Otto, Re B.V., (Debtor) Otto, Ex parte R.D. & E, (Applicant) Taylor, A.R., a debtor (Respondent)

[1988] FCA 305

JUDGMENT NO..~G-.&S%-~

IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	) QLD NO.X35 of 1987
BANKRUFTCY DISTRICT OF THE SOUTHERN )
DISTRICT OF "5 STATE OF OUEENSLANTI )

RE:  BRIAN VICTOR OTTO a debtor

M PARTE:

RODNFI DOUGLAS OTTO and

EIJXEN OTTO

Applicants

A.R. TAYLOR: THE TRUSTEE OF THE PROPERTY OF BRIAN VICTOR OTTO. A DEBTOR

Respondent

SPENDER J .

BRISBANE

15 JUNE 1988

-ORE REASONS €OR JUDGMENT

An application was made to the Court on behalf of Rodney

Douglas Otto and Eileen Otto concerning, essentially, the

validity of a deed dated 1 July 1986, which purported to glve

them security in respect	of some sums to which Brian Victor Otto
and his wife were entitled	to receive from interests assoclated
with the Manners family.

The application, and its various contentions in respect

of it, are not assisted by a lack of precision in a number of the

I

2.

documents associated with the Part	X arrangements of Brian Otto
and his	wife.

A3 a result of those Part X deeds of assignment, Mr.

Alan Richard Taylor became the trustee	of the property of Brian
Victor Otto and Gwendoline Otto.

I accept that the factual situation is a3 set out in the

affidavit of Rodney Douglas Otto, sworn 17 November 1987, from

paragraphs 2 to 13 inclusive. In particular, (since the parties

have treated this as a crucial issue), I accept what is deposed

to by Mr. Rodney Otto at paragraph 12 where he swears:-

"I agreed with the Debtor that I would not enforce

against him the repayment of the loan plus

interest on the due date but would wait untll the

proceeds of the sale of the business became

available. I further informed the Debtor that I

was only agreeable to such a course of action	If
he gave me some security over the proceeds	of the
sale of the business.	"

The business referred to was the sale of some business interests

to Fabian Perry Manners, Judith Mary Manners and Fabius Perry

Manners, for a total purchase price of $78,000, to be paid to Mr.

Brian Victor Otto and Mrs. Gwendoline Otto by	36 equal monthly
instalments of $2,166.

There is no doubt that Rodney Otto advanced to his

brother the sum of $70.000, which was unsecured. It was for a

short term and, just before the time for repayment became due,

Brian Otto told Rodney that	he was not able to repay the	sums on
thc due date as agreed.

I say frankly that I was impressed by the forthrightness

and honesty shown by Mr. Rodney Otto in giving	his evidence, and
I have no	reservation about any aspect of the account that he

gave, either in	oral evidence	or in the affidavit material to
which he swore.

I accept that there was a forbearance associated with

the entry into the deed on 1 July 1986 by Mr. Rodney Otto and his

wife in respect of the repayment of the	$70,000 plus Interest,
€or at least	the period until the proceeds of the sale of the

business became available.

It is to be noted that no asslanment of those proceeds

-Jas made by Erisn Otto and his wife to Rodney Otto and Eileen

Otto. but that perhaps is simply '3ne manlfestation of the

informality with which the family	arrangements had, in fact. been
conducted.

I thlnk the proper posi tion in relation to 3 . 1 2 0 In

these various factual circumstances is succinctly summarised by Smithers J. in Re Johnston; Ex parte Cole (1984) 3 F.C.R. 32 at

35, where he said:-

"The question of good faith relates to the good

faith of the purchasers, in this case the

Sullivans. It is not necessary that both the

Sullivans and	Mrs. Johnstone should have acted in
good faith:. .	.".

He then quoted a number of authorities, and went on to say:-

"It appears from a review of the authorities, that

good faith in the context of s.120(1) of the Act requires an absence of knowledge or notice by the purchaser that:

1.   The bankrupt is unable to pay hislher debts

or is financially unsound.

2 .   By taking the property the purchaser is

defeating or delaying creditorsC.3"

and there are a number of cases quoted. Smithers J. concludes by

saying:  -

"The onus is upon the trustee to prove both lack of

qood faith and lack of valuable consideration."

I am satisfied in this case that there was no lack of

good faith on the part of Rodney Otto in entering into	the deed
gf 1 July 1986 and that conclusion extends	to that of hls wife.

The primary contentlon on behalf of the trustee was that

the consideration given by the 'purchaser' of the 'settlement'

was an indefinite forbearance and that that consideration

properly was to be characterised as either nomlnal or colourable,

1s that term has been addressed in Re Tapp;	Ex parte Official
Receiver (1987) 75 A.L.R.	79 at 83; Barton v. Officlal Receiver

(1986) 66 A.L.R. 3 5 5 ; and Re Fairllne Furniture (Australia)

Proprietary Limited In Lisn. (1986) 6 A.C.L.R. 364.

On the factual considerations to which I referred

earlier, I do not accept the submission. I think that the

position should properly be seen that there was in truth a

forbearance to enforce the debt for $70,000 principal, plus

interest at 20%, until the proceeds of the sale of the business
to the Manners family became available. It is in my view

irrelevant that some parts of that payment were in fact paid by

Hr. Brian Otto into his own accounts, and not accounted to	his
brother and his	brother's wife as was the contemplation of the
parties.

In those circumstances, I am of the clear view that, not

only was the deed entered into in good faith, but for valuable
consideration, as the meaning of that term is explained by the

authorities.

In the circumstances, I should eclare that he

transaction by which the debtors assigned the said monthly sums

or the right to receive the said monthly sums, or the right to

enforce payment of the said monthly sums to the applicant, is not

void as against Alan Richard Taylor, the trustee of the property

of Brian Victor Otto and his wife, Gwendoline Otto.

I invite the parties to prepare short minutes of orders,

if they can agree. If not, the matter is to be arranged to be

brought on again before me at a time convenient to counsel. I

will just adjourn the matter to the registry on that basis and,

if the parttes can agree as to the form of orders	that I should
make, I will do that by consent.

As between the trustee and the applicants, I order that

the applicants have the costs of their application, to be taxed