. The lender shall lend to the borrower the sum of $170,000.00 the receipt whereof is hereby acknowledged upon the following conditions:-

(a) Interest shall be payable at the rate of 1/2% in excess of the rate from time to time paid by the Commonwealth Savings Bank to depositers who have deposited sums not exceeding two thousand dollars in that bank. Such interest shall be payable as to the first five years of the loan on the fifth annual anniversary of the date of the making of the loan and thereafter at five yearly intervals.

(b) The principal shall be repayable on the expiration of twenty years of the making of the loan."

The effective rate of interest payable on the loan was 4.25%, well below commercial rates in April 1973.

The loan of $170,000 was made to the appellant for the purpose of enabling him to purchase the house ($120,000) and the shares ($50,000). It was thought apparently that the shares would rise in value in the future, thus enabling the appellant to derive income from them or to resell them at a profit. The appellant would then have a house in which he and his wife could live and care for the two older women with funds to maintain them.

The provision of the funds to enable the appellant to purchase the house and the shares required an exchange of cheques to be made between the appellant, Cordec, Inexco and the bankrupt. On 14 April 1973 Inexco owed the bankrupt $80,000 - $100,000 and Cordec owed him $170,000 - $180,000. On the same day the bankrupt drew a cheque in favour of the appellant for $170,000 which he handed to the appellant. The appellant made out two cheques on his account with the Rural Bank, one as to $120,000 in favour of Cordec and the other as to $50,000 in favour of Inexco. On the same day a contract for the sale of the house was executed. It had apparently been prepared before then. A memorandum of transfer of the house was also executed by Cordec that day. The contract and memorandum were each dated 14 April 1973. Mr. Moore acted for the vendor, Cordec. The appellant gave an indemnity to Mr. Moore safeguarding him against loss that might arise from his not having carried out full conveyancing procedures because of the expedition with which the transaction was completed.

On Monday, 16 April 1973 Cordec drew a cheque in favour of the bankrupt for $144,000 and Inexco drew a cheque in his favour for $26,000, and those cheques were paid that day to the account of the bankrupt with the head office of the Bank of New South Wales, George Street, Sydney. On the same day the appellant's two cheques dated 14 April 1973 and drawn on the Rural Bank were handed to Mr. Alexander Barton who tore them up. The appellant, the bankrupt and a Mr. Maloney (the secretary of the Barton companies) went to a branch of the Bank of New South Wales where Cordec, Inexco and the bankrupt had accounts. There was opened in the name of the appellant a banking account into which he paid the cheque for $170,000 given to him by the bankrupt. The appellant agreed that he opened the new account so that there could be an immediate clearance of all cheques. He obtained a cheque book containing five cheques. Two cheques were written out for him; one in favour of Cordec for $120,000 and the other in favour of Inexco for $50,000. He signed both cheques on 16 April 1973. They were to replace the two cheques which had been torn up by Mr. Alexander Barton. The cheques were paid into the accounts of Cordec and Inexco.

The result of these events on Friday 14 and Monday 16 April 1973 was as follows:

(a) The appellant benefited by the loan to him from the bankrupt of $170,000 which he used immediately to pay the purchase price for the house and for the shares.

(b) The assets of the bankrupt were reduced by the payment out of his bank account of the sum of $170,000 lent to the appellant.

(c) The indebtedness of Cordec and Inexco to the bankrupt was reduced by the sums of $144,000 and $26,000 respectively and in lieu thereof the bankrupt was entitled to be paid $170,000 by the appellant upon the expiration of 20 years, when the appellant would be 82 years old, assuming he survived until then. The loan to the appellant was unsecured and no provision was made for acceleration of repayment of the principal upon the happening of any future event, for example the death of the appellant or default in payment of interest or the sale of the house. In the meantime interest at a very low rate was not payable until the end of five years and thereafter not until the end of each successive five year period.

(d) Cordec no longer owned the house and Inexco no longer owned the shares. The appellant owned them.

The appellant and his wife immediately moved into the Castlecrag house.

Also on Monday 16 April 1973 arrangements were made through a travel agent for the reservation and purchase of airline tickets to Hong Kong and from Hong Kong to Frankfurt for Mr. Alexander Barton, his wife, the bankrupt and his wife. It appears that some preliminary inquiries were made about a week earlier relating to the proposed travel. The tickets were collected on Tuesday, 17 April 1973 by the Bartons and they all left that day for Hong Kong. They departed without having told anyone of their intention to depart except perhaps Mrs. Barton Snr. They were absent from Australia for a long time.

On 20 June 1973 a notice of assessment to income tax issued in respect of the taxable income of the bankrupt for the year ended 30 June 1972 under which over $77,000 tax became payable on 23 July 1973.

On 28 August 1973 a petition was presented to the Federal Court of Bankruptcy by a creditor of the bankrupt for an order sequestrating the bankrupt's estate for money lent by the creditor to the bankrupt between 5 and 17 April 1973. The acts of bankruptcy alleged in the petition each relied on an intent on the part of the bankrupt to defeat or delay his creditors.

The petitioning creditor was paid the amount of its debt by the appellant upon the instructions of the bankrupt and on 10 December 1973 an order was made by the Federal Court of Bankruptcy substituting the Deputy Commissioner of Taxation as petitioning creditor. On 23 August 1974 an order of sequestration was made against the estate of the bankrupt and The Official Receiver (the respondent to this appeal) became trustee.

The respondent applied to this Court to avoid, pursuant to ss.120 and 121 of the Bankruptcy Act 1966 ("the Act"), the payment of $170,000 made by the bankrupt to the appellant. The application was heard by a single judge of this Court (McGregor J.) who declared that the payment made on or about 14 April 1973 by the bankrupt to the respondent in the sum of $170,000 was "a settlement of property" within the meaning of sub-s. 120(1) of the Act and was not "made . . . for valuable consideration" within the meaning of paragraph (a) of sub-s. 120(1); and declared also that the said payment was void as against the respondent. His Honour ordered the appellant to pay the sum of $170,000 to the respondent and to pay the respondent's costs. The appellant appealed to the Full Court of this Court from those declarations and orders.

Sections 120 and 121 of the Act in their form at relevant times read as follows:-

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

(a) a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or

(b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor.

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

. . .

(8) In this section, "settlement of property" includes any disposition of property."

"121 (1) Subject to this section, a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is, if the person making the disposition subsequently becomes a bankrupt, void as against the trustee in the bankruptcy.

(2) Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired the property the subject of the disposition or any interest in that property.

(3) In this section, 'disposition of property' includes a mortgage or property or a charge on or in respect of property."

The learned trial Judge found in relation to s. 120 that there was "a settlement of propeerty" in favour of "a purchaser" "in good faith" but not "for valuable consideration".

His Honour found in relation to s. 121 that there was "a disposition of property" in favour of the appellant who acted "in good faith" but not "for valuable consideration" and not "with intent to defraud creditors".

Each of these findings of his Honour, except his finding that the payment was "a disposition of property" for the purposes of s. 121", was challenged before us by either the appellant or the respondent.

The principal questions argued before us and upon which in my opinion this appeal turns are whether the transaction in question was a "settlement of property" within the meaning of s. 120 and whether the consideration given by the appellant for the payment by the bankrupt to him of $170,000 was "valuable consideration" within the meaning of para. 120(1)(a).

Section 120 has a long history, beginning with the original Statute, 1 James 1 Ch.15, s.5. Sub-s. 120(1) does not avoid the whole transaction for all purposes. It is voidable (it is in that sense that the word "void" must be understood in a section such as s. 120) only as against the trustee in the bankruptcy and from the date when his title accrues: in Re Brall; Ex Parte: Norton (1893) 2 Q.B. 381; Re Carter and Kenderdines Contract, (1897) 1 Ch. 776; Williams v. Lloyd (1934) 50 C.L.R. 341 per Dixon J. at p. 374; and Re Cummins; Richardson v. Cummins (1951) 15 A.B.C. 185 per Clyne J. at p. 188.

The word "settlement" did not appear in the original statute of James the First. It was introduced for the first time in England by the Bankruptcy Act 1869. It has been considered in many cases in the context of sections in bankruptcy statutes comparable to s. 120; but generally where the word was defined by the relevant statute as including "any conveyance or transfer of property". The Australian Parliament changed the definition of the expression to the form in which it presently appears in the Act as including any "disposition of property"; a wider expression than the previous expression "any conveyance or transfer of property". Property is defined by s. 5 of the Act as meaning "real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property".

The construction of the word "settlement" has been settled in England and Australia for an appreciable time and it has acquired an established meaning. But it is very difficult to extract from the decided cases any clear definition of the dispositions of property which will and which will not fall within the operation of s. 120. The word was chosen by Parliament to connote a particular kind of disposition of property excluding others. It cannot be said that all dispositions of property are settlements; nor can it be said that a settlement is a settlement simply because it happens to be a disposition of property. The whole of the language of s. 120 must be considered to determine the meaning of the expression.

Parliament never intended to bring within the scope of s. 120 all dispositions of property unless they have the additional quality of being a settlement in the sense in which that term is ordinarily understood. Otherwise, for example, all gifts from a father to his children for their advancement in life, could be recovered from them where the gifts were made at any time within two years before the commencement of the father's bankruptcy notwithstanding that he may not have been insolvent when the gifts were made. Although I think that s. 120 was intended to have a wide operation, I do not think that Parliament ever intended transactions of this character necessarily to fall within the section.

In Re Player: Ex Parte Harvey (1885) 15 Q.B.D. 682 Cave J. said at p. 687:

"The transaction must be in the nature of a settlement, though it may be effected by a conveyance or transfer. The end and purpose of the thing must be a settlement, that is a disposition of property to be held for the enjoyment of some other person. Thus a purchase by the father of shares, which are registered in the son's name, and upon which the son receives the dividends, is within the Statute. But where the gift is of money to be expended at once, the transaction is not, in my opinion, within section 47 of the Act of 1883."

In Re Player a gift of money to a son made for the purpose of enabling him to commence business on his own account was held not to be a "settlement of property" within the meaning of the section of the English Bankruptcy Act equivalent to s. 120 of the Act.

In Re Vansittart: Ex Parte Brown (1893) 1 Q.B. 181 Vaughan Williams J. approved the passage from the judgment of Cave J. in Re Player (at p. 184). The Court of Appeal in Re Plummer (1900) 2 Q.B. 790 approved the principle stated in Re Player and Re Vansittart and held that the mere fact that some business had been acquired by the bankrupt's son, partly by means of money obtained from or paid by the father, was not sufficient to make the transaction a "settlement" within the relevant section of the English Bankruptcy Act. "Settlement" in the English Bankruptcy Act was held to mean such a conveyance or transfer by the donor as contemplated the retention of the property by the donee either in its original form or in such a form that it could be traced, and did not extend to a conveyance or transfer of property which could not be traced as, for instance, where there was a gift of money to be employed in a business or in the purchase of a business and the money was so employed or spent, the business itself not being settled. In Re Tankard Ex Parte: Official Receiver (1899) 2 Q.B. 57 Wright J. said at p. 59 when referring to the cases of Re Player and Re Vansittart: "the retention of the property in some sense must according to those cases be contemplated and not its immediate alienation or consumption", see also Williams v. Lloyd (supra) per Dixon J. at p. 375.

In my opinion for there to be a "settlement of property" within the meaning of s. 120 there must be a settlement in the ordinary sense of the word, a transaction in the nature of a settlement, though it may be effected by any disposition. The retention of the property in some sense must be contemplated and not its immediate dispersion.

The transaction impugned by the respondent was not merely the payment of $170,000 by the bankrupt to the appellant. It was a loan of money upon specific terms that included the repayment of an equivalent sum upon the expiration of 20 years. That is itself sufficient to satisfy the requirement that the property be retained in some sense and not immediately dissipated or consumed. But the transaction went further than that. The exchange of cheques by the appellant, the bankrupt, Cordec and Inexco, the contract of sale and memorandum of transfer of the house and, the deed of loan and the documents relating to the sale of the shares were all part of the one transaction which necessarily required that the money advanced by the bankrupt to the appellant be used forthwith for the purpose of buying the house and the shares. This seems to me to plainly satisfy the definition of a "settlement of property" for the purposes of s.120.

I see no difference for present purposes between the disposition of something other than money and the disposition of money to buy something. The same view was expressed by Vaughan Williams J. in Re Vansittart (supra) at p. 184 and by Stamp J. in Re Adelter Ex Parte The Official Receiver v. Morrison 1965 1 W.L.R. 1498 at p. 1505.

I turn to the next question, whether the appellant gave "valuable consideration" for the payment to him of $170,000.

Paragraph 120(1)(a) talks relevantly for present purposes of a settlement made in favour of a purchaser in good faith and for valuable consideration. I have difficulty considering the words "a purchaser . . . for valuable consideration" as if they represent two separate and independent notions. It is true that some of the decided cases discuss first one expression and then the other; but so far as I can see this was done for reasons of convenient analysis. The phrase has perhaps two elements but it does not consist of two separate notions. The words have been much discussed in the cases, and there is some conflict about their meaning. I do not find it necessary to define the conflict; it is sufficient to refer to the discussion in Re Windle (1975) 1 W.L.R. 1628 per Goff J. at pp. 1637-1639; and in Re Abbott (1982) 3 W.L.R. 86 per Peter Gibson J. at p. 90. Some of the cases state that the phrase connotes a person who provides a quid pro quo. I do not find the reference to the latin expression helpful. It means, so far as my researches reveal, something for something, and originally meant that one substance or drug in medical prescriptions was substituted for another: see for example, the Shorter Oxford Dictionary and Weekley's Etymological Dictionary of Modern English. It says nothing about whether the consideration given by the purchaser must be equal in value to the consideration given by the debtor, or whether the consideration must be substantial or whether merely nominal, notional or trivial consideration will suffice.

In my opinion s. 120 is intended to prevent the property of a person from being put into the hands of his relatives or friends to the disadvantage of his creditors, and must be considered in a commercial sense; in Re Pumfrey, Ex Parte: Hillman (1879) 10 Ch.D. 622; in Re A. Debtor Ex Parte: The Official Receiver v. Morrison (1965) 1 W.L.R. 1498 at p. 1505; in Re Densham Ex Parte The Trustee of the Property of the Bankrupt v. The Bankrupt (1975) 1 W.L.R. 1519 at p. 1527; and in Re Windle (supra) at p. 1637.

To constitute a purchaser for valuable consideration it is not necessary that either money or physical property should be given: in Re Charters Ex Parte: Trustee (1923) 3 B. & C.R. 94; but a nominal, trivial, colourable or fictitious consideration will not suffice: in Re Abbott (supra). Nor is it necessary that the consideration moving from the purchaser must be equal to that which has been taken out of the debtor's estate and in that sense replaces it: Re Densham, Re Windle and Re Abbott. The expression does not connote a purchaser in the strict sense of a contract for purchase and sale. It is not a conveyancing term. The phrase connotes a purchaser in the ordinary commercial sense who gives consideration which is real and substantial: Re Abbott.

When applying this test to the present case it is important to remember that the relevant transaction between the bankrupt and the appellant is not merely the deed of loan. All the relevant circumstances (I mentioned them earlier) must be examined. The loan of $170,000 was part of an exchange of cheques between the bankrupt, the appellant and the two companies - Cordec and Inexco. All relevant events occurred on 14 and 16 April 1973 - for all practical purposes simultaneously. The primary object of all persons relevantly concerned in the events of those two days was to place the house and the shares in the name of the appellant so that he and his wife could live in the house, care for the two elderly women and help to maintain them using income from the shares or from the sale of the shares and reinvestment of the proceeds. But on the advice of senior counsel the assets could not be merely given to the appellant for this purpose. It was not argued that the sale of the house for $120,000 or of the shares for $50,000 was at an undervalue. Nor was it suggested by the respondent that the impugned transaction was a sham (that "popular and pejorative word": per Diplock L.J. in Snook v. London & West Riding Investments Ltd. (1967) 2 Q.B. 786 at p. 802), although I must say that it strikes me as having many of the attributes of a sham. I proceed, however, on the basis that there was no sham. Plainly the transaction was structured as a sale of the house and shares supported by a loan from the bankrupt to the appellant so that it would be clothed in commercial garb. The directly relevant transaction for present purposes was the loan of $170,000 by the bankrupt to the appellant on the terms of the deed of loan. But it was not a loan free of conditions. The appellant was bound to apply the $170,000 for the purpose of buying the house and the shares. The exchange of cheques, amongst other things, necessarily ensured this. What did the appellant receive? He obtained $170,000 with which he acquired a house at Castlecrag and shares in a company which it was thought by all persons concerned would increase in value. The $170,000 represented the total purchase price and the two assets acquired were unencumbered. In return, the appellant promised to repay the sum of $170,000 in 20 years time, when, if he survives, he will be 82 years of age. Interest was payable only upon the expiration of each five year period of the loan and then at a rate of interest which, even at the date of the loan, was well below commercial rates. The effect of the ravages of inflation needs no comment. There was no acceleration clause, either as to principal or interest. This was the consideration which moved to the bankrupt in return for his loan of $170,000. The appellant was bound to care for the two elderly ladies, but this was an unquantified obligation. Nor was it suggested that other members of the Barton family would not continue to support them. All persons in the transaction were relatives or their corporate puppets. The principal actors were uncle and nephew. The director and producer of the production was Mr. Alexander Barton. In my opinion the appellant was not a purchaser in a commercial sense who gave real and substantial consideration for what he received.

Save for one matter, the appeal should be dismissed. The appellant argued that the order of the trial Judge that the appellant pay to the respondent the sum of $170,000 should be set aside on the ground that there was no evidence that such a sum was necessary to discharge the claims of proved creditors in the bankrupt's estate and the costs and expenses of administration including the respondent's remuneration as trustee. A settlement of property within s. 120 is void as against the trustee in the bankruptcy. An order for repayment of money the subject of the settlement is within the court's power. Indeed, the contrary was not suggested. But an order of this kind is essentially administrative in character. The particular bankruptcy involved in the dispute before the Court may be recent or of long standing. The financial position of the estate may not be known at the time an application is made to the Court to declare void a settlement of property. There is no clear picture before the Court in this case of the current position of the estate of the bankrupt. The trial Judge rightly declared the settlement to be void, but I think it preferable that leave be reserved to the respondent to apply to the trial Judge to determine the appropriate order to give effect to the declaration that the settlement is void. This may be an order for payment of the sum of $170,000 or some other sum. It was not argued before us that the trial Judge should engage in the task of tracing the monies advanced by the bankrupt to the appellant for the purpose of this later determination, so I shall say nothing about it.

I would reserve leave to the respondent to apply to the trial Judge for an appropriate order as to payment, but otherwise dismiss the appeal. The appellant must pay the respondent's costs of the appeal.