Pekar v Holden (Trustee)

Case [2017] FCA 596

FEDERAL COURT OF AUSTRALIA

Pekar v Holden (Trustee) [2017] FCA 596

Appeal from: Holden in His Capacity as Trustee of the Bankrupt Estate of Pekarv Pekar [2017] FCCA 22
File number: VID 81 of 2017
Judge: TRACEY J
Date of judgment: 30 May 2017
Catchwords:

BANKRUPTCY AND INSOLVENCY – appeal from the Federal Circuit Court – where the trial judge held that a transfer to the appellant from her husband of his interest as a joint tenant in a property was void against the trustee in bankruptcy pursuant to s 120(1) of the Bankruptcy Act 1966 (Cth) – whether the trial judge erred by holding that the solvency of the bankrupt at the time of the transfer was irrelevant – whether the trial judge erred by holding that the transfer had been made for no consideration

CONSTITUTIONAL LAW – jurisdiction – “matter” – where dispute as to whether a transfer of an interest in property was void against the trustee in bankruptcy – order for sale of property – whether application for relief against non-bankrupt co-owner of property constitutes part of the same “matter” for the purposes of Chapter III of the Constitution

CONVEYANCING – whether the trial judge erred in ordering the sale of the property – where s 30 of the Bankruptcy Act 1966 (Cth) does not provide power to order the sale of a property co-owned by another non-bankrupt person absent failure by that person to comply with an obligation under that Act – whether power to make an order for the sale of the property under the Property Law Act 1958 (Vic) – whether power conferred on the Federal Court of Australia by s 79 of the Judiciary Act 1903 (Cth)

PRACTICE AND PROCEDURE – application to appoint a litigation representative pursuant to r 9.63(1) of the Federal Court Rules 2011 (Cth) – whether the appellant is a person under a legal incapacity – where absence of contemporaneous medical evidence

Legislation:

Bankruptcy Act 1966 (Cth) ss 5, 5(1)(a), 5(2), 5(3), 30, 30(1), 58, 58(2), 77, 77(1), 77(1)(e), 77(1)(g), 120, 120(1), 120(1)(a), 120(1)(b), 120(3), 120(3A), 120(5), 120(7), 120(7)(b), 121

Constitution Ch III

Federal Court Rules 2011 (Cth) r 9.63(1)

Judiciary Act 1903 (Cth) s 79

Conveyancing Act 1919 (NSW) ss 66F(1), 66G

Property Law Act 1958 (Vic) ss 222, 225, 228, 228(1), 228(2)(a), 231, 232, 232(a), 232(c), 232(d), 232(e), 232(f), 232(g), 232(h), 234C(4)(a), 234C(4)(b), 234C(5)(a), 234(5)(b), 234D, Pt IV

Transfer of Land Act 1958 (Vic) s 51

Cases cited:

Anscor Pty Ltd v Clout (2004) 135 FCR 469; [2004] FCAFC 71

Aravanis & Roy (Trustees), in the matter of Destanovic (Bankrupt) v Destanovic [2016] FCA 388

Coshott v Prentice (2014) 221 FCR 450; [2014] FCAFC 88

Dauguet v Centrelink [2015] FCA 1212

Holden in His Capacity as Trustee of the Bankrupt Estate of Pekarv Pekar [2017] FCCA 22

Krsteski v Jovanoski [2011] VSC 166

L v Human Rights and Equal Opportunity Commission (2006) 233 ALR 432; [2006] FCAFC 114

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Pekar v Holden (Trustee) [2017] FCA 596
Case
[2017] FCA 596
Decision Date

CaseChat Overview and Summary

In the case of Pekar v Holden (Trustee), the appeal was brought by Ida Pekar against the trustee in bankruptcy of her husband, Fima Pekar. The primary dispute centered on the validity of a property transfer from Fima to Ida, occurring just over two years before his bankruptcy. The crux of the case was whether this transfer was void against the trustee under s 120(1) of the Bankruptcy Act 1966 (Cth). The Federal Circuit Court had ruled the transfer void, leading to this appeal.

The legal issues before the court encompassed several facets. Firstly, it was necessary to determine whether the trial judge was correct in asserting that the solvency of Fima at the time of the transfer was irrelevant. Secondly, the court needed to decide if the trial judge erred by concluding that the transfer was made for no consideration. Additionally, the court had to consider whether the order for the sale of the property was appropriate, and if the application for relief against the non-bankrupt co-owner constituted part of the same "matter" for the purposes of Chapter III of the Constitution. Lastly, the court addressed the question of whether the Federal Court had the jurisdiction to order the sale of the property.

The court held that the trial judge was correct in determining that the transfer was void against the trustee under s 120(1) of the Act. The transfer occurred within the five-year period prior to the bankruptcy and Ida provided no consideration for the transfer. The court found that the term "consideration" in s 120(1) bore its ordinary legal and commercial meaning, and there was no consideration provided. Consequently, the transfer was a gift and thus void against the trustee. The court also found that the order for the sale of the property was appropriate as the Federal Circuit Court had jurisdiction to make such an order, and it was necessary to realise the bankrupt's assets for the benefit of his creditors.

In conclusion, the appeal was dismissed, and the orders of the Federal Circuit Court were set aside. The court declared that Fima's interest in the property vested in the trustee, and ordered that Ida and Fima deliver vacant possession of the property to the trustee by a specified date. The trustee was appointed for the sale of the property, and the costs of the sale were to be met from the proceeds. The court also ordered that Ida pay the costs of the trustee's appeal and the proceeding in the Federal Circuit Court.

Orders

Orders of the court

1. The interlocutory application, filed by the appellant on 18 April 2017, be refused.

2. The appeal be dismissed.

3. Paragraphs 2, 3, 4, 5, 9, 10 and 11 of the declarations and orders made by the Federal Circuit Court on 20 January 2017 be set aside.

4. In lieu thereof it be declared and ordered that:

(2) The Bankrupt’s interest in the Property vests in the Applicant (the trustee of the bankrupt estate of Mr Fima Pekar).

(3) The Respondent (Mrs Ida Pekar) and the Bankrupt (Mr Fima Pekar) deliver vacant possession of the Property to the Applicant on or before 30 June 2017. If the Respondent and the Bankrupt fail to comply with this order, a warrant of possession issue forthwith in favour of the Applicant.

(4) The Respondent and the Bankrupt remove all personal possessions from the Property on or before 30 June 2017. Any personal property remaining at the Property after that date be deemed to have been abandoned and be disposed of in any manner as the Applicant sees fit.

(5) The Applicant be appointed trustee for the sale of the Property. The Applicant is to have the sole conduct of the sale of the Property and be authorised to instruct an agent and/or an auctioneer for that purpose.

(9) The costs of the sale be met from the proceeds of the sale.

(10) The Applicant pay 50% of the proceeds of the sale to the Respondent.

(11) The remaining proceeds of the sale, less the costs of the sale, vest in the Applicant.

5. The appellant (Mrs Ida Pekar) pay the costs of the respondent (the trustee of the bankrupt estate of Mr Fima Pekar) of the appeal in this Court and of the proceeding in the Federal Circuit Court.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Section 58 of the Act provides that, upon a debtor becoming a bankrupt, the property of the bankrupt vests forthwith in his or her trustee, at least in equity. Pursuant to s 58(2), the property will only vest at law upon compliance with any law of the Commonwealth, a State or a Territory that requires the transmission of property to be registered and enables the registration of the trustee as the owner of any such property. Relevantly, s 51 of the Transfer of Land Act 1958 (Vic) requires that a record of the appointment of a trustee in bankruptcy be made in the Register, at which time the trustee becomes the transferee and proprietor of the estate or interest of the bankrupt. There is no evidence before the Court as to whether, subsequent to the FCC’s declaration on 20 January 2017, the trustee has been registered in relation to the property in accordance with s 51. FEDERAL CIRCUIT COURT’S DECISION The trial judge recorded a number of procedural and factual matters which he did not understand to be in dispute. They included the background facts which have been outlined above in these reasons. He summarised the case advanced by the trustee at [9]:This aspect of the case can be put quite shortly. The trustee submits that since Ms Pekar is the wife of Mr Pekar, by reason of s 5(1) of the Act she is a related entity of the bankrupt. As the date of the bankruptcy occurred on 25 July 2014 the relation backperiod is deemed to have commenced on that day, and constitutes the period between 25 July 2010 and 25 July 2014. On any view, the transfer occurred within that period, on 16 July 2012. Counsel for the trustee submitted that the terms of s 120 meant that the transfer in July 2012 was void against the trustee. His Honour then identified the primary contention advanced by Mr and Mrs Pekar before him, namely that they had always intended that the property be wholly owned by Mrs Pekar. He noted at [10] that “very little was said that engaged with the terms of s 120 of the Act”. His Honour next explained his reasons for holding that the transfer was void against the trustee pursuant to s 120. He said that:13.In this instance there is no question but that the transfer took place within the four-year period prescribed by s 120(3)(a)(i). Accordingly, although this was a matter to which both parties paid attention during the hearing, the solvency of Mr Pekar at the time of the transfer is for these purposes irrelevant.14.The only issue required to be provided is that the transfer took place in the period beginning five years before the commencement of the bankruptcy (s 120(1)(a)), a matter not in issue, and that the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property (s 120(1)(b)).15.Here the transfer was recorded as being provided with consideration of “desire to make a gift.” There has been no assertion by Mr or Ms Pekar that any monetary consideration of any sort was advanced. There has been no suggestion that any cash passed hands. Furthermore, looked at in substance, it is clear that the consideration for the transfer was for love and affection. On any view, and in any event, a gift involves no consideration.

Ratio Decidendi

Legal Principle Established

Mr Pekar also advanced a rather peculiar submission which, as I understood it, was founded on s 120(7)(b). He said that:And I will point you out back to section 120 section (7). It says clearly someone who does something like that which result[s] in another person to become [sic] an owner of the property who previously did not exist — it is a very important point — who previously did not exist to be taking … of the property. That has nothing to do with my wife. She always held the share in the property. She was always on the title of the property.CONSIDERATION It would appear that the arguments advanced by Mr Pekar before the trial judge differed markedly from those raised on the present application. On this occasion, Mr Pekar has paid far more attention to the construction and application of s 120 of the Act. The construction arguments which he put most forcefully are, however, mistaken. Each of the requirements of s 120(1) of the Act was satisfied:·Prior to his transfer to Mrs Pekar, Mr Pekar held a joint tenancy interest in the residential property. That interest was a property interest even though the title was jointly held with his wife.·The transfer from Mr Pekar to Mrs Pekar occurred on 16 July 2012 — within the period of five years prior to 25 July 2014, which was the date of Mr Pekar’s bankruptcy (s 120(1)(a)).·Mrs Pekar gave no consideration for the transfer (s 120(1)(b)). Mr Pekar’s reliance on ss 120(3) and 120(3A) is misplaced. The exemption, provided for in s 120(3), does not apply because the transfer did not take place “more than 4 years before the commencement of the bankruptcy”. As a result, the question of Mr Pekar’s solvency did not, as the trial judge held, arise. The rebuttable presumption, provided for in s 120(3A), had no work to do in the present circumstances. Mr Pekar made a gift of his property interest in the premises to Mrs Pekar. To the extent that it might be argued that he did so because she was his wife and that her love and affection for him constituted consideration of value, these propositions are negatived by s 120(5). The term “consideration”, in the context of s 120(1), bears its ordinary legal and commercial meaning: see Official Trustee in Bankruptcy v Lopatinsky (2003) 129 FCR 234 at 249; [2003] FCAFC 109 at [94] (Whitlam and Jacobson JJ). There was no consideration for the transfer. Mr Pekar’s argument, to the extent that it relied on s 120(7)(b) of the Act, is misconceived. The paragraph is concerned with property (not a person) that did not previously exist. There is no dispute, in the present proceeding, that, even if the relevant property interest had not existed previously (cf Peldan v Anderson (2006) 227 CLR 471 at 482–483; [2006] HCA 48 at [26]–[31]), Mr Pekar held an interest in the property prior to the transfer to Mrs Pekar, and that Mrs Pekar had, and retains, an interest in it. The trial judge was, therefore, correct, for the reasons which he gave, in holding that the transfer was void against the trustee and that Mr Pekar’s interest vested in his trustee.