Peldan v ANDERSON

[2005] FMCA 142

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PELDAN & ANOR v ANDERSON & ANOR [2005] FMCA 142

BANKRUPTCY – Void transfers – whether severance of joint tenancy by mutual agreement is a “transfer of property” for the purposes of s.121 of the Bankruptcy Act.

Bankruptcy Act 1966, ss.5, 121(1), 121(2), 121(4), 121(9)
Property Law Act1974 (Qld), s.228(1)

Corin v Patton (1990) 169 CLR 540
Parson v McBain (2001) 109 FCR 120

Applicants: MICHAEL RICHARD PELDAN & MORGAN GERARD JAMES LEE, TRUSTEES OF THE BANKRUPT ESTATE OF RAYMOND KENNETH PINNA

Respondents: BERNADETTE ANDERSON & ROBYN MOLLEE, EXECUTORS OF THE LATE DOROTHY RUTH PINNA

File No: BRG 456 of 2004

Delivered on: 21 February 2005

Delivered at: Brisbane

Hearing date: 14 February 2005

Judgment of: Jarrett FM

REPRESENTATION

Counsel for the Applicant: Mr Martin

Solicitors for the Applicant: Quinn & Scattini

Counsel for the Respondent: Mr Jurth

Solicitors for the Respondent: Klar & Klar

ORDERS

1. Declare that the transfer of the bankrupt's interest in the property known as Lot 129 on RP 859113 County of Stanley, Parish of Tingalpa being Title Reference 50043216 on 11 September, 2003 and registered on 5 November 2003 is void as against the applicants pursuant to s.121(1) of the Bankruptcy Act 1966.

2. That the respondents pay to the applicants the sum of $288,777.29 within thirty (30) days of today's date.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG 456 of 2004

MICHAEL RICHARD PELDAN & MORGAN GERARD JAMES LEE, TRUSTEES OF THE BANKRUPT ESTATE OF RAYMOND KENNETH PINNA

Applicants

And

BERNADETTE ANDERSON & ROBYN MOLLEE, EXECUTORS OF THE LATE DOROTHY RUTH PINNA

Respondents

REASONS FOR JUDGMENT

1. By their application filed on 20 August, 2004 the applicants seek a declaration that “the execution of certain documents by Raymond Kenneth Pinna in September and October of 2003 to sever the joint tenancy in respect of 9 Quetta Close, Carindale, in the State of Queensland, more particularly described as Lot 129 on RP 859113, County of Stanley, Parish of Tingalpa bearing title reference 50043216 (“the property”) was a transfer to defeat creditors pursuant to section 121 of the Bankruptcy Act 1966 (Cth) and/or section 228 of the Property Law Act 1974 (Q’ld) and void as against the Applicants”. 

2. The applicants also seek a declaration that the respondents hold the proceeds of sale ($288,777.29) of the property on trust for the applicants and an order compelling the respondents to forthwith pay to the applicants the sum of $288,777.29 held in the trust account of the respondents’ solicitors.

3. The application arises in the context of the following facts.  The respondents are the executors of the estate of their mother, Dorothy Ruth Pinna.  I will refer to Mrs Pinna as "the deceased".  The deceased and the bankrupt were married on 5 February, 1949.  On 5 December 1995 the deceased and the bankrupt purchased the property the subject of these proceedings.  Upon the purchase of the property, the deceased and the bankrupt became registered owners as joint tenants.

4. The bankrupt, at least, had an interest in a company called Pinnacle Engineering Proprietary Limited.  Pinnacle Engineering found itself in financial difficulty and, consequent upon the issuing of relevant notices by the Commissioner of Taxation in June and July 2003, by August 2003 the bankrupt became liable to the Commissioner for approximately $80,000.  In addition, he was also liable for another outstanding amount to the Commissioner in the order of $202,000.00.

5. The respondents suggest that in or about May or June of 2003, the deceased and the bankrupt agreed to sever the joint tenancy in the property.  It is said that that fact can be drawn from the evidence given by the bankrupt's solicitor, Mr Peter Klar, in the course of an examination that took place into the bankrupt's affairs on or about 5 August, 2004.  In particular, it is said that certain passages appearing from page 8 and 9 of the transcript of that examination reveal that in June of 2003, or perhaps as early as May 2003, the bankrupt consulted Mr Klar about various legal matters. 

6. The transcript, in fact, reveals that in June, 2003 the bankrupt consulted Mr Klar about preparing a Will.  Acting as a diligent solicitor would, Mr Klar made inquiry of the bankrupt about the nature and extent of his property and the nature in which that property was held with any others.  He became aware during the course of those discussions that the property at Quetta Close was held jointly with the bankrupt's wife, the deceased, and that they held it as joint tenants.

7. There does not seem to be anything in Mr Klar's evidence in the examination of affairs that suggests that Mr Pinna sought any particular advice about severance of the joint tenancy, or that any particular instructions were given about it.  The question of the joint tenancy came up in the context of discussions that might simply be seen as obtaining instructions for the preparation of the Will.

8. I am not satisfied on the evidence that there was any agreement in May or June 2003 between the deceased and the bankrupt whereby they agreed to sever their joint tenancy in the property.  I was certainly taken to no other evidence that tended to suggest that there was such an agreement at that time.

9. On 11 September 2003, however, the deceased and the bankrupt executed a transfer of the property in form 1 provided for by the Land Titles Act 1994.  That transfer was executed by each of the parties, but after being lodged for registration with the Registrar of Titles, it was requisitioned and it was subsequently amended.  In its original form the document was signed by each of the parties and purported to be, by its terms, a severance of the joint tenancy on a unilateral basis.  I say that with some trepidation because the terms of the document are also consistent, it seems to me, with an agreement having been reached between the deceased and the bankrupt to sever the joint interest.

10. The only words in the transfer as it was originally executed that suggested that it was a unilateral severance, are those words appearing under the heading "Consideration" in the form.  The following words record the consideration for the transfer:

    The unilateral severance of a joint tenancy pursuant to s 59(2) of the Land Title Act 1994.

    Apart from those words, everything else in the document tends to suggest, or is consistent with, an agreement between the parties that they would sever the joint tenancy and thus convert the joint tenancy to a tenancy in common in equal shares. 

11. I am satisfied that there was an agreement reached on 11 September 2003 between the bankrupt and the deceased to sever the joint tenancy in respect of the property.

12. The transfer as originally lodged for registration was rejected by the Registrar of Titles, but after some amendments on 17 September 2003, it was registered on 5 November 2003. 

13. The applicants say that the transfer, either as it was originally executed or as subsequently amended, was a transfer that is liable to be set aside by reason of s.121 of the Bankruptcy Act1966 or s.228 of the Property Law Act 1974. Section 121 of the Bankruptcy Act applies to transfers of property. Section 228 of the Property Law Act applies to alienation of property. The significance between the differences the section will become apparent in these reasons.

14. It is not in dispute that in September 2003 it could have reasonably been inferred from all the circumstances that the bankrupt was insolvent, or alternatively was about to become insolvent.  There is no issue about that.  He was in considerable financial difficulty.  Mr Klar knew that as early as August, 2003.

15. I was taken by Mr Jurth of Counsel on behalf of the respondents, to a very careful examination of the law insofar as it related to the severance of joint tenancies. By and large, I agree with the submissions that he has made in that respect.  A joint tenancy can be severed both at law and in equity.  Severance of a joint tenancy at law can occur, at least in Queensland, in four different factual scenarios.  It can be severed when there is:

    a)an alienation by one of the joint tenants of his or her interest;

    b)by mutual agreement between the joint tenants;

    c)

    by a course of conduct sufficient to indicate an intention between the joint tenants that their interests are held as tenants in common;

    
    

    or

    d)pursuant to s.59(1) of the Land Title Act 1994.

16. In this case the respondents say that there was, at least, a mutual agreement to sever the joint tenancy.  I am satisfied on the evidence, and in particular by reason of the transfer that was executed on 11 September, 2003 that there was indeed a mutual agreement between the respondent and the bankrupt to sever the joint tenancy.

17. The property in question is, of course, Torrens title land and the transfer was not registered until 5 November 2003.  Because legal title only passes on registration of a transfer, the effect of the agreement to sever on 11 September 2003 was to sever the joint tenancy in equity as and from that date, but no more.  No severance at law came about until registration.  In Corin v Patton (1990) 169 CLR 540 Deane J. said at

    
    

    p. 574:

    Equity will impose a trust of the Real Property Act land held by the legal owners as joint tenants if the joint tenants actually agree to terminate the joint tenancy.  Thereafter their beneficial entitlement to the land will be as tenants in common.  The legal joint tenants will hold as trustees for themselves as tenants in common in equal shares.  Where such an agreement is made there is valuable consideration in that each party agrees to relinquish the beneficial interest of a joint tenant of a common property, including the right of accretion by survivorship in return for the share of a tenant in common.

18. There are, therefore, two transactions or two dealings with the bankrupt’s interest in the property that need to be considered: the first is the equitable disposition of the bankrupt's interest as a joint tenant on 11 September 2003; the second is the legal disposition of that interest on 5 November 2003. 

19. As to the latter, it seems to me that the registration of the transfer and the effecting of a change in the legal title to accord with the bankrupt’s and the deceased's agreement was simply a mechanical matter. It was an action that carried into effect the more substantive agreement that was reached no later than 11 September 2003. In that sense, whilst the registration of the instrument of transfer might be seen as a transfer of property by the bankrupt to the deceased, it is a transfer which does not fall within s.121 of the Bankruptcy Act. It does not fall within that section because all that was transferred was the bare legal title. The deceased was already, by reason of the agreement reached on

    
    

    11 September 2003, the beneficial owner of the property as a tenant in common in equal shares with the bankrupt.  Registration of the transfer simply perfected the already existing equitable interest that vested in the deceased on 11 September 2003, by reason of the agreement to sever the joint tenancy. 

20. For the same reasons, it seems to me that whilst registration of the transfer on 5 November, 2003 might perhaps be seen as an alienation by the bankrupt, it was not an alienation of property that might be caught by s.228 of the Property Law Act.

21. I turn now to consider what I think is the more substantive matter: that is the transaction that occurred on 11 September 2003 to effect a disposition of the bankrupt's interest as a joint tenant in the property in Equity. 

22. The term "alienation of property" used in s.228(1) of the Property Law Act is a term of wide import. The authorities make that plain. The agreement struck on 11 September 2003 was, I think, sufficient to fall within the description of alienation of property for the purposes of the Property Law Act 1974.  It is not, however, necessary to express a firm opinion about that because the applicants’ claim under this section must otherwise fail.

23. Section 228(3) of the Property Law Act provides:

    This section does not extend to any estate or interest in property conveyed for valuable consideration and in good faith to any person not having at the time of the conveyance notice of the intention to defraud creditors.

    There is no evidence that on 11 September 2003, the deceased had notice of the bankrupt’s intention to defraud creditors (assuming that he had such an intention).  No doubt the applicant would have me infer by reason of the marriage relationship between the bankrupt and the deceased that she knew of the bankrupt's affairs and his financial position.  But there is no other evidence, apart from the evidence of the marriage, from which I might draw that inference.  Notwithstanding that there was no challenge by the respondents to a finding that in September 2003 it could have reasonably been inferred from all the circumstances that the bankrupt was insolvent, or alternatively was about to become insolvent I am not persuaded by the evidence that the deceased had notice of the bankrupt's precarious financial position, much less an intention to defraud creditors.

24. The issue which arises under s.228(3) is whether the alienation of property on 11 September 2003 was one for valuable consideration.

    
    

    I have already referred to a passage from the judgment of Deane J in Corin v Paton that makes it plain that the agreement made on

    
    

    11 September 2003 was supported by valuable consideration.  I repeat his Honour’s words here for clarity.  His Honour said: “… there is valuable consideration in that each party agrees to relinquish the beneficial interest of a joint tenant of a common property, including the right of accretion by survivorship in return for the share of a tenant in common”.

25. I was taken to no authority that called his Honour's words into doubt.  And although his Honour's words in that decision were strictly obiter, they seem to me – and with the greatest of respect to His Honour – to be entirely correct. There is plainly valuable consideration moving from the promisee to the promisor, sufficient to provide the requisite element under s.228(3) of the Property Law Act 1974.  Moreover, there is no evidence that the alienation was not made in “good faith”. No submissions were made to me that I should find that the alienation was not made in “good faith”. 

26. Section 228(1) has no application to the agreement made between the bankrupt and the deceased on 11 September 2003. Insofar as the application relies on s.228 of the Property Law Act 1974 it must be dismissed.

27. I turn now to consider the issue arising under s.121 of the Bankruptcy Act. Relevantly, it provides:

    121 Transfers to defeat creditors
    Transfers that are void
    (1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:

    (a) 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; and

    (b) the transferor’s main purpose in making the transfer was:

    (i) to prevent the transferred property from becoming divisible among the transferor’s creditors; or

    (ii) to hinder or delay the process of making property available for division among the transferor’s creditors.

    Showing the transferor’s main purpose in making a transfer
    (2) The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
    Other ways of showing the transferor’s main purpose in making a transfer
    (3) Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.
    Transfer not void if transferee acted in good faith
    (4) Despite subsection (1), a transfer of property is not void against the trustee if:

    (a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and

    (b) the transferee did not know that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and (c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.

    Refund of consideration
    (5) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
    What is not consideration
    (6) For the purposes of subsections (4) and (5), the following have no value as consideration:

    (a) the fact that the transferee is related to the transferor;

    (b) if the transferee is the spouse or de facto spouse of the transferor—the transferee making a deed in favour of the transferor;

    (c) the transferee’s promise to marry, or to become the de facto spouse of, the transferor;

    (d) the transferee’s love or affection for the transferor.

28. The first issue that arises under s.121(1) is whether the transaction that took place on 11 September 2003 was a “transfer of property”. Drawing on Deane J's words in Corin v Patton, to which I have just referred, it is apparent, I think, that what the bankrupt was dealing with was his interest in the property.  He had an interest in the property as a joint tenant.  There was a transaction that changed the nature of his interest in the property from that of a joint tenant to that of a tenant in common.  The change in the nature of his interest carried with it a change in the bundle of rights attached to his interest in the property.

29. The mutual promises between the joint owners to take and accept a change in the status of their ownership and the consequences that went with that was, for his Honour's purposes in Corin v Patton, valuable consideration.  Given those matters, and given the nature of the consequences that flow from a change from joint tenancy to tenancy in common, it seems to me that what was being disposed of – and I use that term in a neutral sense – were property interests.  The contrary was not really submitted by the respondents. 

30. The point of the respondents’ submissions was that although property interests might have been disposed of, there was no transfer for the purposes of s.121 of the Bankruptcy Act.

31. Once one accepts that there has been a disposition of property interests, it seems to me it must follow that there was a “transfer”: a transfer by the bankrupt to the deceased of that part of his interest in the property in the nature of the bundle of rights that came with being a joint tenant. The word “transfer” is not defined in the Bankruptcy Act but some guidance is given by s.121(9). The severance of the joint tenancy created in the deceased a new interest, namely an interest as a tenant in common that carried with it a different bundle of rights than that which she had hitherto enjoyed. That interest as a joint tenant is apt to fall within the definition of property in s.5 of the Bankruptcy Act. The agreement to sever the joint tenancy is, in my view, a transfer of property for the purposes of s.121(1) of the Bankruptcy Act.

32. Had there not been that transfer, the deceased's interest in the property would have become available to the bankrupt’s creditors upon the death of the deceased. 

33. The respondents argue that the existence of an equitable interest as at the date of the legal transfer (5 November, 2003) means that there was no relevant transfer of the bankrupt’s property.  To demonstrate the respondent's point, the respondents pointed out the decision in Parson v McBain (2001) 109 FCR 120. In that case, a transfer of certain interests in property was sought to be attacked under s.121, amongst others, of the Bankruptcy Act.  The basis of the respondents' successful defence to that claim was to demonstrate that the legal title held by the bankrupt had always been held subject to an equitable interest in favour of the respondents.  The relevant equitable interest was in the nature of a resulting or constructive trust, in circumstances where the respondents had provided, over a considerable period of time, contributions towards the acquisition and maintenance of the properties the subject of the claim.  To put it shortly, constructive and resulting trusts, in the nature of those discussed by the High Court of Australia in Muschinski v Dodds (1985) 160 CLR 583 and Calverley v Green, (1984) 155 CLR 242 were found to exist and were found to have existed for a considerable period of time. There was no particular transaction or event that was said to be the genesis of the equitable interests.

1. This case is different.  In this case, there is a particular transaction, or event, that is said to be the genesis of the equitable interest.  The equitable interest in this case is different in nature to the equitable interests or relied upon in cases like Parsons v McBain.  This is an equitable interest that arises consequent upon the agreement of legal owners of property to sever a joint tenancy.

2. I am entitled, and no submission was made to the contrary, to rely on s.121(2) of the Bankruptcy Act to find that the transferor's main purpose in making the transfer on 11 September, 2003 was either to prevent the transferred property from becoming divisible amongst his creditors, or to hinder or delay the process of making the property available for division amongst his creditors. I am satisfied that the necessary elements under s.121(1) of the Bankruptcy Act have been made out, and that prima facie the agreement of 11 September, 2003 to sever the joint tenancy of the property is void against the applicants.

3. The respondents also rely on s.121(4). I have set out above the terms of s.121(4). I was not taken to any authority which dealt with the test required to be satisfied by s.121(4)(c). I should say that it follows from the remarks that I have already made that the deceased gave consideration for the transfer that was at least as valuable as the market value of the property transferred. I am also satisfied that she did not know that the transferor's main purpose in making the transfer was the purpose described in paragraph 1(b) of s.121(1). The real issue under s.121(4) is that which arises under s.121(4)(c), namely whether the deceased:

   could not reasonably have inferred that at the time of the transfer, the transfer was, or was about to become, insolvent.

4. The material before me, as I have already remarked, is plain that at the time of the transaction, that is September 2003, the bankrupt was insolvent. There was certainly sufficient evidence to suggest his insolvency at that point in time, and so I do not think that I can be satisfied that, to use the words of s.121(4)(c):

   the transferee could not reasonably have inferred that at the time of the transfer the transferor was, or was about to become, insolvent.

5. Given that I am not satisfied that s.121(4)(c) is made out, the defence available under s.121(4) is not available to the respondents.

6. Accordingly, I find that the transfer effected on 11 September 2003 is void as against the applicants. I declare that the transfer of the bankrupt's interests in the property known as Lot 129 on RP 859113 County of Stanley, Parish of Tingalpa being Title Reference 50043216 on 11 September 2003 is void, pursuant to s.121(1) of the Bankruptcy Act 1966.  I declare that the respondents hold the proceeds of sale of the said property on trust for the applicants. 

7. I will hear the parties as to interest and costs.

I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Jarrett FM

Associate:  S Haysom

Date:  31 March 2005