La Rosa, F.C & Anor Ex parte Norgard, R.S. v Rodpat Nominees Pty Ltd & Gilpin Park Pty Ltd

[1991] FCA 591

Re: FRANCESCO CANDELORO LA ROSA AND LINDA ROBYN LA ROSA
Ex Parte: ROSS STEWART NORGARD AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF
FRANCESCO CANDELORO LA ROSA and LINDA ROBYN LA ROSA
And: RODPAT NOMINEES PTY LTD and GILPIN PARK PTY LIMITED
No. 616G of 1988
FED No. 591
Bankruptcy - Stamp Duty

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
French J.(1)

CATCHWORDS

Bankruptcy - property of bankrupt - payment made in relation back period - recovery action against payee - payee pleads payment for valuable consideration in good faith and ordinary course of business - agreement underlying payment - unstamped instrument - strike out motion - whether plea maintainable against s.27 Stamp Act 1921 (WA) - operation of s.27 - s.79 Judiciary Act 1903 - interaction with Bankruptcy Act 1966 - possible inconsistency.

Stamp Duty - unstamped instrument - agreements for sales of shares and units in trust - purchaser becoming bankrupt - payment made during relation back period - trustee seeking recovery - defence of valuable consideration, good faith and ordinary course of business - whether maintainable against s.27 of Stamp Act 1921 - interaction of s.27 Stamp Act 1921 (WA), s.79 Judiciary Act 1903 and s.123 of Bankruptcy Act 1966.

Bankruptcy Act 1966 s.5, s.58 s.115, s.116, s.123

Stamp Act 1921 (WA) s.27

Judiciary Act 1903 s.79

Davis v Federal Commissioner of Taxation (1989) 86 ALR 195

Dent v Moore (1919) 26 CLR 316

Matheson v Ross (1849) 2 HLC 286; 9 ER 1101

Acclaim Holdings Pty Ltd v Vlado Pty Ltd (1989) 1 WAR 128

Krehl v The Great Central Gas Consumers Company (1870) LR 5 Ex 289

HEARING

PERTH

#DATE 25:9:1991

Counsel for the Applicant: Mr W. Martin and Mr S. Tudjman

Solicitors for the Applicant: Blake Dawson Waldron

Counsel for the Second Respondent: Mr M.J. McCusker QC and Mr C.F. McLeod

Solicitors for the Second Respondent: Parker and Parker

ORDER

The applicant's motion filed 9 August 1991 be dismissed.

The second respondent pay the applicant's costs of the motion.

The second respondent have leave to amend its defence in accordance with the minute filed on 13 September 1991.

The filing and service of the minute stand as filing and service of the amended defence.

The applicant pay the second respondent's costs of its motion filed 13 September 1991.

The second respondent pay the applicant's costs thrown away by reason of the amendments.

NOTE: Settlement and entry of Orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

By these proceedings, which were instituted on 21 May 1991, the trustee of the bankrupt estate of Francesco Candeloro La Rosa and Linda Robyn La Rosa, claims declaratory relief against Rodpat Nominees Pty Ltd ("Rodpat") and Gilpin Park Pty Limited ("Gilpin Park") and seeks orders that they pay to him the sums of $1,642,187 and $1,563,400 respectively together with interest on those amounts. The claim is based upon the contention that the monies were paid to the respondents at a time when they formed part of the property of the bankrupts divisible among their creditors by virtue of the relation back provisions of the Bankruptcy Act 1966. Gilpin Park has pleaded by way of defence that the relevant transactions took place before the La Rosas became bankrupt and were entered into in good faith and in the ordinary course of business. It alleges that it had no notice at the time of the presentation of any petition against the La Rosas. The trustee seeks to strike out important elements of the defence and to resist a proposed amendment on the basis that the pleading, as it stands and the amendment if allowed, would have to rely upon written agreements which have not been stamped as required by the Stamp Act 1921 (WA).

The Pleadings

1. By the amended statement of claim filed on 26 June 1991 it is alleged that the La Rosas were at all material times the proprietors of a business known as Moor Motors (para.1). They presented their debtors' petitions on 26 August 1988 and Mr Norgard became their trustee on 31 August (para.3). Rodpat and Gilpin Park are companies incorporated in Victoria and Western Australia respectively and were unit holders of the Combined Motor Auctions Unit Trust ("CMA Unit Trust"). of which Hobourne Pty Ltd (In Liquidation) was trustee. Rodpat is trustee of the Rod Ferguson Family Trust and Gilpin Park of the JJH No. 1 Trust (para.4). It is also alleged that on 31 March 1988 Mr and Mrs La Rosa had committed an act of bankruptcy by a payment to Mr La Rosa's parents of $250,000 being a settlement void against the trustee under s.120(1) of the Bankruptcy Act 1966 (para.6). The bankruptcy is therefore said to have related back to and to have commenced at 31 March 1988 pursuant to s.115(2)(a) of the Act (para.7).

2. Paragraph 9 of the amended statement of claim alleges that between 22 April 1988 and 3 May 1988, the La Rosas paid to Rodpat and Gilpin Park amounts totalling $4,848,986. Of this, Gilpin Park is said to have received $1,563,400. The payments are said to have been made by cheque to Messrs. Parker and Parker, solicitors, at the direction of Rodpat and Gilpin Park and to have been deposited into the trust account of that firm as follows:
   Date Cheque No. Payee Amount
   22/4/88 812127 Parker and Parker
   

Trust Account $ 450,000

2/5/88 812178 Parker and Parker

Trust Account $3,500,000

3/5/88 812179 R. and I. Bank

(converted to

bank cheque payable to Parker and Parker) $ 893,986

The payments are said to have been a disposition of property of the bankrupts after the commencement of their bankruptcy and to be void as against the trustee.

1. By its defence filed on 9 July 1991, Gilpin Park pleads, in answer to the allegation in para.9 of the amended statement of claim, that on 3 May 1988 it had agreed, together with Rodpat and a company called Ackenfield Pty Ltd, to sell to the La Rosas the whole of the issued shares in Hobourne Pty Ltd being 10,002 fully paid $1 shares for a consideration of $10,000. The La Rosas, it is said, paid the agreed consideration to the three companies in return for a transfer of the fully paid shares in Hobourne (defence para.7). Under a separate agreement also dated 3 May 1988, the three companies agreed to sell to Feli Pty Ltd as trustee for the La Rosa Family Trust, the whole of the issued shares in the CMA Unit Trust, being 10,002 $1 units for a consideration to be calculated in accordance with the third schedule to that agreement (para.8). Any part of the consideration payable under that agreement was made by the La Rosas to Feli Pty Ltd in order to enable it to complete the purchase of the units in the CMA Unit Trust (para.9). Any payment made by the La Rosas pursuant to the agreement for the sale of the Hobourne shares was made before they became bankrupt and at a time when Gilpin Park had no notice of the presentation of a petition against them and was made for valuable consideration in good faith and in the ordinary course of business (para.10(a)). And if the bankrupts made any payment to Gilpin Park, either under the Feli agreement or any other transaction after 31 March 1988 (which is denied) then, it is said, any such payment was made before they became bankrupt and at a time when Gilpin Park had no notice of the presentation of a petition against them and was made for valuable consideration in good faith and in the course of business (para.10(b)). The defence so pleaded relies upon s.123 of the Act.

2. On 9 August 1991, the trustee filed a motion, returnable on 14 August seeking an order that paras.7 to 9 inclusive of Gilpin Park's defence be struck out on the basis that they refer to instruments which are unstamped and which, pursuant to s.27 of the Stamp Act 1921 (WA), could not be pleaded or given in evidence or admitted to be good, useful, or available in law or equity. The motion was adjourned to 19 August 1991 and on that date further adjourned to a hearing on 16 September 1991 with directions as to the filing of affidavits and outlines of submissions. On 13 September, Gilpin Park filed a motion seeking leave to amend its defence, which was also made returnable on 16 September. The amendment was opposed substantially on the ground that although it would dispose of any explicit reference to the unstamped instruments, it pleaded transactions which relied upon those instruments. Judgment on the motions was reserved until today.

3. The proposed amended defence would delete paras.6 to 9 inclusive of the defence as it presently stands, they being the paragraphs which pleaded the sale agreements of 3 May 1988. It would substitute a plea that Gilpin Park denies that the La Rosas paid Rodpat or Gilpin Park the sum of $4,848,986, but would admit that the cheques listed in the amended statement of claim were drawn on the Moor account and paid into the Parker and Parker trust account on or about the dates shown on the cheques (para.6). Paragraphs 7, 8 and 9 of the proposed amended defence are as follows:
   

"7. The second respondent further says, in answer to paragraph 9 of the statement of claim, that on or about 3 May 1988 it received from the Parker and Parker Trust Account the sum of $2,563,400.00, which comprised:

(a) the consideration paid by Feli Pty Ltd, as trustee of the FC La Rosa Family Trust, to the second respondent for the delivery to Feli Pty Ltd by the second respondent of signed transfers of 3,334 units in the CMA Unit Trust to Feli Pty Ltd -

$1,263,333.00

(b) the consideration paid by the bankrupts for the delivery to the bankrupts of signed registrable transfers of 3,334 fully paid $1 shares in Hobourne Pty Ltd to the bankrupts, together with the relevant share certificates -

$ 3,334.00

(c) The balance of the second respondent's entitlement to a distribution made to the unitholders of the CMA Unit Trust by the trustee, Hobourne Pty Ltd, in respect of the period 1 July 1987 to 2 May 1988 - $1,181,166.00

(d) An amount due to the second respondent by Ackenfield Pty Ltd as a management fee -

$ 115,567.00 $2,563,400.00

8. Except for the amount of $3,334.00 particularised in paragraph 7(b) hereof, no part of the sum received by the second respondent from the Parker and Parker Trust Account was a payment made by the bankrupts to the second respondent.

9. The payment of $1,263,333.00 particularised in paragraph 7(a) hereof was a payment made to the second respondent by Feli Pty Ltd. Payment of that amount or any part thereof into the Parker and Parker Trust Account by the bankrupts constituted either a gift or a loan by the bankrupts to Feli Pty Ltd, and not a payment to the second respondent by the bankrupts."

1. In para.10 of the proposed amended defence, Gilpin Park would maintain its denial of the allegations in para.10 of the statement of claim and would further say that any payment made by the La Rosas to it was made before they became bankrupt and at a time when it had no notice of the presentation of a petition against them and was made for valuable consideration in good faith and in the ordinary course of business.
   The Evidence

2. In support of his motion, the trustee relied upon the affidavit of Michael Joseph Ryan, a chartered accountant employed by Arthur Andersen as a senior manager in the insolvency division of its Perth office. The La Rosas' trustee has also been the liquidator of Hobourne Pty Ltd and Feli Pty Ltd since 1 February 1989. Mr Ryan has assisted him in the administration of the estates of the La Rosas between 26 August 1988 and February 1989 and since February 1991. He has also assisted Mr Norgard in the administration of Feli and Hobourne since that time. He exhibited to his affidavit, without objection, copies of the unstamped agreements referred to in Gilpin Park's defence. Copies of correspondence relating to their stamping were also exhibited.

3. Gilpin Park relied upon an affidavit sworn by one of its directors, John Joseph Hughes. He confirmed that the agreements exhibited to Mr Ryan's affidavit were true copies of the originals and confirmed that "settlement on the said agreements was completed on or about 3 May 1988". He referred to advice by his solicitors that under the provisions of the Stamp Act 1921, the obligation to pay the duty assessed on the agreements is imposed on the purchasers, that is Feli Pty Ltd and Mr and Mrs La Rosa. He said that at all material times he assumed that they would comply with their obligation to pay that stamp duty. He exhibited to his affidavit copies of transfer forms relating to the sale of the shares in Hobourne Pty Ltd, each of which was stamped to indicate that stamp duty on them had been paid. He also exhibited a copy of the signed transfer of units in the CMA Unit Trust from Gilpin Park to Feli. The State Taxation stamp on that document indicated that no duty was payable on it. Also exhibited were the minutes of a meeting of directors of Hobourne held on 3 May 1988 at which Mr Hughes was present and which recorded the passing of a resolution that share transfers transferring 10,002 shares in the company from Gilpin Park, Ackenfield and Rodpat to Francesco and Linda La Rosa, should be accepted and registered and share certificates be issued to the transferees.

4. The correspondence exhibited to Mr Ryan's affidavit indicated that on 11 August 1989 a receiver appointed to Feli, Mr Charles Fear, wrote to Mr Norgard as liquidator stating his understanding that the agreements of 3 May 1988 were then held by the State Taxation Department pending assessment of stamp duty. He advised that it was not his intention to proceed with the stamping of the agreement for the acquisition of the trust units. He suggested to Mr Norgard that should he wish to stamp the documents he liaise directly with an officer of the State Taxation Department. On 29 August 1989, a requisition issued from the office of the Assistant Commissioner (Stamp Duties) to Mr Norgard referring to the two agreements and seeking advice on whether the transactions were proceeding. There is no evidence on Mr Ryan's affidavit of any further step until 28 August 1990 when Mr Norgard sent to Mr Fear a facsimile copy of the letter from the State Taxation Department. Mr Fear responded on 13 September 1990 indicating that as the agreement was entered into by Feli prior to his appointment as receiver and manager, he was not obliged to pay any assessment. On 24 September 1990, Mr Pollitt, a senior manager with Arthur Andersen and Co., wrote to the State Taxation Department on behalf of Mr Norgard and advised that he did not intend to proceed with the stamping of the documents. He requested their return so that he might review them. The State Taxation Office wrote back seeking confirmation that the instruments were rescinded, annulled, discharged or cancelled and that no consideration had been paid or obtained by a person liable to pay ad valorem duty on the instruments or any other person at the direction of the person liable to pay. On 27 November 1990, the Assistant Commissioner (Stamp Duties) forwarded the agreements to Arthur Andersen and Co. bearing an endorsement that stamp duty had not been paid as the transactions did not proceed. Nevertheless, on 23 July 1991, the liquidator returned the agreements together with a deed of variation and copies of the share and unit transfers to the Assistant Commissioner (Stamp Duties). His covering letter concluded:
   

"As discussed, it is not apparent to me why these documents were returned by your Department. On the basis of the information presently available to me, I have no reason to believe that the transactions did not proceed. Accordingly, it seems to me that the documents are liable to duty.

As stated in my letter to your Department dated 24 September 1990, it is not my intention as Liquidator of Feli, to proceed with the stamping of the documents. This is still my intention and I enclose a Proof of Debt form to be completed and lodged by the Department so that it becomes an unsecured creditor in the winding up of Feli in respect of the duty payable on these documents."

On 8 August 1991, an assessment issued under the Stamp Act 1921 (WA) assessing duty of $275,527.75 on the sale of the units, $5 on the deed of variation and $60.15 on the share transfer forms A further $8 was assessed in relation to the stamping of copies of the transfer of shares and the sale agreement. The duty is payable by 8 November 1991.

Statutory Framework

1. The relevant provision of the Stamp Act 1921 (WA) is s.27(1):
   

"27(1) Except as otherwise provided by this Act no instrument chargeable with duty and executed in Western Australia, or relating, wheresoever executed, to any property situate or to any matter or thing done or to be done in Western Australia, shall, except in criminal proceedings, be pleaded or given in evidence or admitted to be good, useful, or available in law or equity, unless it is duly stamped in accordance with the law in force at the time when it was first executed.

1. Also to be considered for present purposes are the provisions of the Bankruptcy Act 1966 upon which the claim and the defence respectively rely. When a debtor becomes a bankrupt then, subject to the Act, s.58(1)(a) vests "the property of the bankrupt" in the trustee. The property of the bankrupt is defined in s.5 as including "the property divisible among the bankrupt's creditors". Section 116(1) defines the property that is to be treated as the property divisible among the creditors, the relevant part of that definition being:
   

"116(1) Subject to this Act -

(a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him, or has devolved or devolves on him, after the commencement of the bankruptcy and before his discharge; .

.

.

is property divisible amongst the creditors of the bankrupt."

Where a debtor's petition has been presented the bankruptcy is taken, by virtue of s.115(2), to commence at the date of the presentation or the earliest act of bankruptcy within the period of six months prior to presentation (the relation back period):

"115(2) The bankruptcy of a person who becomes a bankrupt by virtue of the presentation of a debtor's petition shall -

(a) if he has committed any act or acts of bankruptcy within the period of 6 months immediately preceding the date on which the petition was presented - be deemed to have relation back to, and to have commenced at, the time of the commission of that act, or the first of those acts, as the case may be; or

(b) if he has not committed any such act of bankruptcy - be deemed to have commenced at the time of the presentation of the petition."

It is by the combined operation of these provisions that the trustee may be entitled to property disposed of by the bankrupt during the relation back period.

1. Certain transactions, however, are protected from the operation of these provisions by s.123, which provides in the relevant parts:
   

"123(1) Subject to sections 118 to 122(inclusive), nothing in this Act invalidates, in any case where a debtor becomes a bankrupt-

(a) a payment by the debtor to any of his creditors;

(b) a conveyance, transfer or assignment by the debtor for valuable consideration;

(c) a contract, dealing or other transaction by or with the debtor for valuable consideration; or

(d) any transaction to the extent of a present advance made by an existing creditor,

if -

(e) the transaction took place before the day on which the debtor became a bankrupt;

(f) the person, other than the debtor, with whom it took place, did not, at the time of the transaction, have notice of the presentation of a petition against the debtor; and

(g) the transaction was in good faith and in the ordinary course of business.

(2) The burden of proving the matters referred to in paragraphs

(1)(e), (f) and (g) in relation to a transaction lies upon the person who relies on the validity of the transaction.

(3) For the purposes of subsection (1), a transaction shall not be deemed not to have been in good faith and in the ordinary course of business by reason only that, at the time of the transaction, the person, other than the debtor, with whom it took place had notice of the commission of an act of bankruptcy by the debtor.

(7) In this section-

"payment" includes the drawing, making or endorsing of a bill of exchange, cheque or promissory note;

"transaction" includes payment, delivery, conveyance, transfer, assignment, contract or dealing."

Whether Section 27 Renders the Proposed Amended Defence Untenable

1. Section 27 of the Stamp Act 1921 (WA) takes effect as a law of the State to prevent the pleading and reception in evidence in the Courts of the State of any unstamped instrument which is chargeable with duty. It also operates to deprive such instruments of any effect in law or equity except in criminal proceedings. By virtue of s.79 of the Judiciary Act 1903 the equivalent provision, s.29 of the Stamp Duties Act 1920 (NSW), was held in Davis v Federal Commissioner of Taxation (1989) 86 ALR 195 to render an unstamped instrument inadmissible in proceedings in this Court. The same reasoning would apply to the pleading of an unstamped instrument.

2. In the context of the amended defence, however, the agreements are not directly pleaded nor am I prepared at this stage to hold that the matters raised in the proposed pleading can only be made good by proving them. It is put that the third branch of s.27 operates to prevent Gilpin Park from relying upon any aspect of the transactions which it pleads in defence because of their relationship to the agreements. In this regard Dent v Moore (1919) 26 CLR 316, a decision of the High Court dealing with s.15 of the Stamp Duties Act 1898 (NSW) is relied upon. Section 15 of the 1898 Act provided, in the relevant part:
   

"15(1) Unless otherwise herein expressly enacted no unstamped instrument executed in New South Wales after the passing of this Act, or relating, wheresoever executed, to any property situate, or to any matter or thing done, or to be done, in New South Wales, shall, except in criminal proceedings, be admissible in evidence, or available or effectual for any purpose whatsoever in law or equity..."

In answer to a submission that secondary evidence could be given of the document there in question, the High Court said at p 324:

"The meaning of the second branch of the enactment, unless controlled by authority, is not open to reasonable doubt. The Legislature by way of securing the payment of the impost for public purposes, which is placed on the instrument, provides in effect that the sanction of the law shall be withheld from the acts of the parties until the revenue law is obeyed. It lies at the root of all contractual obligation that the mere convention of the parties creates no binding tie between them. It is the law operating on their compact - either the common law or some Statute - which creates the obligatory relation that one can enforce against the other. But here, acting impersonally on the bargain finally embodied in an "instrument", and therefore contained nowhere else, it strikes that instrument with sterility (to borrow an expression from another branch of the law) unless and until the public requirement of taxation has been complied with. Until that has happened, the instrument (except in criminal proceedings) is not "available" and not "effectual" - that is, it has no effect - for any purpose whatsoever at law or in equity: in other words, it cannot be considered as an instrument giving title, or as one which could be made the means of compelling anyone to give title. It is in the eye of the law a nullity, except for criminal proceedings and, of course, for the purpose of being stamped."

Section 29 of the 1920 New South Wales Act, like s.15 of the 1898 Act considered in Dent v Moore, renders unstamped instruments ineffective "for any purpose whatsoever in law or equity". The reference to "any purpose" was introduced into the Stamp Act 1891 (UK) following cases which held that such documents could be used for indirect or collateral purposes - Matheson v Ross (1849) 2 HLC 286; 9 ER 1101. The first Western Australian stamp duty legislation in 1881 and 1882 reflected the then current Imperial model - s.12 The Stamp Act 1881 (WA) 44 Vic. No. 20; s.13 The Stamp Act 1882 (WA) 46 Vic. No. 6. No change reflecting that made to the Imperial statute was effected in the Stamp Act Amendment Act 1902 (WA), nor in the provisions of the Stamp Act 1921 (WA) as originally enacted. And that statutory formula antedating the 1891 Imperial statute stands in s.27 of the Act today. It may be therefore that in some applications s.27 is less restrictive than the equivalent provision in New South Wales - see the observations of Kennedy J. in Acclaim Holdings Pty Ltd v Vlado Pty Ltd (1989) 1 WAR 128 at 134.

1. The third branch of s.27 operating as it does directly upon the legal and equitable relations of the parties to the agreements does not appear in this Court to require the assistance of s.79 of the Judiciary Act to render the agreements not "good, useful or available in law or equity". But the question posed by the proposed amended defence necessarily concerns the operation not only of s.27 of the Stamp Act 1921 (WA), but also that of s.123 of the Bankruptcy Act 1966 and relies upon the proposition that the payments to Gilpin Park, if made by the La Rosas, were, as pleaded in para.10, for valuable consideration, in good faith and in the ordinary course of business. As to that, I am not prepared to make a finding in advance of the evidence that the statutory defence cannot be made good without reliance upon the agreement or its legal effect. The class of "contract, dealing or other transaction" referred to in s.123(1)(c) when read with the definition of "transaction" in s.123(7), arguably extends beyond the range of dealings defined by or necessarily giving rise to legal or equitable rights and duties. It may be an open question whether the class is wide enough to allow external elements of the transactions of 3 May to be invoked without the need to plead or tender the agreements or rely upon their validity, utility or availability in law or equity. In Krehl v The Great Central Gas Consumers Company (1870) LR 5 Ex 289, Cleasby J. said of the equivalent s.133 in the Bankruptcy Act 1849 (UK), that the word "transaction" appeared to have been included to give as large an operation as possible to any arrangement made bona fide with the bankrupt.

2. If s.27 widely construed would operate either directly or by virtue of s.79 of the Judiciary Act to prevent reliance upon even the external elements of the transaction as indicating that the payments were made for valuable consideration, in good faith and in the ordinary course of business then a question may arise of inconsistency between State and Commonwealth laws to be resolved by the application of s.109 of the Constitution. Alternatively, a question may arise of inconsistency between that application of s.79 of the Judiciary Act 1903 and s.123 of the Bankruptcy Act 1966 to be resolved as a matter of statutory construction. While it may be a proposition attended by considerable difficulty, the point must also be considered, as senior counsel for Gilpin Park submitted, whether on a wide construction of s.27 the fact of the payments relied upon by the applicant may be pleaded and proven. These matters are, in my opinion, best resolved in the light of the evidence at trial and the facts able to be found from that evidence. The proposed amended defence does not enable them to be dealt with in accordance with the principles applicable to a strike out motion. I am not satisfied therefore that the pleading proposed is manifestly untenable and on that basis, applying the usual tests, it will be allowed.

3. In the circumstances I propose to dismiss the strike out motion in respect of the present pleading, although with costs in favour of the applicant, and will allow the proposed amendment with costs in favour of the respondent on the motion to amend. The respondent, however, will have to pay the applicant's costs thrown away by reason of the amendment.