MICHAEL PELDAN (AS TRUSTEE OF THE BANKRUPT ESTATE OF RAYMOND KENNETH PINNA) & ANOR APPELLANTS
AND
BERNADETTE ANDERSON (AS EXECUTOR OF THE ESTATE OF THE LATE DOROTHY RUTH PINNA) & ANOR RESPONDENTS
Peldan v Anderson [2006] HCA 48 4 October 2006 B110/2005
ORDER
1.Grant leave for the amended notice of contention dated 23 June 2006 to be filed out of time.
2. Allow the appeal to the extent necessary to vary order 2 made by Kiefel J on 25 August 2005 so that it reads:
"The orders of Jarrett FM made on 22 February 2005 be set aside, and in their place order that the application to the Federal Magistrates Court filed 20 August 2004 be dismissed."
3. Appeal otherwise dismissed with costs.
On appeal from the Federal Court of Australia
Representation
D R Cooper SC with M D Martin for the appellants (instructed by Quinn & Scattini)
A J H Morris QC with L A Jurth for the respondents (instructed by Bennett Carroll)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Peldan v Anderson
Bankruptcy − Transfers to defeat creditors − s 121(1)(a) of the Bankruptcy Act 1966 (Cth) ("the Act") − Transfers of property void against the trustee in bankruptcy if the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred − Where pursuant to s 121(9)(b) of the Act property that did not previously exist is taken to have been transferred for the purposes of s 121 of the Act − Where the bankrupt unilaterally severed a joint tenancy in Torrens title land held between himself and his wife who later died prior to his bankruptcy − Whether s 121(9)(b) of the Act operated so as to take the bankrupt to have transferred property to his wife − Whether that property would probably have become part of the transferor's estate in bankruptcy if the property had not been transferred.
Real property − Joint tenancy − Severance − Torrens system land − Unilateral severance of joint tenancy pursuant to s 59 of the Land Title Act 1994 (Q) − Effect of severance upon property of the bankrupt.
Statute − Statutory construction − Construction of pars (1)(a) and (9)(b) of s 121 of the Act where drafting reflects inconsistent assumptions − Whether possible to render those sub-sections capable of concomitant operation so as to give effect to the text and policy of the Act.
GUMMOW ACJ, KIRBY, HAYNE, CALLINAN AND CRENNAN JJ. This is an appeal from a decision of the Federal Court of Australia[1] (Kiefel J) exercising its appellate jurisdiction in respect of a decision of the Federal Magistrates Court of Australia (Jarrett FM). Kiefel J allowed an appeal by…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Peldan v Anderson [2006] HCA 48
Case
[2006] HCA 48
Decision Date
CaseChat Overview and Summary
The High Court of Australia considered an appeal by the trustees in bankruptcy of Mr. Pinna against Mr. Anderson, who was the executor of Mrs. Pinna's estate. The dispute concerned the validity of Mr. Pinna's unilateral severance of a joint tenancy in a property he held with his wife, Mrs. Pinna, prior to his bankruptcy. The trustees sought to have this severance declared void against them under section 121(1)(a) of the *Bankruptcy Act 1966* (Cth), arguing that the property would have become part of Mr. Pinna's estate had the severance not occurred.
The central legal issues before the High Court were whether section 121(9)(b) of the *Bankruptcy Act* operated to deem Mr. Pinna to have transferred property to his wife by unilaterally severing the joint tenancy, and if so, whether that property would have likely become part of his estate if the transfer had not occurred. The Court also had to consider the construction and potential operation of subsections 121(1)(a) and 121(9)(b) of the Act, particularly where their drafting might reflect inconsistent assumptions, and whether they could operate concurrently to give effect to the Act's text and policy. The Court also considered the effect of a unilateral severance of a joint tenancy under section 59 of the *Land Title Act 1994* (Qld) on the property of a bankrupt.
The High Court reasoned that section 121 of the *Bankruptcy Act* requires proof that the property in question would probably have become part of the transferor's estate or been available to creditors if it had not been transferred. The Court noted that the onset of bankruptcy itself operates to sever a joint tenancy, destroying the unity of title. Therefore, upon Mr. Pinna's sequestration, only his interest as a tenant in common would have fallen into his bankrupt estate, not the entirety of the property as the trustees contended. Consequently, the trustees had not established that the severed interest would have become part of Mr. Pinna's estate in the manner required by section 121.
The High Court allowed the appeal to the extent necessary to vary an earlier order, substituting it with an order dismissing the application to the Federal Magistrates Court. Leave was granted to file an amended notice of contention out of time. The appeal was otherwise dismissed with costs.
Orders
Orders of the court
1. Grant leave for the amended notice of contention dated 23 June 2006 to be filed out of time. 2. Allow the appeal to the extent necessary to vary order 2 made by Kiefel J on 25 August 2005 so that it reads: "The orders of Jarrett FM made on 22 February 2005 be set aside, and in their place order that the application to the Federal Magistrates Court filed 20 August 2004 be dismissed." 3. Appeal otherwise dismissed with costs.
Background
Background to the litigation
Before considering the merits of these various submissions, it is convenient to say something more of the facts.The facts It is a curiosity of the facts of this case that, had the unilateral severance under s 59(1) been effected by Mrs Pinna, rather than Mr Pinna, on no basis could that have attracted s 121 so as to render the severance void against the trustees upon the bankruptcy of Mr Pinna. There would have been no transfer of property by the bankrupt as required by s 121. The Carindale property was the matrimonial home of Mr and Mrs Pinna. The memorandum of transfer pursuant to s 59(1) of the Land Title Act was executed on 11 September 2003 and, as indicated above, was registered on 5 November 2003. In the form in which it was ultimately lodged (following amendments to which it is not necessary to refer), the memorandum recorded the "[i]nterest being transferred" as a "ONE-HALF INTEREST IN FEE SIMPLE". Mr Pinna was described as both "transferor" and "transferee", and the consideration was expressed to be the unilateral severance of a joint tenancy pursuant to s 59(1) of the Land Title Act. The transfer form was prepared by Mr Peter Klar of Klar & Klar, solicitors. He gave evidence that the issue of severance arose in the course of his taking instructions to prepare a will for Mr Pinna. This was to leave all his property to his wife in the first instance with a gift over. Mr Pinna was born in 1923 and Mrs Pinna in 1925. Neither of them could be described as being in perfect health. Such little evidence as existed suggested that Mr Pinna had undergone open‑heart surgery earlier in 2003, and that Mrs Pinna had been living with one kidney for about 40 years (although no evidence was led as to any underlying condition which caused this), and was admitted to hospital for rehabilitation in November or December of 2003. Mr Klar gave evidence suggesting that the concern when he had been consulted on 11 September 2003 had been with the health of Mr Pinna. Mr Klar said that "the concern was that Mr Pinna would be the first to die, not Mrs Pinna". The sequestration order was made on the petition of the Deputy Commissioner of Taxation. The financial affairs of Mr Pinna and those of his company, Pinnacle Engineering Pty Ltd, had been in a parlous condition for some time. Mr Pinna was personally liable to the Deputy Commissioner in respect of the default by the company of a payment agreement entered into on 16 April 2003 with respect to outstanding taxation debts, and also in respect of certain Director Penalty Notices issued against him. He was also liable upon substantial personal guarantees in respect of the company's debts. The trustees allege (and it appears not to have been disputed) that, at 11 September 2003, Mr Pinna's total liabilities amounted to $1,474,291.35. The only asset of any value was his interest in the Carindale property; the interest was valued at that date at $300,000. The trustees commenced proceedings in the Federal Magistrates Court on 20 August 2004 seeking declarations that the severance was void against them. The proceedings were conducted rather informally and without the benefit of pleadings, so contributing to the somewhat disorganised and incomplete state of the evidence.Cummins[5][5]Trustees of the Property of Cummins (A Bankrupt) v Cummins (2006) 80 ALJR 589; 224 ALR 280.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
GUMMOW ACJ, KIRBY, HAYNE, CALLINAN AND CRENNAN JJ
The above construction does not assist the trustees in this appeal. It requires attention to what would probably have happened to Mr Pinna's undivided interest as joint tenant in the Carindale property. It must be shown that that interest "would probably have become part of the transferor's estate or would probably have been available to creditors", if property had not been taken by s 121(9)(b) to have been transferred. However, that interest could never have become part of his bankrupt estate. As was accepted by this Court in Cummins[34], it is established that the onset of bankruptcy works a severance of a joint tenancy[35]. Upon sequestration, unity of title is destroyed. On this basis, all that fell into the bankrupt's estate was an interest as tenant in common in the Carindale property. The trustees would have no claim to the whole of the proceeds of sale of the Carindale property as they seek in this litigation.[34](2006) 80 ALJR 589 at 593 [14]; 224 ALR 280 at 283‑284.[35]See the authorities and texts discussed in Re Francis; Ex parte Official Trustee (1988) 19 FCR 149.Conclusion and orders The trustees have not established that upon its construction s 121 of the Bankruptcy Act could apply in the circumstances of this case. The appeal must fail and it is unnecessary to consider further issues debated in argument, in particular, those arising on the foreshadowed amendment to the notice of contention filed by the respondents. Leave nevertheless should be given for this amended notice of contention to be filed out of time. The orders of Kiefel J should be varied by adding to order 2 an order that the application to the Federal Magistrates Court be dismissed and by correcting the misstatement in order 2 as to the date when the orders of the Federal Magistrates Court were made. Otherwise, the appeal to this Court should be dismissed with costs.
Ratio Decidendi
Legal Principle Established
Established by:
GUMMOW ACJ, KIRBY, HAYNE, CALLINAN AND CRENNAN JJ