McInnes & Anor v Caddy

[1996] HCATrans 104

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S116 of 1995

B e t w e e n -

BRUCE ANTHONY McINNES and KAREN LORRAINE McINNES

Applicants

and

GEORGE LIONEL CADDY, Official Receiver for the Bankruptcy District of New South Wales

First Respondent

OFFICIAL TRUSTEE IN BANKRUPTCY

Second Respondent

Application for special leave to appeal

DAWSON J
TOOHEY J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 15 APRIL 1996, AT 10.41 AM

Copyright in the High Court of Australia

MR A.T. McINNES, QC:   May it please the Court, I appear with my learned friend, MR A.E. McINNES, for the applicants.  (instructed by Ferrier & Associates)

MR B.J. SKINNER:   May it please the Court, I appear for the respondents.  (instructed by Lobban McNally & Harney)

DAWSON J:   I am just sorting out the McInneses, Mr McInnes.

MR McINNES:   I think if your Honour says McInnes, for any person involved in this case it is certain that your Honour is going to be correct.

DAWSON J:   Yes, Mr McInnes.

MR McINNES:   Your Honour, the issue in this matter is whether when a bankrupt pays a sum of money to acquire an asset and the money is paid in good faith and for a valuable consideration and the asset is transferred to a third party, can the trustee, the bankrupt’s trustee, recover the amount of money paid for the asset as opposed to the asset or the value of the asset?  The rules that have been established over the years, both in relation to the requirements of section 120 and 121, were recognised by the Full Court, and are referred to, the cases, in their judgment.  But, then, at page 78, line 20, they said that they approached the matter in a commercial sense and that the payment to the builder, the $99,000-odd, was a disposition in favour of the applicants.  We say that the only disposition that could be was the house itself, and the trustee is limited to what rights the bankrupt had in the house itself.  The trustee did not wish to pursue the house because the bank had certain rights in respect of it as soon as the land was transferred.

So there were no findings by the Full Court which overruled any of the previous decisions as to what can and cannot be recovered under 120 and 121 until we come to page 78 and they dealt with it as a commercial matter and a matter of substance in which case that, in effect, overrules the basic principles that are applicable in 120 and 121 because if it is open to the court to look at a transaction of this nature in a commercial sense then there is no reason why a trustee could not do it in other instances where the bankrupt has purchased an asset, transferred it to a third person, and then the trustee on a commercial basis could ask for the purchase price to be paid to the bankrupt’s estate.  Apart from the commercial matter, they refer on page 78, line 27, “as a matter of substance”.  They say:

if the bankrupt had purchased a prefabricated building and placed it on the respondents’ land without reserving any entitlement, legal or equitable, to the building.

Now, such a transaction for a prefabricated house that could be transferred onto the land would, in the appropriate circumstances, be void against the trustee and the trustee would be able to recover that property - there is no reason at all.  So, “as a matter of substance” does not, in effect, mean anything. 

DAWSON J:   But if the bank had paid the money which eventually went to the builder to the bankrupt, because that was the loan, and the bankrupt had then paid that to the owners of the land on which the house was to be built because it was their house, the situation would be quite different, would it not?

MR McINNES:   It would be.

DAWSON J:   But is that not, in effect, what happened?

MR McINNES:   No, with respect, your Honour.

DAWSON J:   And it was short-circuited by the bank paying to the builder directly.

MR McINNES:   No, your Honour, it was not, in effect, what happened.  The money was paid.  It would have been in good faith and for valuable consideration, for a start, when it was paid to the owners of the land.  That would be the first thing.

DAWSON J:   That is the effect of the transaction if they are the owners of the house.

MR McINNES:   They are not the equitable owners, though.

DAWSON J:   There is a payment for an asset, the payment being made on behalf of the bankrupt, which was an asset of the applicants, or is an asset of the applicants.

MR McINNES:   Well, it is at the present time, but subject to the bankrupt’s right, or the trustee’s right, to acquire that asset, that is not lost to the trustee.

DAWSON J:   It is because there is a mortgage over that land on which the house is, is there not?

MR McINNES:   What that means, your Honour, is that the benefit of the house and land is for another creditor, namely the bank.

DAWSON J:   It means that the benefit is for the applicants.

MR McINNES:   Well, it does not, your Honour, with respect, because if the bankrupt or the trustee seek to enforce the bankrupt’s right in respect of the house and land, which they may well do, then it does not remain with the applicants and the applicants have never ‑ ‑ ‑

DAWSON J:   They prefer to look to the payment.  And the question is why are they not able to do so? 

MR McINNES:   I am sorry, your Honour, I did not quite catch what your Honour said.

DAWSON J:   The trustee prefers to look at the payment which was made whereby all this followed, and why is he not entitled to do so?

MR McINNES:   Because, your Honour, it was not paid - first of all, it was paid in good faith, valuable consideration, for an asset that the bankrupt herself was acquiring.  Now, that asset was, and still is, available to the trustee.  The only reason that the trustee does not want it, is because the unsecured creditors would not get the benefit of it as a secured creditor would.  And, indeed, the secured creditor, if it required it, could enforce that agreement and get the house and land.  It has just chosen not to.  Now, undoubtedly, it would be more beneficial to the Trustee in Bankruptcy to do it this way because a lot more money is probably involved, and it does not mean that the land has to be paid for and it does not mean that the cost of transfer has to be paid for, but it is still there, and the equitable interest is in the bankrupt and that is not being denied by the applicant, your Honour.  So, it is not as though the bankrupt’s interest in the asset has vanished, it has only vanished on a legal basis, not an equitable basis.  So that, your Honours, the situation is, in my submission, just the same as if the trustees purchased another asset, gave it to a third party, and the trustee then looks at it in a commercial sense and recovers the cost of the asset.

GUMMOW J:   You try to get some disfavour out of the word “commercial” but the crux of the Full Court’s findings is at page 87, is it not, line 50, and following, going over to 88.  Page 87, line 51, I suppose it is, and also page 89, line 15.

MR McINNES:   If I might just - 89, “quasi-contract” - it is essential for money had and received - my submission is that the money actually be received by the person from whom it is to be claimed, and the money was never actually received by the applicants.  It went to someone else and it was dispersed by someone else so that, really, your Honours, it was one way in which a trustee in bankruptcy could recover money that was due.  It was nothing more than that and there was no special form of money had and received. 

Going back to 87, the fact that the applicants “did not provide consideration of a real or substantial value” simply means that it is a transaction that could be set aside.  It does not go any further than that.  What would have to happen, in my submission, would be that it would be lost entirely to the bankrupt or the trustee and it is not.  It is available if they care to take the equities and enforce them.  It would be impossible to think that if there had been no bankruptcy, no intervention by creditors, that the bankrupt could not have enforced the sale that was agreed in Christmas 1988, having erected a house upon the property, having reached an agreement to buy half an acre of land, and my submission is that an equity court would regard that as part performance and order a specific performance of the agreement.

Your Honours, the principles that are cut across, in my submission, by the finding, is that under section 120 the settlement that the property has to be held by some other person, the money is not held by the applicants, that the retention of the property is contemplated.  Both those only relate to the building itself, not to the money.  It is not for immediate disposal or consumption.  The money was disposed of and consumed by Mr Warburton, the builder, and there was a deposition for valuable consideration and, therefore, the transaction is excluded from 121.  The disponer did not keep the money, as opposed to the house, for her own benefit, and that section 139ZQ - it is essential for the application - that section, in my submission.  It is money paid only, which is received by the applicants, that is available or property received. 

Now, they never received, in fact, any money at all, so that section 139ZQ could have no application, and that is confirmed, to some extent, by 139ZR which places an immediate charge upon the property claimed.  Now, there is no money.  The $99,000 had gone by Mr Warburton.  There is no money to which section 139ZR could relate in this instance.  So, it is quite clear that the legislation means the actual money that was received or the property that was received.  Those are the matters that I would wish to put to the Court.

DAWSON J:   Thank you, Mr McInnes.  Yes, Mr Skinner.

MR SKINNER:   May it please the Court.  May I correct one error in direction.  My friend talks about there being security over the property and that creditor being a secured creditor.  The creditor who holds a mortgage over the property on which this house is erected is not a creditor in the bankrupt estate.  That security relates to the property owned by the applicants to these proceedings.  Secondly, as to the notion that there is still an equitable interest in the trustee which can be enforced, the Full Court put paid to that proposition as Justice Gummow observed, at page 88 of the application book, at line 6, where their Honours rejected that there was any binding contract entered into in 1988.  The opponents in this matter always took the position that even if there had been a contract it had been repudiated by all the parties by the time the clear intention to defraud was evidenced. 

In other words, not only had the applicants repudiated the agreement that they would transfer land free, one would assume, of the mortgage, but, secondly, the bankrupt, herself, repudiated the contract by the very act of presenting her own petition in bankruptcy.  The Full Court, for its part, did not go that far because it found that there was no concluded contract, so, therefore, we respectfully submit that it is, in essence, a red herring to be looking at the notion that the trustee has somehow made an election to be looking to the price paid for the erection of the building as opposed to enforcing equitable rights which, as my friend puts it, the bankrupt could have enforced.  The nutshell of this matter is that the bankrupt, herself, elected not to enforce any rights which she may have had because she was party to the fraud in that moneys that otherwise would have been available to her creditors were used to build the property on which the applicants own the land.

GUMMOW J:   What is the significance, if any, of the 139ZQ provisions in this case?

MR SKINNER:   None whatsoever, your Honour.  If I could deal with it this say:  these proceedings were commenced by the issue of a notice under section 139ZQ.  Ultimately, the applicants filed an application to set aside that notice. 

GUMMOW J:   But concurrently with that were there free-standing proceedings?

MR SKINNER:   Yes, there became free-standing proceedings and the matter proceeded before the trial judge on an application by the Official Trustee in Bankruptcy or declarations under section 121 and section 120.

GUMMOW J:   In other words, free-standing proceedings as would have been the way of doing it before those new sections were brought into the notice system.

MR SKINNER:   Yes, your Honour, and that is how the matter proceeded.

GUMMOW J:   So, any question of principle arises under 120 and 121?

MR SKINNER:   Indeed. 

GUMMOW J:   Yes.

MR SKINNER:   We simply say that there is no question of principle arising out of section 139.What I should just indicate for the benefit of the Court as to why the parties appear as they do, section 139ZQ requires the Official Receiver to issue the notice.  The reason that the Official Trustee appears is because it is the trustee of the estate and it is the party who sought the principal relief before the trial judge. 

So nothing turns on section 139.  The final submission which I need to make to the Court is that nothing turns also on section 120 because although section 120 was included in the pleadings before the trial judge and was referred to, the Full Court itself only referred to it in passing.  So this case is, in essence, about section 121.

TOOHEY J:   Mr Skinner, I was going to ask you about your challenge to the statement by Mr McInnes that the bank was a creditor.  I suppose it could have been only in the sense if it had been prepared to forego its security would it then have been entitled to prove in the estate of the bankrupt?

MR SKINNER:   That is so, your Honour.  By coincidence, it was the same bank who lent money on the Drummond Street property as the same bank who holds security over the applicants’ property.  What your Honour says is correct, in order for the bank to have come in as approved creditor, it would have had to have abandoned security or, indeed, lodge the proof as a result of what happened with Drummond Street.

TOOHEY J:   Yes, thank you.

MR SKINNER:   May it please the Court.

DAWSON J:   Mr McInnes?

MR McINNES:   Your Honour, on that point the bank was the mortgagee of Drummond Street taking pro forma mortgage for the land and it was also the mortgagee of Bringa Park, so it had a fair amount of control to enforce its mortgage, and it had intended to take on a lien, and in the ordinary circumstances if the transaction had gone ahead initially, and then the debts of Colin John McInnes were called up, the property would have been lost to the bankrupt because the debts exceeded the assets of the bankrupt. 

Your Honours, there cannot be a repudiation of a party for a part performance if one party desires to perform and the party obliged to perform cannot effectively repudiate that situation.  My submission is the reasons that the Full Court gave for saying there was no contract cannot be borne out given the circumstances in which there was the discussion at Christmas 1988, the price, the land, and then to allow a person to go ahead and build on that land in the place indicated, would be sufficient part performance. 

Your Honours, the other thing that I wanted to say, and it is set out page 2, that we say that 139ZQ is applicable because his Honour, Mr Justice Einfeld, referred to the history of the matter on that page.

GUMMOW J:   The notices were reinstated in the Full Court, were they not?

MR McINNES:   Yes, your Honour.

GUMMOW J:   But I do not see how it really matters.  You would have got to the same result if there had not been notices because of the free‑standing concurrent proceedings.

MR McINNES:   What I was going to say is that the 139ZQ notices were issued, and then they were challenged by the applicants and that is how the matter came before his Honour in the first instance and the Full Court ultimately.  So that there were no other separate proceedings.  There was no claim for money had and received or anything of that nature.  Those are the only other things I wanted to say, your Honours.

DAWSON J:   Thank you, Mr McInnes. 

The Court is of the view that this application turns upon its own particular facts and does not involve any point of principle which would warrant the grant of special leave.  Special leave to appeal is accordingly refused.

MR McINNES:   If the Court pleases.

MR SKINNER:   Your Honours, the respondents seek costs.

DAWSON J:   Mr McInnes, can you say anything about that?

MR McINNES:   Nothing to say, your Honour.

DAWSON J:   The application is refused with costs.

AT 11.03 AM THE MATTER WAS CONCLUDED