Macks v Morris
[2003] FMCA 208
•3 June 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MACKS v MORRIS | [2003] FMCA 208 |
| BANKRUPTCY – Void transfers – whether certain monies assigned to the respondent by the bankrupt constitute a void transfer according to s.120 or s.121 of the Bankruptcy Act – where trustee in bankruptcy makes an application to recover these monies plus interest – where the respondent had lent a sum of money to the bankrupt – where the bankrupt assigned his entitlement under a will to the respondent as payment of this debt – where the intention to make the assignment was expressed in a letter to the agent of the trustee – where a cheque was duly sent – whether this constituted a transfer of an equitable interest – where the bankrupt later asked for the money back, to be deposited in a family trust – whether the respondent gave full consideration for the whole transfer or a proportion of it – whether interest should be paid. |
Bankruptcy Act 1966 (Cth), ss.120, 121
Donnelly v McIntyre [1999] FCA 450
Cady v McInnes (1995) 58 FCR 570
Rogers v Schmierer [2003] FCA 386
Burns v Stapleton (1959) 102 CLR 97
Briginshaw v Briginshaw (1938) 60 CLR 336
The Controller of Stamps (Victoria) v Howard-Smith [1936] 54 CLR 614
Albion Hotel Pty Ltd v Federal Commissioner of Taxation (1965) 115 CLR 78
Thompson v Moyse (1961) AC 967
National Australia Bank Ltd v KDS Construction Services Pty Ltd(In Liq) (1987) 163 CLR 668
Prentice v Cummins(No 5) [2002] FCA 1503
H K Frost Holdings Pty Limited (In Liq) v Darvall McCutcheon (A Firm) [1999] FCA 795
| Applicant: | PETER IVAN MACKS AS TRUSTEE OF BANKRUPT ESTATE OF GREGORY MORRIS |
| Respondent: | SUSANNE CATHERINE MORRIS |
| File No: | AZ 217 of 2002 |
| Delivered on: | 3 June 2003 |
| Delivered at: | Adelaide |
| Hearing date: | 20 May 2003 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Mr A Dalcin |
| Solicitors for the Applicant: | Lancione Partners |
| Counsel for the Respondent: | Mr P McQuade |
| Solicitors for the Respondent: | Bickell & Mackenzie Solicitors |
ORDERS
The respondent pay to the applicant the sum of $23,494.43.
The parties have seven days in which to provide written submissions as to costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE |
AZ 217 of 2002
| PETER IVAN MACKS AS TRUSTEE OF BANKRUPT ESTATE OF GREGORY MORRIS |
Applicant
And
| SUSANNE CATHERINE MORRIS |
Respondent
REASONS FOR JUDGMENT
Introduction
These proceedings involve a claim by the trustee of a bankrupt estate for a declaration that certain monies purportedly assigned to the respondent by the bankrupt constituted a void transfer pursuant to either s.120 or s.121 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) and for a declaration that the respondent pay the applicant the value of that transfer being $48,494.43 together with interest either from 20 August 2001 or 24 June 2002.
The respondent resists the application arguing that there was no transfer to her of this money within the meaning of the sections or alternatively if such a transfer had taken place that it was a transfer for full consideration or at least for full consideration as to approximately $44,000.00 and has offered to refund the balance to the trustee if a finding of a valid transfer is made.
History
The bankrupt and the respondent are cousins. They were brought up in Cleveland in Queensland in what appears to have been a reasonably close family, although the respondent’s father and the bankrupt’s father are no longer on speaking terms. The bankrupt was partially brought up by his grandmother, the late Emily Morris, who died in December 1998. Emily Morris left a will dividing her residuary estate equally between her two sons and her grandson. The bankrupt’s entitlement under the will was $48, 494.43.
The respondent, who works for the Department of Correctional Services in Queensland, left school at the age of fifteen and commenced working for the Queensland Fruit Grower’s Cooperative Society. At about the age of nineteen she suffered an accident at work, which kept her off work and on workers compensation for approximately ten years. She then joined the Corrective Services Department where she has progressed to a policy division. She claims that she is unable to read financial statements such as balance sheets or profit and loss statements and has never had any experience with financial administration in her employment.
The bankrupt left Queensland approximately fifteen years ago and moved to South Australia where he set up in business as a pig farmer. He appears to have operated livestock management schemes whereby investors purchase a number of sows and/or piglets, which a management company run by the bankrupt managed and bred for a management fee. The eventual profits would go to the owner of the livestock. The bankrupt and the respondent saw each other on family occasions at least once a year. But the respondent gave evidence that she did not really discuss business with the bankrupt, just family matters.
In or about April 1998 the respondent was surprised to receive a telephone call from the bankrupt asking for a loan of $25,000.00. The bankrupt told the respondent that the loan would only be for about six months and would be “covered” by pigs. She believed that pigs were being given to her as a form of security for the loan. Under cross-examination the respondent gave evidence that she had requested the return of the loan but her cousin had always given her a “sob story” saying words to the effect “I can’t pay you right now I need more time.” She accepted these excuses; she thought that her cousin was telling the truth and that he would pay her when he was able to. Under cross-examination she stated that she did not know her cousin’s financial position or “what he had or what he didn’t have.”
In her affidavit of 24 April 2003 the respondent says in respect of this loan:
“9. On 19 April 1998, the day of my birthday, Mr Morris rang me at work. I proceeded to have a telephone conversation with Mr Morris to the following effect:
(a)He asked me to lend him $25,000;
(b)He said that the money would be utilised in the pig farming business;
(c)I asked Mr Morris what I would get out of the advance;
(d)He told me that he would sell to me 52 breeding sows and 416 grower pigs and that he would send to me the documentation in respect of that sale;
(e)He said this would be a short term arrangement and that he would also be getting funds from his mother and her husband.
10. On 19 August 1998 I transferred to Riverpork Industries Pty Ltd the sum of $25,000.
11. In respect of that payment I received from Mr Morris a booklet which was titled “Livestock Management Agreement” which contained the following documents:
(a)Certificate of ownership of 52 breeding sows and 416 progeny;
(b)An invoice dated 14 April 1998;
(c)A livestock management agreement with Brinkley Pork Industries Pty Ltd.
12. I have not before or subsequently invested any further funds with either Riverpork Industries Pty Ltd or Brinkley Pork Industries Pty Ltd. I did not receive any financial statements in respect of those companies and I was not at any stage aware of the financial position of those companies.”
The respondent was aware that her grandmother’s residuary estate was to be divided three ways. She deposes that on Friday 26 March 1999 she opened an envelope addressed to her from Messrs Bickell & Mackenzie Solicitors. She deposes at paragraph 15 of her affidavit of 24 Aril 2003 that the letter contained:
“(a) A letter dated 25 March 1999 from Messrs Bickell & Mackenzie which stated in part as follows:
“I refer to the above and confirm that all matters have now been completed. In accordance with confidential instructions received by Greg Morris, a third beneficiary in the distribution of the Estate, I enclose a cheque in your favour in the sum of $48,494.43 representing his net entitlement under the Will of your grandmother”;
(b) A cheque drawn on the trust account of Bickell & Mackenzie in the sum of $48,494.43. That cheque was dated 25 March 1999.”
The background to this letter can only be found in documentation as neither the bankrupt nor Mr Bickell were called to give evidence. There is annexed to an affidavit of the trustee and found at [172] of the annexure to the affidavit of Mr McGregor a letter from Mr Morris to Mr Bickell the relevant parts which are set out below:
“Dear Rod,
Re: Settlement of Grandma & Granddad’s (Emily Ellen & Frederick James MORRIS) Estate
Further to our telephone conversation this morning, I would like to instruct you to change the settlement of my grandparents estate for any moneys that may be due to myself Gregory John MORRIS.
In settlement of a personal loan to me Ms Susan MORRIS I have assigned my inheritances from my grandparent’s estate over to Susan some twelve months or more ago. This was a personal matter and one that I would appreciate being kept confidential.
I hereby instruct you as solicitor acting on behalf of the Trustees to make any disbursement of monies due to myself to Ms Susan MORRIS.
If you require any further confirmation or authorisation on this matter, then I may be contacted on …or fax …Original documents may be emailed to me at…
Thank you for all that you have done to make this task considerably less of an emotional burden. I would ask that you sincerely thank Aunty Allen & Uncle John for all that they have done as Trustees of my Grandparents’ estate.
Respectfully
Greg Morris
cc. Susan Morris.”
The respondent deposes to the fact that the letter of 25 March 1999 and the cheque were a complete surprise to her. She had not discussed the assignment with Mr Morris, so she telephoned him on the same afternoon. She told him how surprised she was and that she believed the entitlement under the will belonged to him and not to her. She asked him why he had assigned his interest to her and he told her that it was because she had looked after her grandparents.
“He then said to me that he needed the money at that time to assist his business affairs. I said to him “it is your money” and he can have it and I will deposit the funds into any account that he likes. Mr Morris said to me “no just deposit $41,000.00 into an account of which he will fax me the details on Monday.” I said “that is fine the money is yours and that you can have the full amount of the cheque if you wish.””
On 29 March 1999 the respondent received a facsimile providing account details for the Morris Family Trust at a bank at Meningie. On the same day, after she had finished work, the respondent took the cheque from Bickell & Mackenzie and split it by paying $41,000.00 to the Morris family trust and depositing the balance in her own account. A few days later Mr Morris telephoned her again and requested that she withdraw $3,000.00 in cash and give it to his mother who was in Queensland to bring down to him in South Australia. The respondent did so.
The respondent was cross-examined in some detail as to the conversations with Mr Morris. She claimed that she did not discuss with him that the $25,000.00 loan was still outstanding. She repeated on several occasions that she believed the money belonged to Mr Morris and that all she was doing was giving him what was his. She had no knowledge of his financial affairs at the time other than what he had told her, which appeared to amount to the fact that he was having some business difficulties. However, there was no suggestion from the respondent that the bankrupt considered the payment of this money a loan nor did the respondent suggest that she was lending to Mr Morris something that belonged to her.
The respondent was not called upon by Mr Morris to provide him with any more money from the original deposit of $48,000.00 and she kept the small balance of $4,494.43. The respondent did not learn of her cousin’s bankruptcy until she received a letter from the applicant in these proceedings dated 7 June 2001 asking her for copies of documents relating to the bankrupt and associated entities, in particular documents including those relating to the transfer of the bankrupt’s interest in the deceased estate of his grandmother.
The financial situation of the bankrupt at the time of these events has been set out in a helpful chronology attached to the submissions of the applicant. According to his statement of affairs the bankrupt advised his trustee that he first had difficulty in meeting his debts in November 1998. On 9 December 1998 proceedings were commenced in the District Court of South Australia by Ridley Agri Products Pty Ltd against the bankrupt as guarantor claiming $131,687.56. Those proceedings were defended, but judgment was given for the plaintiff against the bankrupt and other defendant’s on 24 July 2000 in a total sum of $143,762.22.
On 8 December 1999 proceedings were issued in the Magistrates Court of South Australia at Murray Bridge by the liquidator of Gildage Pty Ltd against the bankrupt claiming $8,301 as money lent by that company to the bankrupt. Judgment was entered against the bankrupt on 24 March 2000. On the same day, in the Magistrates Court of South Australia at Berry, proceedings were commenced against the bankrupt by TM Dyer claiming $5,241.50 for the provision of goods and cash prior to 12 May 1999. Judgment was entered in respect of this claim on 28 August 2000.
The bankrupt was the trustee and was also an object of the Morris Family Trust. The respondent was not an object of that trust. The trust accounts of 30 June 2000 indicate a loan to the respondent of $41,000.00. The respondent denies ever having seen these documents and I accept that denial. On 19 April 2000 the bankrupt had appointed his wife as joint trustee of the trust and on 21 July 2000 appointed Robert Herbert as trustee in substitution for himself and his wife. This was three days before the Ridley judgment was entered.
The respondent was cross-examined at length by counsel for the applicant concerning the transactions. She was pressed as to why she did not raise with the bankrupt the question of her outstanding loan at the time he was asking her to hand over $41,000.00 of the assigned share of his grandmother’s residuary estate. She was pressed on the question of the notation of the loan in the accounts of the trust and on other matters which would tend to suggest that she was aware that the applicant was or was about to become insolvent or that she was being asked to make a loan of her own money to the Morris Family Trust. Whilst I agree with the applicant that it is unusual that a person in the position of the respondent would not have raised with the bankrupt the outstanding loan, I accept her evidence that she did not do so. I accept her evidence that she genuinely believed that the monies represented by the cheque belonged to the bankrupt and she was merely giving to him what was already his. In her mind the bankrupt had resiled from his incomplete gift because his financial situation did not permit him the generosity that he had appeared to express.
Whilst that is what the respondent believed I am not so sanguine about the bankrupt’s belief. All the evidence which I heard about him from the respondent and the documentation exhibited to the affidavit of the trustee leads me to believe that the bankrupt took a calculated risk that he could avoid the consequences of his failing financial situation by re-routing his inheritance through the respondent to the family trust.
I very much suspect that if the respondent had raised the $25,000.00 loan he would have told her that she could keep $25,000.00 if she paid the balance of the money to his order. I accept the respondent’s evidence that she knew nothing about the entries in the accounts of the Morris Family Trust regarding the $41,000.00 nor did she receive a copy of the letter addressed to Mr Bickell in which the bankrupt purported to assign his interest in his grandmother’s estate.
The applicant in his submissions made much of some correspondence passing between the respondent’s solicitor and the trustee and his solicitor in particular a fax dated 29 June 2001 in which the respondent’s solicitor states to the trustee:
“I am instructed that at some time subsequent to such distribution [the $48,494.43] Ms S Morris invested an amount of $41,000 in Brinkley Pork Industries Pty Ltd and currently stands in the balance sheet as a loan account creditor of such company. I do not have copies of such balance sheets and assume you are already in possession of same.
On 2 November 2001 the solicitor states:
“I have discussed the situation with my client and she has no formal documentation concerning the transaction other than the bank record which will confirm the withdrawal and subsequent deposit to the trustee company on the relevant date. The establishment of the loan account with Brinkely Pork Industries Pty Ltd has, to the best of my client’s knowledge, never been formally acknowledged.”
On 14 May 2002 the solicitor e-mails the trustee:
“I confirm my telephone advice to yourself that the investment in Brinkely Pork Industries has no relevance to your claim. I confirm that my initial instructions indicated that such investment had been made subsequent to the vesting of the deceased estate but later clarification revealed that it was made prior to such vesting and accordingly is irrelevant.”
I was troubled by some of this correspondence from the solicitor and was disappointed that he did not give evidence to confirm that he had been confused in his instructions and that his client was not alleging that she had received the money and then dealt with it by way of an investment. I bear in mind that if Mr Bickell had given evidence it would have meant that his client would be waiving her legal professional privilege and that this is not a matter to be taken lightly.
I am of the view that even taking into account any inferences that can be drawn from his not giving evidence, I am prepared to accept the evidence of the respondent as to the facts and matters surrounding the receipt and disposal of the funds in question.
The nature of the legal dispute between the parties
The applicant seeks orders under s.120 or alternatively under s.121 of the Bankruptcy Act. The transaction took place less than two years before the commencement of the bankruptcy so the relevant parts of s.120 are set out below:
“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.
(2)…
(3)…
(4)…
What is not consideration
(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.
(6)…
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 relevant parts of s.121 are:
“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.
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.
Other ways of showing the transferor's main purpose in making a transfer
(3) Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer.
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 that the transferor's main purpose in making the transfer was the purpose described in paragraph (1)(b); an
(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.
Refund of consideration
(5)…
What is not consideration
(6) For the purposes of subsections (4) and (5), 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.
Exemption of transfers of property under debt agreements
(7)…
(8)…
Meaning of transfer of property and market value
(9) For the purposes of this section:
(a) transfer or 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 remaining jurisdictional facts to be proved in this case to establish a claim under s.120 are:
(1)Whether or not what occurred constituted a transfer of property.
(2)That if there was a transfer, the transferee gave no consideration or gave consideration of less value than the market value of the property.
In respect of s.121 the jurisdictional facts, which remain to be proved, are:
(1)The existence of a transfer of property.
(2)That the property would probably have become part of the transferor’s estate or would probably been available to the creditor’s if the property had not been transferred.
(3)The transferor’s main purpose in making the transfer was either to prevent to the transfer property from becoming divisible among the transferor’s creditors or to hinder or delay the process of making the property available for division among the transferor’s creditors.
The respondent argues that I should take the proper approach to a consideration of the legislation, that is, an approach which considers the substance of the transaction and not the legal form (Donnelly v McIntyre [1999] FCA 450 at [78]; Cady v McInnes (1995) 58 FCR 570). The respondent argues that if this approach is adopted it will be seen that the respondent never received the money other than the sum of $4,493.43. She argues:
“The applicant’s case is highly technical and has a sense of commercial unreality. On the applicant’s case, the respondent’s opening of her mail is the payment. Irrespective of whether the respondent subsequently returned the cheque or alternatively, after the discussions with the bankrupt, endorsed the cheque to him or his account, the respondent would be liable to repay to the trustee the full value of the cheque. That could not be the intention of the Act. The property of the bankrupt would not have been diminished in any way.”
(See also Rogers v Schmierer [2003] FCA 386 at [44])
The respondent argues that the direction to Mr Bickell as solicitor for the executors was a revokable direction to pay the funds to the respondent. It did not constitute an assignment of the bankrupt’s entitlement under the will. The direction did not have the effect of transferring any interest the bankrupt had in the estate to the respondent. It did not constitute an assignment of property.
The respondent argues that to the extent the transfer of property is represented by the payment of money the term “payment” is referable to the passing of ownership of money and not to the mechanics of the transaction (Burns v Stapleton (1959) 102 CLR 97 at 104). She argues that the mere opening of the mail and reading the letter from the solicitor did not constitute acceptance of the cheque and that the substance of her conversation with the bankrupt was evidence of an intention not to accept the cheque as payment to her of the sum of $48,494.43.
As an alternative to the submissions made above concerning the transfer, the respondent argues that if there was a transfer then she gave consideration for it. The consideration was the agreement with the bankrupt to pay the monies to him as he required them. This was done by the payment of first, $41,000.00, and then a further $3,000.00. The applicant should give credit to the respondent for those payments.
The respondent’s arguments in respect of s.121 is that as the $41,000.00 was made available to the bankrupt or at his direction and the onus is upon the applicant to establish that the funds would have been available by identifying the way in which the $44,000.00 was expended. The respondent further argues that in March 1999 when the transfer took place there was no cogent evidence that the bankrupt was having difficulty paying his creditors as the only claim that had been made against the bankrupt was the Ridley Agriproducts proceedings which were being defended, were being brought against the applicant only as guarantor and were not determined until July 2000. The other judgments, which the bankrupt suffered, were not entered against him until after “the transfer took place.”
The respondent argued that there was no direct evidence that the bankrupt’s main purpose was to defeat his creditors and that any inferences should be tested to the standard in Briginshaw v Briginshaw (1938) 60 CLR 336 which would not be reached on the evidence available.
In answer to s.121(4) the respondent argues that she did give consideration for the transfer. She had no idea what the bankrupt’s main purpose was and could not reasonably infer that at the time of the transfer he was or was about to become insolvent.
In order to decide whether or not a transfer has taken place it is necessary to carefully examine the constituents of that alleged transfer. On 17 March 1999 the bankrupt had an equitable interest in one third of the residuary estate of his late grandmother. Given the short period of time between that day, which is the date of the letter to Mr Bickell and the day of the payment of the cheque on 26 March it is reasonable to infer that his equitable interest was cohate and defined. The letter constitutes notice to the trustee of the estate by his agent, the solicitor, that the beneficiary intends to assign his equitable interest to Ms Morris. The trustee through its agent, the solicitor, accepts the decision of the assignor and draws a cheque in favour of the assignee. The assignee receives the cheque. She is now the beneficiary of the estate of her late grandmother. She does not disclaim her inheritance. She telephones the assignor to thank him for the assignment. In her evidence she used words to the effect “that she felt she deserved the assignment” because she had looked after her grandparents. When the assignor asks for the money she agrees to give it to him “because it was really his.” She then split the cheque and effected payment to his order into the Morris Family Trust account.
Perhaps the most authoritative view of what constitutes a voluntary disposition of an equitable interest was given by Dixon J in The Controller of Stamps (Victoria) v Howard-Smith [1936] 54 CLR 614 at 621 where His Honour set out three forms of such disposition of which the second and third are most relevant to this case:
“In the second place, the disposition may consist of a sufficient expression of an immediate intention to make over to the persons intended to benefit the equitable interest vested in the donor, or some less interest carved out of it. In that case communication to the trustee or person in whom legal title to the property in vested is not required in order effectually to assign the equitable property. Notice to the trustee may be important to bind him to respect the assignment and in order to preserve priorities. But it is not a condition precedent to the operation of the expression of intention as an assignment. Nor does it appear necessary that the intention to pass the equitable property shall be communicated to the assignee. What is necessary is that there shall be an expression of intention then and there to set over the equitable interest, and, perhaps, it should be communicated to someone who does not receive the communication under confidence or in the capacity only of an agent for the donor.
In the third place, the intending donor for whom property is held upon trust may give to his trustee a direction requiring him thenceforth to hold the trustee property upon trust for the intended donee…Accordingly, a voluntary disposition of an equitable interest may be affected by the communication to the trustee of a direction, intended to be binding on him, thenceforward to hold the trust property upon trust for the donee. But it must be a direction, and not a mere authority revocable until acted upon. Such an authority is not in itself an assignment. It may, it is true, result in a transfer of an equitable interest. For the trustee acting upon it may make an effectual appropriation of the trust property to the new beneficiary, or may acknowledge to him that he holds the trust property thenceforward on his behalf. If the authority contemplates or allows such a method of imparting an equitable interest to the donee, the action of the trustee may be effectual to bring about the result. But in such a case, it is not the donor’s expression of intention which per se constitutes the assignment. It is the dealing with the trust under his authorisation.”
It seems to me that what occurred here falls fairly and squarely within the second of Justice Dixon’s forms. The bankrupt made a sufficient expression of an immediate intention to make over to the respondent the equitable interest which was vested in him. He did not need to tell the trustee nor did he need to tell the respondent. In fact he told the trustee through his agent. There is no suggestion in the letter that the decision is not one to effect the assignment “then and there”. There is no suggestion that the direction is revocable or not to come into effect until the assignee receives her cheque and banks it to her own account. I do not think that what occurred here comes within the third form. That seems to be directed at creating a new trust out of the trust property formally belonging in equity to the assignor of which the original trustee is to become trustee. But even if it does (because the effect of the letter was that the property was held on trust for the respondent until the trust was wound up on payment of the cheque) the donor did communicate to the trustee a direction intended to be binding upon him. The letter does not appear to me to be a “mere authority revocable until acted upon” but even if it was that will not avail the respondent. The trustee did act upon the instruction. He ensured that his solicitor made a cheque out payable to the new beneficiary and not to the old.
The respondent argues that there was no payment of money because a cheque is not considered to have been paid until it is accepted by the creditor; Thompson v Moyse (1961) AC 967 at 1004 applied in National Australia Bank Ltd v KDS Construction Services Pty Ltd(In Liq) (1987) 163 CLR 668 at 676. This assumes that the “transfer” was the payment of the money. But I do not think it was. To my mind the transfer was the assignment of the equitable interest and the payment of money was only the result of that transfer having taken place.
If the assignment took place upon the beneficiary communicating his intention to assign to the trustee, was any consideration given for that assignment by the respondent? I think there was. I think that the bankrupt is to be taken at his word as it appears in the letter. He is completing the contract of loan which was made between himself and the respondent whereby in consideration for her advancing him $25,000.00 he promised to repay her that money. Repayment of loans in this way would normally only come to the attention of the bankruptcy trustee if the repayment constituted the provision to the lender of a preference contrary to s.122 of the Bankruptcy Act. This payment did not occur within the time periods set out in that section and is therefore not caught.
I believe that this analysis of the transaction is correct but even if I am wrong and the applicant is right that the transfer took place upon the opening of the envelope and receipt of the cheque by the respondent, the purpose of the assignment does not change. The objective evidence consists of the letter to the trustee which indicates the repayment of the loan. It is only after the assignment is perfected that the respondent contacts the applicant. When she does the bankrupt attempts to resile from his arrangement, knowing full well that the respondent does not know of his intention because he has requested the trustee’s solicitor to keep it confidential. The bankrupt takes advantage of the respondent’s unsophisticated view about the money.
The payment of the funds to the family trust by way of the split cheque must be a separate transaction from the assignment and transfer to the respondent. It is to be remembered that the cheque was not the bankrupt’s cheque. There was no way in which he could prevent the respondent from paying that cheque into her own account and holding it to her own order. If the respondent had disclaimed her inheritance then the money would not have gone to the bankrupt. It would have gone back to the trustee to be dealt with in accordance with the terms of the trust.
I do not accept the respondent’s argument that she never accepted the transfer and thus never came into possession of the funds. Whatever she may have thought, and whatever she may have said to the bankrupt, she was always in a position to have refused his request. This is because the cheque was not his cheque. He could not have stopped it. The legal effect of what occurred following the telephone conversation between the bankrupt and his cousin was that she made a gift to him of $44,000.00. The respondent specifically refuted any suggestion that she had intended to make a loan to the Morris Family Trust. I regard this transaction as a gift regardless of the entry in the books of the family trust. In the same way I regard the original $25,000.00 transaction to be a personal loan to the bankrupt notwithstanding the documentation, which came much later, concerning an investment in sows and piglets through one of the bankrupt’s companies (see Albion Hotel Pty Ltd v Federal Commissioner of Taxation (1965) 115 CLR 78). It was the respondent’s evidence that the “sale” of the livestock to her was merely a form of security for what was a personal loan. The bankrupt acknowledged the personal loan in his letter to the trustee’s solicitor.
I would therefore find in respect of the claim under s.120 of the Act that the respondent is liable to refund to the trustee $23,494.43, that being the balance of the transfer after repayment of the consideration of $25,000.00 pursuant to s.120(4).
I am satisfied that because the transactions were separate the respondent did not give the bankrupt any consideration for the transfer to him or his order of the $23,494.43. As I have said, it was her money to dispose of whatever she may have thought. She did not agree (in the legal sense) to accept the money from him in consideration of paying it out at his direction. It was already her money.
One difficulty with this case is that in paragraph 8 of the Statement of Claim, paragraph 120(1) is pleaded before paragraph 121(1) but then in paragraph 9 the claim under s.121(1) is particularised and at paragraph 14 the claim under s.120(1) is said to be “in the alternative to the matters pleaded in paragraphs 9-13.” However, this seems to be only a technicality. The transfer claimed under s.121 is the same transfer as that claimed under s.120 and by sub-s.121(5) the amount of any consideration must be refunded to the payor. Even if the respondent succeeded completely in establishing the matters required by sub-s.121(4) she would still be liable under s.120 pursuant to my findings above.
In respect of s.121 the respondent has argued that it is up to the applicant to indicate why the money would properly have become part of the transferor’s estate or would properly have been available to creditors if the property had not been transferred. There appears to be little authority on this sub-section which was inserted into the Bankruptcy Act by the 1996 amendments. It is not referred to in the helpful discussion of the construction of s.121 of the Bankruptcy Act found in Prentice v Cummins(No 5) [2002] FCA 1503. I have not been provided with any evidence as to why the money would not have formed part of the bankrupt’s estate or been available to pay his creditors. There was a suggestion from the respondent that the bankrupt might have used the money to pay his day to day expenses but as those were required to be paid in any event an equivalent amount of money would have been saved. I do not believe that the sub-section was inserted in order that bankrupts could give evidence on behalf of respondents to these proceedings indicating that any money that might have been received, but for the transfer, would have been spent on an overseas holiday or gambling and therefore would not be available to his estate. But even if it was, that did not occur in this case. In the absence of any evidence I am entitled to draw an inference that if $48,000.00 had been paid to the applicant it would have been available as required under the sub-section.
I am satisfied that the bankrupt did have the requisite intention set out in sub-s.12(1)(b)(i). I say this because of the evidence given by the respondent that the bankrupt told her that he was having financial difficulties and wanted her to pay some money to assist him with his companies. We also know that proceedings for a substantial sum, for which judgment was eventually obtained, had commenced and that other sums for which proceedings were commenced within a reasonably short space of time must have been owing. The bankrupt in his statement of affairs reveals a difficulty in paying debts after 1998. We know that the bankrupt operated his business affairs through a family trust and we know that he directed the respondent to pay the bulk of the money, not to himself, but to himself as trustee for the Morris Family Trust. We know that the bankrupt was a dissembler. He took a personal loan from the respondent but later made it look as if it was the purchase by her of an interest in livestock under one of his schemes. We know that the bankrupt asked the respondent to pay to him what she described “as his own money” to an account that he would tell her about. That account was the family trust. But the bankrupt later declared the respondent to be a debtor of the family trust although there was no discussion of this between the bankrupt and the respondent at the time. I am satisfied that the requirements of s.121 are made out and that the respondent cannot satisfy sub-s.121(4)(a) even if she could have satisfied sub-section 121(4)(b) or (c), although I have my doubts in respect of 121(4)(c). I would therefore make the same order in respect of the application under s.121 as I would under s.120 requiring the respondent to pay to the applicant the amount claimed less $25,000.00.
Interest
The applicant has claimed interest from 20 August 2001 or in the alternative from 24 June 2002. The first date is the date of a letter from the trustee to the solicitor for the respondent requiring payment to be made within fourteen days ($48,494.43). I am not sure what the second date is but I note that the application itself was issued on 20 August 2002. The power to award interest is contained in s.76 of the Federal Magistrates Act which is a modernised or plain English version of s.51A of the Federal Court Act. I am of the view that the same provisions apply to the award of interest under both Acts. In this regard there is a helpful discussion of the requirements of the sections and width of judicial discretion by Finn J in H K Frost Holdings Pty Limited (In Liq) v Darvall McCutcheon (A Firm) [1999] FCA 795. This was the case which concerned delay in commencing proceedings which is not alleged here. One ground upon which one might consider exercising discretion in this case is that the respondent never had the use of the money apart from $4,000.00 odd because she transferred it to the bankrupt almost immediately upon receipt. Finn J noted in H K Frost at [6]:
“It is well settled that the objective of provisions of this type is to compensate an applicant for the loss it suffers by being kept out of its money or damages: see Batchelor v Burke (1981) 148 CLR 448 at 445; Clarke v Foodland Stores Pty Limited [1993] 2 VR 382 at 396 and see Tilbury, Civil Remedies, vol 1, 1990 para 3226ff.”
At [10] His Honour said:
“It is neither possible nor desirable to define what will constitute “good cause” disentitling a party to interest under s.51A(1) (s.76(3)(b) Federal Magistrates Act); each case must be considered by reference to its own circumstances: Australian Guarantee Corporation Ltd v Border Printing Services Pty Ltd, above.”
Having regard to the fact that an award of interest is compensatory and not punitive I do not believe that the discretion available to a court is wide enough to exclude interest just because the person paying it did not have the benefit of the funds upon which it has been ordered. But in this case things are somewhat different. The bankrupt paid no interest on his loan. The amount of the loan is very similar to the amount required to be paid by the respondent, the periods outstanding are similar. The discretion will, I believe, allow me to refrain from ordering interest in the circumstances.
I will hear the parties as to costs.
I certify that the preceding forty-three (43) paragraphs are a true copy of the reasons for judgment of Raphael FM
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