Official Trustee in Bankruptcy v Mitchell

[1992] FCA 792

Re: OFFICIAL TRUSTEE IN BANKRUPTCY (as trustee of the bankrupt estate of David
Mitchell)
And: DAVID MITCHELL and PATRICIA ELIZABETH RUSSELL
No. N G155 of 1992
FED No. 792
Bankruptcy - Family Law
(1992) 110 ALR 484
(1992) 38 FCR 364

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Burchett(1), French(1) and Einfeld(1) JJ.

CATCHWORDS

Bankruptcy - application by trustee under ss. 120 and 121 - origin of s. 121 in Statute of Elizabeth - whether marriage is a valuable consideration for the purposes of the section - marriage settlement - effect in equity - relationship of ss. 120 and 121 - "purchaser for valuable consideration" - onus - Court should consider the broad effect of the arrangement, not being confined to the technical language of the document - whether payment of mortgage was valuable consideration within sections - good faith - whether good faith is a requirement in relation to a marriage settlement under s. 120 as well as under s. 121 - meaning of good faith under the sections - lack of good faith distinguished from negligence or blindness - discussion of tests for good faith; in general the test is that stated in Re Hyams - good faith as a question of fact.

Family Law - whether deed void under s. 87 of Family Law Act 1975

Evidence - cross-examination - Court entitled to understand answers other then literally, having regard to the evidence as a whole and its impression of the witness.

Appeal - weight of trial judge's assessment of a witness's character.

Bankruptcy Act 1966, ss. 120 and 121

Family Law Act 1975, ss. 86 and 87.

PT Garuda Indonesia Ltd v. Grellman (1992) 107 ALR 199, applied

Re Hyams (1970) 19 FLR 232, applied

National Australia Bank Ltd v. Cunningham (1990) 12 ATPR 51,619, considered

Barton v. Official Receiver (1986) 161 CLR 75, discussed

Re Pacific Projects Pty Ltd (in Liq.) (1990) 2 Qd R 541, referred to

The Official Trustee v. Marchiori (1983) 69 FLR 290, referred to

In re Reis. Ex parte Clough (1904) 2 KB 769, referred to

HEARING

SYDNEY

#DATE 30:10:1992

Counsel for the Appellant: Mr D.F. Jackson QC with Mr M.R.

Aldridge

Solicitor for the Appellant: Australian Government Solicitor

Counsel for the Respondents: Mr C.P. Comans

Solicitors for the Respondents: Messrs Blake Dawson Waldron

ORDER

Appeal be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

BURCHETT, FRENCH AND EINFELD JJ. This is an appeal from the refusal by a judge of the Court of an application made by the Official Trustee in Bankruptcy, in which orders were sought under ss. 120 and 121 of the Bankruptcy Act 1966. Section 120(1) provides:

"A settlement of property, whether made before or after the commencement of this Act, not being -

(a) a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or

(b) ...

is, if the settlor becomes a bankrupt and the settlement came into operation after, or within two years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy."

Section 121(1) provides:

"Subject to this section, a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is, if the person making the disposition subsequently becomes a bankrupt, void as against the trustee in the bankruptcy."

The application of these provisions is in question in circumstances which we shall now briefly recount.

1. Prior to his bankruptcy, one David Mitchell was a director and employee of a company, Elburz Holdings Pty Limited, which was engaged in the business of the outfitting of offices. He gave personal guarantees in respect of borrowings by the company to the extent of about $500,000. When the company went into liquidation on 23 August 1990, the first and obvious consequence was that David Mitchell lost his employment; but a further consequence of the company's deficiency of over $700,000 was the likelihood that he would shortly be called upon to honour his guarantees. He was, subject to encumbrances, a man possessed of some property, consisting of four parcels of real estate. These were put on the market, and apparently one sold quite promptly, yielding net proceeds of about $100,000, which he utilized to meet his expenses for a considerable time thereafter.

2. Also during 1990, and while these events were occurring, David Mitchell developed a close relationship with the respondent Patricia Russell, a relationship which culminated in their marriage on 15 November 1990. Patricia Russell, who had been married twice before, possessed a small house valued at $80,000, possibly paid for out of compensation in respect of the death of her first husband. This house is of importance in the story because, with the experience of a less than happy second marriage, she insisted, when marriage was discussed between herself and David Mitchell, on retaining separate property in her own name. They had by then been living together during some part of 1990, alternately in his house and in hers, and had found her house too small to accommodate them both, together with her children. It was, therefore, contemplated that she would sell her house, in order to use the proceeds in reduction of the mortgage over the house in which they would live. As might be expected, Patricia Russell was aware of the liquidation of the company and of the loss of David Mitchell's employment. Her evidence, however - and nothing establishes the contrary - is that she had never been told about the guarantees. Even accepting that her future husband would not have appeared to her to be entangled in the debts of the company, there was plainly a risk that an unemployed man might prove unable to maintain the payments to the bank in respect of the mortgage over his house property, which was for the sum of $200,000. Patricia Russell was willing, she said, to sell her own house, paying David Mitchell's bank $80,000 from the proceeds, and to repay the balance of his loan by taking out a fresh loan in her own name, but she required the protection for herself and her children, if she was to do that, of a transfer of the title.

3. It was in these circumstances that the transactions which are under attack in this appeal came into being. David Mitchell consulted his solicitors, and Patricia Russell was advised that the matter could be satisfactorily resolved by the execution of two deeds, one before and one after their marriage. It appears she did not understand the technical legal details, which is hardly surprising, since the solicitor had devised an unusual and complex procedure. A difficulty was the need to reduce the number of mortgaged properties held by David Mitchell as soon as possible. He had two houses in the hands of agents for sale, on the basis that, whichever was sold first, the other would be transferred to Patricia Russell. As a result, the deeds referred to two properties, although the intention was always that she would actually receive only one.

4. The first deed was a marriage settlement executed 13 November 1990, two days before the marriage. It recited the intended marriage and the ownership of property by David Mitchell, and then proceeded:
   

"NOW THIS DEED WITNESSES:

1. That DAVID MITCHELL agrees that in consideration of PATRICIA ELIZABETH RUSSELL marrying him he will on the date of that marriage transfer all his equitable interest in the freehold property and the Leasehold (sic) property to the said PATRICIA ELIZABETH RUSSELL.

2. That PATRICIA ELIZABETH RUSSELL agrees that in consideration of DAVID MITCHELL transferring his equitable interest in the aforesaid properties to her on the date of their marriage she will marry DAVID MITCHELL."

The properties described were the two properties to which we have referred, one of which became the matrimonial home, and is the property the subject of the present appeal.

1. Very shortly after the marriage, on 27 November 1990, the parties entered into the further deed that had always been contemplated. This was entitled "AGREEMENT PURSUANT TO SECTION 86 FAMILY LAW ACT 1975". It referred to the same properties, which were described in a schedule. The recitals and operative provisions were as follows:
   

"WHEREAS:

A. The husband and the wife were married on the 15th of November 1990 in the Australian Capital Territory; and B. As a consequence of the marriage of the husband and the wife each has rights in certain circumstances under the Family Law Act 1975 to make claims over the property of the other and to claim maintenance from the other.

C. The parties wish to enter into this agreement recording matters affecting rights to property and maintenance.

IN PURSUANCE OF THE PREMISES THIS DEED WITNESSES AS FOLLOWS:

1. This Deed is binding upon the parties hereto their heirs, executors, administrators and assigns.

2. That in consideration of the wife agreeing that the husband shall pay no maintenance to her, the husband agrees to transfer to the wife all his legal right, title and interest in the properties described in the Schedule hereto subject only to the wife indemnifying him and keeping him indemnified in respect of the mortgages over those properties.

3. It is intended to register this Agreement pursuant to Section 86 of the Family Law Act."

1. Some time following the execution of the second deed, Patricia Russell's house was sold, and from its proceeds the sum of $80,000 was paid to David Mitchell's bank. A fresh loan was then taken out by Patricia Russell for $125,000, in order to pay out the balance of David Mitchell's obligation to the bank in respect of the house he had occupied prior to the marriage, which became the matrimonial home. Finally, a transfer was lodged for registration, expressed to be in pursuance of the second deed. Registration has not taken place, because of the intervention of the Official Trustee, David Mitchell having become bankrupt on 15 May 1991 by virtue of the presentation of his own petition.

2. It is perhaps surprising, at first sight, that the instrument of transfer should have purported to be in pursuance of the second deed. However, counsel pointed out that, in the circumstances of this case, a stamp duty exemption might arguably have been available, by virtue of s. 90 of the Family Law Act 1975, for a transfer pursuant to that deed, and was actually allowed to Patricia Russell. He submitted this was in fact the explanation for the execution of the second deed, which otherwise, following hard upon the marriage settlement, has a somewhat curious look.

3. Notwithstanding that the transfer referred to the second deed, if the first was effective as a marriage settlement, the whole equitable interest in the subject property must have been vested in Patricia Russell before either the second deed or the transfer was executed: see In re Reis. Ex parte Clough (1904) 2 KB 769 at 789, per Vaughan Williams L.J. Logically, therefore, the first question is whether the marriage settlement is vulnerable to attack under either s. 120 or s. 121. It was not contended that his Honour erred in regarding the first deed as complying with all the requirements for a valid marriage settlement, subject only to the effect of these sections. But a submission was made that marriage is not a valuable consideration within the meaning of s. 121. We cannot accept this submission, and that for numerous reasons.

4. In the first place, the submission is in conflict with an important rule of construction. In Ashfield Municipal Council v. Joyce (1978) AC 122 at 134, Lord Wilberforce, speaking for the Privy Council, reasserted the principle laid down by Lord Macnaghten in Income Tax Special Purposes Commissioners v. Pemsel (1891) AC 531 at 580 that "(i)n construing Acts of Parliament, it is a general rule ... that words must be taken in their legal sense unless a contrary intention appears". The expression "valuable consideration" has, for a very long time, been recognised as having a legal meaning which includes the consideration of marriage: Floyer v. Bankes (1864) 33 LJCh (N.S.) 1; Kevan v. Crawford (1877) 6 Ch D 29 at 38; Re A.T. Behrend's Trust. Surman v. Biddell (1911) 55 SJ 459; Midland Bank Trust Co Ltd v. Green (1981) AC 513 at 531. In the first of these cases, Lord Westbury, L.C. at 3 said: "Marriage is, by the law of England, a valuable consideration for a contract, and that of the highest kind ... ."

5. In the next place, it has always been recognised that s. 121, as well as various similar provisions of Australian and overseas statutes, was intended to reflect generally the principles which have been worked out over the centuries, in relation to fraudulent dispositions, since the enactment in 1570 of 13 Elizabeth I chapter 5 (the Statute of Elizabeth). The Bankruptcy Act 1966, including s. 121, was passed following the submission of the well known report of the Clyne Committee, which makes it plain that s. 121 is derived from the Statute of Elizabeth. This matter is noticed, to instance but the most recent authority in this Court, in PT Garuda Indonesia Ltd v. Grellman (1992) 107 ALR 199 at 205 et seq. Under the Statute of Elizabeth, marriage was always treated as a sufficient consideration. For example, in In re Reis. Ex parte Clough (supra) at 783, Stirling L.J. said, with reference to the Statute: "As a general rule, a marriage settlement cannot be set aside as a fraud on creditors of the husband unless evidence is given that the wife was party to the fraud ... ." His authority for that proposition was the decision of the Court of Appeal in Kevan v. Crawford (supra), a case where a marriage settlement, made by a man who subsequently became bankrupt, was challenged as a fraud upon creditors. Lord Jessel M.R. at 38, dismissing an appeal against the rejection of the challenge to the marriage settlement, said the wife "was no party to (the fraud)". He continued: "She gave valuable consideration - consideration of marriage." It is not really conceivable that Parliament intended to change the established position of marriage settlements for the purposes of the law concerning fraudulent dispositions, when it enacted s. 121. There is not a word suggesting anything of the sort in the Clyne Report, and nothing in the section appears to be aimed at such a change. What the appellant argues is that s. 120(1)(a) distinguishes between "consideration of marriage" and "valuable consideration", and that this distinction is carried forward into s. 121 when it uses the expression "valuable consideration" without referring expressly to marriage. But an implied repeal of the settled law, so subtly intimated, would be quite remarkable. If Parliament had intended to change the meaning of "valuable consideration" for the purposes of these sections, it would have done so more plainly.

6. In any case, we do not think the implication is to be found in the sections upon their true construction. The reason why a settlement made before and in consideration of marriage is referred to separately in s. 120 is, we think, a fairly obvious reason of good draftsmanship. The section would simply not have read easily had the draftsman included a marriage settlement, qualified in the way required, within the same phrase which refers to a purchaser or encumbrancer in good faith and for valuable consideration.

7. Finally, the most cogent answer to the argument is perhaps its consequences. For if it is right, a marriage settlement, preserved as valid for the purposes of s. 120 although the settlor became bankrupt within two years (we are referring to a case where, despite the fraud of the settlor, the wife acted in good faith), could be found void under s. 121 if the same settlor became bankrupt, either within two years, or after, say, 20 years. That would be absurd. It is s. 120, covering settlements made shortly before bankruptcy, which is intended to be the more easily established by the trustee, provided only the transaction is a settlement, that is to say a disposition of an enduring nature (see Re La Rosa; Ex parte Norgard v. Rocom Pty Ltd (1990) 21 FCR 270, affirmed sub nom. Norgard as Trustee in Bankruptcy of the Estate of La Rosa v. Rocom Pty Ltd (unreported, Northrop, Davies and Lee JJ., 16 August 1990)), and it came into effect after, or within two years before, the commencement of the bankruptcy.

8. On the assumption that the Court might hold the marriage settlement invalid, counsel for the appellant addressed the question whether the second deed was made "for valuable consideration". Here, the dominant authority in Australia is Barton v. Official Receiver (1986) 161 CLR 75. In that case, the High Court made it clear (at 79 and 86) that at least the expression "purchaser ... for valuable consideration" should be held together as a single concept for the purposes of s. 120; and often each of the elements will overlap, so that the view taken by the Court in respect of one will influence the view taken in respect of another. In the end, the question is whether the entire expression is satisfied. The High Court endorsed a well established line of authority holding that fully adequate consideration is not required, although what is advanced as consideration must be real and substantial. Valuable consideration may be contrasted with a merely nominal, trivial or colourable consideration. In the joint judgment of Lockhart, WiL.C.ox and Einfeld JJ. in Simpson v. Grellman (unreported, 28 June 1990), where Barton was applied, it was said:
   

"The principle of Barton is clear. It is not necessary that the consideration given by a purchaser be equal, or even nearly equal, to the value of a property the subject of a s. 120 application."

1. The onus rests upon the appellant to establish the proposition that the settlement was not "made in favour of a purchaser ... in good faith and for valuable consideration". This was held by the Privy Council in Official Assignee of the Estate of Cheah Soo Tuan v. Khoo Saw Cheow (1931) AC 67, which concerned a section indistinguishable from s. 120(1). That decision was followed in England in In re Windle (A Bankrupt), Ex parte Trustee of the Property of the Bankrupt v. The Bankrupt (1975) 1 WLR 1628 at 1632, and was applied to s. 94 of the Bankruptcy Act 1924 by Clyne J. in Re Trautwein; Richardson v. Trautwein (1944) 14 ABC 61 at 75-76. His judgment was affirmed by the High Court in Trautwein v. Richardson (1946) Argus LR 129, but that report is incomplete and does not mention the question of onus. The proposition was also accepted by this Court in PT Garuda Indonesia Ltd v. Grellman (supra) at 211.

2. In applying these principles to the facts of the present case, we think the Court is bound to consider the broad effect of the arrangement embodied in the deed, and should not confine itself, in any narrow sense, to the technical language of the document. In Barton, the High Court treated as relevant the wider arrangements, pursuant to which the deed there in question was executed, although in the result of that case those arrangements did not constitute a substantial consideration. Here, the substance of the transaction did involve what is referred to in the authorities as a quid pro quo. Patricia Russell brought into the marriage, and into this particular arrangement, the sum of $80,000 and her ability, as a woman in independent employment, to borrow from the bank a further sum of $125,000. She provided both of these sums in return for the transfer of the house property to her. Although they totalled less than the full value of the property, they did amount to about two thirds of that value, and could on no view be regarded as nominal, trivial or colourable. Therefore, there was valuable consideration given in this case, within the meaning of the authorities, even apart from the covenant to forego maintenance (as to the effect of this covenant, see In re Abbott (A Bankrupt), Ex parte Trustee of the Property of the Bankrupt v. Abbott (P.M.) (1983) 1 Ch 45, which is discussed in Barton). We have not overlooked that, in In re Windle (supra), what was described in Barton at 84 as "a mere personal covenant of indemnity in respect of a house where the equity of redemption was of value" was held to be insufficient. However, we think the actual provision of the sums we have mentioned and the discharge of the mortgage by which David Mitchell was previously bound constitute a much more substantial consideration than that discussed in In re Windle.

1. A principal issue in the case was whether Patricia Russell acted in good faith. It was said the question of good faith arose both under s. 120 and under s. 121. In the case of a "purchaser or encumbrancer in good faith and for valuable consideration" (s. 120), and also in the case of a person taking under "a disposition for valuable consideration in favour of a person who acted in good faith" (s. 121), this would undoubtedly be true. But there is no express requirement of good faith imposed by s. 120 in the case of "a settlement made before and in consideration of marriage". Reference was made to the old cases, Colombine v. Penhall (1853) 1 Sm and Giff 228; 65 ER 98 and Bulmer v. Hunter (1869) 8 LR Eq 46. See also In re Pennington, Ex parte Cooper (1888) 5 Mor BC 216 at 219, 224-225. However, these were cases decided under provisions equivalent to s. 121, and the better view may be that the question arises only under the latter section. It is unnecessary to pursue the point, since both sections were relied upon by the appellant, and the trial judge held that the bankrupt did make a disposition of property which, so far as the bankrupt himself was concerned, was made with intent to defraud creditors. The remaining question under s. 121(1), valuable consideration having been shown, was whether the disposition answered the description of "a disposition ... in favour of a person who acted in good faith". There is no doubt that the onus of establishing lack of good faith rests on the appellant, just as he bears the onus of establishing, in the alternative, an absence of valuable consideration, but if he shows it under s. 121, he has no need of s. 120.

2. What is the meaning of "good faith" in this context? When Barton was before the Full Court of this Court (the decision of which is reported at (1984) 4 FCR 380), Fisher J. at 388-389 made some observations about the meaning of good faith in relation to ss. 120 and 121. His Honour referred to the test (which, it should be noted, related to a different statutory provision) accepted by Latham C.J. in Downs Distributing Company Pty Ltd v. Associated Blue Star Stores Pty Ltd (In Liq) (1948) 76 CLR 463 at 472, namely, that "existence of knowledge or suspicion of an inability to pay debts as they fall due negatives good faith". He also referred to the similar view of Gibbs J., as he then was, in Re Hyams (1970) 19 FLR 232 at 256 that "in good faith" means "without knowledge that any fraud or preference contrary to the statute is intended". However, while he expressed no concluded view, Fisher J. suggested a wider understanding of lack of good faith, as meaning "absence of dishonesty or of any conscious attempt to defraud any other person", might be more appropriate. Whether this is so or not, for the purposes of the present case it is sufficient to note that each of the three formulations mentioned by Fisher J. is concerned with the actual state of mind of the person who took under the disposition. Negligence, stupidity, or blindness to what others might be well able to see are not equivalent to lack of good faith. Of course, in a particular case, a failure to make enquiries a person might have been expected to make may be cogent evidence of such knowledge or suspicion as would deny good faith; but in such a case, the court's finding will not be one of an imputed dishonesty, but rather of a dishonesty inferred as a fact from the circumstances. The point was elaborately discussed by Lord Sumner in The Zamora No. 2 (1921) 1 AC 801 at 812-813.

3. In PT Garuda Indonesia Ltd v. Grellman (supra) WiL.C.ox, Gummow and von Doussa JJ., in their joint judgment, considered at 210-213 the concept of good faith involved in ss. 120 and 121. They referred to the dictum of Gibbs J. in Re Hyams, and they also quoted the test, often cited, which asks whether a respondent was "privy to the fraud". They held, at 212, that "the primary judge correctly posed the question to be determined as whether the evidence showed that Garuda had been privy to or party to the fraud". In answering that question, it was proper to consider facts "from which it could be inferred that Garuda knew that all was not being regularly and properly done". The last matter stems from a passage in the judgment of Kay L.J. in Mogridge v. Clapp (1892) 3 Ch 382 at 401:
   

"Good faith in that connection (Kay L.J. was speaking of a dealing with a tenant for life) must mean or involve a belief that all is being regularly and properly done; and if the lessee has not that belief, it may be said that sect. 54 of the Act of 1882 (Settled Land Act) does not protect him against an action by other persons entitled under the settlement."

It will be apparent that this test was formulated in a different statutory setting. It was imported into the present area of discourse by Fisher J. in The Official Trustee v. Marchiori (1983) 69 FLR 290 at 298. We fully accept that it states a useful test in some situations, but we think that, in general, the test which should be applied to ss. 120 and 121 is that favoured by Gibbs J. in Re HyaMs (See Re Pacific Projects Pty Ltd (in Liq.) (1990) 2 Qd R 541 at 545, per Connolly J., with whom Carter J. agreed; Re Oades; Ex parte: Official Trustee in Bankruptcy v. Bunora Pty Limited, Sheppard J., unreported, 27 March 1991; and Norgard as Trustee in Bankruptcy of La Rosa v. Rocom Pty Limited (supra), where the strangeness of a transaction which could well have been described as not in the regular course was not seen by the Full Court as indicating lack of good faith.) The test in Re Hyams may be satisfied where the Court can infer the receipt of notice so that the person concerned knew of the fraud or preference: if he then went on with the transaction, he must be regarded as privy to the fraud. We note that the Court in PT Garuda Indonesia Ltd v. Grellman, while setting out other tests as well as that in Re Hyams, stated (at 212): "In substance the notion of good faith expressed by these authorities is the same, and should be followed." And (at 213) the Court concluded: "(B)ut the payment will be held good unless it is shown that Garuda was privy to Mr Simpson's intention to defraud his creditors."

1. In the present case, the learned trial Judge referred to the test stated by Gibbs J. in Re HyaMs He considered Patricia Russell's evidence to the effect
   

"that she did not know of any details of any personal debts (David Mitchell) had as a result of the liquidation of the company and that she did not understand that he had guaranteed the debts of the company".

His Honour scrutinized her evidence and the circumstances quite minutely. He recorded that he had considered her demeanour, and that "(g)enerally speaking, (he) was impressed with her as a witness and with her testimony". In particular, he accepted her evidence concerning her lack of awareness of the details of David Mitchell's affairs, and her evidence that she was unaware of his exposure under the guarantees he had given. Accordingly, his Honour concluded that an absence of good faith on the part of Patricia Russell had not been shown.

1. In our opinion, the attack mounted by the appellant on this conclusion cannot succeed. It has repeatedly been emphasized that findings of fact based on the credibility of witnesses, where demeanour may have influenced the trial judge, have a degree of invulnerability upon an appeal: Paterson v. Paterson (1953) 89 CLR 212; Watt (or Thomas) v. Thomas (1947) AC 484 at 487-488; Abalos v. Australian Postal Commission (1990) 171 CLR 167 at 178-179; Westpac Banking Corporation v. Spice (1990) 12 ATPR 51,386 at 51,396 et seq. In the last case, the joint judgment of WiL.C.ox and Burchett JJ. collects a number of the authoritative statements in this area, including the statement of Lord Sumner in S.S. Hontestroom v. S.S. Sagaporack (1927) AC 37 at 47. Lord Sumner, in this passage, concludes:
   

"If his estimate of the man forms any substantial part of his reasons for his judgment the trial judge's conclusions of fact should, as I understand the decisions, be let alone."

1. When the question is whether a witness entered into a transaction in good faith, or whether she knew or suspected at the time that fraud was intended, it is inevitable that the judge's estimate of the witness herself will form some substantial part of his reasons for his judgment in determining the belief to be reposed in her. The appellate court, as Lord Atkin put it in Powell v. Streatham Manor Nursing Home (1935) AC 243 at 255, "can never recapture the initial advantage of the judge who saw and believed".

2. The arguments of the appellant amount to no more than the raising of considerations which could have led his Honour to a different conclusion, but did not compel such a conclusion. When all arguments of that kind had been weighed up, the decision depended on whether Patricia Russell was believed, and his Honour's judgment on that issue should stand. In particular, it would not follow from knowledge merely of David Mitchell's being in financial difficulties that such a transaction with him must lack good faith: cf. Re Oades (supra) at 31. The same may be said of Patricia Russell's knowledge that the company was in liquidation; that properties owned by David Mitchell were being sold to repay his bank; and that the proceeds of sale of one particular property (apparently not required, or not then required, to pay the bank) had been placed in an account of his daughter, for a reason not explained to Patricia Russell except that it related to the purchase of a house of her own by the daughter, in connection with which her father was willing to provide help. We have already referred to some unusual features of the deeds and of the circumstances in which they were executed. There is no reason to think his Honour omitted to consider any of these matters.

3. A piece of evidence which the learned judge considered anxiously was an answer given by Patricia Russell upon her examination under s. 81 of the Act. She was asked:
   

"Was it ever suggested to you by anybody that this procedure had to be adopted, otherwise your husband might be, and you might be, in danger of losing the property to his creditors?" (Emphasis added - the question seems to travel beyond the relevant time.)

She replied:

"I suppose there - I don't know as though anyone said it directly but I suppose that it could have been there - I ..."

Her answer was then cut off by the impatience of counsel, and the next answer strongly implies that she may have misunderstood the question. A trial judge is entitled to weigh up a damaging admission, made in cross- examination, in the light of the evidence as a whole, and of his impression of the witness. He may conclude that it should not be understood literally, remembering that people do not always say what they mean to say, even, perhaps sometimes especially, under the pressures of cross-examination: In re Pennington, Ex parte Cooper (supra) at 221; National Australia Bank Ltd v. Cunningham (1990) 12 ATPR 51,619 at 51,627, per Jenkinson J., with whom Ryan J. agreed. In the former case, Cave J. said:

"Now I quite agree with some of the remarks which have been made by (senior counsel) upon private examinations that one has to watch them undoubtedly with some amount of care, because leading questions may be put, and frequently are put in cross-examination and produce very frequently from a stupid, an unintelligent, a confused, or excited witness, answers which do not represent what is really passing in his or her own mind; and therefore it is important to see what the questions are, which are put and what the answers are that are given."

1. Having read his Honour's reasons, and the evidence, we are quite unable to hold that he erred when he accepted Patricia Russell as a witness to be believed, and rejected the allegation that she lacked good faith in relation to the impugned transactions.

2. The conclusions already reached in these reasons make it unnecessary to decide the question raised by the appellant's final argument, which was an attack on the second deed. This is because if that deed were held invalid, Patricia Russell's position would remain secure by virtue of the first deed, the marriage settlement. However, as the matter was argued, we shall discuss it briefly.

3. Although the second deed was expressed to be "pursuant to section 86 Family Law Act 1975", and its provisions included a clause declaring the intention to register it pursuant to s. 86, an intention which was in fact carried out, the appellant's proposition was that the deed truly fell within the terms of s. 87 of the Family Law Act. Section 87 relevantly provides:
   

"(1) Subject to this section, a maintenance agreement may make provision to the effect that the agreement shall operate, in relation to the financial matters dealt with in the agreement, in substitution for any rights of the parties to the agreement under this Part.

(2) Where a maintenance agreement makes provision as mentioned in sub-section (1), the maintenance agreement has no effect, and is not enforceable in any way, unless it has been approved by the Court."

No application for approval was ever made in respect of the second deed.

1. The question is one of construction of the deed - whether it is simply a maintenance agreement (s. 86 refers to maintenance agreements generally, "other than an agreement to which section 87 applies") or whether it is an agreement "in substitution for any rights of the parties to the agreement" under Part VIII of the Family Law Act within the meaning of s. 87. Although the parties cannot, by giving to their agreement a particular label, change its nature, it is relevant to observe that the agreement does not purport to be an agreement under s. 87. Indeed, by its two references to s. 86 (which only applies, in accordance with its express terms, to an agreement "other than an agreement to which s. 87 applies") the deed denies the character sought to be ascribed to it. More importantly, the deed does not appear to contain a provision to the effect that it shall operate "in substitution for any rights of the parties" under Part VIII. The presence or absence of such a provision is the statutory touchstone for the application of s. 87. While the second deed recites that each party has rights under the Family Law Act, it contains no operative term which states that it sets aside any of those rights in favour of the terms of the deed. It is an agreement, as between the parties, which a court would doubtless take into account, but it does not purport, as it is expressed, to deny the jurisdiction of the Court or to alter the statutory rights the Court would enforce. Accordingly, though with some hesitation, we think the better view is that s. 87 has no application to it.

2. For these reasons, the appeal should be dismissed with costs.