Benson v Cook

Case [2001] FCA 1684

FEDERAL COURT OF AUSTRALIA

Benson v Cook [2001] FCA 2001 FCA 1684

BANKRUPTCY - whether payments made on behalf of appellant to the trustees of three superannuation funds were “settlements” of property within the meaning of s 120 of the Bankruptcy Act 1966 (Cth) - whether payments were “dispositions” of property of the appellant within the meaning of s 120(8) - whether each trustee was a “purchaser for valuable consideration” - whether there was a disposition of property of the appellant within two years before the commencement of the bankruptcy and if so, whether that disposition was not in favour of a “purchaser for valuable consideration” - whether s 116(2)(d) of the Bankruptcy Act 1966 (Cth) applied so that payments were excluded from the operation of ss 120 and 121

WORDS & PHRASES  
“settlement”, “disposition”, “purchaser in good faith and for valuable consideration”

Bankruptcy Act 1966 (Cth) ss 116 (2)(d), 120 (1), (2), (8), 121(1), (2)

Income Tax Assessment Act 1936 (Cth)ss 27A, 27D, 221A, 221C

Occupational Superannuation Standard Act 1987 (Cth) s 3(1)

Superannuation Industry (Supervision) Act 1993 (Cth) ss 116(2)(d), 116(5

Barton v Official Receiver (1984) 4 FCR 380 applied
Barton v Official Receiver (1986) 161 CLR 75 applied
Caboche v Ramsay (1993) 119 ALR 215 referred to

Cannane v J Cannane Pty Ltd (In Liq) (1998) 192 CLR 557 applied

Century 21 (South Pacific) Pty Ltd (In Liquidation) v Century 21 Real Estate Corporation (1996) 136 ALR 687 referred to
Charters, In Re; Trustee, Ex parte (1923) 8 B & CR 94 cited
Ex parte Hilman. In re Pumfrey (1879) 10 ChD 622 referred to
In re Abbott; Ex parte Trustee of the Property of the Bankrupt v Abbott [1983] 1 Ch 45 applied
In re Pope. Ex parte Dicksee [1908] 2 KB 169 referred to
Morrison [1965] 1 WLR 1498 referred to
McGain v Commissioner of Taxation (1965) 112 CLR 523 referred to
McGain v Federal Commissioner of Taxation (1966) 116 CLR 172 referred to
Mahoney v Commissioner of Taxation (1967) 41 ALJR 232 followed
NM Superannuation Pty Ltd v Young (1993) 41 FCR 182 referred to
Norgard v Rocom Pty Ltd (Federal Court of Australia, 16 August 1990, unreported) followed
Official Trustee in Bankruptcy  v Mitchell (1992) 38 FCR 364 applied
Official Trustee in Bankruptcy v Martin (1990) 24 FCR 504 cited
Official Trustee in Bankruptcy v Racovitis (Federal Court of Australia, 28 November 1995, unreported) followed
Official Trustee in Bankruptcy v Trevor Newton Small Superannuation Fund Pty Ltd [2001] FCA 1267 referred to
Roache v Australian Mercantile Land & Finance Co Ltd (No. 2) (1966) 1 NSWR 384 referred to
Re Coram; Ex parte Official Trustee in Bankruptcy v Inglis (1992) 36 FCR 250 applied
Re Densham (A Bankrupt); Ex parte Trustee of the Property of the Bankrupt v The Bankrupt (1975) 1 WLR 1519 referred to
Re Hyams; Official Receiver v Hyams (1970) 19 FLR 232 referred to
Re Kastropil; Ex parte Official Trustee in Bankruptcy (1990) 21 FCR 270 cited
Re La…

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Details
AGLC
Benson v Cook [2001] FCA 1684
Case
[2001] FCA 1684
Decision Date

CaseChat Overview and Summary

In the matter of Benson v Cook, the appellant, who was a bankrupt, challenged a decision of the primary Judge that certain payments made to superannuation funds constituted voidable dispositions under the Bankruptcy Act 1966 (Cth). The bankrupt had made payments to several respondents in the form of superannuation contributions, which the trustee in bankruptcy sought to recover as voidable dispositions under sections 120 and 121 of the Act. The primary Judge found that the payments were not voidable because they were made in return for valuable consideration in the form of management and preservation of the funds. The bankrupt appealed this decision to the Federal Court of Australia.

The central legal issue before the court was whether the payments made to the superannuation funds were voidable dispositions under sections 120 and 121 of the Bankruptcy Act 1966 (Cth). The bankrupt argued that the payments were voidable because they were not made in return for valuable consideration. The respondents, on the other hand, contended that the payments were made in return for valuable consideration in the form of management and preservation of the funds.

The court found that the payments made to the superannuation funds were not voidable dispositions under sections 120 and 121 of the Act. The court held that the concept of "purchaser" or "purchase" should be expanded to include superannuation trustees. The court also found that the payments were made in return for valuable consideration in the form of management and preservation of the funds. The court rejected the bankrupt's argument that the payments were made for tax purposes only, noting that the reality of the transaction was that the bankrupt was many years from retirement age and that there was a strong practical incentive to "roll-over" the entitlement into another bona fide superannuation fund.

The court allowed the appeal and set aside the orders of the primary Judge. The court ordered that the first respondent's claims be dismissed, with costs. The court also ordered that the first respondent pay the costs of the appeal, save that the appellant must pay the first respondent's costs of the directions hearing before Justice Beaumont on 28 August 2001. The court further ordered that if sought, the first respondent have a certificate under the Federal Proceedings (Costs) Act 1981.

Orders

Orders of the court

1. The appeal be allowed.

2. The orders of the primary Judge be set aside; in lieu thereof, it be ordered that the first respondent’s claims be dismissed, with costs.

3. The first respondent pay the costs of the appeal, save that the appellant must pay the first respondent’s costs of the directions hearing before Justice Beaumont on 28 August 2001.

4. If sought, the first respondent have a certificate under the Federal Proceedings (Costs) Act 1981.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The primary Judge made findings of fact as follows:“From July 1972 until 20 April 1990, the bankrupt was employed by Industrial Sales and Service (TAS) Pty Ltd (‘ISAS’). During that employment, the bankrupt was a member of ISAS’s superannuation fund and he accrued benefits in that fund.In January 1990, Bridge Wholesale Acceptance Corporation (Australia) Limited (‘Bridge’) commenced a proceeding in the Supreme Court of Victoria against the bankrupt and R F Benson Pty Ltd. Bridge made a claim for the sum of $222,588.32 plus interest and costs regarding a floor plan bailment agreement concerning a tractor dealership business.ISAS was wound up on 4 June 1990. On account of the termination of his employment, the bankrupt obtained a vested interest in a benefit in the company’s superannuation fund in the sum of $96,192.36 Although it was disputed by his counsel, the bankrupt received that sum as an eligible termination payment. Annexed to [the trustee’s] first affidavit is a true copy of the declaration of trust of ISAS by which its superannuation fund was established. Clause 13(b) of the declaration of trust provides that if a member of the fund leaves the service of his employer prior to his normal retirement date and such retirement is accepted by the employer as ‘early retirement’, the benefits held in the scheme in respect of the member are to be transferred to him. That is what happened in this case. The bankrupt left the service of ISAS before his normal retirement age. He was in his forties at the time. In September 1990, the bankrupt authorised Norwich Union Life Australia Ltd (‘Norwich’) to pay the greater part of the funds which were transferred to him to each of the three corporate respondents as ‘roll-over’ institutions. This is apparent from the Australian Taxation Office’s Statement of Termination Payment Form signed by the bankrupt which authorised Norwich to pay the funds which had been transferred to the bankrupt onto the following entities in the following amounts:·The second respondent[L & G] in the sum of $20,000.00.·The third respondent [Prudential] in the sum of $40,000.00.·The fourth respondent [Mercantile] in the sum of $20,000.00.”CONCLUSIONS AT FIRST INSTANCE His Honour accepted the submission made on behalf of the trustee that the appellant’s entitlement to his eligible termination payment was a chose-in-action which belonged to the appellant. However, the chose-in-action attracted no relevant exemption under s 116 of the Act. Section 116(2)(d) of the Act, as it applied at the relevant time, only made reference to policies of life assurance and endowment assurance and not superannuation per se: see N M Superannuation Pty Ltd v Young (1993) 41 FCR 182 at 190, per Hill J. (Although the issue of the application here of s 116(2)(d) was agitated in the notice of appeal, it was not pressed on the hearing of the appeal.) The primary Judge went on to say:“Under s120 of the Act, it must be shown by the trustee that there was a disposition of property of the bankrupt within two years before the commencement of the bankruptcy. The relevant disposition here occurred about one year prior to the date of bankruptcy.Next, it must be shown that the disposition was not in favour of a purchaser for valuable consideration in the context of s120 of the Act. I accept [the trustee’s] submission that the respondents, other than the bankrupt, did not give any consideration for the payment to them of the relevant sums. What occurred was that each of those respondents pledged to manage and preserve the funds given to each such entity in return for management fees or charges. The second, third and fourth respondents were not ‘buyers’ in a commercial sense of the relevant interests passing to them: see Barton v Official Receiver (1986) 161 CLR 75 at 86, per Gibbs CJ, Mason, Wilson & Dawson JJ. I also reject [the appellant’s] submission that the funds which were ‘rolled-over’ were immediately dissipated. What occurred was that the bankrupt became entitled to them and then authorised their investment elsewhere.It is unnecessary to consider whether the payments made to the second, third and fourth respondents were void against the trustee having regard to s121 of the Act, it being plain that the payments were void against the trustee having regard to s120 of the Act.”

Ratio Decidendi

Legal Principle Established

But having so widened the net so as to embrace an expanded notion of “settlement”, Parliament must, I think, be taken also to have intended that the concept of “purchaser” or “purchase” would, in line with this expansion, also be expanded, so as to achieve a consistent approach overall. That is, if (as here) Parliament is to be taken to have intended that a payment of money, or a transfer of a chose in action to a superannuation trustee is capable of constituting a statutory “settlement”, it is only reasonable to assume that Parliament intended that such a trustee was also capable of qualifying as a “purchaser … for valuable consideration”. Any other result would be so unfair and arbitrary as to be presumed not to have been intended. As a matter of statutory interpretation, I would reject such construction in the present context.(ii) Was there “valuable consideration”? The dealings between the relevant parties were at arm’s length, on ordinary commercial terms, and, in my opinion, appropriately (in terms of the trustee’s promise to manage) characterised as “valuable consideration”. On its facts, the case may thus plainly be distinguished from the family arrangement struck down in Barton (and see Official Trustee v Martin (1990) 24 FCR 504). As Lockhart J observed in The Official Trustee in Bankruptcy v Racovitis, Full Federal Court, 28 November 1995, unreported (at 10):“In determining whether there is valuable consideration, it is the reality of the transaction to which regard is to be had. The whole transaction must be looked at to see if valuable consideration has been given: Re Johnston; Ex parte Cole (1984) 3 FCR 32.The Court will go behind a written agreement in order to ascertain the reality of the transaction: Re Trimbole; Ex parte Donnelly, unreported, Beaumont J., 11 July 1986 affirmed by the Full Court of the Federal Court, unreported, 5 November 1986; and Re Douglas; Ex parte Starkey (1987) 15 FCR 475 per Pincus J. at 480.” Here the reality at the time of the “roll-over” was that the bankrupt was many years from retirement age, so that unless his entitlement from the ISAS fund on its termination was “rolled-over” into another bona fide superannuation fund, the entitlement would have been taxed. Common sense indicates that, to this extent, there was a strong practical incentive, perhaps a practical compulsion, to “roll-over” the entitlement, an action in fact carried out in this case with the approval of the Australian Taxation Office. Moreover, the dealings in question involved far more than the constitution of a “bare” trust. The contemplated role of the related assurance company, guaranteed by the fund’s trustee, was of fundamental practical importance to the superannuation transaction. In return for premiums received, the fund’s trustee promised the beneficiary that the assurance company would provide assurance cover. This involved the provision of a real and truly valuable quid pro quo by the fund’s trustee. These were not nominal, colourable, abnormal or collusive dealings of the kind aimed at by s 120 (cf. Official Trustee in Bankruptcy v Trevor Newton Small Superannuation Fund Pty Ltd [2001] FCA 1267 at [5]). In my view, they fell within the exception to s 120(1).