Lyons v Weston as trustee of the Estate of Lyons

FEDERAL CIRCUIT COURT OF AUSTRALIA

LYONS & ANOR v WESTON AS TRUSTEE OF THE ESTATE OF LYONS & ANOR

[2019] FCCA 477

Catchwords:
BANKRUPTCY – Administration of property – Contribution of bankrupt and recovery of property – Recovery of property from party to transaction where void against trustee – Notice.

BANKRUPTCY – Administration of property – Effect of bankruptcy on antecedent transactions – Undervalued transactions and settlements – Other matters.

BANKRUPTCY – Administration of property – Effect of bankruptcy on antecedent transactions – Transfers to defeat creditors and fraudulent dispositions – Transfer or disposition of property.

Legislation:

Bankruptcy Act 1966, ss.120(1), 121(1), 121(4), 139ZQ(1), 139ZQ(2), 139ZS

Abeyratne v Latour [2009] FMCA 688
Anscor Pty Ltd v Clout (Trustee) 135 FCR 469
Camm v Linke Nominees Pty Ltd (2010) 190 FCR 193
Halse v Norton (1997) 76 FCR 389
Re Pearson; Ex parte Wansley v Pearson (1993) 46 FCR 55

First Applicant:

DANIEL LYONS

Second Applicant:

BRADLEY JAMES LYONS

First Respondent:

PAUL GERARD WESTON AS TRUSTEE OF THE ESTATE OF TONY CHARLES LYONS

Second Respondent:

OFFICIAL RECEIVER

File Number:

BRG 116 of 2016

Judgment of:

Judge Jarrett

Hearing date:

1 September 2016

Date of Last Submission:

1 September 2016

Delivered at:

Brisbane

Delivered on:

28 February 2019

REPRESENTATION

Counsel for the Applicants:

Mr Shaw

Solicitors for the Applicants:

CLO Lawyers Pty Ltd

Counsel for the Respondents:

Mr Cochrane

Solicitors for the Respondents:

Owen Hodge Lawyers

ORDERS

Pursuant to s.139ZS of the Bankruptcy Act 1966 (Cth) the notice to the applicants pursuant to s.139ZQ(1) of the Bankruptcy Act dated 17 September, 2015 be set aside.
Subject to any submissions from either party to be made in writing within seven (7) days of the delivery of this judgment, direct that:
(a)by the date no more than twenty-one (21) days after the delivery of these orders, any application for costs be notified by one party to the other by the filing and service of written submissions specifying:
(i)the precise orders for costs sought and any alternatives;
(ii)the argument in support of each order; and
(iii)whether that party is desirous of any oral hearing of the costs issue; and
(b)by the date no more than forty-two (42) days after the delivery of these orders, the respondent to any such application shall file and serve written submissions specifying:
(i)the precise orders sought by the respondent;
(ii)the argument in support of the response; and
(iii)whether that party is desirous of any oral hearing of the costs issue.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

BRG 116 of 2016

DANIEL LYONS

First Applicant

BRADLEY JAMES LYONS

Second Applicant

And

PAUL GERARD WESTON AS TRUSTEE OF THE ESTATE OF TONY CHARLES LYONS

First Respondent

OFFICIAL RECEIVER

Second Respondent

REASONS FOR JUDGMENT

By s.139ZQ(1) of the Bankruptcy Act 1966 (Cth) the Official Receiver may give a notice under that subsection requiring a person who has received any property as a result of a transaction that is void against the trustee of the estate of a bankrupt, to pay to the trustee an amount equal to the value of the property received by the transaction.
Section 139ZS of the Bankruptcy Act provides that a person to whom a notice has been given under s.139ZQ(1) may apply to the Court which, if satisfied that, in effect s.139ZQ(1) does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, may make an order setting aside the notice.
On or about 15 January, 2016 the applicants became aware of a s.139ZQ(1) notice issued by the second respondent in respect of the transfer to them of certain real estate situated at 7 Belah Court Withcott, Queensland by their mother and father, Tony and Julie Lyons on 4 July, 2013. Mr Lyons had become bankrupt on 5 June, 2014. The first respondent is his trustee in bankruptcy.
The applicants apply to set aside the s.139ZQ(1) notice on the basis that Subdivision J of Division 4B, Part VI of the Bankruptcy Act does not apply to them. The first respondent opposes the application and cross-claims for a declaration that the relevant transfer is void as against the first respondent, or alternatively and order that the applicants pay him $63,214.70. The first respondent seeks a number of other orders consequential upon a declaration that the relevant transaction was void.

Some background facts

Tony Lyons has been a truck driver throughout his working life. Mr Lyons Snr carried on a transport business using a company called Jadesha Pty Ltd. He and Mrs Lyons were directors of that company.
Mr and Mrs Lyons Snr became the registered proprietors of the Withcott home in March, 2003. The evidence demonstrates that the home is a four bedroom brick veneer residence on approximately 3000m² of land. They have lived there since they purchased that property and continue to do so.
On 4 November, 2010 ACM Group obtained judgment against Mr Lyons for $16,972.01.
In 2010 Mr Lyons Snr was found to have a brain tumour that affected his health in a serious way. He was scheduled to have surgery to remove it early in 2011 but the general chaos caused by the flooding in south east Queensland in January, 2011 saw that opportunity missed. The tumour and its effects caused Mr Lyons Snr and his family considerable difficulty.
In late 2012 Mr Lyons suffered a significant heart attack that was not diagnosed for some days. He was hospitalised in Toowoomba and then in Brisbane for some time. He underwent heart surgery. In October, 2012 whilst Mr Lyons was recovering from that surgery in the Princess Alexandra Hospital he was visited by his sons, Daniel and Bradley. During that visit, discussions took place about selling the Withcott home to them. Mr Lyons Snr gave evidence that he was concerned about his health and that he “may not survive for any extended period of time”. He was concerned about his wife’s welfare and where she might live if he passed away. He also gave evidence that he “wanted to ensure that my sons had a further asset in each of their names”. He says for those reasons he offered to sell the Withcott home to his sons “on the basis that Julie and I would be able to reside at the Property for the balance of our respective lives. Bradley, Daniel and I agreed that the Property would be transferred for monetary consideration in the amount of $240,000 and further consideration of the right for Julie and I to occupy the Property for life free of charge”. Mr Lyons Snr was not challenged on this evidence in cross-examination.
His evidence is consistent with the evidence from Daniel Lyons. Daniel Lyons gave evidence that he had a conversation with his father and his brother Bradley at the Princess Alexandra Hospital in October, 2012. He said that his father “indicated he was worried about Julie’s ongoing care and comfort for the rest of her life if Tony passed away. I recall he said words to the effect of “if I don’t make it, your mum needs to be taken care of.” Daniel Lyons says that his father also “indicated to me during this conversation that he would like Bradley and myself to have a long-term investment asset. Tony suggested to Bradley and I that the Property be transferred to us for the amount of $240,000 on the basis that Tony and Julie would be able to reside in the Property for the rest of their lives. It was my understanding that this right for them to live there would be additional to the amount of money paid by Bradley and I to purchase the Property”. Daniel Lyons was not challenged on any of this evidence in cross-examination. Nor was any of that evidence the subject of objection by the respondent.
In cross-examination, Daniel Lyons was asked about the reason why his father might have considered transferring the property to him and Bradley and whether that was because financially his father and his mother were in a difficult position. But Daniel Lyons’s evidence remained that his father’s concern was that his mother should be able to remain living in the house if he died, that he and Bradley were going to inherit the house anyway and that it was best if they took it over now in case something happened so that they could look after their mother.
Bradley Lyons gave evidence that he visited his father in hospital. His brother Daniel was also present. He swore that, “Tony began speaking to Daniel and I about his concerns for the ongoing care of Julie if he was unable to work or passed away. At this time, Tony suggested that Daniel and I purchase the Property from Tony and Julie but still allow them the right to live there for the rest of their lives.” Bradley Lyons was not cross-examined about this particular evidence nor was it the subject of any objection. He was cross-examined about the proposition that his father was in a poor financial position and it was for that reason that he and Daniel agreed to purchase the Withcott home. Bradley Lyons agreed that there was concern about how his mother and father might live for the next couple of months because his father was not going to be able to work but beyond that he said that he had no understanding of his parent’s financial situation. His evidence was that he agreed to purchase the house to assist so that his mother would have somewhere to live in the event that his father could no longer work or did not survive for very long and that by doing that he was repaying them for looking after him.
On 9 November 2012, Mr Lyons Snr, Mrs Lyons and Daniel and Bradley Lyons executed a Contract for Houses and Residential Land in the standard form promulgated by the Real Estate Institute of Queensland at that time. The contract provided for a purchase price of $240,000. It was subject to finance, sufficient to permit the buyers to complete the contract. Settlement was expressed to be 30 days from the contract date. There were no special conditions in the contract and the sale was not subject to any ‘Tenancies’.
At the same time, it seems, (that is on 9 November, 2012) a form of Transfer (together with Form 2414) was executed by all four parties to the contract, recording:
a)a transfer of the fee simple interest in the Withcott home from Mr and Mrs Lyons Snr as joint tenants to Daniel Lyons and Bradley Lyons as tenants in common in equal shares;
b)consideration for the transfer of the interest was $240,000 (receipt of which was acknowledged);
c)Mr and Mrs Lyons Snr declared that the information in items 3 to 6 of the attached Form 24 was true and correct;
d)Daniel Lyons and Bradley Lyons stated that the information contained in items 1, 2, 4 to 6 on the attached Form 24 was true and correct.
On 9 November, 2012 Mr and Mrs Lyons Snr also executed a Discharge and Release Authority and Daniel and Bradley Lyons signed a claim for duty concession in which they recorded that the dutiable value of the Withcott home was $240,000.
The parties also executed a deed entitled “Occupancy Deed”. It is dated 16 November, 2012. The deed recited that:
A. Daniel and Brad have contracted to purchase the [Withcott home] from Tony and Julie and or will occupy the residence on that property as their home;
B. Tony and Julie will continue to occupy a bedroom (“the Granny Flat”) on the said property and share the common facilities;
C. The price of the property is $240,000 which Daniel and Brad are borrowing and will pay to Tony and Julie who will be allowed to reside in the property for the balance of their natural lives;
D. The parties wish to record their arrangements in the terms below.
There is nothing in the evidence to suggest that there was any separate dwelling on the Withcott home which might be described as a “Granny Flat”. It seems, especially having regard to recital B set out above that the “Granny Flat” was one-bedroom in the Withcott home, although which particular bedroom that was is not specified.
Daniel Lyons gave evidence that both he and Bradley lived at the Withcott home at the time the contract to purchase the property was signed and “we also lived in the house for around 16 to 18 months after the date of settlement.” He says that his parents were living with them during that time and that they continue to live there as at the date of his evidence. Bradley Lyons gave evidence, in cross-examination, to the same effect.
Notwithstanding that evidence, Mr and Mrs Lyons Snr and Daniel Lyons gave evidence that there was no change in the way in which Mr and Mrs Lyons Snr used the Withcott home before Daniel and Bradley purchased the property compared to their use of the property after the sale. The only change was that instead of occupying one-bedroom, Mr Lyons Snr occupied one-bedroom (described as the guest bedroom) and Mrs Lyons occupied another bedroom (described as the master bedroom). That came about because Mr Lyons Snr found it too difficult to get in and out of the waterbed in the master bedroom and used the guest bedroom instead. Other than that, the evidence is that Mr and Mrs Lyons Snr continued to treat the Withcott home (and all of its appurtenances) “as though it is still their own property”.
On 13 June, 2013 Mr Lyons Snr committed an act of bankruptcy. However, Mr Lyons Snr’s evidence is that he did not know that a bankruptcy notice has been issued against him. He disputes that a bankruptcy notice was served upon him. His evidence was that he did not know that he has committed an act of bankruptcy.
On 4 July, 2013 the solicitors acting for the parties on the conveyance sought “indications” of the value of the property which ranged from $325,000 to $370,000. On that same day a settlement statement was prepared recording that a total of $240,000 was to be paid in the following way:
a)$226,459.69 to Secure Funding Pty Ltd to discharge the mortgage secured over the Withcott home;
b)two other minor amounts totalling $275 to presumably discharge the mortgage; and
c)$13,265.31 to Mr Lyons and Mrs Lyons.
On 10 July, 2013 the transfer in respect of the Withcott home was registered on the title to the property. No duty was paid on the transfer, it having been stamped as ‘exempt’.
On 15 June, 2014 a sequestration order was made against Mr Lyons Snr, on the application of ACM Group Limited. His evidence, however, was that he did not know that he had been made bankrupt. Notwithstanding that, there is no suggestion that he has ever applied to have the sequestration order made against him set aside.
On 2 November, 2014 Mr Lyons Snr recorded in his statement of affairs that:
a)he first had difficulty paying his debts in October, 2012;
b)he had $425.51 in his bank account and $515 in a joint account;
c)that he did not have any creditors.
The evidence of Daniel and Bradley Lyons was that after they purchased the property, they paid the mortgage. Bradley gave evidence that he and Daniel would give evidence it would give money to their mother who would make the mortgage payments weekly. It was suggested to Daniel in cross-examination that in fact their mother and father made the mortgage repayments. To make out that assertion, in cross-examination Daniel was shown evidence of two payments equivalent to the mortgage repayments made by his mother in 2015 into an account and a further payment in 2016. However Daniel Lyons rejected the proposition that his mother made “regular payments”. He said:
Right. So that’s a – you would accept that your money – sorry. You now accept that your mother has been paying you for the approximate payments due under the mortgage, wouldn’t you? Well, that would be money that Mum has just put on the house that we probably gave her at some stage or something and she has just put it in for us. We’re a truck driving family; we’re always away. When the money has got to be paid, it has got to be paid and we don’t miss payments, so there could have been stages there we’ve gave Mum the money to put in or something and Mum has credited in but yes. It’s just to pay the house payments.
So your mother puts money in to pay the mortgage payments? No. Our money. It’s probably our – it’s our money that we’ve gave Mum if we’ve been away or something, for Mum to just put it in and pay it. That’s all it is.
I am not satisfied that Mrs Lyons made any payments to the mortgage using her own money or that of Mr Lyons Snr as was suggested to the witnesses in cross-examination. I accept Daniel and Bradley’s evidence that they have paid the mortgage repayments since they purchased the property. I also accept that they were responsible for payment of the rates but that the rates went unpaid such that they were sued by the Lockyer Valley Council for those arrears.
The s.139ZQ(1) notice the subject of this application was issued by the official receiver on 17 September, 2015. The first respondent alleges that it was served on the applicants on 12 December, 2015. They dispute that and say it was first brought to their attention on 14 and 15 January, 2016. Nothing, however, turns upon that dispute because it is not suggested that the applicants have not commenced these proceedings within the relevant time limit.
Subsection 139ZQ(2) of the Act requires the notice issued pursuant to s.139ZQ(1) to set out the facts and circumstances because of which the Official Receiver considers that the relevant transaction is void against the trustee. The notice in this case alleges that the transfer of the Withcott home from Mr and Mrs Lyons Snr to the applicants is void because it was made for a consideration less than the market value of the property. The notice alleges that the market value of the property was $345,000 but that the consideration paid by the applicants was only $240,000. The notice asserts that the transfer is void under s.120 and 121 of the Act. The notice also asserts that the applicants were liable to repay half of the difference between the value of the property at the time of the transfer and the consideration paid by them. Because the property was jointly owned by Mr and Mrs Lyons Snr it is only Mr Lyons’s share that is sought to be recovered by the notice. The notice seeks payment of $63,214.70 from each of the applicants.

A preliminary issue – procedure

The task facing an applicant on an application under s.139ZS of the Bankruptcy Act is to show by evidence that there is a real issue to be decided in the proceeding. The applicant must put before the Court sufficient evidence to call the validity of the notice into question. Once the applicant does that, the onus rests on the respondent to prove that Subdivision J applies to the transaction: Halse v Norton (1997) 76 FCR 389 at 392F and 398E.
However, the first respondent approached the matter in what he described as the “old-fashioned” way so described by Wilcox J in Re Pearson; Ex parte Wansley v Pearson (1993) 46 FCR 55 at 60:
Section 139zs empowers the Court to set aside a s 139ZQ notice if it is satisfied that the “Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice”. Clearly, the Court can set aside the notice if the stated facts and circumstances do not lead, in law, to the transaction being void against the trustee. But can the Court go behind the stated facts and investigate their truth? If the Court finds that the true facts are different from those stated in the notice, and do not justify its issue, may the Court set aside the notice? The stated (or true) facts and circumstances may provide prima facie support for the notice, but the recipient be under no liability to the trustee because of defences arising out of additional facts needing to be proved by the recipient. Does Subdiv J accommodate this situation? If so, how?
The parties perceived the problems I have mentioned. They wished to avoid becoming bogged down in difficulties arising out of the form of Subdiv J and the terms of the notice. So they sensibly agreed to resort to the old-fashioned way of determining the matter. Mr Wansley filed a second application, in which he sought a declaration that the transfer to Mrs Pearson was void and a consequential order directing her to transfer to him a one-half interest in the property. By agreement, the two matters were heard together.

The first respondent has filed a cross claim seeking the relief that I have detailed earlier. He was content to take on the onus of proving his case under ss.120 and 121 of the Bankruptcy Act.

The s.120 claim

Relevantly, s.120 of the Act provides:
Transfers that are void against trustee
(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.
Note:          For the application of this section where consideration is given to a third party rather than the transferor, see section 121A.
…
(3) Despite subsection (1), a transfer is not void against the trustee if:
(a) in the case of a transfer to a related entity of the transferor:
        (i) the transfer took place more than 4 years before the commencement of the bankruptcy; and
(ii) the transferee proves that, at the time of the transfer, the transferor was solvent; or
(b) in any other case:
(i) the transfer took place more than 2 years before the commencement of the bankruptcy; and
(ii) the transferee proves that, at the time of the transfer, the transferor was solvent.
…
Meaning of transfer of property and market value
(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.

The applicants concede that the sale of his interest in the Withcott home by Mr Lyons Snr is a “transfer of property by a person who later becomes bankrupt” and that the relevant temporal condition in s.120(l)(a) is satisfied.
It is clear from the evidence that the applicants gave consideration for the transfer to them of Mr Lyons Snr’s interest in the Withcott home. I accept the evidence of Mr Lyons Snr, Daniel Lyons and Bradley Lyons that the price for the purchase of the Withcott home was $240,000 together with the grant of a right to Mr and Mrs Lyons Snr to occupy the property for the rest of their lives, or alternatively to occupy a substitute should Daniel and Bradley wish to sell it before their parents had passed away.
The evidence is that Daniel and Bradley paid the $240,000 cash component of the purchase price. They raised that sum on the security of a mortgage, which appears to be registered on the title to the Withcott home. There is no suggestion that they did not pay the sum recorded in the REIQ contract or the transfer. Thus, it cannot be said that this was a transfer of property for no consideration. But did Bradley and Daniel give consideration which was less than the market value of the Withcott property at the time of the transfer?
Both parties led evidence as to the market value of the Withcott property. The applicants called evidence from Mr Richard Holles, a certified practising valuer. Mr Holles prepared a written report, as did the first respondent’s witness, Mr Tim Ellis. The valuers had competing opinions about the value of the Withcott property. At the commencement of the trial they conferred and discussed their differences. As a result of that conference, when he commenced his evidence, Mr Holles revised his opinion. In his written report he opined that the Withcott home had a market value of $320,000 as at 9 November 2012 (the contract date), 16 November, 2012 (the date of the occupancy deed) and 4 July, 2013 (the settlement date). After his conference with Mr Ellis, Mr Holles was prepared to revise his opinion upward to $340,000. Mr Holles also gave evidence of an error in his report which he had corrected and taken into account when reaching his conclusion about the revised value.
Mr Holles was cross-examined about his opinion. It was suggested to him that seven of the nine comparable sales that he used to form his opinion were not truly comparable to the Withcott home because they were situated much closer to the Warrego Highway and would therefore be affected by noise from that Highway more than the Withcott home. Mr Holles, however, rejected that proposition on the basis that Withcott was situated on the Warrego Highway and most of Withcott suffered from noise generated from traffic on that road. Mr Holles also rejected the proposition that his opinion was not reliable because he had used comparable properties which were inferior to the Withcott home and in some cases, were of a different type of construction to the Withcott home. Mr Holles explained, that from his experience, the type of construction of the improvements on any particular parcel of land were important but specifically, Hardieplank houses sold for “fairly similar figures” as brick veneer homes in that area.
Mr Holles’s opinion was also challenged on the basis that six of the properties he used as comparators to derive his opinion were in flood hazard areas. This was an important matter because in January, 2011, Withcott and the surrounding areas were subjected to significant, catastrophic flooding. Mr Holles did not refer to the flooding issue in his report. However, as Mr Holles explained in re-examination, the sales that he used as comparators were sales post the flooding in the area. It follows that the effect of the flooding upon those properties was reflected in their sales prices.
Mr Ellis’s opinion was that at 9 November, 2012 the value of the Withcott home was $375,000. He also thought that the value of that property would be the same as at 4 July, 2013. He used the same methodology to value the property as did Mr Holles but used different comparative properties which Mr Ellis contended were more representative of the Withcott home. He saw Mr Holles’s opinion is suffering from some deficiencies and in particular thought that Mr Holles had not taken into account properties which were truly comparable to the Withcott home because they were of an inferior construction and had less bedrooms and bathrooms than that home. He also thought that Mr Holles had not taken into account the effect of the flooding experienced in the local area in January, 2011. Finally, Mr Ellis thought that the comparative sales did not take into account that at least six of them were very close to the Warrego Highway and experienced significant noise from that roadway whereas the Withcott home was further away from the highway and did not experience any appreciable highway noise.
It emerged in the evidence that Mr Holles conducted his practice as part of the firm for which he worked from Toowoomba since 2011. Toowoomba is geographically proximate to Withcott and was described by Mr Ellis as a satellite community to Toowoomba. It also emerged that he had experience of the local area and was able to describe from his experience certain local preferences in terms of property ownership. For example when it was suggested to him that a particular property situated at 7 May Court, Withcott was not truly comparable with the Withcott home the following exchange occurred:
Which is not comparable, I put to you, to a brick veneer house? Well, if you’re actually looking at the improvements, we’re including all the improvements not just the house. That one has a bore, a gazebo, established gardens, a detached double lockup garage as well. We’re not just looking at the dwelling. Our subject property was a brick veneer house; however, it had no notable site improvements. The driveway was gravel, and it really wasn’t – didn’t have the sheds, which is what people in Withcott do look for. They like the bigger blocks to put their sheds on. They like their site improvements.
I prefer the evidence of Mr Holles to that of Mr Ellis primarily because Mr Holles appeared more knowledgeable of the Withcott area. Mr Ellis was asked about his familiarity with the Withcott area and his answers were non-specific. He had not performed any valuations of properties in Withcott prior to the subject valuation. He professed no particular familiarity with that township saying that he was no more or less familiar with it than any other area in the Lockyer Valley. Whilst Mr Ellis pointed out that valuation was an evidence-based, principle driven process, it is also an art more than a science which depends upon the experience and knowledge of the valuer concerned. I am satisfied that Mr Holles had more experience and knowledge of the Withcott area than did Mr Ellis. In my view, Mr Holles’s opinion as to the value of the Withcott home is more reliable than that of Mr Ellis.
Accordingly, I find that as at 9 November, 2012, 16 November, 2012 and 4 July, 2013 the market value of the Withcott home was $340,000.
The consideration noted in the REIQ contract is less than the market value of the Withcott home as at the date of that contract and the date of the settlement of that contract. But neither of those dates is the date of the relevant transfer for the purposes of ss.120 or 121 of the Bankruptcy Act.
A question that arose during the course of submissions was about the identification of the date of the relevant transfer for the purposes of the Act. There were two candidates canvassed in submissions – the date of the signing of the contract or alternatively the date of settlement of that contract. In the course of submissions I expressed the view, that both counsel seemed to accept, that the relevant date was the date of the signing the contract for sale. I expressed that view on the basis that the execution of the contract of sale effected a transfer of the beneficial interest in the real property from the vendor to the purchaser. There is, however, authority to the contrary. In Camm v Linke Nominees Pty Ltd (2010) 190 FCR 193 Tracey J concluded that for the purposes of s.121(1) of the Bankruptcy Act (as to which see below) the relevant date was the date upon which the instrument of transfer was registered pursuant to the provisions of the Land Titles Act 1994 (Qld). Here it appears from the evidence that the transfer to Daniel and Bradley Lyons was registered on 10 July, 2013.
Ultimately, I do not think anything turns on the fact that the valuation evidence in this case was directed to the date the contract between the parties was signed or the settlement date of that contract. In respect of the market value of the Withcott home both valuers were of the view that there has been no change in value for that property between the date when the contract was signed and the date of settlement. Given that, it is unlikely that there would have been a change in the value of the property between 4 July, 2013 and registration of the transfer on 10 July, 2013. My finding as to the market value of the Withcott property as at 4 July, 2013 applies equally to the market value of that property as at 10 July, 2013.
The first respondent argues that at best, the consideration for the transfer is $240,000 and that is plainly less than the market value of the property at the relevant time irrespective of which valuer’s opinion is accepted. On the basis of my finding, the purchase price provided in the REIQ contract was $100,000 less than the market value of the Withcott property at the time of the contract and at the time of the subsequent transfer.
However, that pays no attention to the value, if any, that might be ascribed to the rights granted by the occupancy deed. The term consideration is not defined in the Bankruptcy Act except by reference to some exclusions that appear in s.120(5) of the Act. But “Commonly, the consideration will be a benefit provided by the transferee to the transferor ... But there are other forms of consideration, in particular a detriment undertaken by the transferee or acquirer at the request of the transferor or the transferee, respectively”: Anscor Pty Ltd v Clout (Trustee) 135 FCR 469 at [40] applied in Abeyratne v Latour [2009] FMCA 688 at [64] – [65].
The first respondent argues that I should ignore the right to occupy the property that was granted by the occupancy deed because that came after the written contract to purchase the property was executed and the right to occupy the property was not expressed to form part of the consideration for the purchase in either the REIQ contract or the transfer. Nor was there any assessment made of any stamp duty that might have been payable on the transfer had the right of occupancy been properly considered as part of the consideration for it.
But, having regard to the evidence to which I have referred, I am satisfied that the REIQ form of contract together with the occupancy deed comprise the whole of the agreement between Mr and Mrs Lyons Snr and Daniel and Bradley Lyons for the sale and purchase of the Withcott property. I am satisfied that the grant of the right of occupancy was part of the consideration for the sale of the Withcott home to Daniel and Bradley.
Both parties led evidence about the value of the right granted to Mr and Mrs Lyons Snr by the deed of occupancy. The applicants called evidence from Mr Peter Haley, a chartered accountant. Objection was taken to Mr Haley’s evidence on the basis that he was not appropriately qualified to render an opinion about the value of the right of occupancy but I ruled against that objection and admitted his opinion. Mr Haley gave two reports in respect of this matter.
The first, appended to an affidavit sworn by him on 23 March, 2016 valued the right of occupancy as at 4 July, 2013 to be $161,443. Mr Haley calculated that value by reference to Mrs Lyons’s life expectancy, she having a greater life expectancy than Mr Lyons. Having regard to the ages of Mr and Mrs Lyons Snr and the 2013 Prospective Life Tables, Mr Haley assessed that Mr Lyons had a life expectancy as at 4 July, 2013 of an additional 28.61 years. He assessed Mrs Lyons’s life expectancy to be an additional 33.52 years.
Mr Haley was provided with a market rent valuation for the Withcott property which suggested that the market value of the rent for the property was $375 per week as at 4 July, 2013. Based upon his instructions, Mr Haley assessed that the grant of the right to occupy related to approximately one half of the property. He accordingly adopted $187.50 (or half of the weekly rent) as the weekly value of the life interest for the purposes of his calculation.
He then calculated the present value of the future rent saved by Mr and Mrs Lyons Snr as a result of them residing in the property. Mr Haley explained that the rent saving was the market rent for the property less a reduction for not having possession of the whole property and, in determining the present value, he discounted the future savings by 5% to account for risk, the time value of money and the vicissitudes of life.
In his second report annexed to his affidavit sworn on 25 August, 2016 Mr Haley addressed a number of matters put to him by the applicant’s solicitors. In particular, he was asked to assume that the weekly rental for the property was $350 per week rather than the $375 per week that he had used in his original report. He was also asked to value the interest on the basis that:
a)the occupancy right is in respect of the entire property;
b)the occupancy right is in respect of 75% of the property; and
c)the occupancy right is in respect of 35% of the property.
According to Mr Haley, based upon a weekly rent of $350 per week for the whole of the property the relevant values were:
a)occupancy of 100% of the property                   $301,360
b)occupancy of 75% of the property  $226,020
c)occupancy of 35% of the property  $105,476
The first respondent led evidence about the value of the right of occupancy from Mr Timothy Ellis, a registered valuer. His report is attached to the affidavit of Katie Louise Howard sworn on 14 July, 2016. Mr Ellis’s report purported to value the rights conferred by the occupancy deed as at 16 November, 2012. The methodology adopted by Mr Ellis was the same as that adopted by Mr Haley. Some of the variables, however, differed. Mr Ellis concluded that a weekly rent for the whole of the property of $350 was reasonable. That is the same weekly rent used by Mr Haley in his revised opinion.
Mr Ellis approached the matter on the basis that the occupancy deed gave to Mr and Mrs Lyon’s Snr a right to occupy and use approximately 35% of the Withcott home and that the balance 65% could be let (in much the way a share house is occupied) for 65% of the market rent of $350 per week.
However, for reasons that remain obscure, Mr Ellis adopted Mr Lyons Snr’s life expectancy as the relevant period to which his calculations ought to be applied. The relevant figure derived for Mr Lyons Snr’s life expectancy by Mr Haley was 28.61. Mr Ellis used that period to derive a value, after the application of the same discount rate used by Mr Haley of 5%, of $95,830 for the rights granted by the deed of occupancy.
Mr Haley purported to value the interest as at 4 July, 2013 whereas Mr Ellis purported to value the interest as at 16 November, 2012. However neither expert, and none of the parties, suggested that Mr Haley’s value could not be applied to 16 November, 2012 nor Mr Ellis’s value applied as at 4 July, 2013. The only significant difference between the two valuations is whether Mr Lyon Snr’s or Mrs Lyons’s life expectancy should be used to calculate the relevant value. On that issue, in my view, the appropriate period is that represented by Mrs Lyon’s life expectancy. The deed of occupancy gives a right to occupy to both Mr Lyons Snr and Mrs Lyons. There is nothing to suggest that should Mr Lyons Snr predecease Mrs Lyons, her right of occupancy would come to an end. In that respect, the terms of the occupancy deed make express provision for its termination. Clause 4.2 of the occupancy deed provides that, “This Deed may only be terminated upon the death of both of Tony & Julie” (my emphasis).
Counsel for the first respondent accepted in the course of submissions that the appropriate timeframe was that represented by Mrs Lyons’s life expectancy. That was so, notwithstanding that the interest under consideration is the interest of Mr Lyons Snr. It is not beyond argument that given that it was that interest that is the subject of the notice in this case, the value of the right to occupy to Mr Lyons Snr alone is the appropriate matter for consideration.
According to the evidence of both Mr Haley and Mr Ellis, the valuation of the rights granted by the occupancy deed depend upon the proportion of the Withcott home that Mr Lyons Snr and Mrs Lyons might occupy. The express terms of the deed limit that to the “Granny Flat” which is defined in the recital to the deed as being one-bedroom and a share in the common facilities. The bedroom to be occupied by them is not identified.
I confess to some disquiet about that methodology. The value to Mr and Mrs Lyons Snr of the rights granted by the occupancy deed is likely to be more properly reflected in the saving to them of having to rent alternative accommodation. In truth, that is the value of the right to occupy even part of the Withcott property. They are relieved of the burden of paying rent elsewhere. Counsel for the first respondent conceded that that approach was “probably correct”. Nonetheless, the parties did not present the case on that basis but on the basis identified in the evidence of Mr Haley and Mr Ellis.
The evidence of the applicants and Mr Lyons Snr was that Mr and Mrs Lyons Snr were to occupy the property as if it were their own and that is what they did after the property was transferred to Bradley and Daniel. The uncontroversial evidence is that the purpose of the transaction was to provide a residence for Mrs Lyons in the event that Mr Lyons Snr predeceased her and could no longer provide for her. In those circumstances, although the occupancy deed purports to limit the entitlement to occupy a bedroom and a share of the common facilities, in my view the occupancy deed ought to be seen as providing to Mr and Mrs Lyons Snr a right to occupy the whole of the Withcott home for the term of their natural lives. In my view, the value of that interest ought to be calculated in that light. On that basis, and accepting Mr Haley’s evidence as I do, the value of the interest I find is $301,360. In the event that I am wrong about that and it is more appropriate to value that interest having regard to one of the alternative percentages identified by Mr Haley in his second report, I find that the value of that interest is as described by Mr Haley in each of those alternatives.

Irrespective of which alternative is adopted, however, it is clear that when added to the payment of $240,000 provided for in the REIQ contract, the consideration for the transfer of the Withcott property from Mr and Mrs Lyons Snr to Daniel and Bradley Lyons was for a sum which exceeded the market value of that property. I further find that in respect of Mr Lyons Snr’s ownership interest as a joint tenant in the Withcott property, the consideration for the transfer of his interest to Daniel and Bradley Lyons exceeded the market value of that interest.
Accordingly, the first respondent’s claim based upon s.120(1) of the Bankruptcy Act cannot succeed.

Section 121

Relevantly, s.121 provides:
121 Transfers to defeat creditors
Transfers that are void
(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 property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and
(b) the transferor’s main purpose in making the transfer was:
(i) to prevent the transferred property from becoming divisible among the transferor’s creditors; or
(ii) to hinder or delay the process of making property available for division among the transferor’s creditors.
Note: For the application of this section where consideration is given to a third party rather than the transferor, see section 121A.
Showing the transferor’s main purpose in making a transfer
(2) The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
…
Transfer not void if transferee acted in good faith
(4) Despite subsection (1), a transfer of property is not void against the trustee if:
(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b) the transferee did not know, and could not reasonably have inferred, that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.
…
Meaning of transfer of property and market value
(9) 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.
The applicants concede that the relevant transaction is a “transfer of property by a person who later becomes bankrupt” and that the condition in s.121(1)(a) is satisfied.
The s.121 claim is resolved by the determination of two issues, namely:
a)whether the first respondent has established the purpose on the part of Mr Lyons Snr as required by s.121(l)(b); and
b)whether the applicants have made out the defence in s.121(4).
As to the first matter, the establishment of the relevant purpose is assisted by the deeming provision in s.121(2) of the Bankruptcy Act. The first respondent argues that I should find that it was in fact Mr Lyons Snr’s main purpose in effecting a transfer of the Withcott home to prevent that property from coming into the hands of his creditors. He also argues that s.121(2) is engaged.
However, I do not accept that s.121(2) is engaged in this case. Whilst it is clear from the evidence relied upon by the first respondent that from time to time Mr Lyons may have had some difficulty in paying his debts, there is no evidence of his financial position as at October, 2012. Mr Lyons Snr appeared to accept in cross-examination that he had entered into two repayment arrangements in the past – one in 2010 and perhaps another in 2011, but according to his evidence the last of those was complete in April 2012.
In his statement of affairs which I am satisfied was completed by him or on his behalf in November, 2014 he recorded that he had difficulty paying his debts in October, 2012, but that of itself does not give rise to a reasonable inference of insolvency in this case given the illness from which Mr Lyons Snr was suffering and the uncertainty surrounding his capacity to return to work. As he explained it, he was concerned about his capacity to return to work and if he was unable to return to work in the future, what might happen then. But that is far from suggesting that he was, at that time or at the time of the relevant transfer in July, 2013 insolvent or likely to be insolvent. I do not consider that it was reasonably open to infer that Mr Lyons Snr is insolvent or likely to become insolvent in October, 2012 or July, 2013.
Nor am I satisfied that, in fact, Mr Lyons Snr’s main purpose in making the transfer of at least his interest in the Withcott home was to prevent the home from becoming divisible among his creditors. Whilst the evidence from Mr Lyons Snr and Mrs Lyons about the extent of knowledge that they had about Mr Lyons’s financial circumstances was unconvincing, Mr Lyons Snr’s avowed reason for wishing to transfer the Withcott home to his sons was so that his wife had somewhere to live should he be unable to work or should he pass away. The significance of him being unable to work or passing away was, of course, that his income stream would cease. That would mean, presumably, that the mortgage that then existed over the Withcott home would not be able to be paid and Mrs Lyons would lose the ability to live in their home because it would have to be sold. That he would wish to make some provision for her to ensure her continued occupation of the Withcott property is hardly surprising. I formed the view that Mr Lyons Snr nor Mrs Lyons were particularly sophisticated people and I doubt very much that in attempting to make provision for his wife as he did, Mr Lyons Snr’s purpose was to remove the Withcott property from the reach of his creditors.
The first respondent says that I should find that the removal of the Withcott property from Mr Lyons Snr’s creditors was his main purpose in effecting a transfer of his interest in that property to his sons because:
a)he willingly sold his interest in the Withcott home, in substance, for little more than the sum required to discharge the mortgage;
b)there was no need to transfer the property at all. If his concerns about his health were to be realised, the Withcott home would simply have passed to Mrs Lyons;
c)to the extent that he wanted his sons to pay the expenses for Mrs Lyons to remain in the Withcott home, that was possible without the need to transfer the property to them and incur costs of doing so;
d)the consequence of the transfer has been that there was no substantive change to the position prior to the transfer, the only consequence being to keep the property out of the hands of Mr Lyons Snr’s creditors.
But those matters do not lead me to conclude that Mr Lyons Snr acted with the requisite purpose because whilst he willingly sold his interest in the Withcott home, he did so for more than the sum required to discharge the mortgage. In doing so, he secured a valuable right for both he and his wife. Further, whilst the Withcott home would have passed to Mrs Lyons upon Mr Lyons Snr’s death if they had remained owners as joint tenants, the same result would not have ensued if Mr Lyons Snr had not passed away but was nonetheless incapacitated for future employment by his illness. Moreover, given Mr and Mrs Lyons Snr’s intention that their sons would inherit the Withcott property in any event, it is not all that remarkable that in the circumstances which were then confronting him, Mr Lyons Snr considered it appropriate to transfer the property to them at that time.
I am not satisfied that s.121(1) is engaged in this case.
However, if am wrong about that I am satisfied and I find that s.121(4) is engaged in this case because:
a)the consideration that Daniel and Bradley Lyons gave for the transfer to them of the Withcott property was at least as valuable as the market value of the property as I have already found above; and
b)Daniel and Bradley Lyons did not know, and could not reasonably have inferred, that Mr Lyons Snr’s main purpose in making the transfer was to remove the Withcott home from the reach of his creditors; and
c)Daniel and Bradley Lyons could not reasonably have inferred that, at the time of the transfer, Mr Lyons’ Snr was, or was about to become, insolvent.
Bradley Lyons gave evidence that he was aware that his father had experienced some financial difficulties but that those difficulties had ended “around six years ago” he was unaware of any judgments against his father or that he was bankrupt until he was made aware of that by the notice that he now seeks to challenge in these proceedings. Bradley Lyons was cross-examined about the extent of his knowledge of his father’s financial circumstances but his evidence did not change. I formed the view that Bradley Lyons gave his evidence honestly and reliably. There is no reason not to accept it. Accordingly, I am not satisfied that at the time the parties executed the REIQ contract, the occupancy deed, at the time the contract settled or at the date of registration of the transfer Bradley Lyons knew that his father’s main purpose in making the transfer to he and Daniel was to remove the Withcott home from the reach of his father’s creditors. Nor am I satisfied that there was any basis upon which Bradley Lyons ought to have inferred that his father’s purpose in transferring the Withcott home to his sons was to remove that home from the reach of his creditors. Moreover, I find that Bradley could not have reasonably inferred at that time that his father was either insolvent or about to become insolvent.
Daniel Lyons also gave evidence that he was aware that in or around 2008 his father owed “some small amounts of money personally and through the business he was operating at that time along with our mother”. He also gave evidence that at no time before he received the notice the subject of these proceedings was he aware that his father was suffering any significant financial difficulty or that a judgment has been made against him or that he was bankrupt and owed money to any other parties. Daniel Lyons was cross-examined about these matters. His evidence about them did not change. His evidence was that his father did not discuss his financial circumstances with him. I accept that evidence. I am satisfied that Daniel Lyons did not know about his father’s financial circumstances other than in the way in which I have already described. I am satisfied that at the time the parties executed the REIQ contract, the occupancy deed, at the time the contract settled or at the date of registration of the transfer Daniel Lyons did not know that his father’s main purpose in making the transfer to he and Bradley was to remove the Withcott home from the reach of his father’s creditors. I am also not satisfied that there was any basis upon which Daniel ought to have inferred that his father had such a purpose when he suggested the transfer. Moreover, I find that Daniel could not have reasonably inferred at that time that his father was either insolvent or about to become insolvent.
There is no reason to doubt the evidence of Bradley and Daniel Lyons about the nature and extent of their knowledge of their father’s financial circumstances or the nature and extent of the discussions they had with him when the question of a transfer of the Withcott home was raised with them. Indeed, it was not put to them that at least part of the purpose of the transfer of the Withcott home to them was so that it would be removed from the reach of their father’s creditors. Insofar as Bradley’s and Daniel’s knowledge and state of mind was concerned, Mr Lyons Snr’s significant health issues in October, 2012 provide an entirely reasonable context in which a transfer of the Withcott home to Bradley and Daniel arose for consideration. With respect to them, neither gentleman struck me as particularly sophisticated. I readily accept that faced with their father in such seriously poor health and concerned for their mother (whom they each described in their evidence as having provided them with a good life) they would have taken their father’s suggestion at face value and no doubt saw it as a means to assist their parents.

Conclusion

The first respondent has failed to demonstrate that the transaction which he seeks to impugn in this case is within the provisions of ss.120 and 121 of the Bankruptcy Act. It follows that the applicants are entitled to the relief that they seek and that the s.139ZQ(1) notice ought to be set aside. The cross-claim must be dismissed.
On its face, the applicants should have the costs of the proceedings. I have not received submissions with respect to the question of costs and have made directions for that matter.
I make the directions and other orders set out at the commencement of these reasons.

I certify that the preceding eighty-two (82) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered on 28 February, 2019.

Date: 28 February, 2019

CaseChat Overview and Summary

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Background to the litigation

Evidence Before The Court

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Legal Principle Established