Lopatinsky v Official Trustee in Bankruptcy, in the matter of Lopatinsky
[2002] FCA 861
•11 JULY 2002
FEDERAL COURT OF AUSTRALIA
Lopatinsky v Official Trustee in Bankruptcy, in the matter of Lopatinsky
[2002] FCA 861
CORRIGENDUM
MARGARET GRACE LOPATINSKY V OFFICIAL TRUSTEE IN BANKRUPTCY, IN THE MATTER OF WLADIMIR LOPATINSKY
N 7433 of 2001
MOORE J
11 JULY 2002 (CORRIGENDUM 12 AUGUST 2002)
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 7433 OF 2001
BETWEEN:
MARGARET GRACE LOPATINSKY
APPLICANTAND:
OFFICIAL TRUSTEE IN BANKRUPTCY
RESPONDENT
JUDGE:
MOORE J
DATE:
11 JULY 2002
PLACE:
SYDNEY
CORRIGENDUM
- The file number shown on the cover sheet, the orders page, and the first page of reasons should read N 7433 of 2001, not N 7433 of 2002.
Associate:
Date: 12 August 2002
FEDERAL COURT OF AUSTRALIA
Lopatinsky v Official Trustee in Bankruptcy, in the matter of Lopatinsky
[2002] FCA 861BANKRUPTCY – application to set aside s139ZS notice issued on behalf of official receiver – cross-claim by Trustee seeking repayment of an amount transferred to the applicant by the bankrupt – payment to wife by husband on failure of marriage – whether consideration at market value was given for the transfer – where transfer in question was understood to be part of a division of marital property upon separation – whether an informal understanding between the applicant and the bankrupt can constitute an implied forbearance to sue – whether an implied forbearance to sue can constitute consideration for the purposes of s 120 – where no orders were made by Family Court to give effect to the agreement between the applicant and the bankrupt.
Bankruptcy Act 1966 (Cth) ss 120, 139ZS, 139ZQ
Family Law Act 1975 (Cth) ss 44(3), 78, 79
Halse v Norton (1997) 76 FCR 389 cited
Victorian Producers’ Co-Operative Co Ltd v Kenneth [1999] FCA 1488 cited
Mateo v Official Trustee in Bankruptcy (2002) 188 ALR 667 discussed
Re: Sabri; Ex parte Brien v Sabri (1997) 137 FLR 165 discussed
Sutherland v Brien [1999] NSWSC cited
Wigan v English and Scottish Law Life Assurance Association [1909] 1 Ch 291) referred to
Re Pope; Ex parte Dicksee [1908] 2 KB 169 referred to
Re Abbott (a bankrupt); Ex parte the trustee of the property of the bankrupt v Abbott [1982] 3 All ER 181 referred to
Pearson, Re: Ex parte Wansley v Pearson (1993) 46 FCR 55 referred to
MARGARET GRACE LOPATINSKY V OFFICIAL TRUSTEE IN BANKRUPTCY, IN THE MATTER OF WLADIMIR LOPATINSKY
N 7433 of 2002
MOORE J
11 JULY 2002
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 7433 OF 2002
BETWEEN:
MARGARET GRACE LOPATINSKY
APPLICANTAND:
OFFICIAL TRUSTEE IN BANKRUPTCY
RESPONDENTJUDGE:
MOORE J
DATE OF ORDER:
11 JULY 2002
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The notice given to the applicant under s 139ZQ on 8 June 2001 be set aside.
2. The cross-claim of the respondent be dismissed.
3. The respondent pay the applicant’s costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 7433 OF 2002
BETWEEN:
MARGARET GRACE LOPATINSKY
APPLICANTAND:
OFFICIAL TRUSTEE IN BANKRUPTCY
RESPONDENT
JUDGE:
MOORE J
DATE:
11 JULY 2002
PLACE:
SYDNEY
REASONS FOR JUDGMENT
Introduction
On 26 September 2001, the applicant applied, pursuant to s 139ZS of the Bankruptcy Act 1966 (Cth) (“the Act”), to set aside a notice (“the notice”) given to her on 8 June 2001 on behalf of the Official Trustee in Bankruptcy (“the Trustee”). The Trustee is presently administering the estate of Wladimir Lopatinsky (“the bankrupt”) who is the applicant's ex-husband. On 3 December 2001, the Trustee filed a cross claim seeking both a declaration that the notice was valid and related orders directed to giving effect to the notice. The notice was issued under s 139ZQ of the Act and claimed from the applicant an amount of $81,387.00 or the transfer to the Trustee of a 30.71 per cent interest in a property owned by the applicant at Padstow Heights. The amount claimed was said to have been received by the applicant from the bankrupt after the sale of a property at Peakhurst jointly owned by them. The property was sold when the marriage between the applicant and the bankrupt ended. The amount claimed was said to be the difference between the half share of the proceeds of the sale to which the bankrupt was entitled as a joint tenant and the amount actually received by him following the sale. The Trustee’s entitlement to the monies was said to arise under s 120 of the Act.
The factual background
It is convenient to commence by setting out the terms of the notice which contains both the essential facts and the contentions of the Trustee:
“TAKE NOTICE that I, George Lionel Caddy, of Level 8, 135 King Street, Sydney, the Official Receiver for the abovenamed Bankruptcy District hereby give notice to you pursuant to section 139ZQ of the Bankruptcy Act, 1966, that you, being a person who has received property from WLADIMIR LOPATINSKY (“the bankrupt”) as a result of a disposition of property under section 120 and/or section 121 of the Bankruptcy Act, 1966, that is void against the Official Trustee in Bankruptcy being the trustee of the estate of the bankrupt, require you to pay to the Official Trustee in Bankruptcy … an amount of $81,387.00 being the value of the bankrupt’s interest in 15 Peake Parade, Peakhurst or to transfer to the Official Trustee a share 31.71% interest in the property at 3/91-99 Villiers Road, Padstow Heights.
1.The bankrupt was made bankrupt on 3rd April 2001 on the filing and acceptance of a Debtors Petition accepted by the Official Receiver.
2.The Official Trustee in Bankruptcy is the Trustee of his bankrupt estate.
3.On or about 1 October 1999, you and the bankrupt were the joint proprietors of a property at 15 Peake Parade, Peakhurst. You sold 15 Peak Parade, Peakhurst for $330,000.00.
4.At settlement, the following amounts were paid:
· Proceeds of sale after council and water rates
Adjustment $297,211.00
· Plus initial deposit from real estate agent +$33,000.00
Subtotal $330,211.00
Less
· Westpac Banking Corporation as mortgagee -$57,365.00
· Selling Fee -$8,250.00
· Commercial expenses -$1,500.00
· Hurstville Council -$303.00
· Sydney Water -$19.00
Subtotal $262,774.00
5.In the ordinary course the bankrupt should have received one half of the net proceeds of sale being $131,387.00. In fact, the bankrupt only received $50,000.00
6.On settlement, you received $212,000.00 which you used to purchase real property located at 3/91-99 Villers Road, Padstow Heights on or about 27 October 1999 for a total purchase price of $265,000.00
7.The bankrupt was entitled to a further sum of $81,387.00 on the sale of 15 Peake Parade, Peakhurst which money was not paid to him but instead taken by you.
8.There was no consideration paid by you to the bankrupt for the transfer of the sum pursuant (sic) to (sic) $81,387.00.
9.The transfer of $81,387.00 is property as defined in section 120 and section 121 of the Bankruptcy Act, 1966.
10.The transfer of the money to you by the bankrupt was a transfer within 5 years before the commencement of the bankruptcy and you gave no consideration for the transfer or gave less than the value of the market value of the property transferred being, $81,387.00.
11.The said transfer of the property is a void transfer pursuant to section 120 of the Bankruptcy Act in that the money was transferred to you at a time within 2 years of the bankruptcy with no consideration.
12.There is no consideration between you and the bankrupt because you are married as specified in s 120(5) of the Bankruptcy Act.
13.The said transfer of money is a void transfer pursuant to provisions of section 121 of the Bankruptcy Act in that the money was transferred to you at a time within 2 years of the bankruptcy with no consideration with the intention of defeating creditors of the bankrupt and or prevent the transformed property becoming divisible among the bankrupt and creditors.
14.Payment by you is required within 28 days.
…”
Evidence was given by the applicant in an affidavit sworn 25 September 2001 about the history of her marriage to the bankrupt and, in particular, about the respective financial and other contributions each partner made to the marriage. This evidence was led on behalf of the applicant to explain why she received all but $50,000 from the proceeds of the sale of the Peakhurst property referred to in the notice. The applicant was cross examined on her affidavit but, in large measure, the substance of her evidence was not challenged. I accept her evidence. It can be summarised as follows.
The applicant and the bankrupt met in 1979 on a Soviet cruise ship, where the bankrupt worked as an interpreter. At the time the applicant was a citizen of Australia and the bankrupt was a citizen of the Soviet Union. The two became romantically involved and the applicant agreed to sponsor the bankrupt’s immigration to Australia on a "fiancée visa". As a condition of the visa the bankrupt was not able to work and the couple had to marry within 6 months. The applicant’s recollection was that when the bankrupt arrived on the visa, he had thirty five dollars.
In the six months following the bankrupt’s arrival in Australia he lived with the applicant. She paid for food, clothing and all other necessities. The applicant commenced working as a secretary with the Hurstville Municipal Council in July 1979 and payments for the Council Health Fund (the applicant and the bankrupt were members) were also deducted from her salary. The pair were married on 29 September 1979. The applicant paid for the wedding and honeymoon. Early the following year they moved to rented premises which they shared with the applicant’s sister and her husband. Everyone except the bankrupt signed the lease.
In April 1980 the bankrupt obtained employment as a clerk but only kept the position for two weeks. In May 1980 he secured another job but only lasted six weeks in the position. In July 1980, the bankrupt began working with Darlington Commodities and was employed by that firm for some period.
In the middle of 1981, the applicant’s parents, fearful that the bankrupt did not appear to be able to remain in employment, offered the applicant $12,000 to buy a house so that the applicant “would at least have a roof over [her] head.” The applicant told her parents that she would also sell her car and expressed a hope that, on the basis of her good saving record and stable employment record, she would be able to buy the house in her name only. The applicant made an appointment with the manager of the NSW Building Society at the Society’s Kogarah office. The applicant told the manager that she wanted to buy a house and required a loan of $45,000. She said that her income was $12,500.00 per annum and produced details of her bank account to demonstrate her savings ability. The manger told the applicant that she could only receive a loan based on half of her income because she might get married, have children or lose her job. The applicant told the manager that she was already married and asked whether it would help to get the loan if the property and the mortgage were in both her and her husband’s names. She was told that provided her husband was employed that would probably assist to secure the loan. At the time, the bankrupt was working as a chauffer with Komatsu Australia Pty Ltd.
On 19 August 1981, the bankrupt and the applicant purchased, as joint tenants, a semi-detached brick house at 81 Warialda Street Kogarah. The purchase price was $62,000. To pay the purchase price the couple borrowed $45,000 from the NSW Building Society. As security for its advances (one of $5,000 and the other of $40,000) the Society took two mortgages over the property. The applicant and the bankrupt were required to make a monthly mortgage repayment of $482. The balance of the purchase price ($17,000) was provided by the applicant. It was made up of $12,000 given to her by her parents and $5,000 from the sale of her car. At the time the couple purchased the property they were still contractually obliged to pay their share of the lease of the property they had previously lived in with the applicant’s sister and her husband. Those lease payments amounted to $1,600.
The Kogarah property was in poor condition. Shortly after the purchase, the applicant’s father offered to lend the applicant the money to help renovate and fix the property on the understanding that she would repay her parents when she could afford to do so. Over the following years, the applicant’s parents lent her about $3,500 to pay for various items needed to renovate the Kogarah property. Her parents also assisted with food and occasionally paid the couple’s electricity, water, rates and telephone accounts. During this period the applicant continued to work with the Hurstville Municipal Council. She remained at the Council full time until about November 1982 when she ceased employment shortly before the birth of the couple’s first child. The small amount of leave money the applicant received was used by the couple to pay outstanding mortgage payments and bills.
The applicant remained out of the paid workforce until 1985 while she cared for her first daughter, Katherine, and second daughter, Elizabeth, who was born on 18 April 1984. During this period, the applicant also carried out, or supervised the carrying out of, extensive improvements on the Kogarah property. The improvements included the complete internal painting and wallpapering of the house, the replacement of floor coverings, the renovation of the kitchen, the construction of a driveway for rear access and shrub clearing and planting in the garden.
The bankrupt was retrenched from his job as a chauffer in November 1982. He did not receive any redundancy or other payments from the company. In April 1983 he obtained a position with D.L O’Brien & Associates but lost the job the following month. At the beginning of July 1983 he trained with the AMP Society and began working on a commission basis selling insurance products. He continued with AMP until the end of March 1984. Another period of unemployment followed which continued until the middle of August 1984. During that period the family relied on Centrelink family payments, the applicant’s child endowment money and assistance from the applicant’s parents.
In August 1984, the bankrupt obtained a commission only position with Colonial Mutual Insurance where he remained until June 1986. The bankrupt’s position entitled him to “staff rates” at the State Bank and the couple took the opportunity to re-finance the mortgage on the Kogarah property. During this time the bankrupt spent most of his income on entertaining himself, drinking, smoking and on long client lunches. When the bankrupt ceased employment with Colonial Mutual Insurance, he commenced work as a salesman with Kerr Bros, a trading company. The position required him to travel overseas to New Zealand and the South Pacific for one or two weeks every month.
The applicant rejoined the paid workforce as a casual secretary in 1985. She was paid “cash in hand” and received approximately $100 a week. Her two daughters were placed in pre-school paid for from the applicant’s income. When the children started school in 1987 and 1988 respectively, the applicant increased her work hours. Her income was used to pay family living expenses and mortgage repayments.
The couple sold the Kogarah property in 1988 for $123,000. Of that amount, $38,000 was required to discharge the mortgage and $3,500 was required to pay the agent’s commission. At the same time the couple sold the Kogarah property they purchased, also as joint tenants, a property at 15 Peake Parade, Peakhurst for $127,000. To pay the purchase price the couple borrowed $45,000 and the balance of the purchase price came from the proceeds of the sale of the Kogarah property.
At the end of June 1988, the bankrupt resigned from Kerr Bros and commenced working for his father as an import/export agent. The bankrupt’s father had established a business in France. From the couple’s home, the bankrupt ran the New Zealand and the South Pacific area’s operations of the business. The applicant did all the secretarial work for the business outside her usual working hours. In conducting the business the bankrupt incurred substantial expenses, generally from the business travel in the region. The expenses were debited to the bankrupt’s Mastercard which was paid off monthly by the applicant. The applicant also paid for other expenses of the business. A printer, computer, desk and fax machine were paid for by the applicant on her Grace Bros card. Similarly, the telephone bills were paid for by the applicant.
Shortly before the birth of the couple’s third child on 12 December 1989, the applicant ceased paid employment. She continued, however, to perform secretarial work for the bankrupt’s business. By this stage, the bankrupt had lost interest in the business. The applicant was unaware of how much, if any, income the bankrupt made from the business. However she believed that the income generated by the business was small, if any.
In April 1991, the couple and their children moved to France so that the bankrupt could work in his father’s business there. The Peakhurst property was rented out for $200 a week. The rent was collected by the applicant’s father and was used to pay the mortgage. While in France, the family stayed with friends. The applicant was not granted a visa which allowed her to work so her time was spent assisting in the business and educating the children. The bankrupt’s father’s business began to decline in October 1991. However, the bankrupt continued to live a lifestyle that was beyond the family’s means. In early 1992, the applicant decided that the situation was not working out financially and in March 1992 she returned to Australia with the children. The bankrupt promised to send money from France to support them until he was in a position financially for them to return to France.
On return to Sydney, the applicant had no money, job or car. The bankrupt did not send any money from France as promised. The applicant and the children survived on Centrelink payments and assistance from her parents until the applicant secured a position with the Department of Education. The bankrupt returned to Australia in August 1992. After his return he was unemployed for a year, during which time the applicant supported the family with her salary from the Department of Education.
Around October 1993, the bankrupt obtained a position as a manager with Westpac Banking Corporation in North Sydney. The couple refinanced the mortgage on the Peakhurst property to take advantage of staff rates with Westpac and borrowed an additional $20,000 to add a further bedroom to the house. The bankrupt left his position with Westpac in April 1995 because he was suffering from stress. He began to receive workers’ compensation payments of approximately $300 a week. The bankrupt used the couple’s funds to pursue a lump sum pay out from Westpac and in 1998 received a payment of $20,000. The applicant later discovered that during this period the bankrupt cashed in most of his superannuation, on the grounds of hardship, and as a result received approximately $8,000. The applicant was unsure how the bankrupt spent this money but she was certain that it was not used to help satisfy the mortgage payments or the couple’s other debts.
With the lump sum payment, the bankrupt paid to train to become an accredited contract Optus cable installation technician. With the balance of the moneys, he fitted out a leased vehicle with the necessary tools and equipment and opened a mobile phone account. Neither the applicant nor the couple’s children received any of the bankrupt’s pay out from Westpac, nor was any of the money applied to reduce the couple’s mortgage or other debts.
The business was unsuccessful and the bankrupt’s drinking increased. The applicant decided, in September 1998, to separate from the bankrupt with the aim of providing a secure future for the couple’s children. At that time the mortgage was many months in arrears and the applicant’s wages were only sufficient to cover household expenses. The applicant persuaded the bankrupt that they needed to sell the Peakhurst property.
The Peakhurst property was sold in October 1999 for $330,000. After the mortgage was discharged and the legal and real estate agent’s commission were paid, the amount received from the sale was $262,774. The applicant approached the bankrupt to determine how the purchase price should be divided between the couple. The bankrupt then told the applicant words to the following effect:
“Take whatever money is necessary to purchase something for you and the children to live in. I know that you will be fair. I just need enough to pay out the lease agreement on the commercial van and my debts. Remember, too, that I am still in partnership with my father. Agency Service [his father’s business] remains on the title of four properties in Le Havre. Eventually, they will form part of my father’s estate and they will be worth a lot of money.”
As a result the purchase moneys and other property of the marriage was then divided as follows. The furniture and household goods were divided equally. The bankrupt kept his van and tools, which were valued at about $30,000 and the applicant kept the family car, a 1985 Ford Laser valued at about $1,800. The proceeds of the sale of the Peakhurst property were divided such that the bankrupt received $50,000 and the applicant received the remainder. With this money the applicant purchased, also in October 1999, a townhouse at 3/91-99 Villiers Road, Padstow Heights for $265,000. The applicant raised the purchase price by using the proceeds from the sale of the Peakhurst property, by borrowing $21,000 from St George Bank and a gift of $40,000 from her parents.
A file note produced by the applicant’s previous solicitor, who handled the conveyancing of the Peakhurst property says:
“Michael,
After settlement could you please give Mr Lopatinsky a call on 0414 182 641 as he will want his cheque coming from the settlement. This is a matrimonial split and we are acting for the wife. He is a courier and may be able to make some arrangement to meet you somewhere in the city if you can’t get back to our office by 5 P.M
Thanks
Lyn”The file note is undated but appears to have been signed by the bankrupt on receipt of a cheque for $50,000. It was not suggested by the Trustee that at the time the proceeds of the sale were divided, the bankrupt was insolvent or that the division of the money in unequal portions was designed to avoid any of the bankrupt’s existing or foreseeable obligations to creditors. Following the separation neither the applicant nor her children have received any financial support from the bankrupt. The applicant works full time for the Department of Education and receives a single parent pension for her youngest daughter.
On 3 April 2001 the bankrupt was made bankrupt as a result of the filing and acceptance of a debtors petition by the official receiver. On 30 April 2001 the applicant applied to the Family Court of Australia for the dissolution of her marriage to the bankrupt. The application form to the Family Court is in evidence, and it indicates the application was due to be heard on 31 July 2001. While there is no direct evidence that the marriage was dissolved, the applicant has consistently referred to the bankrupt as her “former husband” and this description has not been put in issue. I infer that the marriage was dissolved on or about 31 July 2001.
As noted earlier, much of the applicant’s evidence was not challenged on cross-examination. However, two aspects of her account of the couple’s financial history were put in issue. First, to the extent that the applicant’s evidence indicated that she had personally paid a significant proportion of the mortgage repayments on either the Kogarah or Peakhurst properties, the Trustee sought to demonstrate that the applicant did not have the capacity to do so.
On this issue, the Trustee tendered the applicant’s tax returns for the relevant period which showed that the applicant’s taxable income in 1983 was $3,680, in 1993 was $408, in 1996 was $10,368, in 1997 was $13,686, the amount in 1998 is not entirely legible but appears to be in the vicinity of $14,000, in 1999 was $19,885 and in 2000 was $22,705. When asked about the period between 1983 and the financial year ending 1993, the applicant said that she was either not in paid employment at that time or when she was employed on a part time basis she was paid in cash. The applicant explained, however, that in addition to the money she received for part-time secretarial work, she also received social security, child endowment and financial support form her parents which took a variety of forms including the provision of food and the payment of bills. She was asked whether, when the couple purchased the Peakhurst property in 1988, it was her understanding that the bankrupt would bear the main burden of paying the mortgage. She responded that she expected that he would contribute his half share of paying for the mortgage and that her half share would come from child endowment, Social Security payments, part time work and help from her parents including cash advances from them to help cover the mortgage. While the evidence adduced by the Trustee casts some doubt on the evidence of the applicant about her contribution to the mortgage repayments, I am not affirmatively satisfied that she did not make such payments. A basis for not accepting her evidence has not been made out.
The second issue on which the Trustee challenged the evidence of the applicant was that, to the extent that her evidence was intended to indicate that the bankrupt, at all times, held his interest in the Kogarah or Peakhurst property on trust for the applicant, her understanding of the couple’s respective legal and equitable interests in both properties was otherwise. It is to be recalled that the applicant and the bankrupt were registered as joint tenants of both the Kogarah property and the Peakhurst property. Counsel for the Trustee cross-examined the applicant about her understanding of the interest she had in the Peakhurst property.
Counsel for the Trustee also cross-examined the applicant about a property at Blackheath which had been purchased in 1985 and registered in the applicant’s and her sister’s names. They were registered as tenants in common. The applicant was asked whether she understood what the consequences were of being registered as tenants in common. She replied that her solicitor would have explained it to her at the time. She was also asked whether it was her election to be registered as tenants in common. Although the applicant could not recall precisely, her evidence suggested that whatever choice was made about how the sister’s interest should be registered on the title would have been taken on her solicitor’s advice. The applicant further explained that the Blackheath property was, in practice, her parent’s holiday house and that neither she nor her sister considered themselves as owners except on paper.
While some of the answers given by the applicant in cross examination could be viewed as showing a clear understanding of her interest as a joint tenant, some of her other answers were to the opposite effect. In my view, the applicant did not have a clear appreciation of the nature of the interest she held in the property.
The legislative framework
Sections 139ZQ and 139ZS of the Act relevantly provide:
“139ZQ(1) If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver:
(a)if the Official Trustee is the trustee – on the initiative of the Official Receiver; or
(b)if a registered trustee is the trustee – on application by the trustee;
may require the person, by written notice given to the person, to pay to the trustee an amount equal to the money or the value of the property received.
(2)The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee.
(3) The notice may:
(a)require the amount to be paid at a time or within a period set out in the notice; or
(b)require the amount to be paid at such times, and in such instalments, as set out in the notice.
…
139ZS(1) If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice.
A notice that has been set aside is taken not to have been given.”
Section 120 of the Act relevantly provides:
“(1) 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 transfer took place in the period beginning 5 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.
…
(4) 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.
(5)For the purposes of subsections (1) and (4), the following have no value as consideration:
(a)the fact that the transferee is related to the transferor;
(b)if the transferee is the spouse or de facto spouse of the transferor - the transferee making a deed in favour of the transferor;
(c)the transferee’s promise to marry, or to become the de facto spouse of, the transferor;
(d)the transferee’s love or affection for the transferor.
…
(7) For the purposes of this section:
(a) transfer of property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer.”
I turn now to consider the issues.
The issues
It was common ground that once the applicant put in issue the notice given under s 139ZQ by making an application under s 139ZS, and also adduced some evidence to show that there was a real issue to be decided in the proceedings, it was appropriate to deal with the controversy between the parties by determining the application under s 120. That is, the rights of the Trustee and any obligations of the applicant were to be determined by reference to the provisions of s 120. This approach is supported by the judgment of the Full Court in Halse v Norton (1997) 76 FCR 389 at 398-399. In the result two issues emerged:
(i)Whether the applicant's interest in the Peakhurst property was such that there had been no “transfer of property” on which s 120 could operate.
(ii)Assuming there had been a transfer of property, had the applicant given no consideration or given consideration of less than the market value of the property.
Resolution of the issues
It is convenient to deal with the second issue first. It appeared to be common ground that the circumstances of this case where the property transferred is a sum of money (the $81,307), there is no issue about “market value” of the property. The issue is whether the applicant provided consideration for the transfer and if so, was its value less than the market value of the transferred property. It was common ground that the Trustee bore the onus of proving either that no consideration was provided or that the value of the consideration provided was worth less than $81,307. The Trustee submitted, however, that if the Court was satisfied that some consideration was given by the applicant, he only needed to satisfy the Court that it was worth less that the market value and was not required to prove the actual value of the consideration before the transfer could be avoided. The Trustee submitted that the rights and obligations created by s 120(1) and s 120(4) are distinct and it is not necessary for the Court to determine the question raised by s 120(4), or even at the same time as, the question raised by s 120(1). This is consistent with the approach adopted by Merkel J in Victorian Producers’ Co-Operative Co Ltd v Kenneth [1999] FCA 1488 at [23]. The Trustee also submitted that once the threshold question of whether there was a transfer at undervalue has been answered in favour of a trustee, the transferee bears the onus of proving the value of the consideration for the purposes of s 120(4).
The applicant submitted that she has provided ample consideration for the transfer of the money through the contribution she made to the marriage and the bringing up of the children. The evidence relating to the history of the marriage was said to demonstrate that the applicant, over an extended period of homemaking, working inside and outside the home and paying the mortgage had provided consideration, the value of which would far exceed the market value of the amount she received. The applicant relied on the recent decision of Tamberlin J in Mateo v Official Trustee in Bankruptcy 188 ALR 667 at 673-674 where in similar circumstances his Honour held:
“Evidence has been given by Ms Mateo in relation to extensive unremunerated work carried out by her in the home for the material benefit of herself and her husband during the approximate twenty-seven years that she and her husband lived together and the raising of the children. She has also given evidence as to mortgage payments having been met by her and rates having been paid by her over a period of nineteen months, which together amount to $11,037. I accept that these payments were made by her.
…
On the evidence, I am not persuaded that, taking into account the wife’s contribution and work in the joint enterprise, comprised by the marriage and bringing up of a family, that the consideration for the transfer of the husband’s interest in the property, was of less value than the market value of the interest transferred to her: cf Re Sabri; Ex parte Brien v Sabri (1997) 137 FLR 165 at 181-182. If account is taken of the duration of the marriage and the number of hours which she said she worked in caring for the children and in and around the home over the twenty-seven years of marriage for approximately thirty-five hours per week, I am not satisfied that the consideration given by her was of less value than the market value of the property. Indeed, even allowing a minimal amount per hour for the amount of work carried out by her, the value of the work would far exceed the fair net market value of the interest she received after taking into account the outstanding debts and charges.”In Re Sabri; Ex parte Brien v Sabri (1997) 137 FLR 165 (referred to by Tamberlin J in the above passage) Chisholm J was confronted with a similar factual situation. In that case, the husband transferred to his wife, pursuant to property settlement orders made in the Family Court upon the breakdown of the marriage, his entire interest in a property previously held in his name alone. In return his wife transferred to him $80,000, an amount significantly less than the value of the property. Within 6 months of the orders being made and given effect to, an order was made sequestrating the husband’s estate. The trustee in bankruptcy commenced proceedings to recover the property. Although ultimately the matter was decided on different grounds, one issue Chisholm J addressed was whether the transfer of the property to the wife was void as against the trustee by operation of s 120. At that time, s 120 was in a different form and required Chisholm J to consider whether the transfer was made in good faith and for valuable consideration. His Honour found (at 173):
“In the present case, the wife paid $80,000; the transfer formed part of an overall readjustment of the parties’ property; and it was ordered by a court, which had an obligation to apply the provisions of the Act. It is quite wrong, in my view, to say that in the present case there was inadequate consideration because the property was worth more than $80,000. That was not truly the price paid for the property. Both the payment of $80,000 and the transfer of the property formed part of what the parties proposed, and the court accepted, to be a just and equitable resolution of their financial affairs. It has been held that a release from an obligation to pay future maintenance may be valuable consideration: Re Pope; Ex parte Dicksee [1908] 2 KB 169 at 172-173; Commissioners of Inland Revenue v Gribble [1913] 3 KB 212 at 215; Re Abbott; Ex parte Trustee of Bankruptcy v Abbott [1982] 3 All ER 181, cited in McDonald Henry and Meek, Australian Bankruptcy Law and Practice, 5th Ed, Looseleaf Service, par [652]. I do not see how it can be argued that a transfer in these circumstances is not in good faith and for valuable consideration within the meaning of s 120.”
The Trustee sought to distinguish Mateo on the basis that in that case, as in Re Sabri, the relevant transfer of property was made pursuant to consent orders of the Family Court. The significance of this fact was said to be that the real consideration in Mateo, was the compromise by Ms Mateo of her cause of action against her husband. Such a compromise, it was contended, was akin to a “forbearance to sue” and as such the chose in action which has been given up or compromised could be attributed a likely value.
The Trustee submitted that as no formal agreement had been entered into by the applicant and the bankrupt and as no orders had been made in the Family Court, the applicant was still able to commence proceedings against the bankrupt for property orders pursuant to ss 78 and 79 of the Family Law Act 1975 (Cth). As this had not happened, the applicant has not compromised any claim she might have against the bankrupt. Thus the applicant had not provided any consideration for the transfer analogous to that provided in Mateo and in Re Sabri. The Trustee further submitted that it was not to the point that the applicant might, on the evidence, have given adequate consideration if she had entered into an agreement to forbear to sue. In support of that proposition reference was made to the judgment of Austin J in Sutherland v Brien [1999] NSWSC at [21] where his Honour said that s 120(1)(b) “requires the court to identify the consideration actually given by the transferee, rather than the consideration which might have been given but was not in fact given.”
The Trustee also submitted that the applicant’s contribution to the marriage, to the extent that it can be regarded as consideration, was not provided as consideration for the transfer of $81,307. The applicant’s efforts in raising the children, attending to the household, contributing financially and the like were not provided for the transfer of $81,307 but for other reasons which arose before the transfer was effected. The Trustee contended that past consideration cannot be characterised as consideration for the transfer: see McVeigh v Zanella [2000] FCA 1890 at [37]. In making this submission, the Trustee raised a question about whether the agreement or arrangement between the applicant and the bankrupt involved a forbearance to sue. While it was not a matter raised directly by the applicant, it appears necessary to address the question.
In my opinion the approach of the Trustee to the judgment of Tamberlin J in Mateo is too narrow. It is true that his Honour, like Chisholm J in Re Sabri, attached some importance to the existence of the Family Court orders. However, that is because the fact that the Family Court had given its approval to those orders (and implicitly any consequential transfer of property) provided some support for the contention that the transfer was a fair and equitable one and bona fide. That in turn provided some evidence, or at least support for the contention, that adequate consideration had been provided in exchange for the transfer of property from one party to another. In this case, the applicant does not have the benefit of Family Court orders but that is not, in my opinion, determinative of whether consideration, or adequate consideration for the purposes of s 120, was provided.
The applicant’s evidence, which was largely uncontested, indicates that she provided the initial funds for the couple’s first home, supported the couple financially in the early years, continued to keep the couple afloat financially with her social security payments, financial assistance from her parents and salary from part-time work and provided much of the equipment and secretarial work for the bankrupt’s failed import-export business. She also raised the couple’s children, completed or oversaw extensive renovations on the couple’s first home and attended to other household duties. Meanwhile the bankrupt had difficulty holding down employment and had a propensity to squander funds for his sole benefit. Of some significance is the file note made by the solicitor acting on the conveyance of the Peakhurst property to the effect that the moneys paid to the applicant was to settle matters between the applicant and the bankrupt when their marriage failed. Although no attempt has been made to quantify with precision the value of the applicant’s contribution to the marriage and the matrimonial property, I am satisfied that its value is not less than (and may well have exceeded) the market value of the amount she received in October 1999. At the very least, the Trustee has been unable to demonstrate that it was not.
The transfer was effected as part of a settlement of the rights of the applicant and the bankrupt on the failure of their marriage. In that sense, the amount received by the applicant was consideration for the agreement struck between the applicant and the bankrupt concerning their respective rights and interests in the property they jointly owned and in satisfaction of a claim she might otherwise have against the bankrupt.
It is true that in or about October 1999 there was no express agreement between the applicant and the bankrupt that she would not maintain proceedings under the Family Law Act1975 (Cth) seeking orders concerning property. Indeed it is clear from her evidence that the distribution of the proceeds of the sale of the Peakhurst property arose from the bankrupt volunteering a distribution which did not reflect the respective bare legal interests in the property. However one cannot ignore the context in which this arrangement was arrived at between the bankrupt and the applicant. They had separated and it was not suggested to the applicant in cross examination that the separation was not a bona fide reflection of the state of their relationship and that it had come to an end. I infer that the bankrupt made the offer because he was settling, in a general sense, with his wife following the failure of their marriage in relation to all the matrimonial property. It is to be recalled that the bankrupt told the applicant she could take whatever money was necessary to purchase something for her and the children to live in and that he believed she would be fair. I also infer from these remarks of the bankrupt, having regard to the context in which they were made, that his offer was in recognition of the applicant’s contribution to the family and the property they jointly owned as well as her future needs in raising their children, and an acceptance that a fair distribution of that property would result in her receiving a disproportionately large sum of the proceeds of the sale. The bankrupt was not called to give evidence to suggest the arrangement they reached was for any other purpose or on any other basis. Nor was evidence led to show that there was property in existence in October 1999 in which the bankrupt had an interest which was excluded from the arrangement arrived at between the bankrupt and his wife.
Since October 1999, the applicant has made no application under the Family Law Act1975 (Cth) seeking orders concerning property. The applicant has had and continues to have a right to do so (subject to the time limits in s 44(3) which will shortly curtail the right), and enliven the Family Court of Australia's jurisdiction to make orders under s 79. As Merkel J noted in Victorian Producers’ Co-Operative Co Ltd v Kenneth supra at [14] on the question of whether forbearance does or could be consideration for the purposes of s 120:
“As was stated at para 84.14 of the Explanatory Memorandum to the Bankruptcy Legislation Amendment Bill 1996, which enacted s 120 in its current form:
‘Forbearance to sue has always been regarded at law as good consideration. Such forbearance will, under the Act as proposed to be amended by the Bill, have to be looked at in the light of the likely value of the chose in action.’”
There can be an express or implied agreement to forbear to sue. In addition, an actual forbearance to sue can, after the event, be viewed as consideration. In Wigan v English and Scottish Law Life Assurance Association [1909] 1 Ch 291 Parker J said at 303:
“It seems to me, therefore, that there is no authority against, and great many authorities in favour of, the proposition that in order to have a consideration for a further security there must be an agreement, express or implied, to give time or some further consideration, or else there must be an actual forbearance which ex post facto may become the consideration to support the deed.”
These observations were cited with approval by a Full Court of this Court in The Official Trustee in Bankruptcy v Racovitis (unreported 28 November 1995).
There is a body of case law that settlements of matrimonial causes (in the broadest sense) or forbearance to sue by refraining from prosecuting claims of this character, is good consideration. While the facts in the following cases and the statutory context in which they were decided are not precisely the same as the present, they nonetheless illustrate how these matters can constitute consideration. In Re Pope; Ex parte Dicksee [1908] 2 KB 169 a wife received property under a post-nuptial settlement, executed by the bankrupt. The trial judge found the wife agreed that she would not commence divorce proceedings against her husband which might have resulted in an order for alimony. The husband’s trustee in bankruptcy sought to avoid the transfer under the Bankruptcy Act 1883 (UK). In determining what amounted to consideration under that Act, Cozens-Hardy M.R. said at 173:
“I am unable to adopt the view that there must be either money or physical property given by the purchaser in order to bring the case within the exception. In my opinion the release of a right or the compromise of a claim, not being a merely colourable right or claim, may suffice to constitute a person a “purchaser” within the meaning of s. 47.”
In Re Pope the Court viewed the voluntary settlement of a cause of action or the compromise of a claim as an explicit ‘bargain’.
The settlement of a matrimonial cause as consideration was discussed in a later English authority, Re Abbott(a bankrupt); Ex parte the trustee of the property of the bankrupt v Abbott [1982] 3 All ER 181. In Re Abott the wife petitioned for divorce and sought a maintenance order and a property adjustment order. It appears a property adjustment order was made by consent in the Reading County Court but no maintenance order was made. As a result of the consent order the matrimonial home was sold and the wife received £18,000, and the remainder of the proceeds were divided equally between the wife and husband. The husband’s estate was later sequestrated and the trustee in bankruptcy sought to avoid the transfer. Gibson J, who gave the leading judgment, quoted with approval, a statement of the trial Judge:
“Where there is a genuine bona fide compromise in family matters where the parties are at arms length, the wife is giving up something which can be described as consideration in a commercial sense, she is giving up the rights to pursue her claim…[T]he husband is giving up something and the wife is losing something and it seems to me that is valuable consideration”.
Gibson J characterised (at 185) what the wife provided by way of consideration as “a right to seek from the court the exercise of a discretion in the wife’s favour”. Gibson J thought that it did not matter that the wife had not given up entirely all her rights for relief from the divorce court and she could go back to the court for further maintenance in appropriate circumstances. Re Abbot was referred to with approval in Rima Pty Ltd v Pappas (1986) 160 CLR 133 at 142 though on a broader point. In Pearson, Re: Ex parte Wansley v Pearson (1993) 46 FCR 55, Wilcox J followed Re Pope and concluded (at 65) that when the third party, in this case a wife, has given up a right to relief, a “transfer of that property to the other party constitutes valuable consideration because it derogates from the first party’s legal rights”.
On the approach adopted by Tamberlin J in Mateo, the applicant's rights had a value equal to or exceeding the amount she received, or at the very least, the Trustee has not demonstrated they did not. They are rights she has refrained from asserting in the legal proceedings. By not pursuing the matter under the Family Law Act1975 (Cth) the applicant has provided consideration supporting the transaction in October 1999, which the Trustee now challenges. On this basis the claim made under s 120 fails.
Accordingly the cross-claim of the Trustee should be dismissed and an order made setting aside the notice. It is unnecessary to consider the further issue raised by the applicant, namely that the bankrupt held an interest in the property in trust for her.
I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.
Associate:
Dated: 11 July 2002
Counsel for the Applicant:
L. Aitkin
Solicitor for the Applicant:
TRB Lawyers
Counsel for the Respondent:
P. Walsh
Solicitor for the Respondent:
Sally Nash & Co
Date of Hearing:
11 April 2002
Date of Judgment:
11 July 2002
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