Clark, Graham John (Trustee of the Bankrupt Estate of Douglas Edward Reid) v Reid, Carina Eveline
[1998] FCA 943
•6 AUGUST 1998
FEDERAL COURT OF AUSTRALIA
BANKRUPTCY – property divisible amongst creditors – wife surety for bankrupt – joint bank account of bankrupt and wife – money withdrawn from account to provide bail – whether all or half the amount property of the bankrupt – whether settlement by bankrupt
Bail Act 1977 (Vic) s 5(1)(c)
Bankruptcy Act 1966 (Cth) s 120
In re Bishop [1965] Ch 450 applied
Croton v The Queen (1967) 117 CLR 326 mentioned
Gage v King [1961] 1 QB 188 applied
Re B [1981] 2 NSWLR 373 mentioned
IN THE MATTER OF THE BANKRUPT ESTATE OF DOUGLAS EDWARD REID
GRAHAM JOHN CLARK (TRUSTEE OF THE BANKRUPT ESTATE OF
DOUGLAS EDWARD REID) v CARINA EVELINE REID
JUDGE: HEEREY J
DATE: 6 AUGUST 1998
PLACE: MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 7701 of 1997
BETWEEN
AND
IN THE MATTER OF THE BANKRUPT ESTATE OF DOUGLAS EDWARD REID
GRAHAM JOHN CLARK (TRUSTEE OF THE BANKRUPT ESTATE OF DOUGLAS EDWARD REID)
APPLICANTCARINA EVELINE REID
RESPONDENTJUDGE:
HEEREY J
DATE OF ORDER:
6 AUGUST 1998
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
The application be dismissed with costs, including reserved costs.
The sum of $25,000 held in the Federal Court of Australia’s Litigants’ Fund, together with any interest accrued thereon, be paid to the respondent’s solicitors for the respondent.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 7701 of 1997
BETWEEN
AND
IN THE MATTER OF THE BANKRUPT ESTATE OF DOUGLAS EDWARD REID
GRAHAM JOHN CLARK (TRUSTEE OF THE BANKRUPT ESTATE OF DOUGLAS EDWARD REID)
APPLICANTCARINA EVELINE REID
RESPONDENT
JUDGE:
HEEREY J
DATE:
6 AUGUST 1998
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
The respondent Carina Eveline Reid is the wife of Douglas Edward Reid. On 9 March 1993, following upon the collapse of Southern Cross Airlines Limited (Compass Mark II), Mr Reid was arrested and charged with offences under the Corporations Law. He was granted bail in the sum of $50,000 with one surety. Mrs Reid was the surety. The money came from a joint bank account in the name of Mr and Mrs Reid. A sequestration order was made against Mr Reid on 8 April 1993. After a trial in the Supreme Court of Victoria in 1997 Mr Reid was convicted and sentenced to ten years imprisonment. The trustee of his bankrupt estate claims to be entitled to the sum of $50,000, or alternatively to half that amount.
Financial arrangements of Mr and Mrs Reid
Mr and Mrs Reid have been married since 5 August 1967. They have one child, a daughter who was born in 1980. They have had various business interests in the course of their marriage and have acquired assets both in their own names and in the names of a trust called The Reid Family Trust.
Throughout their marriage they maintained several bank accounts in their own names and in their joint names, both in Australia and overseas. It was generally left to Mr Reid to attend to the administration of joint bank accounts on behalf of both of them. He regularly deposited and withdrew funds for Mrs Reid at her direction. In an affidavit Mrs Reid deposed as to this practice:
“I let him do this and on many occasions requested him to do this, mainly for the sake of convenience and also because I considered myself as old fashioned and preferred to stand back and let him manage our business affairs.”
The Commonwealth Bank joint account
On 24 July 1990 Mr and Mrs Reid established a joint account No 9002 4060 (the account) with the State Bank of Victoria. They continued to retain that account when the State Bank subsequently merged with the Commonwealth Bank of Australia. From the outset both were signatories. The joint account authority authorised the Bank to pay cheques or orders signed by either one of them, and to accept for credit to the account cheques payable to either.
There is no suggestion in the evidence that the account was established for any specific or limited purpose. Mr Reid attended to all the administrative procedures associated with the account, as he had done with other joint bank accounts during the marriage. He made arrangements for overdraft facilities associated with the account. The overdraft facility was secured principally by a guarantee from Coutts & Co which was in turn secured by assets jointly owned by Mr and Mrs Reid, including their London residence.
Mr Reid’s arrest and bail
On the evening of Tuesday 9 March 1993 Mr Reid was arrested by Australian Federal Police officers at the family home in Toorak. He was taken to the offices of the Australian Securities Commission and there interviewed in the presence of his solicitor and counsel.
At 11.30 pm Mr Reid was taken before a Bail Justice who granted bail for him to appear at the Melbourne Magistrates’ Court at 10.00 am on 11 March on condition that he provide a surety of $50,000 and surrender his passport by 5.00 pm the following day (10 March).
Mr Reid returned home and explained to Mrs Reid that he had been charged and granted bail. According to Mrs Reid’s affidavit,
“He also explained to me that it was a term of the bail that someone other than himself pay $50,000.00 of their own money into the Magistrates’ Court at Melbourne by close of business the following day as surety for his bail, otherwise he would be kept in custody until the Magistrates’ Court had been paid those funds.”
(In this passage I read the pronoun “their” as referring to “someone”, that is the person who is to be a surety, and not to Mr and Mrs Reid. The plural pronoun “their” is sometimes used these days in reference to a singular noun as an acceptably non-sexist alternative to “his or her”).
Mrs Reid told her husband that she was prepared to act as his surety and would draw funds from one of their joint bank accounts. She asked him from which one of the joint bank accounts she could withdraw the money. He told her that she should contact the Commonwealth Bank. Mrs Reid said in evidence that she had sufficient funds to pay the $50,000 available at an account at Coutts & Co in London but did not have sufficient time to arrange a withdrawal.
On the morning of Wednesday 10 March Mr and Mrs Reid attended at the chambers of Mr Reid’s counsel, Mr Jack Hammond, at Owen Dixon Chambers West. While at Mr Hammond’s chambers Mrs Reid asked her husband to telephone the Bank and have a bank cheque prepared in the sum of $50,000.
In the afternoon Mr and Mrs Reid went to the offices of the Bank at 385 Bourke Street and met Mr John Woods who was the bank officer with whom they normally dealt. Either Mr or Mrs Reid explained that the $50,000 was to be withdrawn and paid to the Magistrates’ Court that day pursuant to conditions attached to the bail which had been granted to Mr Reid. Mr Woods prepared a withdrawal slip. He wrote the number of the account, the account name “D E and C E Reid” and the notation “Registrar, Melbourne Magistrates’ Court” as well as the date and the amount of $50,000. Mr Woods deposed that he “handed it to them to sign”. Mr Reid signed the withdrawal slip and handed it back. In her evidence Mrs Reid described Mr Reid’s signing of the withdrawal slip as a “conditioned response after 25 and a half [sic] years of marriage, passing it over to him to do things”. Mr Woods handed the slip to an assistant who left the room and returned a short time later with a bank cheque for $50,000 payable to the Magistrates’ Court. Mr Woods or his assistant handed over the cheque to Mrs Reid. Mrs Reid placed it in her handbag. She and her husband then went off to the Magistrates’ Court. She there handed the cheque to a clerk and received a receipt. The receipt is headed “Australian Security [sic] Commission versus Douglas E Reid” and notes that the amount of $50,000 by cheque has been received from “(Surety) Carina Reid cheque Received 3.35 pm”.
Mr Woods said in evidence that Mr Reid generally operated the account. There were not many transactions. There was an overdraft facility and at the time the account was in debit. However, the withdrawal of the $50,000 did not exceed the permitted limit.
Subsequent proceedings
Mr Reid was extradited to Queensland and was due to appear before the Brisbane Magistrates’ Court on 30 April 1993. On 18 March Mrs Reid entered into a recognisance as security for his bail for that appearance. The funds held in Melbourne Magistrates’ Court were transferred from that Court to the Magistrates’ Court at Brisbane.
On 26 April 1994 the Commonwealth Director of Public Prosecutions laid further charges against Mr Reid. On the following day Mrs Reid accompanied her husband to the Melbourne Magistrates’ Court when he was charged with those offences and released on bail. She there signed an authority for the purpose of directing the Clerk of the Brisbane Magistrates’ Court to remit the full amount of funds to the Melbourne Magistrates’ Court to be held by that Court in accordance with the bail conditions and the recognisance which she had entered. She also signed a further undertaking of bail and an affidavit of justification.
On 1 July 1996 Mr Reid was committed to stand trial in the Supreme Court of Victoria. The trial commenced in July 1997. In November he was convicted and sentenced.
The Trustee’s application
By his original application filed 29 October 1997 the Trustee sought a declaration that he was entitled to $25,000
“being the bankrupt’s portion of bail money paid into Court by the First Respondent [Mrs Reid] from funds in a joint bank account held by the First Respondent and the bankrupt.”
On 10 November Deputy District Registrar Efthim made an order by consent that Mrs Reid be restrained from taking possession of $25,000 of the bail money except after giving 21 days’ notice to the Trustee. On 15 December Deputy District Registrar Agnew ordered that the amount of $25,000 currently held by the Prothonotary of the Supreme Court of Victoria on behalf of Mrs Reid be paid into an interest bearing account of the Federal Court Litigants’ Fund. The other $25,000 had already been paid to Mrs Reid.
By an amended application dated 17 February 1998 the Trustee sought a declaration that the whole sum of $50,000 withdrawn from the account was the property of Mr Reid and remained his property “(subject to the terms and conditions of his bail order)” until the date of his bankruptcy on 8 April 1993 whereupon it vested in the Trustee of his bankrupt estate. The amended application sought orders that the sum of $25,000 paid into the Litigants’ Fund be paid to the Trustee and that Mrs Reid pay to the Trustee the further sum of $25,000. Alternatively declarations were sought that $25,000 of the $50,000 withdrawn from the account was the property of Mr Reid and remained so until his bankruptcy, when it vested in the Trustee. Accordingly orders were sought that the sum of $25,000 should be paid from the Litigants’ Fund to the Trustee. An alternative claim was made seeking a declaration that on or about 10 March 1993 Mr Reid settled property on Mrs Clarke being the sum of $25,000 from the proceeds of the account and that the settlement was void against the Trustee pursuant to s 120 of the Bankruptcy Act 1966 (Cth).
Ownership of the account
As at 10 March 1993 there were three possibilities:
Mr and Mrs Reid were each beneficially entitled to half the amount in the account;
each was entitled to a share proportionate to his or her respective contribution; or
each could draw for his or her own benefit up to the full amount of the account and would own beneficially any asset purchased with such drawing.
(Although the account was in fact in debit there is for present purposes no difference between drawing cash from an account in credit and drawing within the terms of an approved overdraft.)
In my opinion, (iii) was the true position. The law is stated by Stamp J in In Re Bishop [1965] Ch 450 at 456:
“Where a husband and wife open a joint account at a bank on terms that cheques may be drawn on the account by either of them, then, in my judgment, in the absence of facts or circumstances which indicate that the account was intended, or was kept, for some specific or limited purpose, each spouse can draw upon it not only for the benefit of both spouses but for his or her own benefit. Each spouse, in drawing money out of the account, is to be treated as doing so with the authority of the other and, in my judgment, if one of the spouses purchases a chattel for his own benefit or an investment in his or her own name, that chattel or investment belongs to the person in whose name it is purchased or invested: for in such a case there is, in my judgment, no equity in the other spouse to displace the legal ownership of the one in whose name the investment is purchased. What is purchased is not to be regarded as purchased out of a fund belonging to the spouses in the proportions in which they contribute to the account or in equal proportions, but out of a pool or fund of which they were, at law and in equity, joint tenants. It also follows that if one of the spouses draws on the account to make a purchase in the joint names of the spouses, the property purchased, since it is purchased in joint names, is, prima facie, joint property and there is no equity to displace the joint legal ownership. There is, in my judgment, no room for any presumption which would constitute the joint holders as trustees for the parties in equal or some other shares.”
See also Croton v The Queen (1967) 117 CLR 326 at 334 and 338-339.
We are not concerned here with the question as to what is to happen to the balance in a joint account when the marriage breaks up. This is a very different question: Gage v King [1961] 1 QB 188.
Was the $50,000 withdrawn by Mr Reid or Mrs Reid?
Given that either Mr or Mrs Reid would be beneficially entitled to funds he or she withdrew from the account, which of them in fact withdrew the $50,000 on 10 March 1993?
The dominant factor in the circumstances surrounding this transaction was that Mrs Reid had to provide the bail from her own money. The condition stipulated by the court granting bail was that mentioned in s 5(1)(c) of the Bail Act 1977 (Vic) viz:
“(c) the release of the accused person upon his entering into an undertaking with a surety or sureties of stated value.”
The whole point of a surety providing money or money’s worth is that the surety has an incentive to ensure the accused person answers his or her bail. This objective will be defeated if the accused person is in reality putting up the money. Such an arrangement would be seriously unlawful, and quite possibly a criminal conspiracy. It was a scheme of this kind which the New South Wales Court of Appeal discussed in highly critical terms in Re B [1981] 2 NSWLR 372, see particularly per Helsham CJ in Eq at 405-413.
The purpose for which the $50,000 was required, that is to say Mr Reid’s bail, was expressly made known to the Bank. The bank cheque was made payable to the Magistrates’ Court. Mrs Reid took physical possession of the cheque, paid it to the Magistrates’ Court and received a receipt in her own name. There is no reason to impute to Mr and Mrs Reid an unlawful course of action – using funds belonging to Mr Reid – when the objective of achieving Mr Reid’s release from custody could be achieved lawfully by using Mrs Reid’s funds.
Put another way, the withdrawal was for the purpose of acquiring an asset in Mrs Reid’s name, that is to say the chose in action constituted by the bail deposit. There would be no point in Mr Reid withdrawing the funds in his own right and then instantaneously making them over to Mrs Reid. There would be no advantage to Mr or Mrs Reid (or the Bank) in such a transaction and, as already mentioned, it would be unlawful.
Against that background I see no significance in the fact that Mr Reid signed the withdrawal slip. This was a minor matter of convenience and habit. The Bank required one or other of Mr or Mrs Reid to sign the withdrawal slip, but it was a matter of indifference to the Bank as to which of them did. Mrs Reid deposed:
“I would have signed the withdrawal slip if I had attended the bank on my own and I would have signed it had Mr Woods passed it in my direction when a signature was required.”
The bail money was Mrs Reid’s property, was deposited by her for the purpose of providing bail, and was transferred to the Queensland Court and back again at her direction. Now that the conditions of the bail have been satisfied, she is entitled to the return of the money.
Settlement
Since the $50,000 was Mrs Reid’s money, no question of settlement arises.
Orders
The application will be dismissed with costs, including reserved costs. There will be a direction that the sum of $25,000 held in the Federal Court of Australia’s Litigants’ Fund, together with any interest accrued thereon, be paid to Mrs Reid's solicitors.
I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey
Associate:
Dated: 6 August 1998
Counsel for the Applicant: Mr R A F Saunders Solicitor for the Applicant: Madgwicks Counsel for the Respondent: Mr K Baker Solicitor for the Respondent: Coadys Date of Hearing: 27 July 1998 Date of Judgment: 6 August 1998
0
2
0