Lin v Official Trustee in Bankruptcy
[2001] FMCA 106
•31 October 2001
FEDERAL MAGISTRATES COURT OF AUSTRALIA
LIN v OFFICIAL TRUSTEE IN BANKRUPTCY [2001] FMCA 106
BANKRUPTCY – Application to set aside 139ZQ Notice – cross application by Trustee to declare transfer of property void under s 120(1) – adjustment of shares between joint tenants – equity of exoneration – payments for and on behalf of bankrupt – transfer of property – effect of deed of release in favour of bankrupt – effect of creation of constructive trust – transfer not void – s 139ZQ Notice set aside – no proper valuation of interest transferred – definition of value – s 139K not relevant to s 139ZQ Notice.
Bankruptcy Act1966 (Cth) ss 30, 51, 116(2), 120(1), 121, 122, 139K, 139ZQ, 139ZS
McLernon; Ex parte SWF Hoists and Industrial Equipment Pty Limited
v Prebble (1995) 130 ALR 609 followed
Halse v Norton (1997) 76 FCR 389 applied
Norton v Halse (1996) 137 ALR 593 applied
Calverley v Green (1984) 155 CLR 242 applied
Little v Little (1988-89) 15 NSWLR 43 followed
Macchi v Scott (1991) DFC 95-104 followed
Farrugia v Official Receiver in Bankruptcy 43 ALR 700 considered
Re Pittortou (a bankrupt); Ex parte Trustee of the Property of the Bankrupt [1985] 1WLR 58 considered
Parsons and Parsons v McBain [2001] FCA 376 applied and distinguished
Muschinski v Dodds (1984 – 5) 160 CLR 583 followed
Official Trustee v Arcadiou (1985) 8 FCR 4 applied
Ingram v Ingram (1941) VLR 95 considered
David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353 followed
ReLucera; Ex parte Official Trustee v Lucera (1994) 53 FCR 329 followed
Re Aley; Ex parte Sweeney & Aley (1996) 63 FCR 294 followed
Re Clarke; Ex parte Beardmore [1894] 2 QB 393 applied
Re Goode; Ex parte Mount (1974) 4 ALR 579 cited
Official Receiver v Klau & Ors; Ex parte Stephenson Nominees Pty Ltd and Ors (1987) 74 ALR 67 cited
Heydon’s Case (1584) 3 Co. Rep. 7a referred to
| Applicant: | SIEW FONG LIN |
| Respondent: | OFFICIAL TRUSTEE IN BANKRUPTCY |
| File No: | WZ 35 of 2001 |
| Delivered on: | 31 October 2001 |
| Delivered at: | SYDNEY |
| Hearing Date: | 11 October 2001 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Mr G T Bigmore QC |
| Solicitors for the Applicant: | Williams & Co |
| Counsel for the Respondent: | Mr A F Dickey QC |
| Solicitors for the Respondent: | Gibson Tovey Mills |
ORDERS
The notice to the applicant under section 139ZQ of the Bankruptcy Act 1996 dated 24 September 2001 be set aside.
Respondent’s application dated 11 October 2001 be dismissed.
The respondent to pay the applicant’s costs pursuant to Part 21 rule 21.10 of the Federal Magistrates Court Rules.
FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH
WZ 35 of 2001
SIEW FONG LIN
Applicant
And
OFFICIAL TRUSTEE IN BANKRUPTCY
Respondent
REASONS FOR JUDGMENT
This is an application to set aside a notice issued under s 139ZQ of the Bankruptcy Act and a cross application by the Trustee for a declaration that the transfer of the bankrupt’s interest in the property the subject of the notice was void against him pursuant to s 120(1) of the Bankruptcy Act.
History
The bankrupt and the applicant were married on 6 May 1987. In February 1992 they decided to purchase a property to live in as their matrimonial home. The property was situate at 144 Apsley Road, Willeton, Western Australia. It cost $118,000.00. The couple each had funds as they had both worked in Singapore prior to coming to Australia. The bankrupt had $20,000.00 from his super fund. The applicant’s father advanced her first $20,000.00 then $25,000.00. The $20,000.00 went into the couple’s joint account then out. There is no indication as to where it went. The entry reads OTUS. It is not suggested that it was used to purchase the property. The husband’s money was used to fund the deposit and formed part of the surplus in the account to which the Applicant’s $25,000.00 was added. The moneys in the account were used to fund the balance of the purchase price and were supplemented by a mortgage of $80,000.00. The costs of purchase including adjustments were also funded from the joint account moneys.
On settlement the applicant and the bankrupt contributed $28,3048.60 to the balance of the purchase price plus $2,977.45 in respect of the adjustments and other expenses.
On 29 and 30 June 1992 the applicant paid first $30,000.00 and then $5,000.00 to the housing loan account in reduction of the principal. This money came from a superannuation payment made to her from Singapore. In her affidavit of 9 August 2001 which was admitted without cross-examination the applicant said that she told her husband, and he agreed, that this money would be paid on the basis that the husband would pay the remainder of the mortgage loan, both interest and capital. The payment by the applicant had the effect of reducing the mortgage loan from $80,000.00 to $44,549.86.
During the months of July, August and September the husband kept to his part of the bargain and the loan was reduced by 3 September to $43,527.41. On 10 September 1992 the husband forged the signature of the wife to a loan application for an advance of $8,000.00. This increased the capital sum owed to $51,528.00. It also increased the amount of interest due under the loan so that the payments of $357.50 which the husband had previously been making were not adequate to meet the interest which was running at around $420.00 per month.
The loan began to increase. By the end of December 1994 it was $54,384.00. The husband made no payment under the loan from 4 May 1995 to 8 January 1997 by which time the loan had increased to $64,588.00. He then made some further sporadic repayments and in June 1997 the housing loan was transferred to a Bank Wise Bonus Home Loan Account with a debit balance of $62,945.50.
In September 1997, shortly prior to their separation, the bankrupt persuaded the applicant to join with him in an application to borrow a further $16,500.00 under the mortgage. This money was paid to a Mr Loo at the request of the husband. The money did not represent any obligation of the applicant.
The applicant and the bankrupt separated on 11 November 1997 and on 10 December 1997 the bankrupt transferred to the applicant his moiety in the property which at that time was allegedly valued at $135,000.00. The transfer was registered on 9 February 1998 and on 1 April 1998 the applicant and the bankrupt entered into consent orders in the Court of Petty Sessions which confirmed the transfer of the property to the applicant “with the wife to indemnify and keep indemnified the husband in relation to the registered mortgage E821088 with Bankwest.”
By 23 December 1997 the mortgage balance had climbed above the original $80,000.00 to $80,884.30. On 22 May 1998 the bankrupt committed his act of bankruptcy and on 27 July 1998 a sequestration order was made against his estate. On 9 March 1999 the parties’ marriage was dissolved by decree absolute.
On 8 February 2000 Bankwest released the bankrupt from all liability in respect of the mortgage facility and the applicant confirmed her continuing liability for the repayment of the facility and the performance of the covenants under the mortgage. On 6 March 2001 a s 139ZQ Notice was issued against the applicant. This Notice was superceded by a Notice dated 24 September 2001 in which the Official Receiver demanded payment of $26,691.00 to the Official Trustee. It is this Notice with which the proceedings are concerned.
The application
When this matter came on for hearing in addition to the Amended Notice under s 139ZQ the parties had also agreed to limit the application and the cross-application so that they dealt solely with the following matters:
Application
“The applicant claims the following order:
i)The notice to the applicant under s 139ZQ of the Bankruptcy Act 1966 dated 24 September 2001 be set aside;
FURTHER, OR, IN THE ALTERNATIVE A DECLARATION THAT:
ii)Any transfer of the interests of Tee Meng Teo in the property at 144 Apsley Road Willeton, being portion of Canning Location 25 and being Lot 594 on Plan 13664 comprised in Certificate of Title Volume 1606 Folio 228 to the applicant pursuant to the Order of the Family Court of Western Australia in PT 2041 of 1998 made 1 April 1998 is not void against the respondent.”
Declaration sought by the respondent
“The transfer by Tee Meng Teo to Lin Siew Fong on 10 December 1997 of the former’s interest as joint tenant in the land described as Lot 594 on Plan 13664 and being the whole of the land comprised in certificate of Title Volume 1606, Folio 228, is, pursuant to s 120 of the Bankruptcy Act 1966 (Cth) void as against the respondent trustee.”
Section 139ZQ is an administrative aid to a trustee in bankruptcy who seeks to recover money or property to which he claims he is entitled pursuant to ss 120, 121 or 122 of the Bankruptcy Act. Although a notice requires the recipient to make a payment or to transfer property to the trustee on pain of criminal sanctions it is not determinative of any issue between the trustee and the recipient but is subject to the right of the recipient to apply to the court under s 139ZS to set the notice aside. In the meantime the notice acts a charge upon the property. The provision is constitutionally valid (McLernon; Ex parte SWF Hoists and Industrial Equipment Pty Limited v Prebble (1995) 130 ALR 609).
In Halse v Norton (1997) 76 FCR 389 the Full Bench of the Federal Court (Black CJ, Lee and RD Nicholson JJ) upheld the decision of Carr J reported as Norton v Halse (1996) 137 ALR 593 that the trustee bore an onus of establishing either that the facts and circumstances alleged in the notice under s 139ZQ and relied upon at the hearing existed, or that other facts or circumstances existed that would bring the transaction, the subject of the notice, within s 120 or 121 of the Act (per Black CJ at 391). At 392 the Chief Justice said:
“Clearly, s 139 ZS is not the exclusive means of challenging a notice under s 139ZQ (see re McLernon at 403), and there may well be cases in which there is good reason for the trustee to bring what would be in effect a cross application for a declaration that a transaction is void, as in re McLernon: see also Theo v Official Trustee in Bankruptcy (1996) 70 FCR 317; 34 ATR 404”.
This is the very application and cross application with which the case before me deals.
Mr Bigmore QC who appeared on behalf of the applicant invited me to consider first the validity of the allegation that the property had been transferred in breach of s 120 of the Bankruptcy Act. In other words he wished me to deal with the respondent’s cross application. He asserted that if I found that the transfer was not void against the trustee there was no need to consider the validity of the s 139ZQ notice.
The relevant provisions of s 120 are as follows:
120Transfers that are void against trustee
(1)A transfer of property by a person who later becomes bankrupt (the “transferor”) to another person (the “transferee”) is void against the trustee in the transferor’s bankruptcy if:
(a)The transfer took place in the period beginning five years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b)The transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
Exemptions
(2)Sub-section (1) does not apply to:
(c) …
(d)A transfer to meet all or part of a liability under a maintenance agreement or a maintenance order; or
(e) …, or
(f) ….
What is not consideration
(5)For the purposes of sub-sections (1) and (4), the following have no value as consideration;
(a) …
(b)If the transferee is a spouse or de-facto spouse of the transferor – the transferee making a deed in favour of the transferor;
(c) …
(d) The transferee’s love or affection for the transferor.
Meaning of “transfer of property” and “market value”
(7)For the purposes of this section:
(a) …
(b) …
(c)the “market” value of property transferred is its market value at the time of the transfer.
The bankrupt’s transfer to the applicant was made within five years of his bankruptcy. It is accepted that the transfer was not one which fell within the exemption provided in s 2(b) to meet a maintenance obligation and that the stated consideration of the transferee’s love or affection for the transferor did not in itself constitute valuable consideration.
Mr Bigmore’s point is that whilst the above facts would appear to render the transaction void on its face in fact this is not the case because the transfer did no more than acknowledge the existing rights of the bankrupt and the applicant as between themselves when one took into account the equities which existed. It is the applicant’s submission that if a market value of approximately $135,000.00 is taken as the value of the property at the time of the transfer then as at that date the bankrupt had no financial interest in it whatsoever.
What are the relevant equities?
The first analysis which has to be done is that of the parties’ respective interests in the property at the time of purchase. Mr Bigmore submits that in this case the contributions of the respective parties were unequal in that the bankrupt contributed $20,000.00 and the applicant $25,000.00 and therefore applying the principals enunciated by the High Court in Calverley v Green (1984) 155 CLR 242 at 246 and 247 the proper division of the property on a tenants in common basis would be 54.85% to the applicant and 45.15% to the bankrupt.
In response Mr Dickey argues that this analysis of the purchase price is not consistent with the facts. In her first affidavit sworn on 2 May 2001 the applicant states at paragraph 4:
“4 The husband and I bought the house in approximately 1992 for around $120,000.00 of which, initially, we both contributed $20,000.00 towards the purchase price, the remainder, being obtained from finance secured by mortgage.”
Mr Dickey argues that even though the bank accounts clearly indicate that the figure contributed by the applicant was $25,000.00 the balance between $20,000.00 and $25,000.00 was taken up by adjustments and charges which are not considered to be part of the purchase price of a property. (Little v Little (1988-89) 15 NSWLR 43, Macchi v Scott (1991) DFC 95-104 at 76,343).
In a document annexed to the applicant’s affidavit of 9 August 2001 and marked as “SFL1.1 page 13 there is a settlement statement. That statement contains some holograph comments made by the applicant in which she indicates that she paid the deposit of $11,800.00 and that she paid in total $23,126.05. The $11,800.00 was not paid by the applicant, it was paid out of the joint account. Furthermore, it was paid out of the joint account after the applicant’s $20,000.00 had gone out but the bankrupt’s $20,000.00 had gone in. Part of the calculations which appear on that exhibit refer to settlement fees of $2,977.45 which was legal costs. With no other evidence to help me I am inclined to the view that on the balance of probabilities the capital in the house was contributed equally by the parties in the sum of $20,000.00 and therefore any calculations as to the applicant’s equity prior to any other adjustments should be based on a 50%/50% split. I say this noting the applicant’s submission that her $25,000.00 should be dealt with on a “last in, first out” basis and that the fees would be paid after the purchase price. As the fees referred to included solicitors’ costs, notoriously obtained from clients before settlement, I have no faith that this approach would do justice between the parties.
There are three sums which the applicant alleges constitute equities which bind the Trustee (Re Clarke; Ex parte Beardmore [1894] 2 QB 393 at 410). These are the three amounts of $8,000.00, $16,500.00 and $35,000.00. I will deal with each in turn.
The $8,000.00 payment
The uncontested evidence of the applicant is that the bankrupt forged her signature for the purpose of obtaining a loan of $8,000.00 to use for his own purposes. This situation was dealt with by Dean J in Farrugia v Official Receiver in Bankruptcy 43 ALR 700 at 702:
“Where the property of a married woman is mortgaged or charged in order to raise money for the benefit of her husband, it is presumed, in the absence of evidence showing an intention to the contrary, that, as between her husband and herself, she meant to charge the property merely as a surety. In such a case, she is, as between her husband and herself, in the position of surety and entitled both to be indemnified by the husband and to throw the debt primarily on his estate to the exoneration of her own. [Authorities cited].”
This principle known as the “equity of exoneration” was discussed by Scott J in Re Pittortou (a bankrupt): Ex parte Trustee of the Property of the Bankrupt [1985] 1WLR 58 at 61:
“As a general proposition, if there is found to be a charge on property jointly owned to secure the debts of one only of the joint owners the other joint owner, being in the position of a surety, is entitled, as between the two joint owners, to have the security indebtedness discharged so far as possible out of the equitable interests of the debtor…
But the entitlement of the second respondent to be indemnified by her husband, the bankrupt, in respect of the debt owing to the National Westminster Bank that is charged on the matrimonial home is a right of very little value since he is bankrupt. A right which would be of real value to her would be the right to have the National Westminster Bank’s indebtedness thrown primarily on his half share. That would have the effect of enhancing the size of her own proprietary beneficial interest in the property.
It is, I think, clear that the effect of the equity of exoneration in a case such as this is indeed to enhance the proprietary interest of the surety/joint mortgagor and not simply to give a surety a personal right to an indemnity from the debtor who is the other joint mortgagor.”
25. The equity of exoneration was considered by the Full Bench of the Federal Court in Parsons and Parsons v McBain [2001] FCA 376 where in their joint judgment Black CJ, Kiefel and Finkelstein JJ at para 21 said:
“An equity of exoneration operates in the nature of “a charge upon the estate of the principal debtor by way of indemnity for the purpose of enforcing against that estate the right which [the beneficiary] has, as between [the beneficiary] and the principal debtor, to have that estate resorted to first for the payment of the debt: Gee v Liddell [1913] 2 Chd 62 at 72.”
There is no suggestion that the applicant received any benefit from the loan which would have the effect of defeating the equity of exoneration (see Parsons at para 23).
The $16,500.00 advance
The applicant deposes that she knew about the $16,500.00 advance and consented to it. She suggests that she only consented to it because she was placed under duress by the bankrupt. As the money was raised for the sole benefit of the bankrupt to repay his debt to Mr Loo the question of duress is not really relevant. The applicant is still entitled to her equity on the basis of the principles expounded in the previous paragraphs.
The $35,000 reduction in the principal debt
The bank statements produced in evidence clearly show that the effect of the payment of $35,000.00 was to reduce the mortgage principal by that sum. The applicant submits that as this payment was made after the purchase of the property it cannot be used to calcuate the percentages in which each party is deemed to hold the property but would entitle the applicant to an equitable accounting between her and the bankrupt (Calverley v Green at 252). In their joint judgment in the same case Mason and Brennan JJ said:
“If it is right to regard the payment of the mortgage instalments as having been made by the defendant out of his own funds and on his own account – that is, if he made those payments not intending the plaintiff ultimately to have the benefit of those payments – the defendant may be entitled to contribution from the plaintiff for her share of the payments and to an equitable charge to secure the making of her contribution; see Ingram v Ingram [1941] VLR 95 at 102.”
In the instant case the applicant made the payment of $35,000.00 as part of a bargain with the bankrupt under which he was obligated to make all future mortgage repayments both of principal and interest. He did not honour his bargain and allowed interest on the loan to be capitalised affording the mortgagee a greater equity in the property to the detriment of the applicant. In these circumstances a resulting trust would apply in respect of the bankrupt’s half share of the $35,000.00 (see Muschinski v Dodds (1984 – 5) 160 CLR 583 at 598.
If these arguments are correct the effect of the position between the parties is set out in the spreadsheet produced below.
Bankrupt’s Applicant’s
Share Share
| Market Value of Property | $135,000 | |
| Balance owed to Mortgagee in | - $80,000 | |
| Net equity in Property | $55,000 | |
| Individual Shares | $27,500 | $27,500 |
| Charge in favour of Applicant | -$17,500 | $17,500 |
| Balance B/F | $10,000 | $45,000 |
| Charge in favour of Applicant re $24,500 | -$24,500 | $24,500 |
| Balance B/F | -$14,500 | $69,500 |
| Adjustment to remove negative value | $14,500 | -$14,500 |
| Balance | $0 | $55,000 |
Variables: | ||
Accounting re $35,000 | $35,000 | |
Accounting re $24,500 | $24,500 | |
Purchase price of Property | $118,500 | |
Moneys contributed by the applicant | $59,250 | |
Siew Fong Lin’s original % share | 50.00% |
The respondent’s submissions
The respondent argues that the transfer of the bankrupt’s interest in 144 Apsley Road on 10 December 1997 was clearly in breach of
s 120. This is not in fact disputed by the applicant whose argument is that because of the equities created in her favour the transfer did nothing more than regularise an already existing situation. At the time of the transfer the bankrupt had no interest in the land as any interest which he had previously held was now charged for the benefit of the applicant. If nothing was given away then there is nothing for the trustee to lay claim to. A court is entitled to look behind the words of the transfer and the parole evidence rule has no application (Official Trustee v Arcadiou (1985) 8 FCR 4 at 11).
The respondent submitted that the extra moneys of $35,000.00, $16,500.00 and $8,000.00 were only available to form the constituents of a proof of debt to be submitted by the applicant. They were a personal claim in his bankruptcy and did not in any way affect his interest in the property. It was submitted that the applicant did not have an equitable charge. In his submissions Mr Dickey made reference to Ingram v Ingram (1941) VLR 95 in support of his contention. As I read that case it is authority for the proposition that payments made after the purchase date by one party cannot affect the proportions in which the parties hold the property. That is decided by the situation as at the purchase date. However, it is also authority for the fact that where excessive payments are made by one party that party is entitled to a contribution from her joint contractor and to an equitable charge over the land.
The respondent then points to the consent orders made by the Court of Petty Sessions of Perth on 27 March 1998. These, he says, were intended to settle all issues between the parties and the applicant would have no further claim against the bankrupt. Mr Dickey submitted that he was unable to find any authority for the right of parties to claim antecedent rights after such an order had been made. It seems to me that there are a number of fallacies in the respondent’s argument.
Firstly, the transfer of the land took place prior to the consent orders. The clause relating to the property settlement contained in the consent orders could only have effect as to some right, title or interest that the respondent had obtained in the matrimonial property between the date of the transfer and the date of the orders. There is no evidence that any such right, title or interest was obtained. If the respondent had nothing to transfer then the applicant had no rights to waive. If I am wrong about this and the property settlement has some effect then it must surely have effect as a maintenance order defined by s 51 of the Bankruptcy Act because of the provisions of Clause 6:
“For the purposes of s.77A of the Family Law Act, the proportion of the money and property to be retained by the wife and attributable to her maintenance is $70,000.”
The respondent cannot approbate and reprobate.
Secondly, the respondent has advanced no argument as to why the transfer was not a transfer subject to the equities. It would be necessary to make this argument if the trustee in bankruptcy was to have any claim over the property transferred. If it is part of the respondent’s general assertion that there are no equities and that all the applicant has is a personal debt from the bankrupt to herself then I reject the argument for the reasons already given.
I am satisfied that each of the three payments created an obligation upon the bankrupt to account to the applicant and to hold the moneys in trust for her out of his share of the equity in the property.
The remedy
In Parsons at para 25 their Honours said:
“Although each appellant is entitled to exoneration, that does not give her ownership of her husband’s property, but merely a charge over it. It will therefore be necessary for each appellant to transfer a one half interest in the property to the trustee. He will then hold it subject to each appellant’s charge. In any event, each appellant has the right to be subrogated to the mortgage over her husband’s interest in accordance with cases such as Banque Financiere Cite v Parc (Battersea) Limited [1999] 1AC 221.”
Mr Bigmore urges me to distinguish this case from Parsons. He says that the construction which his client contends for is that when the property was transferred from the husband to the wife it had no value and thus it was not a transfer for “no consideration or an undervalue”. He argues that by virtue of a Deed of Release dated 8 February 2000 and made between the Bank of Western Australia, the applicant and the husband which released and discharged the husband and his executors, administrators, successors and assigns from all liability in respect of the loan facility and from his covenants as a mortgagor under the mortgage, the applicant had done everything which she could do to win the equity of exoneration and that the effect of the Deed of Release was to pay out the mortgage so far as the respondent was concerned. He argues that this distinguishes the instant case from Parsons. He says this because at the time the property was transferred (which is the relevant time for the purposes of s 120) the property was subject to a charge and to the three trusts. The charge was to the bank. That charge has been paid out by the applicant. This would mean that if the property had to be reconveyed to the trustee it would be reconveyed subject to a constructive trust in favour of the applicant to the value of the liability released.
The argument is based upon an assumption of the existence of the fourth constructive trust; before acceding to it, it will be necessary to consider the legal basis of that assumption.
When he entered into the Deed of Release the bankrupt received a benefit. The benefit was relief from further obligation pursuant to his personal covenant under the mortgage. At the time the deed was entered into the trustee had unexercised rights under s 120 to require a reconveyance of the bankrupt’s half interest in the property. The applicant entered into the deed of release for the purpose of regularising her relationship with the bankrupt. She had 100% of the property and was prepared to accept 100% of the liability for the mortgage. It is reasonable to assume that if she had been aware that the transfer of the bankrupt’s interest to her was void and she did not in fact own the property absolutely she would not have entered into the deed. To the extent that she was wrong in her assumption about her legal ownership of the property she provided the release under the basis of a mistake. Such a mistake is no longer a bar to recovery or equitable relief David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353. The applicant would be entitled to have the agreement set aside, at least as between herself and the bankrupt. The corollary of this is that in the absence of an order setting aside the agreement the trustee has become unjustly enriched to the extent of the bankrupt’s former obligations under the mortgage. It would be unconscionable for the trustee to hold the land free of the charge or of the bankrupt’s obligations under the charge. I am sensible of the criticism of the use of the term “unconscionability” or “unconscionable conduct” where the use is based on a notion of what is fair and just rather than “by reference to legitimate processes of legal reasoning” per Dean J, Muschinski v Dodds at 621. However, it would seem to me that the circumstances prevailing in this case fall closely within the context of those discussed by his Honour in relation to joint ventures or partnerships at pp 618-620:
“The circumstances giving rise to the operation of the principal were broadly identified by Lord Cairns, C.L., speaking to the Court of Appeal in Chancery, in Attwood v Maude (1868) L.R. 3 Ch. APP at 375 where “the case is one which using the words of Lord Cottenham in Hirst v Tolson (1850) 2 MAC. & G. 134 a payment has been made by anticipation of something afterwards to be enjoyed [and] where… circumstances arise so that future enjoyment is denied.” Those circumstances can be more precisely defined by saying that the principal operates in a case where the sub stratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specifically provided that the other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or attain the benefit of the relevant property to the extent that it would be unconscionable for him so do to.”
I do not think that Mr Bigmore is arguing that when this constructive trust is added to the other three constructive trusts in respect of which the property is encumbered it becomes obvious that the whole of the property in which the bankrupt has an interest is property which he holds as trustee and which is excluded from his estate by virtue of s 116(2) of the Bankruptcy Act.
Although this would be an attractive argument which avoids the necessity for the transfer of the bankrupt’s share to his trustee as was ordered in Parsons (that would be a remedy without a benefit so far as the trustee is concerned) it does not appear to be supported by authority. The nature of a trust for the purposes of s 116(2)(a) of the Bankruptcy Act 1966 was considered in Re Goode; Ex parte Mount (1974) 4 ALR 579 at 595-597 and approved in Official Receiver v Klau & Ors; Ex parte Stephenson Nominees Pty Ltd and Ors (1987) 74 ALR 67 at 73. Although neither of these cases was referred to in Parsons the principles which were there enunciated would appear to have been taken as a given.
On the other hand I do think there is merit in Mr Bigmore’s suggestion that a purposive construction be given to the words in section 120(1)(b) so as to exclude cases such as the present one where the transferor has, in effect, transferred nothing of value. I am satisfied that this is the case here and that on any calculation the equities to which the bankrupt’s moiety was subject are greater than any possible valuation of that interest.
The section is intended to attack the mischief (see Heydon’s Case (1584) 3 Co. Rep. 7a) of transfers at an under value. That assumes that what is transferred has a value. It also attacks the mischief of a transfer for no consideration. But “natural love and affection” is defined as “consideration having no value” (s 120(5)(d)), not as “no consideration”. It follows that a transfer of something with no value for the consideration of natural love and affection is the transfer of something with no value for consideration of no value. Mathematically it is no different from the transfer of something worth $10 for a consideration of $10. The transaction is not mischievous; it is not in need of a remedy.
The effect of this finding is that I can therefore distinguish this case from Parsons and decline to make the declaration requested by the Trustee on the basis that the transfer was not one caught by the provisions of s 120.
The validity of the 139ZQ Notice
The applicant attacks the 139ZQ Notice on a number of grounds.
First she argues that the notice is incorrect insofar as it is based upon her husband and herself having an equal equitable ownership of the property. The arguments in relation to this aspect of the matter have already been considered and I have found that it was not only the common intention of the parties but also their actual contributions that established a 50%/50% ownership.
The second point raised by the applicant is that the market value of the property stated in the notice to be $135,000.00 is incorrect and not based upon admissible evidence. It is also argued that it is incorrect because it is a value assessed at the time of the transfer whereas, according to the applicant, pursuant to s 139K of the Bankruptcy Act the value is to be taken at the time that the notice is issued.
Section 139K is a definition section. It was included in the Act in 1991 and commences with the words:
“139K. In this division, unless the contrary intention appears;…
“Value”, in relation to property referred to in a notice, means the market value of the property when the notice is given.”
However, the phrase used in s 139ZQ(1) is “the value of the property received”. This phrase has been the subject of judicial consideration in ReLucera; Ex parte Official Trustee v Lucera (1994) 53 FCR 329 where Olney J said:
“The Official Receiver is entitled under s.139ZQ(1) to give notice requiring the person who received “any property” (in this case the former interest of the bankrupt in the land) to pay the trustee the value of the property so received. Although the Bankruptcy Act provides no specific guidance “the value of the property received” could only mean the value of the property at the time it was received. I have formed this view not only from the ordinary meaning of the words but also from the fact that the same sub-section deals with the case of money which has been received as a result of a void transaction and in that case the liability is to pay “an amount equal to the money… received. Clearly this can only refer to the sum of money actually received at the time of the transaction and by parity of reasoning, the value of the property received must mean the value of the property at the time it was received.”
In Re Aley; Ex parte Sweeney & Aley (1996) 63 FCR 294 (Drummond J said:
“I am reluctant to read s.139ZR of the Act as making a notice under s.139ZQ of the Act effective to charge property owned by the recipient of the notice with liability to pay the figure asserted in the notice as the value of the transferred property in contrast to the true value of the property at the date of receipt.”
It was suggested by Mr Bigmore that both cases were wrong and that this was because the definition section 139K had not been brought to the attention of the learned Judges. This is not an argument which I can accept. Their Honours each had a number of years of experience of this division of the Act before giving those judgments. They both took the same view that the relevant phrase was not just “value of the property” but “the value of the property received”. These two phrases are very different and would entitle a court to hold that the context did admit of a contrary intention to the valuing of the land at the time the notice was issued.
Thirdly, the applicant argues that the use of an appraisal is not a valuation of the land. In both Lucera and Aley there is judicial criticism of the notices which do not properly identify a valuation for the interest transferred. In Lucera his Honour said:
“The notice given to Mrs Lucera does not correctly identify the property said to have been received by Mrs Lucera nor does it attempt to value the “property” which Mrs Lucera received as a result of the void transaction. It is not altogether clear how a trustee in bankruptcy should value a former interest of a bankrupt as a joint tenant in his matrimonial home. It is not an interest which necessarily has a market value and it certainly cannot be assumed that it is worth half of the market value of the property as a whole.”
In the instant case the valuation of $135,000.00 as a value of the property at the time of the transfer is based upon an undated property appraisal given to the applicant of between $137,000.00 and $145,000.00 and an appraisal dated 7 October 1998 given by Moylan Real Estate to the applicant of between $143,000.00 to $145,000.00. Mr Bigmore said he was prepared to accept the valuation of $135,000.00 for the purposes of the s 120 declaration and his opposition thereto, but he was not prepared to accept it for the purposes of the 139ZQ Notice. The notice seems to me therefore to have the same defects as that discussed in Lucera; therefore I think I would be bound to follow his Honour in holding that:
“The notice is irregular and should be set aside. If s.139ZS(1) does not provide sufficient authority for such an order, then s.30 does.”
I would make the same finding.
I make the order requested by the applicant in her reamended application, namely that the notice to the applicant under section 139ZQ of the Bankruptcy Act 1966 dated 24 September 2001 be set aside. I also decline to make the declaration sought by the respondent dated 11 October 2001. I order that the respondent pay the applicant’s costs including any reserved costs pursuant to Part 21 rule 21.10 of the Federal Magistrates Court Rules. I grant the applicant an advocacy certificate under rule 21.15.
I certify that the preceding fifty-five (55) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 31 October 2001
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