Official Trustee in Bankruptcy v Theo, Sol

IN THE FEDERAL COURT OF AUSTRALIA )
  )
GENERAL DIVISION                 )      No. QB 1422 of 1990
  )
BANKRUPTCY DISTRICT OF THE       )
  )
STATE OF QUEENSLAND              )

B E T W E E N:     OFFICIAL TRUSTEE IN BANKRUPTCY
  Applicant
  - and -

SOL THEO
  First Respondent
  - and -
ATHINA THEO
  Second Respondent

JUDGE: Heerey J

DATE: 1 August 1996

PLACE: Brisbane

REASONS FOR JUDGMENT

This is an application by the Official Trustee in Bankruptcy for a declaration that two transfers dated 27 December 1984 from the first respondent Mr Sol Theo to the second respondent Mrs Athina Theo of Mr Theo's interest in certain properties are void as against the applicant by reason of s 121(1) of the Bankruptcy Act 1966 (Cth) (the Act). That section 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 properties in question are, first, Lots 190 and 191 on registered plan number 14005 in the County of Canning Parish of Canning, and secondly, Lots 55 and 56 on registered plan number 30538 in the County of Stanley Parish of Redcliffe.

The Acting Official Receiver on 27 May 1993 issued notices under s 139ZQ of the Act directed to Mrs Theo seeking payment of the sums of $60,000 and $40,171, these being the amounts stated in the transfers as the consideration.

Mr Theo applied to set aside those notices. A substantial hearing took place before Cooper J. On 24 August 1995 his Honour delivered judgment upholding the application. However it is important for the purposes of the present application to note the grounds on which his Honour so held. His Honour found that the requisite elements of s 121, that is to say disposition with intent to defraud creditors, and lack of valuable consideration and good faith, were made out. However, the notices were set aside because there was no evidence to support the alleged value of the property received by Mrs Theo as a result of the transactions; see especially page 41 of the judgment.

That being so, the findings as to the elements of s 121(1) create an issue estoppel between the parties. Both the Official Trustee and Mr Theo are bound by the findings of fact and law of his Honour on those issues, arising as they did after a contested hearing.

The procedure introduced into the Act by s 139ZQ does not exclude any other procedural rights which may be available to a trustee in bankruptcy to enforce the substantive rights conferred by s 121. The procedure under s 139ZQ has been the
subject of some judicial criticism: see Re Pearson; ex parte Wansley v Pearson (1993) 46 FCR 55 at 59 - 60, Re Lucera; ex party Official Trustee in Bankruptcy v Lucera (1994) 53 FCR 329 at 336. The practice has now developed that when an application is made to set aside such a notice there is usually a cross application by the trustee seeking appropriate declarations and other relief under s 121. This practice proceeds on what is in my view the correct assumption that the specific statutory remedy under s 139ZQ does not exclude other remedies. That being so the applicant is, in my view, entitled to the relief sought.

There was some mention by Mr Theo, who appeared in person, that the titles to the property have been "hijacked". The background to this seems to be that there was some issue of a duplicate title, or its modern equivalent, by the Titles Office. On 8 January 1996 Ms Bishop of the Australian Government Solicitor's office wrote to Mr Theo advising that she had spoken to a Mr Cornelius at the Titles Office. The letter continues:

Some time ago I requested that a title deed be dispensed with when I was lodging charges against your property. It appears that the Titles Office records show that a duplicate certificate of title was issued to this office in respect of your properties. I can assure you that I have no such title deed in my possession, and I have informed the Titles Office that it must be an administrative error which shows that a title deed has been issued. Mr Cornelius has agreed that he will look into the matter and that he will cancel any alleged duplicate of title which might be shown on their records as having been incorrectly issued to this office.

It does not appear that Mr Theo followed this matter up. In
any event, there is no suggestion that any duplicate title has led to any wrongful dealing with the properties.

There remains the question of possible improvements to the properties since the date of transfers in question. This was mentioned by Mrs Theo, but there is currently no evidence on the matter. Counsel for the applicant conceded that it was appropriate that provision be made. Accordingly, I will make orders and declarations in the terms of the draft submitted by counsel, but with the addition to paragraph 6 of these words:

Subject to any rights of reimbursement in respect of improvements on such land after 27 December 1984 to which Athina Theo, or any other person may be entitled.

There will be a new paragraph 8 following immediately after the existing paragraph 7 in these terms:

Direct that any claims for reimbursement for improvements and affidavits in support thereof be filed with the court within 14 days and served on the applicant. Adjourn further directions to a date to be fixed by the District Registrar.

And then the existing 8 will become 9, and that will read:

That each of the applicant, the respondents, the trustee, and any claimants have liberty to apply.

And the existing 9 becomes 10.

I certify that this and the preceding four (4) pages are a true copy of the reasons for judgment of his Honour Justice Heerey.

Dated:1 August 1996

Associate

Appearances

Applicant in person: Mr S Theo

Counsel for the respondent: Mr P E Hack

Solicitor for the respondent: Australian Government
Solicitor

Date of hearing: 1 August 1996

In the Federal Court of Australia, the Official Trustee in Bankruptcy sought a declaration that two property transfers made by Mr Sol Theo to Mrs Athina Theo in 1984 were void under section 121(1) of the Bankruptcy Act 1966. The transfers in question involved Mr Theo's interest in certain properties. The dispute centred on whether these transfers, which occurred before Mr Theo's bankruptcy, were made with the intent to defraud creditors and if they lacked valuable consideration and good faith. The Official Trustee argued that the transfers were void against the trustee in bankruptcy, while Mr Theo contended otherwise.

The primary legal issue before the court was whether the transfers were made with the intent to defraud creditors, lacked valuable consideration, and did not involve a good faith purchaser. The court had to determine if these conditions, as outlined in section 121(1) of the Bankruptcy Act, were met. Additionally, the court considered the procedural aspects of the case, particularly the applicability of section 139ZQ of the Act, which governs the recovery of property by the Official Trustee. The court also had to address the estoppel effect of previous findings made by another judge in a related matter.

In delivering the judgment, the court found that the requisite elements of section 121(1) were indeed made out. The court held that the transfers were made with the intent to defraud creditors and lacked valuable consideration and good faith. However, because the previous judge had set aside notices issued under section 139ZQ without determining the value of the property received by Mrs Theo, the court ruled that the findings on the elements of section 121(1) created an issue estoppel between the parties. Therefore, the Official Trustee was entitled to the relief sought. The court made appropriate declarations and orders, including provisions for potential reimbursement claims for improvements to the properties post-transfer. This decision reinforced the principle that the statutory procedure under section 139ZQ does not exclude other available remedies for the Official Trustee in bankruptcy.

The court's final orders declared the transfers void against the Official Trustee in Bankruptcy and directed that claims for reimbursement for improvements be filed within 14 days. The court also granted liberty to the parties to apply for further directions.

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