Peldan & Anor v Anderson & Anor

[2006] HCATrans 342

[2006] HCATrans 342

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B110 of 2005

B e t w e e n -

MICHAEL PELDAN (AS TRUSTEE OF THE BANKRUPT ESTATE OF RAYMOND KENNETH PINNA)

First Appellant

MORGAN LANE (AS TRUSTEE OF THE BANKRUPT ESTATE OF RAYMOND KENNITH PINNA)

Second Appellant

and

BERNADETTE ANDERSON (AS EXECUTOR OF THE ESTATE OF THE LATE DOROTHY RUTH PINNA)

First Respondent

ROBYN MOLLEE (AS EXECUTOR OF THE ESTATE OF THE LATE DOROTHY RUTH PINNA)

Second Respondent

GUMMOW ACJ
KIRBY J
HAYNE J
CALLINAN J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON WEDNESDAY, 21 JUNE 2006, AT 10.10 AM

(Continued from 20/6/06)

Copyright in the High Court of Australia

__________________

GUMMOW ACJ:   Before you start, Mr Cooper, Mr Morris, do you not need a notice of contention in aid of this point about consideration?

MR MORRIS:   In our submission, no, your Honours.

GUMMOW ACJ:   Why not?

MR MORRIS:   Because to succeed in – it is an imperative element of the relief which our learned friend is seeking.  Our learned friend is seeking an order which in its terms under the section requires a cross‑payment.

GUMMOW ACJ:   Well, that is a debateable point.

MR MORRIS:   It is a debateable point, but that is our contention.

KIRBY J:   We went through all this yesterday.

HAYNE J:   Rule 42.08.5 required it.

MR MORRIS:   If it is required, then it is our oversight and ‑ ‑ ‑

GUMMOW ACJ:   I am not being critical of you.  We just have to get our record straight; that is all.

MR MORRIS:   If your Honours were of the view that such a notice is required, we seek leave to amend our notice of contention to include that ground.

GUMMOW ACJ:   Yes.  Well, that could be done with seven days unless Mr Cooper objects.  Do you object to that course, Mr Cooper?

MR COOPER:   I do not think I can, your Honour.

GUMMOW ACJ:   No.

MR MORRIS:   Thank you, your Honours.

GUMMOW ACJ:   Yes, very well.  That will be done within seven days.  There will be an amendment of the notice of contention to embrace this further point.  Yes, Mr Cooper.

MR COOPER:   Your Honour, the respondent’s counsel made a submission that section 121(1)(a) could not be given any meaningful application if one tried to give effect to the definition in subsection (9)(b).  In my submission, that is not correct.  To explain that, might I ask your Honours first to go with me to section 121(1)(b), which Mr Justice Hayne and I discussed yesterday, because there is an element of that which I failed to bring to your Honours’ attention through oversight which says “the transferor’s main purpose in making the transfer was”, and then it expresses two alternative purposes, so only one of the two has to necessarily be satisfied in any case.  The first purpose related to preventing the transferred property from being divisible.  The second purpose was to hinder the process of making the property available for division.  So again the dichotomy between the two expressions as found in subsection (1)(a) is continued through in subsection (b).

GUMMOW ACJ:   I think the reason may be that (a) is talking about the estate spoken of in 116 of divisible property and the rest, of making it available for division, is talking about preference provisions and, indeed, this provision which requires some process.

MR COOPER:   Yes, your Honour, with respect, I think that is correct.  Your Honours, in my submission, bearing in mind the facts of this case and remembering that in this case a transfer of property means the creation of an interest in property, it is my submission that the section can be read in this way.  A transfer of the interest of a tenant in common in the land by a person who later becomes bankrupt to another person is void if the prior joint interest of that other person in the land ‑ ‑ ‑

GUMMOW ACJ:   Could you just slow down a bit, Mr Cooper.  Just start again and go more slowly.

MR COOPER:   I am sorry.  A transfer of the interest of a tenant in common in the land by a person who later becomes bankrupt to another person is void if the prior joint tenancy of that other person in the land would probably have become available, et cetera, and the transferor’s main purpose in making the transfer of that tenant in common interest to that other person was to hinder or delay the process of making the prior joint interest of that other person in the land available for division among the transferor’s creditors.

So, in my submission, justice can be done to the definition recognising that it does extend beyond transfers to the creation of interest and by differentiating between the property in the form to which it is changed but giving full effect to the nature of the property as it was before it was changed as a result of the transfer.

GUMMOW ACJ:   So what meaning are you giving to the opening words of (1)(a)?

MR COOPER:   It means the property in the form it was before the transfer by the creation of a new interest.

GUMMOW ACJ:   And you mean the property is Blackacre, is it, as it were?

MR COOPER:   Well, yes, the property would be Blackacre in (a) and also in (b)(ii).  On the facts of this case, I could not say that the purpose in (b)(i) would apply because obviously ‑ ‑ ‑

GUMMOW ACJ:   How could you say Blackacre would probably have become part of the transferor’s estate in this case?

MR COOPER:   Because Blackacre was the joint interest which would have become part of the estate upon death but for the act of annihilating that interest and transforming it into another interest.  The act of severance annihilated the joint interest that previously existed and it is the act of annihilation which has deprived the probability of the prior estate passing on bankruptcy after death to the creditors of the transferor.

GUMMOW ACJ:   But that postulates a sequential survivorship.

MR COOPER:   Yes.  The deaths occurred in fact in the way in which they do occur and that is why I submitted to your Honour yesterday that this inquiry must be made with respect to the facts as they occurred rather than to facts that might or might not have occurred, which is the submission I will come to in a moment.

GUMMOW ACJ:   What do you say of Mr Morris’ submission that a completely different result would obtain if the unilateral severance had been by the wife?  That could never have been attacked.

MR COOPER:   If the unilateral severance had been by the wife ‑ ‑ ‑

GUMMOW ACJ:   And that all of this is just a conveyancing mistake of which you are seeking to take advantage.

MR COOPER:   If the severance had been by the wife, it would mean, yes, simply that the discrete estate of the husband as a tenant in common would pass to his creditors, but not obviously the estate of the wife.  Yes, I cannot get away from that.  If she had done that, the situation would be different, but the answer is she did not do it.  She might have had the chance to do it, she might have wanted to do it, but she did not do it.

HAYNE J:   You made some point about (b)(i) and (b)(ii).  I thought you said that (b)(i) was not engaged but (b)(ii) is.

MR COOPER:   Yes, your Honour, because the making of the transfer could not have been to stop the transferred property becoming divisible because the transferred property did not exist prior to the act of severance.  So the only factual scenario that can apply on the facts of this case is the purpose in (b) which is to deal with the property in the form before the relevant transfer occurred, before the relevant annihilation of the joint tenancy.

HAYNE J:   There is a difficulty about (b)(i) and (b)(ii) – I think there are many difficulties – but another difficulty about (b)(i) and (b)(ii) is (b)(i) speaks of “the transferred property”, (b)(ii) simply speaks of “making property available”.

MR COOPER:   Yes.  I would submit that the dichotomy which is drawn there is intended to be the same distinction that is drawn in (i), because it would seem odd if the draftsman intended to use “transferred property” the same in (a) and (b), but not to use the words “the property” and “property” in the same sense as well.  He seems to be drawing the same distinction, if I may say, with respect, in both subsections.  One would assume, with respect, that he was intending to have continuity of thought and continuity of principle in the drafting of the section.

Your Honours, if I can move to the next point, which is the respondent’s counsel submitted that the section 121(1)(a) inquiry has to be undertaken at the time of the relevant transfer.  In my submission, this submission gives no regard to the fact that the relevant section is drawn in the past tense and that style of drafting does of its nature invite the Court to look retrospectively at established facts rather than to undertake the sort of exercise my friend postulated.

If, in my submission, the inquiry were limited in the way my friend says, the section ought more logically read that the property formed part of the transferor’s estate or was available to the creditors if the property had not been transferred.  If it is read in that way, it invites an immediate analysis of the situation just before and just after the relevant act.  It would be looking at the facts as they existed both immediately before and immediately after the transfer.  That would be, in my submission, a more logical way to have drafted the section.

The example my friend gave of the lottery ticket says nothing about the timing of the inquiry.  In fact, the answer to his lottery ticket analogy is quite simply this.  If his junior had paid market value and acquired the share in good faith, he could rely upon subsection (4) because the transaction is voidable, not void.  If he acquired the ticket in the circumstances and it was a winner, he could not be required to disgorge the winnings he got because his title is not impeachable.  However, if he cannot invoke subsection (4), he would have to disgorge the winnings, subject to recovering whatever he had paid, if the transfer was made with the relevant intention by the transferor, because what would happen there would simply answer the descriptive words of the section.

Your Honours were taken to some hearsay evidence from a solicitor which was submitted to be probative of the state of Mr Pinna’s health at 11 September.  Might I remind your Honours that Mr Pinna chose not to enter the witness box, notwithstanding he was the fundamentally important witness for the respondents in all the issues in their case.  Given his failure to do so would permit the Court – not must permit, but would permit the Court – to draw the inference that he could say nothing of any value or assistance to the respondents’ case on this issue of his health and his wife’s health at any time.

The last matter that I wish to raise is this submission with respect to section 121(5), your Honours.  It was submitted to the Court by my friend that there was an obligation somehow imposed upon the court of its own motion to grant relief under section 121(5) if the court thought it was fair or reasonable or something of that nature.  In my submission, that is not so.  The Act imposes an onus upon the party claiming relief to seek appropriate relief.  By way of example, in Cummins’ Case in this Court at paragraph [25] of the judgment the Court said:

It is important to note that the defence did not place any reliance upon para (a) of s 121(4) of the Act.  Neither respondent asserted that in respect of either the sale of the shares or the transfer of the interest of Mr Cummins in the Hunters Hill property, consideration had been given which “was at least as valuable as the market value of the property”:  s 121(4)(a).  It followed that there was no occasion in the relief granted by Sackville J for the operation of the refund provision in s 121(5).

So what the Court is saying is, if the defence does not seek to make it an issue, it is not an issue and it is certainly not an issue for the Court to raise of its own motion.

KIRBY J:   But he is now going to put in a notice of contention.

MR COOPER:   Yes.  Well, I did not know that when I looked at this last night, your Honour.

KIRBY J:   The water has flowed under the bridge.

MR COOPER:   But there are some other issues I want to make about this which still do not assist even if the notice of contention is amended.  The first is that this relief was never sought at trial.  An unsuccessful attempt was made to introduce this submission in argument before Kiefel J, but her Honour did not deal with it, but there was no amendment to the primary application.  It has never been part of the substantive relief sought.  But most fundamentally the reason why this should have no weight is the fact that the ‑ ‑ ‑

KIRBY J:   That first argument is not much of an argument because the quantification is one thing but the right is another.  The right is really just a matter of law on the interpretation of the subsection.

MR COOPER:   Well, no, it goes further than that, and I will deal with that in a moment, if I may, your Honour.  The point I was going to make was the act of severance which occurred in this case was a severance by operation of law.  It was not a consensual act.  Regardless of the desires, wishes or intentions of Mrs Pinna, the act of the husband without more severed the title.  She gave no consideration for that.  That was just a legal consequence of what he did.

My friend made a submission that there is evidence that Mrs Pinna’s interest at 11 September was worth $300,000.  The evidence to which he took you does not necessarily show that at all.  The evidence to which he took you is this.  My clients, who are accountants, prepared a balance sheet of Mr Pinna’s financial position as at 11 September.  In setting out his debits and credits, they gave him credit for an interest in the house valued at $300,000.  That was determined by looking at the sale price received for the whole of the house six months or seven months later and giving him half of that.  But the sale had not occurred at the time, obviously.  There was simply no evidence before the Court so far as Mrs Pinna or Mr Pinna was concerned which ‑ ‑ ‑

CALLINAN J:   Why is that not evidence against your client, an admission of value? 

MR COOPER:   Because (a) the man is not ‑ ‑ ‑

CALLINAN J:   You say because the date is wrong?

MR COOPER:   No, because the man is not competent to give ‑ ‑ ‑

CALLINAN J:   Well, he proffered it and nobody contradicted it.

MR COOPER:   But he proffered it – well, yes, but ‑ ‑ ‑

CALLINAN J:   And he relied upon it presumably.  Why is it not an admission against interest?

MR COOPER:   Because it is not relevant evidence of the significant property that should be valued.  The property that had to be valued at the time was either Mrs Pinna’s joint interest in the property or Mrs Pinna’s interest as a tenant in common.  That was the interest that had to be valued, and it was not.  The fact that the whole of the estate was sold for 600,000 and he got, when the whole estate was sold, half of that says nothing about what his discrete interest was worth in the property.

CALLINAN J:   Well, in the absence of other evidence – and you say there was no other evidence – it was probably the best evidence of value.

MR COOPER:   Not of his discrete interest either before or after the transfer, and that is the issue that has to be valued.  This is not a difficult issue, your Honour.  The other side could quite easily have got the evidence from a valuer.  Your Honours, unless there is something else, that is ‑ ‑ ‑

GUMMOW ACJ:   Yes, there is.  Can you just go back to 121 again?

MR COOPER:   Yes, your Honour.

GUMMOW ACJ:   I want to make sure I understand what your submission on construction is.  Just looking at the text of section 121(1) for the minute, is what I am about to say an accurate application of your construction?  You read 121(1) this way.  The severance by Mr Pinna of the joint interest in Blackacre is void against the trustee in his bankruptcy if Blackacre would probably, by reason of the survivorship of Mr Pinna, have become part of his estate.

MR COOPER:   Yes, your Honour, that is right.

GUMMOW ACJ:   Well, how then do you square that with subsection (9)(b), and to be specific “a person who does something” – and it is Mr Pinna’s unilateral severance ‑ ‑ ‑

MR COOPER:   Mr Pinna’s unilaterally severs the joint tenancy.

GUMMOW ACJ:   Just a minute – “that results in another person” ‑ ‑ ‑

MR COOPER:   Being his wife.

GUMMOW ACJ:   Yes.

MR COOPER:   Yes, “becoming the owner of property that did not previously exist”.

GUMMOW ACJ:   Namely, her half share as tenant in common.

MR COOPER:   Which did not exist.

GUMMOW ACJ:   Now, he is taken to have transferred that tenancy in common?

MR COOPER:   Yes, he is then deemed to have transferred the tenancy in common to her.

GUMMOW ACJ:   Well, then how does that work when it is read back into subsection (2), because the tenancy in common would never have been available by survivorship.

MR COOPER:   No, and that is the point I was making, your Honour.  I was submitting that the section should be read in this way.  The transfer of the interest of a tenant in common in land by a person who later becomes a bankrupt to another person is void if ‑ ‑ ‑

GUMMOW ACJ:   Just say that again, the transfer?

MR COOPER:   A transfer of the interest of a tenant in common ‑ ‑ ‑

GUMMOW ACJ:   Yes, but they were not tenants in common.  They were joint tenants.

MR COOPER:   No, but your Honour has to remember that transfer of property here connotes creation of interest in property – not just transfers outright, but the creation of an interest – and that is the point I am making.  The transfer by creation of the interest of a tenant in common in the land by a person who later becomes a bankrupt to another person is void if the prior joint interest of that other person in the land would probably have become available, et cetera, and the transferor’s main purpose in transferring by creating the tenancy in common interest to that other person was to hinder or delay the process of making the prior joint interest of that other person in the land available to the creditors.

I know it is an unnatural way to define it, your Honour, but your Honour has to bear in mind – and I am sorry to keep repeating this – that “transfer” does not mean “transfer” in the literal sense.  It has this rather unnatural meaning in this case that it extends to creation.  So to speak of a transfer occurring by creation is just a non‑natural use of words, but that is what the section requires because of the deeming – this is the statutory fiction to which I refer in my submissions.  It is what I think Mr Justice Windeyer spoke of, that the words are having a meaning that they obviously would not normally have and therefore it is a fiction.

GUMMOW ACJ:   Take the situation of a family trust, which I think is probably more likely to have been in the minds of a draftsman, and take a declaration of a sub‑trust.  This section could then work without such a torture, could it?

MR COOPER:   I would submit, yes, your Honour, because it would be creating rights that did not previously exist.

GUMMOW ACJ:   Namely, the sub‑trust.

MR COOPER:   Exactly, and then they are deemed to be, although new, a transfer of property.  It is the import of this deeming provision which makes the section so superficially unfriendly in its application of the facts to the case.

GUMMOW ACJ:   Yes.  How would paragraph (a) then work in the sub‑trust example?

MR COOPER:   It would mean the primary trust or the trust prior to the creation of the sub‑trust.

GUMMOW ACJ:   Yes.  So that is at least one example of subsection (9) being able to work.

MR COOPER:   Yes, your Honour, and the example Justice Hayne gave yesterday of the 99‑year lease.  There are obviously more immediate examples.  This is an extreme example because of the rather esoteric nature of what has happened between the annihilation of one interest in property and the creation of a different ‑ ‑ ‑

GUMMOW ACJ:   Yes, and the peculiar nature of the jointure and the nature of severance and so on.

MR COOPER:   Yes, exactly, and with the superadded difficulty of the concept of survivorship existing on one hand and then this occurring on the other.

HAYNE J:   But can I just go back again – and I know this is repetition – but put it in slightly different language.  The creation of an interest in common – the deemed transfer of property – is void against the trustee if the pre‑existing co‑ownership interest, that is to say the joint interest, would probably have become available, so that the property is different at the two stages.

MR COOPER:   Fundamentally.

HAYNE J:   Yes.  The rights are different.

MR COOPER:   Exactly.  That is the fallacy of my friend’s argument.  He says she had a bundle of rights before and a bundle of rights after, weigh them all up, what does it matter?  The answer is this.  The rights of a joint tenant are just so fundamentally different in law to the rights of a joint tenant (sic).  They are not the obverse sides of the same thing.  They are just fundamentally different.  Thank you, your Honours.

GUMMOW ACJ:   Yes, Mr Morris.

MR MORRIS:   May I beg a minute of your Honours’ time to correct a factual assertion made by our learned friend.  It was said that where the accountant placed the value of $300,000 on the pre‑existing interest that that was something done as a balance sheet exercise.  There is no evidence of that.  All he swears to – it is at page 5 of the record at line 40 – is that as at 11 September Mr Pinna was a joint tenant.  His only asset was that interest and in express terms the value of Mr Pinna’s interest in the property was $300,000.  That evidence went in, tendered by our learned friend, without objection, and was the basis on which the proceedings were conducted.

CALLINAN J:   And the basis upon which you conducted your case.

MR MORRIS:   Precisely.

CALLINAN J:   You did not then have to call any evidence.

MR MORRIS:   No.  Bearing in mind particularly there are no pleadings in the Federal Magistrates Court.  The affidavit ‑ ‑ ‑

GUMMOW ACJ:   No, exactly, and this is the sort of complicated procedure where there should be.  I know you are prisoners of the system.

MR MORRIS: I can only endorse what your Honour has said, but under the Federal Magistrates Court Rules, instead of a pleading one files an affidavit ‑ ‑ ‑

GUMMOW ACJ:   These are not informal summary proceedings setting aside transactions under the Bankruptcy Act.

MR MORRIS:   Precisely.  Thank you, your Honours.

GUMMOW ACJ:   Yes, thank you.  Yes, Mr Cooper.  Do you want to say anything in response to what Mr Morris just said on the evidence you put?

MR COOPER:   No, I have made my submission about the evidence is irrelevant.  Your Honour asked about the form of an order.  I have had something prepared overnight if ‑ ‑ ‑

GUMMOW ACJ:   You had better give Mr Morris a copy.

MR COOPER:   Yes, I am just doing that now, your Honour.  I am not keeping him out of the loop.

GUMMOW ACJ:   Thank you.  Order 5, this amount, that is as of today, is it?

MR COOPER:   No, your Honour, it was the amount – I am sorry, what ‑ ‑ ‑

GUMMOW ACJ:   The interest.

MR COOPER:   The interest is fixed, your Honour.  When the money was paid into the trust account the interest was calculated to that date, so it is fixed at that amount.  It will never change.

GUMMOW ACJ:   It will never change?

MR COOPER:   No.

GUMMOW ACJ:   It is just sitting there sterilised, is it, in the trust?

MR COOPER:   No, it is getting accretions by other interest.  It is on deposit and it is getting accretions in that sense.

HAYNE J:   With accretions.

GUMMOW ACJ:   Yes.  So if we added “with accretions”, as Justice Hayne says, to 5, that might deal with the matter.

MR COOPER:   No, your Honour ‑ ‑ ‑

HAYNE J:   Well, no, it is in 4.

GUMMOW ACJ:   To 4, I am sorry.

MR COOPER:   To 4, yes, because the interest under 5 is fixed at the date in which the money was paid in.

GUMMOW ACJ:   Yes, that seems appropriate.

MR COOPER:   Thank you, your Honours.

GUMMOW ACJ:   Yes.  We thank counsel for their assistance and we will reserve our decision in this matter.  We will adjourn to reconstitute.

AT 10.36 AM THE MATTER WAS ADJOURNED