Jessup (Trustee) v Mountain View Farm
[2002] FCA 312
•20 MARCH 2002
FEDERAL COURT OF AUSTRALIA
Jessup (Trustee) v Mountain View Farm [2002] FCA 312
BANKRUPTCY – transfer of property to family trust for value by a person who about two years later became bankrupt – whether the transferee was obliged at the time of the transfer reasonably to infer that the bankrupt was insolvent or was about to become insolvent – whether a transfer is fraudulent because it was entered in contemplation of the transferor entering into a risky and hazardous business
Bankruptcy Act 1966 (Cth), ss 31, 120, 121
Bankruptcy Act 1924 (Cth), s 52(b)Sharrment Pty Ltd v Official Trustee in Banktuptcy (1988) 18 FCR 449, cited
Barton v DCT (1974) 131 CLR 370, cited
PT Garuda Indonesia Ltd v Grellman (1992) 107 ALR 199, cited
Mackay v Douglas (1872) LR 14 Eq 106, cited
Official Trustee v Alvaro (1996) 138 ALR 341, citedEx parte Russell; Re Butterworth (1882) 19 Ch D 588, cited
Official Trustee v Alvaro (1996) 138 ALR 341, citedLewis, A. (1995) Australian Bankruptcy Law, 4th ed., Sydney: The Law Book Company Limited
IAN DAVID JESSUP as Trustee of the Estate of GEORGE KEVIN WILSON (a bankrupt) v MOUNTAIN VIEW FARM PTY LTD & OTHERS
No Q 7235 of 2000
SPENDER J
BRISBANE (heard in Cairns)
20 MARCH 2002
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 7235 OF 2000
BETWEEN:
IAN DAVID JESSUP as Trustee of the Estate of GEORGE KEVIN WILSON (a bankrupt), Estate No. Qld. 3549/97/61V
APPLICANTAND:
MOUNTAIN VIEW FARM PTY LTD (ACN 070 315 338) as Trustee for the Wilson Family Discretionary Trust
FIRST RESPONDENTGEORGE KEVIN WILSON (a bankrupt)
SECOND RESPONDENTMAUREEN GUAT WILSON
THIRD RESPONDENTJUDGE:
SPENDER J
DATE OF ORDER:
20 MARCH 2002
WHERE MADE:
BRISBANE (heard in Cairns)
THE COURT ORDERS THAT:
1.The application be dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 7235 OF 2000
BETWEEN:
IAN DAVID JESSUP as Trustee of the Estate of GEORGE KEVIN WILSON (a bankrupt), Estate No. Qld. 3549/97/61V
APPLICANTAND:
MOUNTAIN VIEW FARM PTY LTD (ACN 070 315 338) as Trustee for the Wilson Family Discretionary Trust
FIRST RESPONDENTGEORGE KEVIN WILSON (a bankrupt)
SECOND RESPONDENTMAUREEN GUAT WILSON
THIRD RESPONDENT
JUDGE:
SPENDER J
DATE:
20 MARCH 2002
PLACE:
BRISBANE (heard in Cairns)
REASONS FOR JUDGMENT
On 28 June 2000, Ian David Jessup as Trustee of the Estate of George Kevin Wilson (a bankrupt) filed an application. That application said:
“The Applicant’s claim is pursuant to Section 131(1)(e), Section 120 and Section 121 of the Bankruptcy Act 1966 –
1. That the disposition and conveyance of land described as Lot 100 on RP846540 County of Nares, Parish of Hull, and the business conducted on it from the Second Respondent GEORGE KEVIN WILSON (a bankrupt) to the First Respondent, MOUNTAIN VIEW FARM PTY LTD (ACN 070 315 338) as Trustee for the Wilson Family Discretionary Trust, be set aside or avoided;
2. Costs.
On 2 October 2000 a notice of intention to oppose the application in Form 149 was filed by Mr Wilson, the second respondent. The notice indicated that Mr Wilson intended to oppose the application on the grounds set out in that notice:
“1.Consideration paid by the First Respondent was at least equal to the market value of the property sold to the First Respondent by the Second Respondent.
2.The Second Respondent’s main purpose in making the sale was to apply the proceeds of sale by way of loan to a long time friend, Mr Johnny Tan.
3.At the time that the Second Respondent made the loan to Mr Tan there was nothing to suggest that the Second Respondent was insolvent or was about to become insolvent.
4.At the time of the transfer the First Respondent through its directors, Understood that the Second Respondent intended to use the proceeds from the Sale of his land to assist his long time friend, Mr Johnny Tan.”
Maureen Guat Wilson, the third respondent, was added as a respondent to the application. Mrs Wilson and her children are the beneficiaries of the Wilson Family Discretionary Trust, the trustee of which was the transferee of the impugned transaction. She is the wife of the second respondent.
Section 31(1)(e) of the Bankruptcy Act 1966 (Cth) (the Act) provides:
“In exercising jurisdiction under this Act, the Court shall hear and determine the following matters in open court:
…(e)applications to set aside or avoid a charge, charging order, settlement, disposition, conveyance, transfer, security or payment;”
Section 120 provides that a transfer of property by a person who later becomes a bankrupt is void against the trustee in a transferor’s bankruptcy if the transfer took place in the period beginning five years before the commencement of the bankruptcy and ending on the day of the bankruptcy, and the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property. This basis for impugning the transaction referred to in the trustee’s application was abandoned.
Section 121 deals with transfers to defeat creditors, and relevantly provides:
“(1)[Transfers that are void] A transfer of property by a person who later becomes a bankrupt (the ‘transferor’) to another person (the ‘transferee’) is void against the trustee in the transferor’s bankruptcy if:
(a) the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and
(b) the transferor’s main purpose in making the transfer was:
(i)to prevent the transferred property from becoming divisible among the transferor’s creditors; or
(ii)to hinder or delay the process of making property available for division among the transferor’s creditors.
(2)[Showing the transferor’s main purpose in making a transfer] The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
(3)[Other ways of showing the transferor’s main purpose in making a transfer] Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.
(4)[Transfer not void if transferee acted in good faith] Despite subsection (1), a transfer of property is not void against the trustee if:
(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b) the transferee did not know that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.
(5)[Refund of consideration] The Trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
…
(9)[Meaning of transfer of property and market value] For the purposes of this section:
(a) transfer of property includes a payment of money; and
…
(c) the market value of property transferred is its market value at the time of the transfer.”
On the first day of the trial of the matter, Mr M. Pope, counsel for the Trustee, conceded that:
“…the property transferred pursuant to contract by George Kevin Wilson to Mountain View Farm Proprietary Limited as trustee for the Wilson Family Trust was, at the time of transfer, partnership property in which George Kevin Wilson and Maureen Guat Wilson were entitled to equal shares.”
The relevant history of this matter is as follows. On 6 May 1994 Gary Martin Holden initiated Supreme Court proceedings against Mr Wilson for damages for personal injury. At that time, the second respondent carried no insurance that could satisfy any judgment in that action. As at 30 June 1994 the second respondent had an interest in a partnership valued at $47,518. On 30 June 1994 King’s Transport Pty Ltd issued proceedings against Mr Wilson. There were discussions between the second respondent and his solicitor concerning litigation with King’s Transport and concerning Mr Wilson’s position in relation to a declaration of a trust for his wife. On the 5th day of May 1995 the second respondent instructed Messrs Connolly Suthers, a firm of solicitors, to transfer his land and business held in his name into a family trust. That contract was not expressed to be an instalment contract, and settled on 12 January 1996. It is accepted that, on 16 July 1997, Mr Wilson suffered judgment in the District Court at Innisfail in the action involving King’s Transport in the sum of $79,939.50 plus costs. On 31 July 1997 Mr Wilson filed his debtor’s petition and became bankrupt.
The third respondent, filed an affidavit on 21 August 2000 in which she swears that she is a shareholder and officer of Mountain View Farm Pty Ltd, the first respondent, and that she and her children are the beneficiaries of the Wilson Family Discretionary Trust. Mrs Wilson says that she had discussions with her brother, Mr Foo Moh Huat, and her husband regarding the purchase of the land at Lot 100 Jackson Road, El Arish. Mrs Wilson says that her husband wanted to sell his property and intended to use the proceeds of the sale to pursue a property development venture in Thailand. She says that she and her brother intended to pursue a tourism and aquaculture development on the land, and in January 1995 she had further discussions with her brother and her husband regarding the purchase of the land. An agreement was reached that Mrs Wilson was to contribute fifty per cent of the purchase price and her brother was to contribute the other fifty per cent. She says that in about May 1995 she caused the Wilson Family Discretionary Trust to be formed and the trust settled. Mountain View Farm Pty Ltd was registered to act as trustee of the trust and to purchase the land. She asserts that the purchase price was agreed between her brother, her husband and herself, and was based on a valuation by Roy Dickson, Registered Valuer, which had been carried out on about 28 June 1996. Mrs Wilson claims that an amount was transferred by her brother from bank accounts in Malaysia to Connolly Suthers Solicitors’ Trust Account. The total amount transferred, when converted into Australian currency, was $85,162.17. This money was, she was told by her brother, paid from different sources in varying denominations in order to avoid financial controls imposed under Malaysian banking laws. In about March 1996 Mrs Wilson says she sought and was successful in obtaining a loan of $64,000 from the ANZ Bank, which moneys were paid to Connolly Suthers in trust for her husband on 9 April 1996. She says that the balance of the money to purchase her husband’s land came from Mr Foo in Malaysia. Importantly, she swears:
“At all material times, in my own capacity and in my capacity as officer and shareholder of Mountain View Farm, I acted in good faith. I had no knowledge of any impropriety on the part of Mr George Wilson. I had no reason to believe that Mr Wilson was insolvent or was about to become insolvent.”
In the light of that evidence, the provisions of s 121(4) are particularly relevant.
Mr Wilson says that, at the time when King’s Transport issued proceedings, he had an interest in a partnership valued at $47,518 (as is agreed) and, in addition, he was the registered owner of land and improvements at Jackson Road, El Arish which was valued on about 15 August 1995 at $295,780. He says that he had sufficient means to satisfy any judgment debt that might have been given against him in the action.
Mr Wilson also claimed that his wife actively worked in the partnership, had contributed to the maintenance of the land and improvements and had an equal interest, by way of resulting trust, in the land and improvements that were registered in the name of the first respondent.
Somewhat surprisingly, the trustee exhibited to his affidavit a file note concerning an attendance by Mr Mangano, Mr Wilson’s solicitor, before him in respect of the plaint that King’s Transport had issued. How this came into the possession of the trustee, having regard to legal professional privilege, remains unexplained. In any event, that memorandum dated 11 August 1994 notes:
“On the 8th August 1994, I did a further attendance upon George Wilson for another fifteen minutes when I advised him that the situation did not look good but he did have some things on his side. He had no insurance, he may be able to join the third party, his neighbour a fellow called Lander who actually helped him construct the bridge … the other potential grounds in support of his position were that he gave no instructions to the driver or King’s Transport for the load to be taken over that bridge. The driver of the vehicle appeared to be travelling too fast and may have contributed to the accident by his own negligence …”
A later diary note on the same day, 11 August 1994, says:
“I did a further personal attendance when he requested some advice on where he would stand with his property. He wanted some information generally about Declaration of Trust for his wife who whilst she was not on the Title Deed was a silent partner. They had been married for some 10 or 11 years …”
A further file note by a different solicitor of 5 May 1995 records, in part:
“Wilson is married and has children. His wife has a brother who lives in the Philippines. Wilson wants to transfer his property at value to a Trust the beneficiaries of which will comprise his wife, his children and his brother-in-law.
Apparently his brother-in-law will provide the funds to complete the purchase of the land which will be paid to Wilson on settlement. He wants to make sure that the transfer of the land cannot be reversed in any event say for example if he were to go bankrupt some years in the future.
We have told Wilson that if the conveyance is done at market value and the consideration is properly paid in other words, just like an arms-length transaction, it could not be attacked. He has decided to approach it on this basis. Both Bill and I have very clearly emphasised that the transaction must be completed and can’t in any way be a sham.
I am a bit concerned about Wilson. He seems to have been to every Solicitor in the Tully and Innisfail area and does not speak highly of them. He keeps suggesting to me that he just wants to get it all done and wants to be ‘guaranteed’ that the land will be safe.
On the face of it Wilson appears to have a fairly good defence against the action. However, he wants to take the cautious approach as apparently the family wants to invest further monies in the land which will enhance its value in the interim period.” (Emphasis added)
The solicitor Paul Radford wrote to Mr Wilson, his wife and Mr Foo on 5 June 1995. The letter advised in part:
“We note that Mr Foo will be executing these documents today. We draw your attention to the following matters:-
1.The contract is subject to obtaining the approval of the Foreign Investment Review Board …
2.We have included the contract price for $3000,000.00 as instructed. We confirm that valuation evidence will be required to stamp the contract. We note that you have advised us that the property has been valued at between $280,000.00 and $310,000.00. You indicated that you had made a copy of the valuation available to us. We do not have a copy. Please arrange for a copy to be delivered to us.
…
5.We recommend that Mr Foo consult a Solicitor independently of us to ensure that he is satisfied with the transaction as it is intended. We have arranged an appointment with Wilson Ryan and Grose for 4.00 pm today if Mr Foo requires independent advice.”
The settlement statement exhibited to the Trustee’s affidavit indicates that the net purchase price payable at settlement was $84,162.17, made up of bank cheques to be provided on settlement, to the National Australia Bank for $45,212.02 and to George Kevin Wilson for $38,950.15, the settlement statement noting “Balance of $215,837.83 to be paid in instalments”.
The basis of the Trustee’s concern arises from a detailed analysis of telegraphic transfers from various Malaysian banks to Connolly Suthers’ Trust Account, and transfers to Wilson’s Malaysian account and cash withdrawals from that account by a third party. I annex a flow chart of transactions to these reasons. (Annexure 1)
One can immediately understand the Trustee’s concern, but it should be noted that the transfers were from various Malaysian sources by telegraphic transfer from two separate Malaysian banks, and there is nothing which establishes that the transfers were funded from Mr Wilson’s account. Also it should be noted that there is no necessary correspondence between the sums paid into Mr Wilson’s account and the later telegraphic transfer from Malaysian sources into Connolly Suthers’ Trust Account. The overall position, however, is that the total transferred into Connolly Suthers’ Trust Account from various Malaysian banks totals 450,055 ringgit and the amount transferred from Connolly Suthers’ Trust Account to Mr Wilson’s Malaysian account is approximately 438,654 ringgit.
In response to a suggestion that “at the moment we’ve got figures which don’t match”, Mr Jessup said:
“…I am interested in that first transaction but I was more interested in following the individual transactions that follow on from that, because it appeared to me that the money that was put up, this 163,000, came out as a result of some of these cash transactions later on. There is an amount of 152,000 ringgit that wasn’t passed on to the Connolly Suthers Trust Account. So in other words there was a leakage on the other side of roughly the same amount as what went in and we looked at that simply as seed money to make the transaction work. And I guess in hindsight we probably should have gone and got those other documents”
As to the absence of a necessary correspondence, Mr Jessup agreed and said:
“That’s because Malaysia is a big black box for us. We don’t know what happened to the money after it left – it was drawn out of Mr Wilson’s bank account in cash and then deposited in cash into a bank in Malaysia, which was then paid into Connolly Suthers Trust Account … our view is that one transaction like that isn’t necessarily suspect, but a pattern, and a series of transactions, that all happened within a few days of each other is one that must raise reasonable doubt as to how this transaction has been handled and what the purpose of these transactions were.”
Mr Jessup agreed in cross-examination by Mr Sumner-Potts, counsel for the first and third respondent, that all the proper procedures were followed by Mr Wilson and his solicitors with respect to the transfer, including the application to the Foreign Investment Review Board. He agreed that a transfer of the property to the trust was, in fact, intended. The questions concerning transfers of money into and out of Connolly Suthers’ Trust Account were, it was suggested to him, directed at establishing whether in fact the purchase price was paid by or on behalf of the purchaser, or whether in fact there was no payment as contemplated by the contract of sale, to which the Trustee replied:
“What we’re suggesting is that it’s a series of transactions set up to look like the property was properly paid for, but it wasn’t; it wasn’t in fact done.”
On the question of solvency, the Trustee admitted that Mr Wilson, at the time of the transaction, was solvent except for a contingent debt which would be a provable debt in a bankruptcy, and that all the actual debts that he had at the time he was capable of paying. The argument of the Trustee was that at that time there was a fair chance that Mr Wilson was going to be insolvent, with the consequence that he was “about to be insolvent”.
Mr Foo, Mrs Wilson’s brother, gave evidence. He said that his father died in January 1998, and that there was a discussion on the occasion of his father’s 70th birthday in 1993 that the girls and boys would get an equal share from the family. Mr Foo said that in 1996 he paid Maureen’s inheritance to her by telegraphic transfer. He said that money came from stocks and shares, and marginal accounts closed by his brother and by Mr Foo. Mr Foo claimed to have the relevant records in court with him. Mr Foo said he paid money to be part of the purchase of the land at Tully. Importantly, he was asked:
“Was any of that money paid back to you in any way?---It was not, and I can prove it in the bank statements from my personal and company’s current account.”
He said that he used four people’s names in three days to transmit the money to his sister because of the exchange control. The only challenge to him in cross-examination by counsel on behalf of the Trustee was:
“I’ll just make one suggestion to you: the money that you caused to be transferred in the four telegraphic transfers has been repaid to you?---Nothing was paid to me. It’s all through my – from the – the money from the bank from my bank account.”
In the course of cross-examination, Mrs Wilson was asked:
“… I also suggest to you that you and your husband decided to transfer the assets to a trust to keep them out of the reach of creditors?---My husband is a builder. All right? And in building business there’s a lot of risk involved with litigation and everything so that’s why, you know, I – we thought, you know, a family trust to protect our family is good.
One of the reasons was because of the risks of litigation you should transfer the property into a trust to save it for the family?---Well, in case if – if there’s a litigation involved, but we are – you know, we always be careful. We are always careful.”
Mr Wilson said that he loaned the money to Johnny Tan, a close friend with whom he had had no contact (apart from one phone call) since 1993. He said that the loan was to help him or enable him “to remove himself from a life-threatening situation and at the same time hopefully he could turn that into an asset for me later on down the track”. He also said:
“… the purpose of the money was to remove Johnny Tan from the problems he had in Penang.”
Mr Wilson said that, in respect of the litigation involving Mr Gary Holden where Mr Holden was suing Wilson in respect of personal injuries, Mr Wilson obtained a videotape which he sent to Workcover Australia, and subsequently he was sent a notice of discontinuance of Holden’s claim against Workcover. Mr Wilson said that he had arranged for a solicitor to send a letter to Mr Holden’s solicitor seeking the discontinuance of Holden’s claim, and that nothing had been heard since concerning that claim.
In cross-examination, Mr Wilson was asked whether, at the time of the transfer of the assets to Mountain View Farm, he was contemplating going into a second business with a high degree of risk, to which Mr Wilson replied: “If you’re talking about sawmilling and building, yes.” It was put to him:
“And the motivation to transfer the assets were to ensure that if something had gone wrong, as you said, other incidents apart from the bridge, the assets would be safe?---That’s correct, yes.
Mr Wilson said that in 1995 he went to Malaysia with a book of twenty-five cheques which he gave to Johnny Tan. In relation to the dealings concerning the trust, he was asked:
“Your motivation, amongst other things, was that you were going into a very risky business and you wished to protect the assets?---Exactly.
Mr Wilson denied that he engaged in this transaction to defeat his creditors, and he denied telling a Mr Wakefield, who worked for Mr Wilson, that he was endeavouring to take his assets away from the creditors. I put to Mr Wilson:
“… there’s not the slightest bit of evidence to corroborate your story is there?---No, I don’t think so, your Honour.”
Finally, Mr Wilson was asked:
“… the question of the cash being drawn, did anybody on your behalf withdraw cash and telegraph the same cash, or the same amount of money, the equivalent, to Connolly Suthers trust account on any occasion?---Definitely not; no.”
Mr Foo, when recalled as a witness, said that he was unaware that Mr Wilson was being sued in Australia. Furthermore, he alleged that he did not draw any money from Mr Wilson’s account, nor did he use any cash cheques that Mr Wilson had signed and fill them in and hand them over and get money, nor did he ask anybody else to hand them over and get money. He denied that there was any of his handwriting on any of the cash withdrawal cheques.
The Trustee in this case disavows that the sale of Lot 10 to Mountain View Farm was a sham. In Sharrment Pty Ltd v Official Trustee in Banktuptcy (1988) 18 FCR 449 at 454, Lockhart J said:
“A ‘sham’ is … for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.”
At the end of the day, the Trustee seeks an order that Mountain View Farm pay to him $150,000. That claim is based squarely on 121(1) of the Act. The submission by the Trustee is that the transfer of property is void as against the trustee in a transferor’s bankruptcy to the extent of the transfer of Mr Wilson’s interest was to prevent the transferred property from becoming divisible amongst the transferor’s creditors. There is now no suggestion that the property was sold at an undervalue.
What is further relied on is the admission by Mr Wilson that the property was transferred because he was going into a risky business of sawmilling and building.
There is a very important concession by Mr Pope, counsel for the Trustee, which is recorded at page 122 of the transcript, where he said:
“… we don’t rely on 121(2); we can’t. There isn’t any evidence on that. We squarely rely on 121(3).
HIS HONOUR: So your sole basis is 121(3)?
MR POPE: That is so. There is no evidence that Mr Wilson was about to become insolvent in any sense of the word.”
It seems to me that, regardless of other matters of difficulty in the Trustee’s application, if the transferor was not insolvent and was not about to become insolvent, as the concession just referred to makes plain, then even if it be accepted that Mr Wilson’s main purpose in making the transfer was the purpose described in s 121(1)(b), the transfer is not void against the Trustee by virtue of the application of s 121(4). It will be remembered that this subsection provided:
“[Transfer not void if transferee acted in good faith] Despite subsection (1), a transfer of property is not void against the trustee if:
(a)the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b)the transferee did not know that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c)the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.”
Both Mrs Wilson and Mr Foo denied any knowledge of the matter referred to s 121(4)(b), and in the light of the concession that there was no evidence that Mr Wilson was insolvent or about to become insolvent, it seems to me impossible to conclude that the transferee was obliged reasonably to infer that he was insolvent or was about to become insolvent. That is to say that the transferee was obliged to infer something which, by the concession by the counsel for the Trustee, there was no evidence to support.
Counsel for the Trustee sought to argue that the transfer was a fraudulent conveyance, because it was entered into in contemplation of Mr Wilson entering into a risky or hazardous business. In Barton v DCT (1974) 131 CLR 370, Stephen J, with whom Menzies and Gibbs J agreed, said at 374:
“The awareness of an impending liability is sufficient for the purposes of s 40(1)(c) which deals with the act of bankruptcy which is constituted by the making of a fraudulent conveyance, gift, delivery or transfer of the property of the debtor or any partner thereof.”
Stephen J continued:
“That paragraph employs language very similar to the reference, in the Statute 13 Eliz. c.5, to conveyances made ‘with intent to defraud, defeat or delay creditors’ and it is well established that conveyances may fall within that Statute, although there existed no creditors at the date of conveyance, so long as the intent to defeat future creditors be made out – Mackay v. Douglas (1872) L.R. 14 Eq. 106; Re Mackay (1951) 16 A.B.C. 18, at p. 28. In Ex parte Russell (1882) 19 Ch. D. 588, in which Sir Richard Malins’ decision in Mackay v. Douglas (1872) L.R. 14 Eq. 106 was applied, the members of the Court of Appeal again referred to the Statute of Elizabeth as concerned with the protection of future creditors.”
The Full Federal Court in PT Garuda Indonesia Ltd v Grellman (1992) 107 ALR 199 at 206 (Wilcox, Gummow and von Doussa JJ referred to a passage from Lewis’ Australian Bankruptcy Law, 4th ed., 1955 at pages 45 and 46 discussing s 52(b) of the Bankruptcy Act 1924 (Cth) dealing with the act of bankruptcy consisting of the making of a fraudulent conveyance or transfer of property:
“The general principle may be stated that any dealing with property (other than by sale for a reasonable price) made with the object of putting it beyond the reach of present or future creditors comes within the definition of a fraudulent conveyance if the person concerned cannot immediately pay his debts or anticipates some event which may render him unable to pay his debts in future …” (Emphasis added)
In Mackay v Douglas (1872) LR 14 Eq 106, the Vice-Chancellor, Sir Richard Malins, said (at 118):
“Now this question seems to me to raise a most important point. Can a man who contemplates trade, or who, in point of fact, whether he contemplates it at the time or very shortly afterwards, enters into trade, and thereby incurs liabilities which end in a disastrous state of affairs, make a voluntary settlement which shall be good against the creditors who become so in the course of his trade?”
Wilcox and Cooper JJ in Official Trustee v Alvaro (1996) 138 ALR 341 referred (at 384) to the judgment of Sir George Jessel MR in Ex parte Russell; Re Butterworth (1882) 19 Ch D 588 at 598-9, where Sir George Jessel commented:
“The principle of Mackay v Douglas LR 14 Eq 106, and that line of cases, is this, that a man is not entitled to go into a hazardous business, and immediately before doing so settle all his property voluntarily, the object being this: ‘If I succeed in business, I make a fortune for myself. If I fail, I leave my creditors unpaid. They will bear the loss.’ That is the very thing which the Statute of Elizabeth was meant to prevent.”
There is a passage in the judgment of Sir George Jessel shortly after that which I have just quoted which reflects the high degree of legal knowledge that is said to exist in the hills of Connemara. Sir George Jessel said:
“…as I understand the evidence in this case, the baker did very well as a baker, and probably he may not have recollected the old proverb ne sutor ultra crepidam …”
That proverb may be translated as “Cobbler, stick to thy last”, meaning “Do not presume to address matters beyond your competence”. The Latin is a rebuke said to have been addressed by Apelles, the painter, to a shoemaker who pointed out some errors in the painting of a slipper in one of the artist’s works and then began to criticise other parts of the picture. In Ex Parte Russell it appears that the baker went into business as a grocer.
The position in this case is we are not dealing with voluntary settlements or sales other than at a reasonable price.
It seems to me that the real complaint by the Trustee is not that the transfer to Mountain View Farm was made to prevent the transferred property from being divisible amongst the transferor’s creditors, but that, having regard to what the Trustee describes as the Round Robin of transactions (whereby approximately the same amount has been received from Malaysian sources as has been returned to Malaysian sources by Mr Wilson), the purchase price of the property has not in fact been paid, or there has been, in effect, a forgiveness of the purchase price.
The flow chart of transactions set out in Annexure 1 raises a high degree of suspicion. However, counsel for the Trustee accepted that it was necessary that Mr Foo be the person who received the cash withdrawals from Mr Wilson’s Malaysian account, a matter emphatically denied by Mr Foo and unsupported by any other circumstance, including handwriting or other banking records. Moreover, Mr Foo in his evidence said that he had his own records which showed the source of the funds he forwarded to the trust account of Connolly Suthers, and no attempt was made to inspect those documents or challenge their claimed authenticity. It should also be said that the story of Mr Wilson of a loan to Johnny Tan is one I simply do not believe.
Notwithstanding that, I am satisfied that, at the time of the transfer, Mr Wilson was not insolvent and was not about to become insolvent. The concession by counsel for the Trustee was rightly made. It follows that I am satisfied that the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent. The fact that a person is exposed to contingent liabilities in the future, as was Mr Wilson in respect of the two damages claims he was facing, in my opinion does not mean that he was “about to become insolvent”.
I am satisfied that the transferee did not know that Mr Wilson’s main purpose in making the transfer was a purpose described in s 121(1)(b) of the Act. I am not prepared to hold that that was Mr Wilson’s main purpose in making the transfer, particularly having regard to the detailed legal advice he was given which is reflected in the diary note of 5 May 1995 earlier set out. Mr Wilson was a half owner of the relevant assets, although the land was in his name alone. He was entitled to beneficial interest in only one half of the property and held the property of one half as trustee for his wife.
So far as s 121(4)(a) is concerned, it is not now suggested that the consideration that the transferee gave for the transfer was not at least market value of the property.
In my opinion, it is not the sale of the property to Mountain View Farms which is able to be attacked. It may be that the disposition of Mr Wilson’s money might have been the subject of attack, but that is not what this application was about. The position is somewhat similar to the factual circumstances of Official Trustee v Alvaro (1996) 138 ALR 341 where the Full Court held (at 359):
“For the purposes of s 121 of the Act, the payment of moneys by Paul and Rosina Alvaro to the company, which moneys were used by the company to retire debt owing by it, must be treated as a disposition or a series of dispositions of money by Paul and Rosina Alvaro to the company … not as a disposition of any estate or interest in [the relevant property].”
For the above reasons, the application must be dismissed.
I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender . Associate:
Dated: 20 March 2002
Counsel for the Applicant: Mr M.E. Pope Solicitor for the Applicant: Bruce K. Gillan, Solicitors Counsel for the 1st & 3rd Respondents: Mr M. Sumner-Potts Solicitor for the 1st & 3rd Respondents: Thompson & Royds, Lawyers Mr G.K. Wilson appeared on his own behalf Dates of Hearing: 22 and 23 August 2001 Date of Judgment: 20 March 2002
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