Commonwealth Banking Corporation v Percival

[1988] FCA 240

Re: OFFICIAL TRUSTEE IN BANKRUPTCY
And: DAVID CHARLES ROSS and CORINA MULHOLLAND
No. G162 of 1988
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Morling(1), Wilcox(1) and Burchett(1) J.

CATCHWORDS

Bankruptcy - avoidance of settlement under s.120(1)(a) - $5000 conditionally given by bankrupt to his daughter to enable her then to purchase works of art, motor car and other goods from him - whether she was a "purchaser ... for valuable consideration" - whether the transaction should be dissected into a gift and a purchase, or be seen as a whole - whether the motor vehicle was "necessary household property".

Bankruptcy Act 1966, ss.116(2)(b), 120(1)(a)

HEARING

SYDNEY

#DATE 2:6:1988

Counsel for the Appellants: B.J. Skinner

Solicitors for the Appellants: Messrs Lobban McNally and Harney

Counsel for the Respondent: M.R. Aldridge

Solicitors for the Respondent: Messrs Duffield and Duffield

ORDER

The appeal be allowed.

It be declared that the goods itemised in the amended schedule to the application as numbers one to twelve inclusive (other than numbers nine, ten and eleven) are property to which the Official Trustee in Bankruptcy is entitled as trustee of the estate of the bankrupt.

The respondents deliver up within 7 days to the Official Trustee in Bankruptcy the said property to which he is so entitled.

The respondents pay the costs of the Official Trustee in bankruptcy of the application at first instance and of the appeal.

NOTE: Settlement and entry of orders is dealt with in Order 36

of the Federal Court Rules.

JUDGE1

This is an appeal from a decision of a Judge of the Court in respect of an application by the Official Trustee in Bankruptcy, who had sought, in reliance on s.120(1)(a) of the Bankruptcy Act 1966, orders for the delivery up to him of certain articles as property devolving upon him in the bankruptcy of the first respondent. The learned Judge held that the property had been sold by the bankrupt, for valuable consideration and in good faith, to his daughter, the second respondent. The Official Trustee appeals on the ground (inter alia) that his Honour erred in finding that the relevant transaction was for valuable consideration.

1. In April 1986, the bankrupt, who had been recently diagnosed as terminally ill, had discussions with his daughter, in which he expressed a desire to ensure that she received his personal property on his death. His evidence is that he was concerned his brother might challenge a will he had made in her favour. Apparently, he had previously neglected her and was anxious to make amends. He said in evidence, supported by his daughter and a friend, that he gave her $5,000 in cash, telling her:
   
   

"I will now sell you all my household belongings, personal effects, art works and antiques for $5,000... I'll give you a receipt and that will stop Dennis from challenging my will, as this receipt will be your evidence of ownership. You will of course agree that I have a right to continue using all these things until my death."

The second respondent expressed agreement, and handed back the $5,000. The bankrupt gave her a receipt in the following terms:

"Received from Corina Mulholland the token sum of $5,000 (Five Thousand) cash being for the purchase of all my household furniture & effects including all works of art, antiques, & jewellery.

David Ross"

1. The property in dispute consisted of an alabaster vase, an Elkington plaque, a pair of silver plated candelabra, a 1974 Cadillac motor car, a Waterford crystal chandelier, a number of paintings by Winch and Hughes, a bronze plaque, a Waterford crystal suite, a Royal Doulton dinner service, a dining suite and an antique pedestal. By the decision under appeal, all these items were held to fall within the purchase evidenced by the receipt, although the Cadillac car was not acquired by the bankrupt until six months later. Counsel for the respondents did not put any argument in support of the proposition that the agreement made in April was intended to embrace future property.

2. In the course of his examination before the Deputy Registrar, the transcript of which was tendered in evidence, the bankrupt was referred to his statement that all his antique items and personal property were sold to his daughter for $5,000, and responded:
   
   

"It was basically a gift; it was a token figure. It was not a realistic sale figure, it was a sale figure, it was a token sale. You know, you will - I mean, as a barrister you must know you can lease a premises for a peppercorn a year and things like that."

He repeated:

"But I mean it was a token purchase price,"

and added:

"So that if my brothers contested it she could say it was purchased, it was not just a gift. It was purely a token purchase price."

1. His Honour rejected an argument that the transaction was a sham. He said:
   
   

"I think the bankrupt intended that he sell all his present and future property to his daughter for $5,000."

His Honour also thought that the transaction had been entered into in good faith, and he turned to the questions whether the giving of the $5,000 amounted to a settlement of property, and whether the payment of the $5,000 amounted to valuable consideration for the purchase of the bankrupt's property. He said:

"I do not think the $5,000 could amount to a gift and therefore a settlement, because in my view, it was given conditional on the daughter using it to buy back the bankrupt's goods."

1. It seems to us that, in this passage, his Honour makes a critical finding linking the handing over of the $5,000 with the contemplated purchase of property. The money was not simply given; it was given conditionally upon it being immediately returned to the bankrupt as the consideration for the purchase. This view of the transaction is amply supported by the evidence.

2. In Barton v. Official Receiver (1986) 161 CLR 75, Gibbs CJ, Mason, Wilson and Dawson JJ, when discussing s.120(1)(a) of the Act, preferred to consider the phrase "purchaser ... for valuable consideration" as one phrase, rather than to analyse separately the elements of "purchaser" and "valuable consideration". At p.85, in their joint judgment, they looked at that statutory expression "in the light of the purpose of the Act". They accepted the view that the provision "was clearly framed to prevent properties from being put into the hands of relatives to the disadvantage of creditors". At p.86, they drew the conclusion that:
   
   

"A beneficiary under a settlement is not a purchaser within the meaning of the section unless he has given such valuable consideration as is sufficient in all the circumstances to make him a 'buyer' in a commercial sense of the interest passing to him under the settlement."

1. We do not think it can be correct to cut what was really one continuous and composite transaction into two component parts, in order to insist that, by the second part, sufficient valuable consideration, within the principle stated by the High Court, was given by the bankrupt's daughter with the money he had provided the previous instant. What Lord Wilberforce said in W.T. Ramsay Ltd. v. Inland Revenue Commissioners (1982) AC 300 at 323-4 is as applicable to this transaction as to the transaction there under consideration.
   
   

"Given that a document or transaction is genuine, the Court cannot go behind it to some supposed underlying substance. This is the well-known principle of Inland Revenue Commissioners v. Duke of Westminster (1936) AC 1. This is a cardinal principle but it must not be overstated or overextended. While obliging the Court to accept documents or transactions, found to be genuine, as such, it does not compel the Court to look at a document or a transaction in blinkers, isolated from any context to which it properly belongs. If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded: to do so is not to prefer form to substance, or substance to form. It is the task of the Court to ascertain the legal nature of any transaction to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions, intended to operate as such, it is that series or combination which may be regarded."

Just as this is true of the ascertainment of the legal nature of a transaction to which a tax consequence is attached, so also is it equally true of the ascertainment of the legal nature of a transaction to which a bankruptcy consequence is attached. In the present case, the facts given in evidence, and found by the trial judge, compel the conclusion that the composite parts really formed a single transaction, involving the payment of consideration only by moneys provided then and there by the bankrupt himself. No obligation, as in Barton's case, of any kind was undertaken by the bankrupt's daughter. It is inescapable that the daughter was not a purchaser who had given such valuable consideration as was sufficient in all the circumstances to make her a buyer in a commercial sense of the interest settled upon her. The bankrupt himself recognised this - both in the receipt he gave, and in his evidence, he described the alleged consideration as a "token sum".

1. It follows that the appeal must be allowed, subject to two matters to be mentioned. One of those matters is that, during the course of the argument, it was agreed between the parties that the Waterford crystal suite, the Royal Doulton dinner service, and the dining suite, were to be excluded from the property claimed by the Official Trustee. It was accepted that these items, in spite of the description given in the application, are of small value, and properly fall within the words "necessary household property of the bankrupt" in s.116(2)(b) of the Act. The other matter to be mentioned is a claim by the bankrupt that the Cadillac car falls within the same exemption. Although in re Dowell (Evatt J. unreported, 13 February 1987) a motor vehicle was treated as "necessary household property" of a bankrupt who, "working night shift need(ed) a car to get to and from work as no public transport (was) then available," we do not think the bankrupt's Cadillac can be brought within s.116(2)(b), which refers to "necessary wearing apparel, necessary household property of the bankrupt (including any sewing machine used for domestic purposes) and such other household property of the bankrupt, if any, as the creditors by resolution determine." We note that by s.116(2)(ca), which would appear not to be applicable in the present bankruptcy, "property used by the bankrupt primarily as a means of transport" is dealt with separately, and is excluded to the extent of a prescribed amount of $2,500, an amount which the value of the Cadillac would in any case considerably exceed.

2. For these reasons, the appeal must be allowed, except in relation to the three items which it is agreed should be excluded. There will be a declaration that the property, other than those three items, is property to which the Official Trustee is entitled as trustee of the estate of the bankrupt. The respondents must pay the Official Trustee's costs, both of the appeal and of the hearing at first instance.