Lynn, Thomas v White, Clyde Peter (As Trustee of the Bankrupt Estate of Kathleen Fay Lynn)
[1997] FCA 1064
•1 OCTOBER 1997
FEDERAL COURT OF AUSTRALIA
BANKRUPTCY - appeal from decision of primary judge to set aside transfer of land by bankrupt - order made under s 120 of the Bankruptcy Act 1966 as amended by Bankruptcy Legislation Amendment Act 1996 - amended section did not apply to the transfer sought to be impugned - whether decision should be set aside - whether new trial would inevitably result in the making of the same order - whether there was sufficient evidence before the primary judge to justify the making of the order.
PRACTICE AND PROCEDURE - appeals - decision at first instance made under s 120 of Bankruptcy Act 1966 as amended by the Bankruptcy Legislation Amendment Act 1996 - amended section did not apply to the transaction in question - whether decision should be set aside - relevant considerations - whether new trial would inevitably result in the making of the same order.
Bankruptcy Act 1966 (Cth) s 5, s 55, s 120, s 120(8), s 121, s 157(1)
Bankruptcy Legislation Amendment Act 1996
Balenzuela v De Gail (1958) 101 CLR 226, applied
Stead v State Government Insurance Office (1986) 161 CLR 141, applied
Barton v Official Receiver (1986) 161 CLR 75, cited
Re Dundas (1933) 35 WALR 70, distinguished
Re Hyams; Official Receiver v Hyams (1971) 19 FLR 232, cited
THOMAS LYNN v CLYDE PETER WHITE (AS TRUSTEE OF THE BANKRUPT ESTATE OF KATHLEEN FAY LYNN)
VG 285 of 1997
WHITLAM, TAMBERLIN & GOLDBERG JJ
MELBOURNE
1 OCTOBER 1997
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 285 of 1997
ON APPEAL FROM A DECISION OF THE HONOURABLE JUSTICE MARSHALL
BETWEEN:
THOMAS LYNN
APPELLANT
AND:
CLYDE PETER WHITE (AS TRUSTEE OF THE BANKRUPT ESTATE OF KATHLEEN FAY LYNN)
RESPONDENT
JUDGES:
WHITLAM, TAMBERLIN & GOLDBERG JJ
DATE OF ORDER:
1 OCTOBER 1997
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
The appeal is dismissed.
The appellant pay the respondent’s costs of the appeal.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 285 of 1997
ON APPEAL FROM A DECISION OF THE HONOURABLE JUSTICE MARSHALL
BETWEEN:
THOMAS LYNN
APPLICANT
AND:
CLYDE PETER WHITE (AS TRUSTEE OF THE BANKRUPT ESTATE OF KATHLEEN FAY LYNN)
RESPONDENT
JUDGES:
WHITLAM, TAMBERLIN & GOLDBERG JJ
DATE:
1 OCTOBER 1997
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
WHITLAM J:
I agree that the application should be dismissed for the reasons given by Goldberg J.
I certify that this is a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam
Associate:
Dated: 14 October 1997
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 285 of 1997
ON APPEAL FROM A DECISION OF THE HONOURABLE JUSTICE MARSHALL
BETWEEN:
THOMAS LYNN
APPLICANT
AND:
CLYDE PETER WHITE (AS TRUSTEE OF THE BANKRUPT ESTATE OF KATHLEEN FAY LYNN)
RESPONDENT
JUDGES:
WHITLAM, TAMBERLIN & GOLDBERG JJ
DATE:
1 OCTOBER 1997
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
TAMBERLIN J:
I agree that the application should be dismissed for the reasons given by Goldberg J.
I certify that this is a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin
Associate:
Dated: 14 October 1997
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 285 of 1997
ON APPEAL FROM A DECISION OF THE HONOURABLE JUSTICE MARSHALL
BETWEEN:
THOMAS LYNN
APPLICANT
AND:
CLYDE PETER WHITE (AS TRUSTEE OF THE BANKRUPT ESTATE OF KATHLEEN FAY LYNN)
RESPONDENT
JUDGES:
WHITLAM, TAMBERLIN & GOLDBERG JJ
DATE:
1 OCTOBER 1997
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
GOLDBERG J:
On 5 June 1975 Thomas Lynn, the appellant, and Kathleen Fay Lynn, who are husband and wife, became registered proprietors of an estate in fee simple in all that piece of land being the whole of the land more particularly described in Certificate of Title volume 8869 folio 695 being the premises known as 9 Lower Dandenong Road, Mentone (“the land”). By instrument of transfer dated 29 April 1996 the appellant and Mrs Lynn purported to transfer all their estate and interest in the land to the appellant, the consideration for the transfer being expressed to be “Natural love and affection”. As a consequence of this transfer the appellant became registered as sole proprietor of the land on 1 May 1996.
Mrs Lynn had been involved as a plaintiff in a proceeding issued in the County Court of Melbourne and on 10 May 1996 a judgment was entered in the proceeding in terms that her claim be dismissed and that she pay the defendant’s costs including reserved costs on Scale “D”. On 15 February 1996 Mrs Lynn swore an affidavit in which she sought an order that certain costs in that proceeding be paid by instalments. I proceed on the basis that that affidavit related to an interim order for costs in the proceeding ordered prior to the final judgment.
On 24 June 1996 Mrs Lynn presented a debtor’s petition under s 55 of the Bankruptcy Act 1966 (Cth) (“the Act”) which was accepted by the Registrar on the same day. Accordingly Mrs Lynn became bankrupt by virtue of the presentation of the petition. On 24 June 1996 Mrs Lynn completed and verified a Statement of Affairs which disclosed no assets and no ability to contribute to any of the debts of her estate. There was a reference in the Statement of Affairs to $200,000.00 owed by Mr G Newson, the debt being said to be money invested with an accountant, but that debt was apparently the subject of the County Court proceeding brought by Mrs Lynn which was dismissed. On 12 December 1996 a meeting of the creditors of Mrs Lynn was held at which the creditors passed a resolution that Mr Clyde Peter White, Registered Trustee, be appointed trustee of the bankrupt estate of Mrs Lynn pursuant to s 157(1) of the Act.
On 3 April 1997 the trustee filed an application in the Court in which he sought declarations against the appellant that the transfer of Mrs Lynn’s interest in the land to the appellant was void as against the trustee pursuant to s 120, or alternatively s 121, of the Act and a declaration that the trustee was entitled to be registered as the proprietor of a one half interest, as tenant in common, with the appellant of the land. Consequential orders were also sought in the application. The application was supported by an affidavit of the trustee who verified his claim and exhibited the relevant documents. The appellant gave notice of intention to appear at the hearing of the application in the form of a document entitled “Notice of Intention of Debtor to appear at Hearing of Petition” which was filed on 13 May 1997. In his notice the appellant specified grounds of opposition which asserted, in substance, that his wife had been robbed of her life savings, that she had brought court proceedings which she had been told that she would win and she had lost. The notice asserted that the case was a miscarriage of justice and stated that as a result of the court case the appellant decided “to take her (his wife) off the ownership of the House”.
The application came on for hearing before Marshall J on 28 May 1997 at which hearing the appellant and Mrs Lynn appeared in person. Counsel for the trustee referred the learned primary judge to the affidavit of the trustee in which he exhibited the relevant documents and formally proved the trustee’s case. The appellant and Mrs Lynn were then asked by the learned primary judge what they wished to say and they handed his Honour documents from a number of lawyers which related to the County Court proceedings. The learned primary judge then asked the appellant:
“ ... what do you have to say as to the allegation of Mr Miller that the transfer of property here falls under section 120 of the Bankruptcy Act in that it took place in a period beginning five years before the commencement of the bankruptcy? There appears to be no issue that that is the case? Will you agree with that?”
The appellant responded that he was not a lawyer and, in substance, he and then Mrs Lynn complained about the conduct of their lawyers and the manner in which the proceeding in the County Court had been conducted.
The learned primary judge then said to the appellant and Mrs Lynn:
“You can make whatever submission you wish to make that is relevant to this case”.
The appellant and Mrs Lynn then made a number of submissions.
The learned primary judge, in the course of argument, said to Mrs Lynn:
“Mrs Lynn, the problem I have is that section 120 of the Bankruptcy Act compels me to in effect cancel the transaction of the transfer of your part of the house to your husband, in circumstances where the transfer took place in a period beginning five years before the commencement of the bankruptcy. The transfer in this case took place two months before, and the other aspect of it that makes it difficult for you is that there was no consideration for the property or consideration of less than the market value of the property, because as I understand it from what I have been told, and please correct me and your opponent if this is wrong, the only - no money in fact passed between you in respect to the transfer of the property; is that right? You did not pay. No money passed between you and your husband.”
The appellant then asked the learned primary judge whether he meant that no money passed between his wife and himself and his Honour said that was correct and Mrs Lynn responded “no” and the appellant said that his wife had already got most of his money for the solicitors.
The appellant and Mrs Lynn then referred to what they perceived to be an injustice in the County Court proceeding.
The learned primary judge then delivered judgment, and made orders, in the following terms:
“In this matter the court declares that the transfer of land dated 29 April 1996 and registered by the Office of Titles, Victoria on 1 May 1996, wherein the bankrupt purported to transfer her equal undivided interest as joint proprietor in the land described in Certificate of Title volume 8869 folio 695 to the respondent is void against the applicant pursuant to the provisions of section 120 of the Bankruptcy Act 1996.
The court also declares that the applicant is entitled to be registered as a proprietor of one half interest as tenant in common with the respondent of land described in Certificate of Title volume 8869 folio 695.
The formal order of the Court which was made on 28 May 1997 was in the following terms:
“THE COURT:
1.Declares that the Transfer of Land dated 29 April 1996 and registered by the Office of Titles Victoria on 1 May, 1996 whereby the bankrupt purported to transfer her equal undivided interest as joint proprietor in the land described in Certificate of Title Volume 8869 Folio 695 to the Respondent is void as against the Applicant pursuant to the provisions of section 120 of the Bankruptcy Act 1966 (Cth).
2.Declares that the Applicant is entitled to be registered as the proprietor of a one‑half interest as tenant in common with the Respondent of the land described in Certificate of Title Volume 8869 Folio 695.
3.Orders that the Respondent pay the Applicant’s costs of this Application.”
The appellant lodged a notice of appeal on 18 June 1997 which disclosed no proper grounds of appeal. On 5 August 1997 the appellant lodged an amended notice of appeal in which he specified the following grounds:
“(i)The order of the judge was not made under S.120 of the Bankruptcy Act but was purportedly made under S.121 of the Bankruptcy Act.
(ii)Alternatively, if the order was made under S.120 of the Bankruptcy Act it was made under the section of the Act as was amended by Act No. 114 of 1996 which was not operative at the time of the transaction the subject of the order.
(iii)There was insufficient evidence to justify the making of the orders.”
In my opinion there is no merit in the appeal and I would dismiss it. It is true that in the course of argument the learned primary judge referred to the fact that s 120 of the Act covered a transfer of property which took place in a period beginning five years before the commencement of the bankruptcy. By referring to the five year period it would appear that his Honour was referring to the form of s 120 of the Act which was enacted by the Bankruptcy Legislation Amendment Act 1996 (No 44 of 1996) (“the amending Act”), which amended various provisions of various Acts. In particular s 120 of the Act was repealed and replaced by a new s 120 which, in general terms, extended the relation back period from two years to five years and made other amendments. By virtue of s 2 of the amending Act the substituted s 120 came into operation on 16 December 1996 and item 457 of Schedule 1 to that Act provided that the new s 120 applied to bankruptcies for which the date of the bankruptcy is on or after 16 December 1996.
Thus, at the date of the impugned transfer, namely 29 April 1996, the amending Act had not come into operation and, in particular, s 120 of the Act as it existed prior to the coming into operation of the amending Act applied to bankruptcies for which the date of the bankruptcy was prior to 16 December 1996. As at 29 April 1996 s 120(1) was in the following form:
“(1) A settlement of property, whether made before or after the commencement of this Act, not being:
(a)a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or
(b)a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor;
is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 2 years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy.”
On the evidence before the learned primary judge none of the other provisions in s 120 as it existed on 29 April 1996 were relevant.
It can therefore be seen that the transfer occurred within two years before the commencement of the bankruptcy of Mrs Lynn on 24 June 1996 and that therefore the trustee was entitled to a declaration under s 120 as it existed at that time declaring that the transfer was void as against him. Putting the matter another way if the learned primary judge had referred to a transfer of property falling under s 120 of the Act which took place within the period two years before the commencement of the bankruptcy he was bound to have reached the same conclusion. In fact the declaration he made was correct as a matter of law because the trustee was entitled to such a declaration on the undisputed evidence before the learned primary judge pursuant to s 120 of the Act as it existed on 29 April 1996.
The first ground of appeal is that the order of the learned primary judge was not made under s 120 of the Act but was purportedly made under s 121 of the Act. In my opinion there is no evidence or support for that ground. There is no reference to s 121 of the Act in the transcript of proceedings and his Honour never referred to that section. His Honour’s pronouncement of his judgment and orders and the actual order of the Court referred to s 120 of the Act. If there was any misunderstanding of the learned primary judge as to the form of s 120 under which he was considering the application it was that he referred to the 1996 Amendment which came into operation after the date of the impugned transfer. However, if his Honour had considered the form of s 120 of the Act as it existed on the date of the impugned transfer he was bound to have reached the same conclusion as he did and make the same declaration as he did. The evidence before him was clear and uncontested and justified the making of the declarations and orders which he made. No injustice or miscarriage of justice has occurred because of his Honour’s apparent reference to the amended s 120 not yet in operation at the relevant time. In my view a new trial would inevitably result in the making of the same order (cf Balenzuela v De Gail (1958) 101 CLR 226, 236; Stead v State Government Insurance Office (1986) 161 CLR 141, 147).
All the elements required to enliven s 120 in the form in which it existed as at 24 June 1996 were made out. The instrument of transfer was a settlement of property as it was a disposition of property: s 5 and s 120(8) of the Act; Re Pahoff; Ex parte Ogilvie (1961) 20 ABC 17, 19; Re Kastropil; Ex parte Official Trustee in Bankruptcy v Kastropil (1989) 33 FCR 135, 141 ‑ 142. The transfer occurred within two years before 24 June 1996 and did not come within either of sub‑paragraphs (a) or (b) of s 120(1), that is to say it was not made before and in consideration of marriage; it was not made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; and it was not a settlement made on or for the appellant of property that has accrued to Mrs Lynn after marriage in the right of the appellant. A transfer in favour of a purchaser in good faith and for valuable consideration requires both elements of good faith and valuable consideration to be established: Barton v Official Receiver (1986) 161 CLR 75, 79. Valuable consideration does not have to be adequate or equal consideration but it must be real and substantial and not merely nominal, trivial or colourable: Barton v Official Receiver (supra, 86), Century 21 (South Pacific) Pty Ltd (In Liq) v Century 21 Real Estate Corporation (1996) 135 ALR 687, 695. Natural love and affection does not qualify in these circumstances as valuable consideration. I do not consider that the decision in Re Dundas (1933) 35 WALR 70 requires me to reach a different conclusion as there was evidence in that case from which the Court could imply an agreement to forbear to sue.
It was suggested in submissions by Mr Mitchell who appeared for the appellant that the appellant had lent money to Mrs Lynn to cover the costs of the County Court proceedings and that she was obliged to repay that money. However there was no evidence of this before the learned primary judge nor was there any evidence of any forbearance to sue by the appellant being the consideration for the transfer: cf Re Hyams; Official Receiver v Hyams (1971) 19 FLR 232, 255 - 256. Indeed the contents of the notice of intention to appear are inconsistent with the suggestion that there was an agreement or an allegation to repay the amounts paid by the appellants as legal costs or a forbearance to sue: cf Re Hyams (supra).
It is therefore not strictly necessary for the trustee to demonstrate lack of good faith but I am satisfied that the transfer was not made in good faith having regard to the fact that it occurred after the interim costs order was made in the County Court against the appellant’s wife. The appellant was aware of that costs order and it appears from his notice of intention to appear that it was because of the court case that the transfer occurred. Mr Mitchell submitted that the Statement of Assets and Liabilities did not bear upon the issue whether Mrs Lynn was unable to pay her debts on 29 April as it was not signed until 24 June 1996. He submitted that there was no evidence that she was unable to pay her debts on 29 April 1996. He submitted that the request in February 1996 to pay the interim costs by instalments did not require the conclusion that she was unable to pay her debts. That may be so but taken in conjunction with the contents of the appellant’s notice of intention to appear I am satisfied there was evidence from which the learned primary judge was entitled to infer that on 29 April 1996 Mrs Lynn was unable to pay her debts and that the appellant knew this fact and that by making the transfer he was defeating or delaying Mrs Lynn’s creditors.
I should also say that the fact that the land was purchased jointly in 1975 and the fact that the consideration in the transfer was expressed to be “Natural love and affection” is sufficient to displace or preclude any suggestion or submission that the transfer was made on or for the appellant of property that had accrued to Mrs Lynn after their marriage in the right of the appellant.
In the course of the hearing of this appeal the appellant submitted in substance that he had not been given an opportunity by the learned primary judge to present his case. However I am satisfied on a close reading of the transcript of the hearing that the appellant and his wife were given a fair hearing and every opportunity to say whatever they wanted to say that was relevant to the case.
I would dismiss the appeal.
I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg
Associate:
Dated: 14 October 1997
Counsel for the Appellant: Mr R G Mitchell Solicitor for the Appellant: Consumer Credit Legal Service Inc Counsel for the Respondent: R Randall Solicitor for the Respondent: Swersky & Velos Date of Hearing: 1 October 1997 Date of Judgment: 1 October 1997
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