Re Doyle (dec'd); Ex parte Brien v Doyle
[1993] FCA 102
•09 MARCH 1993
Re: BRUCE THOMAS DOYLE (Deceased)
Ex Parte: RICHARD CAMPBELL BRIEN and GRETCHEN DOYLE
No. W 2775 of 1991
FED NO. 102
Number of pages - 36
Bankruptcy - Private International Law - Statutory Interpretation
(1993) 112 ALR 653
(1993) 41 FCR 40
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Burchett J.(1)
CATCHWORDS
Bankruptcy - Private International Law - Effect of sequestration order on property in foreign countries - immovable property in Germany - particular significance, for questions of private international law, of academic opinions in the textbooks - whether s.120 of the Bankruptcy Act affects a "settlement" of land in Germany - whether the Federal Court has jurisdiction - whether relief can be obtained in personam against beneficiary of settlement - whether effect of setting aside a settlement of an undivided share in a joint tenancy might be simply to restore what would have been the position, if there had been no settlement, upon the death of one joint tenant - validity and operation of assignment under lex situs and the importance of the lex situs - effect of wide definition of "property" in s.5 of the Bankruptcy Act - whether s.120 should be construed by applying the definition literally, or whether a "contrary intention appears" - entrenched rule of construction that universal expressions in an Act should be read as confined to what, in accordance with private international law, it is within Australia's province to affect or control - application of that rule to Bankruptcy Act - construction and effect of s.120 - whether the court should try an action involving foreign immovables in a case under s.120 - whether jurisdiction was conferred on, or should be exercised by, the Federal Court in a bankruptcy matter by virtue of the Jurisdiction of Courts (Foreign Lands) Act 1989 of N.S.W. - meaning of "cognizance" in s.30 of Bankruptcy Act.
Statutory Interpretation - entrenched rule of construction that universal expressions in an Act should be read as confined to what, in accordance with private international law, it is within Australia's province to affect or control - application of that rule to Bankruptcy Act - construction and effect of s. 120 of the Bankruptcy Act.
Words and Phrases - meaning of "cognizance".
Bankruptcy Act 1966, ss. 5, 30, 120, 248
Jurisdiction of Courts (Foreign Lands) Act 1989 (NSW)
Hesperides Hotels Ltd v Muftizade (1979) AC 508
The Union Bank v Tuttle (1889) 15 VLR 258
The Federal Bank of Australia v White (1895) 21 VLR 451
Banque de Financement, S.A. v The First National Bank of Boston 568 F 2d 911 (1977)
Jabbour v Custodian of Israeli Absentee Property (1954) 1 WLR 137
Bank voor Handel en Scheepvaart N.V. v Slatford (1953) 1 QB 248
The Wanganui-Rangitikei Electric Power Board v The Australian Mutual Provident Society (1934) 50 CLR 581
Barcelo v Electrolytic Zinc Company of Australasia Limited (1932) 48 CLR 391
Grant v Anderson and Co. (1892) 1 QB 108
Callender, Sykes and Co. v Colonial Secretary of Lagos (1891) AC 460
Gregg v Perpetual Trustee Co (1918) 18 SR (NSW) 252
The Australian Mutual Provident Society v Gregory (1908) 5 CLR 615
Purdom v Pavey and Co. (1896) 26 SCR 412
Cockerell v Dickens (1840) 3 Moore PC 99
Haque v Haque (No. 2) (1965) 114 CLR 98
Cammell v Sewell (1860) 5 H.and N. 728
Rosler v Rottwinkel (1986) QB 33
Galbraith v Grimshaw (1910) AC 508
Cooke v The Charles A. Vogeler Company (1901) AC 102
Deschamps v Miller (1908) 1 Ch 856
The British South Africa Company v The Companhia de Mocambique (1893) AC 602
Inglis v Commonwealth Trading Bank of Australia (1972) 20 FLR 30
Barton v Official Receiver (1984) 4 FCR 380
In re Macdonald. Ex parte McCallum (1920) 1 KB 205
Re Amadio (1978) 24 ALR 455
HEARING
SYDNEY, 27 and 28 October 1992
#DATE 9:3:1993
Counsel for the Applicant: Mr M.R. Aldridge
Solicitors for the Applicant: Messrs Kemp, Strang and Chippindall
Counsel for the Respondent: Mr G.I. Foster
Solicitors for the Respondent: Messrs Lakos and Company
ORDER
THE COURT ORDERS THAT the application be dismissed with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
BURCHETT J. The applicant is the trustee of the estate of the late Bruce Thomas Doyle, which is being administered in bankruptcy pursuant to Part XI of the Bankruptcy Act 1966 (hereafter usually referred to as "the Act"). The order for the administration of the estate in bankruptcy was made on 13 September 1991, following the death of the deceased at a relatively early age on 29 July 1990. During his lifetime he had lived in the style (at least so far as was apparent to his wife, the respondent) of a very wealthy man, but the deficiency in his estate is of the order of $26,000,000. The evidence did not indicate to what extent that may have been due to the effect of his death upon his business, or to the calling up of guarantees after his death, although counsel for the applicant told me Mr Doyle had guaranteed the borrowings of some members of a group of about sixty companies, controlled by him, in relation to building developments which turned out badly.
The application brought before me relates to a transaction involving land in Germany, in the city of Hamburg. It is not suggested that this transaction lacked validity according to German law. The good faith of Mrs Doyle is not attacked, nor has the deceased himself been shown to have acted fraudulently. But it is said that s. 120 of the Act (applied to the administration in bankruptcy of the estate of a deceased person by virtue of s. 248) enables the court to declare the transaction void, as against the trustee, on the basis that it is a settlement falling within subsection 1 of the section.
According to the trustee's case, prior to 17 April 1990 Mr and Mrs Doyle were co-owners in equal shares of number 2A Rissener Landstrasse, Hamburg, their ownership being listed in the land titles register of Dockenhuden volume 217 page 7371. The property is a residential unit, with a basement area and a car space in an underground car park, having also the exclusive use of a reserved patio area. On 17 April 1990, a document described as a deed of gift was declared before a Hamburg notary, by which Mr Doyle transferred his share in the residential unit to Mrs Doyle, and she accepted the gift of it. It was recorded that Mrs Doyle took over certain encumbrances, but that Mr Doyle undertook to compensate her "to the same extent as in the past". There were a number of other terms. The document signed by the notary, as translated and put in evidence before me, describes itself both as a "deed of gift" and also as a "contract". There was no evidence to establish whether in reality the document operated as a contract in accordance with German law. If it did, no doubt the proper law of the contract was German. Counsel for the trustee put his case on the basis that the relevant disposition was a "deed of gift ... made in Germany, according to German law".
The evidence shows that a transfer of ownership to Mr and Mrs Doyle, on 15 August 1988, had been entered on 15 February 1989 in the land titles register of Dockenhuden, and that a further entry in that register was made on 24 September 1990 recording Gretchen Doyle nee Hansen as the owner "due to the application for an amendment and the contract for the transfer of the partnership share dated 7 April 1990". (The last date must almost certainly be a translator's error since a copy of what appears to be the original entry bears the date 17 April 1990.) While referring to the land titles register of Dockenhuden, I should mention that the register does confirm a claim made by Mrs Doyle that the residential unit was originally intended to be put in her name only, although it was in fact transferred to Mr and Mrs Doyle as co-owners some time before the transaction now in question. The confirmation of Mrs Doyle's claim is an entry of 13 November 1987 appearing on the register, which then showed an unrelated owner, presumably the vendor, as follows: "Caveat regarding transfer of ownership to Gretchen Arnhold (Mrs Doyle's name before her marriage to Mr Doyle) nee Hansen, date of birth 26 December 1935." It should also be noted that a mortgage in the sum of DM213,000 was entered on the register on 15 February 1989.
On 16 December 1991, the trustee applied in the district court of Hamburg for a temporary injunction, and for the entry of a caveat on the land titles register, in respect of the interest of the deceased which had been transferred to Mrs Doyle. In that application, the trustee claimed that "the transfer had the purpose of defeating the claims of Mr Doyle's creditors". However, as I have already noted in these reasons, any allegation that bad faith had been shown, so far as Mrs Doyle is concerned, was expressly disavowed in the submissions put to me. In the German proceeding, the value of the share claimed by the trustee from Mrs Doyle was said to be DM100,000, after deduction of the amount of the mortgage, on the basis that the total value of the residential unit was approximately DM420,000. A caveat was entered on the land titles register and a temporary injunction was granted, pursuant to the proceeding in the district court of Hamburg. The evidence has not disclosed whether or on what terms the temporary injunction was continued, but it was said to be in effect.
The application states, in a number of ways, the relief claimed by the trustee. First, a declaration is sought that the "deed of gift dated 17th April 1990 and registered in Hamburg, Germany on 24th September 1990 ... made between Bruce Thomas Doyle as Transferor and the Respondent as Transferee is void pursuant to Section 120 and 121 of the Bankruptcy Act 1966 as against the Applicant as Trustee in bankruptcy of the estate of Bruce Thomas Doyle". The seeking of a declaration in this form raises starkly the difficult question which lies at the root of this case - whether the claim the trustee wishes to raise can be determined under the Act by an Australian court. Alternatively, a declaration is sought "that a one half interest in the title to the said property is held by the Respondent upon trust (emphasis added) for the Applicant", or a declaration "that the Applicant and the Respondent are co-owners each being entitled to a one half interest in the title to the said property". I do not know whether one person may, in accordance with German law, hold an interest in real estate "upon trust" for another within the meaning of this expression in Australian law, and there is plainly a difficulty for an Australian court which is asked to make a declaration as to the nature of the rights of co-owners of land in Germany, in respect of which they are registered as having entitlements upon a German land titles register.
I sat to hear this case in New South Wales, where the State law includes the Jurisdiction of Courts (Foreign Land) Act 1989, but I do not believe that this State Act can be treated as enhancing my jurisdiction in such a matter as the present under the Bankruptcy Act 1966. Nor did counsel make any submission to that effect. I note that the New South Wales Act (by s. 4) provides:
"A court is not required to exercise jurisdiction under this Act if the court considers that it is not the appropriate court to hear the proceedings."
If I were entitled to rely on this Act, I would, as empowered by that section, decline to exercise jurisdiction under it - that is, assuming I lack jurisdiction under the Bankruptcy Act 1966.
But the application proceeds to seek relief in personam against Mrs Doyle. It asks for "an order that the Respondent forthwith transfer a one half interest in the title to the said property free of any encumbrances to the Applicant". Ancillary orders are also sought. If I have power to grant relief in respect of this application, I think it must be by way of an order in personam. The question whether such an order could properly require a transfer to be made "free of any encumbrances" may be put to one side. (It should, however, be observed that the transfer of Mr Doyle's interest was subject to the mortgage, under which, since his death, payments have been made on behalf of Mrs Doyle, and not by the trustee.) The central problem in the case reduces itself to whether relief by way of an order in personam may be obtained under s. 120 of the Act, the respondent herself being present within the jurisdiction. The evidence would not justify an order under s. 121, as indeed counsel for the trustee ultimately conceded.
The relevant subsection of s. 120 is subsection 1, which provides:
"(1) A settlement of property, whether made before or after the commencement of this Act, not being:
(a) a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or
(b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor;
is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 2 years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy."
Section 248(1) applies this section to an administration in bankruptcy of an estate of a deceased person. By the combined operation of s. 248(3) and s. 247A, "the commencement of the bankruptcy" in s. 120(1) must be read, for present purposes, as a reference to "the time of the presentation of the petition on which the order (for administration in bankruptcy) was made". Under some circumstances, s. 247A would provide for an earlier date, but the necessary facts were not proved in this matter.
The trustee's case, if he overcomes the hurdle of the applicability of s.120, is simply that, within the two years period, a settlement was made by the deceased in favour of the respondent of his one half share of the home unit in Hamburg, not for valuable consideration. Upon a case so formulated, there would be no need to show any lack of good faith. The absence of valuable consideration, according to the argument of counsel for the trustee, is demonstrated by evidence which is quite straightforward. After the acquisition of the home unit, and after it had been put into the names of both husband and wife, there was a rift in their relationship (a relationship which was long-standing, although the marriage was not). That rift had been precipitated by the husband, whose anxiety to restore the situation led to his transferring his interest in the home unit to his wife. At the time, there was no suggestion of any consideration in the legal sense; only that he was seeking a full reconciliation. The transaction was cast in the form of a gift. However, Mrs Doyle gave evidence, which I accept, of two substantial payments made by her at earlier stages. When the home unit was initially purchased, she had contributed a sum of about $40,000, approximately half of the deposit. Apart from that, she had advanced to Mr Doyle a different sum of about $40,000 some time in 1988, before their marriage. In relation to that advance, Mr Doyle had handed to her a cheque for $52,000, signed and duly made out, except that the date showed only the year. I infer that the cheque was not intended to be cashed immediately; it was to constitute an acknowledgment of the debt, and perhaps was seen as some sort of security for it. Counsel for the respondent, doubtless relying on cases such as In re Pope. Ex Parte Dicksee (1908) 2 KB 169, asks me to infer also that the transfer to Mrs Doyle was in fact made for an unstated valuable consideration, namely, the extinguishment of the debt constituted by the payment made in 1988 and evidenced by the cheque.
A question which was not raised at the hearing is whether, under German law, the title of Mr and Mrs Doyle as co-owners, as it was before the making of the alleged settlement within s.120, involved a right of survivorship. If so, a consequence of avoiding the settlement might be, under German law, to vest the whole interest in the respondent, as at the date of her husband's death. There is some doubt whether an avoidance under s.120 is an avoidance ab initio (Re Tapp; Ex parte Official Trustee in Bankruptcy (1987) 15 FCR 117), but, in any case, there must be a question whether the trustee could approbate and reprobate to the extent necessary to set aside a settlement of an interest equivalent to that of a joint tenant while, at the same time, denying the right of survivorship which would have operated if there had been no settlement at all. Cf. In re Dennis (A Bankrupt) (1993) Ch 72, which is concerned with almost the converse problem of whether, where a surviving joint tenant was made bankrupt, having committed an act of bankruptcy within the relation back period and before the death of the other joint tenant, it could be said that the retrospective commencement of the bankruptcy had severed the joint tenancy; it was held it had not. As the point was not argued, and as there was no evidence of the German rules of co-ownership of land, I merely note at this stage that the problem may have to be faced, should this matter go further.
In any case, the first question to be answered is whether the Act is capable of application in these circumstances. The trustee placed no reliance on German law, nor did he prove what the German law of bankruptcy or property provides. In this situation, my decision must be determined by the Australian law, although I point out, as a matter of interest only, that U. Drobnig, Bilateral Studies in Private International Law - American-German Private International Law, 2nd ed. (1972), at 375, suggests a foreign trustee of an "unincorporated" bankrupt estate "cannot (under German law) claim for the bankrupt's estate abroad the assets located in Germany". I note, too, that Germany is not a "prescribed country" for the purposes of s.29 of the Act.
The leading textbooks on private international law (that branch of our law which is concerned with the clash of different legal systems as they affect private rights) are neither clear nor altogether agreed about all the effects of orders made in bankruptcy in respect of assets outside the jurisdiction. For this court, however, the solution must be found in a right understanding of the meaning of the Act, even if the Act, so understood, may not be recognised in other countries, or in some of them. But the relevant provisions of the Act reflect a legal history which stretches back to Elizabethan times, and even earlier (see Holdsworth, A History of English Law, 1966 reprint, volume VIII, 229-245, and see the interesting brief account included in paragraph 11 of the Report of the Committee to review the Bankruptcy Law of the Commonwealth (1962), known as the Clyne Report). The Act, and s.120 in particular, must be read against that background. An illustration of the importance of doing so is provided by Re La Rosa; Ex parte Norgard v Rocom Pty Ltd (1990) 21 FCR 270, where the meaning of "settlement" in the section is explored.
Since 1883, English bankruptcy legislation has included a definition of "property" in the widest terms - "whether real or personal and whether situate in England or elsewhere", to quote the language of the Bankruptcy Act 1883, s. 168. In Australia, the Bankruptcy Act 1924 took for its model the English Act of 1883, as is pointed out in paragraphs 17 and 18 of the Clyne Report. Section 5(1) of the Bankruptcy Act 1966, based in its turn on the 1924 Act, now provides (in terms substantially reflecting those of s.4 of the 1924 Act):
"In this Act, unless the contrary intention appears: . . .
'property' means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property".
There is a separate definition of "the property of the bankrupt", an expression which generally refers to "the property divisible among the bankrupt's creditors" and certain rights and powers in relation to it.
What is the effect of so wide a definition of "property" as that contained in the Act? Cheshire and North's Private International Law, 12 ed. (1992), at 907-908, comments on the new English Act as follows:
"The Insolvency Act 1986 provides that the estate of a bankrupt shall vest in his trustees. His estate is very widely defined and extends essentially to all of his 'property', which term, according to section 436, includes 'money, goods, things in action, land and every description of property wherever situated.' It will be noticed that the 1986 Act expressly and deliberately attributes a very extensive effect to an English adjudication. Not only movables, but even immovables, belonging to the bankrupt 'wherever situated', ie whether in England or elsewhere, are to pass to the trustee.
Whether the transfer of property abroad can actually be effected is another matter. Although there was a view that Commonwealth countries were obliged to give effect to similar provisions under the Bankruptcy Act 1914 and earlier legislation as 'imperial statutes', this view cannot be sustained in relation to the Insolvency Act 1986. It is clear that an English adjudication cannot of its own force have any effect on property situated in, say, Australia or France, and it has been suggested that it is unlikely that a court in a foreign country would permit property there to be used for the payment of United Kingdom taxes owed by the bankrupt. Furthermore, if the English bankruptcy purports to act as an assignment of property abroad, it will only do so subject to any charges or liabilities attaching to the property under the law of the situs."
At 911, Cheshire and North point out that in an English bankruptcy "all questions arising in connection with the distribution fall to be decided by English law as being the law of the forum." But the trustee's title to the assets he will distribute is another matter. "(T)he issue as to what property may pass to the trustee and whether it is subject to charges or liabilities is a matter for the law of the situs."
In these passages, the extraterritorial effect of an English bankruptcy is considered. Cheshire and North then refer to the effect in England of a foreign bankruptcy. Even allowing for the distorting effect of national sentiments, this must substantially mirror the other. Having stated (at 906-907) that English law rejects the idea of a bankruptcy proceeding in one country taking precedence over proceedings in any other, but accepts the doctrine of universality, so as to admit "that the title of a foreign trustee extends to such movables of the debtor as are found in England, provided that no bankruptcy proceedings have been begun within the jurisdiction", Cheshire and North state at 914:
"The principle of universality does not apply to immovables situated in England; but the English court may, in the exercise of its discretionary jurisdiction, make an order permitting a foreign curator or trustee to sell land situated in England for the benefit of the bankrupt owner's creditors."
Despite the width of the English statutory definition of "property", Cheshire and North cast doubt on the extent to which immovable property of the bankrupt abroad can be affected by an English adjudication. If that is dubious, any effect upon immovable property abroad belonging to a third party by virtue of some antecedent transaction, perhaps some years earlier, involving the debtor, must be still more so. I have been unable to find support in Cheshire and North for the proposition that an English bankruptcy entails such a consequence.
Similarly, in Williams and Muir Hunter on Bankruptcy 19 ed. (1979) at 257, it is stated:
"Since real property is everywhere governed by the lex loci rei sitae, (the extension of the definition of 'property' in the Bankruptcy Act 1883 to include 'land ... whether situate in England or elsewhere') was of little practical effect, for the order of adjudication is not recognised in foreign countries as transferring to the trustee real property there situate. The property will only vest in the trustee subject to the local law as to the transfer of real estate situate in the locality; thus even real property in a colony only passed according to the law of the colony, and where that law required registration to pass the title, the trustee took no title till registration."
The authors consider, however, that the bankrupt might be ordered to execute a conveyance of real property situated abroad. But there is no suggestion here that a third party could be ordered to convey to the trustee property formerly acquired from the person now bankrupt. The authors do not travel beyond the proposition stated in the classic work of Story on Conflict of Laws 8 ed. (1883) at 591: "(T)he general principle of the common law is, that the laws of the place where (immovable) property is situate, exclusively govern in respect to the rights of the parties, the modes of transfer, and the solemnities which should accompany them. The title therefore to real property can be acquired, passed, and lost only according to the lex rei sitae." See also ibid at 757.
The question which arises in the present case is directly dealt with, as a problem of English bankruptcy law, in Dicey and Morris on The Conflict of Laws, 11 ed. (1987) by Lawrence Collins, volume 2, at 1108-09:
"In so far as an English bankruptcy purports to operate as an assignment of property situated abroad, the property passes, generally speaking, subject to any charges which are recognised as affecting it by the lex situs. And it seems that a judgment in rem given in a foreign court even after the commencement of the English bankruptcy will defeat the title of the English trustee.
The property which vests in the trustee must be in strictness 'property of the bankrupt.' Property which once belonged to the bankrupt, but which has before the commencement of the bankruptcy already vested in some other person, eg the trustee under a Scottish bankruptcy, is not the property of the bankrupt, and does not vest in the trustee under the English bankruptcy.
The English doctrine of relation back under the Bankruptcy Act 1914 was in practice exclusively applied to property situated in England. In so far as that doctrine could affect not only the property of the bankrupt but also that of third parties which the bankrupt himself could not disturb, the doctrine would not, in principle, apply to property situated outside England. That principle would seem to be no different under the Insolvency Act 1986."
I have omitted the footnotes from this quotation. There is a footnote, following the reference to the Bankruptcy Act 1914, which makes it clear that the expression "doctrine of relation back" comprehends settlements as well as preferences. Fraudulent conveyances, which are not mentioned, were not, of course, dealt with under the Bankruptcy Act 1914, the provision formerly in the Statute of Elizabeth being re-enacted in s.172 of the Law of Property Act 1925. Authorities are cited, to some of which I shall refer. It should be remembered, however, that in the field of the conflict of laws "academic authority is of particular value" in itself, apart from the decisions of the courts: Hesperides Hotels Ltd v Muftizade (1979) AC 508 at 536, per Lord Wilberforce, with whom Lord Salmon and Lord Keith of Kinkel agreed.
The English Bankruptcy Act 1914 was examined in the report of a committee, chaired by Sir Kenneth Cork, which I shall call "the Cork Committee". In the report of the Cork Committee at paragraph 1915, it is stated:
"In conformity with what is known as 'the comity of nations', there is a limited degree of recognition as between States of the legal effects of bankruptcy, so that 'trustees in bankruptcy', under one form of title or another, may be able to obtain recognition of, and the enforcement of, their titles to the assets of their bankrupts situate abroad, in their capacity as assignees of the bankrupts' estates. But such recognition rarely extends to the bankrupt's immovable assets, and the claims of a foreign trustee or liquidator are often postponed to the prior payment of local creditors."
The report continues in paragraph 1916:
"The situation in any insolvency which extends beyond the frontiers of the United Kingdom is complex and obscure. Serious as this inevitably is to the commercial community, it is exceptionally illogical and frustrating when it exists in what is intended to be a single and unified trading area, such as the European Economic Community."
The report makes it plain that it looks forward to the day when, within the European Economic Community, there will be "a single and universal bankruptcy proceeding in place of a considerable number of separate proceedings in each State where the debtor has assets" (para. 1919), but the Committee did not see that day as imminent. The report was followed by the passing of the Insolvency Act 1986, the international law frame of which is conveniently discussed in an article by J.W. Woloniecki in (1986) 35 ICLQ 644: see also an article by R.A. Gitlin and E.D. Flaschen in (1987) 42 Bus L 307. For an interesting review of the legal position in the United States in relation to the same problem of multi-jurisdictional bankruptcies, see an article by Professor D.G. Boshkoff in (1987) 36 ICLQ 729.)
The Insolvency Act 1986 is the subject of The Law of Insolvency by I.F. Fletcher (1990). I have been unable to find in this work any support for the idea that the universal definition of "property" in the Insolvency Act 1986 means that an English court can make an order against a third party , not being a creditor, in relation to immovable property situate outside the jurisdiction. On the contrary, special provisions for the different jurisdictions within the United Kingdom (as appears at 559-560) require a trustee to "act under the local law of the place where any assets are situated". This accords with the approach taken towards the effect of orders appointing receivers, where foreign property is involved, in Schemmer v Property Resources Ltd (1975) 1 Ch 273 at 286. The problems of the different jurisdictions within the United Kingdom are well illustrated by Murphy's Trustee v Aitken (1983) SLT 78, where the Scottish court denied the claim of an English trustee in bankruptcy to priority in respect of land owned by the bankrupt in Scotland, which was subject to a liability known to Scottish law as an "inhibition". Scottish law, as the lex situs, prevailed.
In Australia, Nygh on Conflict of Laws in Australia, 5 ed (1991), at 486, refers to the purportedly universal assignment of property effected by a sequestration order, and comments:
"The effectiveness of such an assignment is obviously a matter for the lex situs of the asset concerned."
The only claims against third parties he seems to envisage are those involving creditors who seek to retain, in opposition to the administration in bankruptcy, gains obtained by proceedings against the bankrupt outside the forum. As regards the effect in Australia of a foreign bankruptcy order, Nygh (at 490) mirrors the proposition I have already drawn from Dicey and Morris:
"Since the foreign bankruptcy operates as an assignment only, other aspects of the foreign bankruptcy law, such as provisions for relation back: Union Bank v Tuttle ((1889) 15 VLR 258), prohibitions of future dealings by the bankrupt with the property, or extended definitions of 'property': Federal Bank of Australia v White (1895) 21 VLR 451, are not given extraterritorial effect."
The Federal Bank of Australia Limited v White (supra) was concerned with the effect of s.44 of the English Bankruptcy Act 1883, by virtue of which goods "in the possession, order, or disposition of the bankrupt in his trade or business by the consent and permission of the true owner, under such circumstances that he was the reputed owner thereof" might be held to be "property of the bankrupt divisible among his creditors". The trustee under an English bankruptcy claimed to be entitled to certain goods within Victoria, not actually owned by the bankrupt, by virtue of this provision. Madden C.J. (at 463-464) held that the goods in question were caught by the section, if it applied in Victoria. He referred to an argument that "the Imperial legislation as to bankruptcy, from its very nature, applied throughout British dominions", and that "property" was defined in the Act as including "every description of property whether real or personal and whether situate in England or elsewhere". But Madden C.J. denied that the definition of property should be read into the provision in question. He said:
"I think that the fair construction of sec. 44 with the definition of 'property' in sec. 168 is to vest by express enactment the bankrupt's own property wherever it may be situate in his trustee in bankruptcy, but not to supply the artificial appropriation, as 'property divisible among his creditors,' of other people's property in the bankrupt's possession elsewhere than in England."
The Chief Justice concluded some pages of detailed reasoning by saying:
"I see no reason, therefore, to conclude that sub.-sec. 3 of sec. 44 of the English Bankruptcy Act of 1883 does apply to Victoria, and the principle of self-government is opposed to such a conclusion, since it is not expressly or by necessary intendment made so applicable."
Holroyd J (at 471) said:
"That the Imperial Parliament is paramount cannot be disputed; but with respect to a self-governing colony the intention of the Imperial Parliament that any of its Statutes or any portions of them shall operate there must be demonstrable."
He also referred to the definition of property, but declined to read it into the section in question. At 472 he pointed out:
"It seems to me a strong presumption to make against a common canon of interpretation that the Imperial Parliament meant, in a statute relating to bankruptcy in England, to impose penalties of this kind on persons resident in Victoria and not directly amenable to the jurisdiction of the English Courts. It must not be overlooked that in sec. 44 the word 'elsewhere' embraces not only property that is situated in British colonies, but property that is situate in foreign countries also, so far as the laws of the foreign states will recognize or permit the enforcement of the English bankruptcy law."
A'Beckett J dissented, considering that the definition of property as including property "in England or elsewhere" must be applied.
Although A'Beckett J dissented in The Federal Bank of Australia Limited v White, he did so on the basis that the Imperial Parliament had power to make law for Victoria, which was then a "colony subject to English law" (476). In The Union Bank v Tuttle (1889) 15 VLR 258, the same learned judge refused to recognise any relation back period in favour of a New South Wales official assignee. He applied paragraph 412 of Story, op. cit., where it is said "a preference can be gained by (foreign assignees) only by pursuing the remedies which our local laws afford." Of course, if that is right, it is hard to see any reason for placing a settlement in a different position.
In Sykes and Pryles on Australian Private International Law, 3rd ed. (1991), at 784, reference is made to "what is undoubtedly the current English and Australian point of view, viz. that there should be separate and independent (bankruptcy) proceedings in every jurisdiction in which assets exist". (Cf. the position in the United States, where there is special legislative provision for an administration of local assets ancillary to a foreign administration: see Banque de Financement, S.A. v The First National Bank of Boston 568 F. 2d 911 (1977), where, as Professor Boshkoff pointed out in the article cited above (at 738), an ancillary administration was necessary to enable pre-bankruptcy transfers of assets in the United States to be avoided.) Sykes and Pryles cite (at 786) Bank voor Handel en Scheepvaart N.V. v Slatford (1953) 1 QB 248 and Jabbour v Custodian of Israeli Absentee Property (1954) 1 WLR 137 in support of the proposition that "bankruptcy is an assignment by operation of law and the validity and operation of such assignments, according to more modern authority, depends on the lex situs". In the former case (at 260) Devlin J (as Lord Devlin then was) said:
"In short, a principle of private international law that allows property legislation to operate in the territory of another country, so far from being a principle which resolves the conflict of laws, will create a conflict which it will require the formulation of a new system to settle. There seems to me to be every reason, if the authorities permit it, for giving effect to the simple rule that generally property in England is subject to English law and to none other."
Even with respect to debts and choses in action, which might be thought to be governed by the proper law of the contract, Pearson J (as Lord Pearson then was) said, in the second case cited (at 156): "Evidently, there is a considerable weight of authority in favour of the view that only the lex situs can alter the title to debts and choses in action, and the authorities cited to prove the contrary proposition do not seem to have that effect."
Sykes and Pryles, op. cit. (at 787), however, point out that "the Australian statutory provision, by virtue of its wide definition of "property", may well operate as a dramatic extension of these rather limited principles." They comment: "It is remarkable that textbook writers have not concentrated their attention more on the possibilities." They go on (at 788-790), while expressing some qualifications, to emphasise that an Australian court must recognise the universality of the assignment of the bankrupt's property effected by the Act, at any rate with respect to movables. As regards immovables, they refer (at 788, footnote), to "the rule that the local court will not try an action involving foreign immovables". But all this is concerned with the effect of an Australian sequestration order "in relation to property owned by the bankrupt outside Australia": 785. The question of bringing within the bankruptcy property owned by other persons, which was discussed in The Federal Bank of Australia Limited v White (supra), is a separate question. Upon that question, Sykes and Pryles (at 799-800) are less certain. They state:
"It is well settled that the law governing the priorities of debts in an Australian bankruptcy administration is the lex fori. ...
. . .
More obscurity surrounds the position where the issue is not as to what may be generally termed the procedural provisions of the local bankruptcy law but as to its substantive provisions, for instance the effect of relation back, the avoidance of preferences and the avoidance of certain settlements. (The authors refer in a footnote to sections 115, 122 and 120 of the Act.) If these provisions purport to affect transactions relating to properties situated elsewhere, then it seems that the actual dispositions of title would be decided by the foreign lex situs and this would be relevant to such a question as that of relation back. In cases, for instance, involving an allegation that a particular payment constituted a voidable preference in favour of one creditor, it would seem that the matter would have to be referred to the proper law of the contract concerned. The definition of 'property' in the Australian Act ... would here hardly affect the matter."
As Sykes and Pryles point out, an Australian court must look to the terms of the Act for the answer to the question whether a particular claim in respect of foreign property does really lie. But The Federal Bank of Australia Limited v White (supra) shows that the mere presence in the Act of a very wide definition of "property" does not necessarily resolve everything. In the first place, the definition is expressly made applicable only "unless the contrary intention appears". And the propositions of other text writers criticised by Sykes and Pryles, with which, however, I am not directly concerned, are based on authorities, decided, in many instances, upon statutes containing similarly wide definitions of property.
As it is necessary to consider what is meant, in s.120, by the expression "settlement of property", and whether in that expression "property" extends to foreign immovables, the principles of private international law may have a greater application than Sykes and Pryles would perhaps allow. For an entrenched rule of construction requires a court to take them into account in the construction of a statute, where they have relevance to its provisions. In The Wanganui-Rangitikei Electric Power Board v The Australian Mutual Provident Society (1934) 50 CLR 581 at 601, Dixon J referred to what he described as a "well settled rule of construction". He said:
"The rule is that an enactment describing acts, matters or things in general words, so that, if restrained by no consideration lying outside its expressed meaning, its intended application would be universal, is to be read as confined to what, according to the rules of international law administered or recognized in our Courts, it is within the province of our law to affect or control. The rule is one of construction only, and it may have little or no place where some other restriction is supplied by context or subject matter. But, in the absence of any countervailing consideration, the principle is, I think, that general words should not be understood as extending to cases which, according to the rules of private international law administered in our Courts, are governed by foreign law."
The same principle was applied by Dixon J in his judgment in Barcelo v Electrolytic Zinc Company of Australasia Limited (1932) 48 CLR 391 at 423-425. Having referred (at 421-422) to the universality of the language of an Act of the state of Victoria, which purported to affect all instruments of a particular kind, Dixon J there said:
"I have come to the conclusion that in such a situation the only safe course to pursue is to apply the settled, if artificial, rule of construction for confining the operation of general language in a statute to a subject matter under the effective control of the Legislature. 'Every statute is to be so interpreted and applied, as far as its language admits, as not to be inconsistent with the comity of nations or with the established rules of international law' (per Hannen P. in Bloxam v Favre (1883) 8 PD 101, at p 107, adopting Maxwell on Statutes). 'It is always to be understood and implied that the legislature of a country is not intending to deal with persons or matters over which, according to the comity of nations, the jurisdiction properly belongs to some other sovereign or State' (per James L.J. in Niboyet v Niboyet (1878) 4 PD 1, at p 7...). ... These principles of construction should apply to limit the operation of the general words of sec.19(1) and sec.22(1) to debts or obligations which, according to the rules for the exterritorial enforcement of rights recognized and administered by British Courts, are governed by the law of Victoria."
Dixon J added (at 426) that "a failure to give effect to the rule of construction which restrains general words from an operation upon foreign rights would lead to the undesirable consequence that a right which the Victorian Legislature purported to discharge partially might be enforced in any other forum". This last consideration would of course apply equally to any attempt, by a court order, to affect the title to foreign land.
These principles have been applied in many cases. In Bank voor Handel (supra, at 258), Devlin J said: "(I)n the construction of our own statutory legislation we accept the principle that, unless the contrary is made clear, an Act of Parliament is not intended to have extraterritorial effect." In Jabbour (supra, at 150) Pearson J said that "there is a rule that legislation should be construed as applying only within its proper territorial limits, unless the contrary intention appears." He cited a number of authorities for that proposition. At 152- 153 he held that an Israeli law affecting property "should be construed as applying only within those territorial limits which are appropriate to property legislation".
In Okura and Co., Limited v Forsbacka Jernverks Aktiebolag (1914) 1 KB 715 at 722 Phillimore L.J. referred to "the broad principles of international comity which in questions of jurisdiction must always be assumed to underlie the rules of Court or the enactments of Parliament." That language was taken from a passage in Grant v Anderson and Co. (1892) 1 QB 108 at 112 where Lord Coleridge C.J. added: "(F)or although no doubt Parliament, or the judges framing rules of Court under the authority of Parliament, might, if they chose, give the Courts of this country jurisdiction over foreigners, it must always be assumed, in the absence of express words to that effect, that they did not intend to do so".
The principle of these cases has been expressly applied to the construction of bankruptcy legislation (Morgan v White (1912) 15 CLR 1), and in particular of bankruptcy legislation containing a universal definition of property. It will have been observed that Holroyd J referred to "a common canon of interpretation" in a passage that I have already cited from his judgment in The Federal Bank of Australia v White; that common canon of interpretation, the reference to "foreign states" makes clear, involved the principle in question. On the same basis, Madden C.J., in the same case, concluded that "the principle of self-government is opposed" to a literal application of the definition of property. Even in Callender, Sykes and Co. v Colonial Secretary of Lagos (1891) AC 460, where a wide interpretation was given to general words in bankruptcy legislation so as to affect lands in the colony of Lagos, the Privy Council was careful not to transgress the principle of comity with respect to foreign property. The advice delivered by Lord Hobhouse (at 466-467) noted that "the laws of every country must prevail with respect to the land situated there". But he pointed out that "the general law of Lagos is English law", and he said that "there is no question here of any conflict between English and foreign law. Lagos ... is not a foreign country." He construed the bankruptcy legislation in question on the basis that "the framers of the Act considered that in using general terms they were applying their law wherever the Imperial Parliament had power to apply it". He did not suggest that it would reach into foreign countries, and even in the colonies it "only passes immovable property ... according to the law of the Colonies".
In Kay's Leasing Corporation Proprietary Limited v Fletcher (1964) 116 CLR 124, Kitto J distinguished the two judgments of Dixon J to which I have referred. But he did not do so in order to give general words an unlimited meaning; what he held (at 144) was that a general provision in a New South Wales Act about hire-purchase agreements should be restricted to those entered into in New South Wales.
In my opinion, the court should approach the construction of s.120 of the Act bearing in mind the principle of construction stated by Dixon J, and having regard to the long standing decision of the Full Court of the Supreme Court of Victoria in The Federal Bank of Australia Limited v White (supra). Whatever the effect of a sequestration order upon the immovable property of a bankrupt in a foreign country, it would be a very long step into the area under the control of that country's laws for the Australian parliament to provide that the Australian trustee in bankruptcy might avoid the title of a third party upon whom foreign land had been settled at some earlier date by a person who subsequently became bankrupt. Such a third party may have obtained a title valid under the lex situs. The rule of our private international law is that it is for the lex situs to determine the capacity of a person to deal with real estate, and the effectiveness of any conveyance: Gregg v Perpetual Trustee Co (1918) 18 SR (NSW) 252 at 256, per Harvey J; The Australian Mutual Provident Society v Gregory (1908) 5 CLR 615; Norton v Florence Land and Public Works Company (1877) 7 Ch D 332 at 336-337 , per Jessel MR; Anantapadmanabhaswami v Official Receiver of Secunderabad (1933) AC 394 at 398; Merwin Pastoral Company Proprietary Limited v Moolpa Pastoral Company Proprietary Limited (1933) 48 CLR 565 at 576, per Rich and Dixon JJ.; Callender, Sykes and Co. v Colonial Secretary of Lagos (supra, at 466); Purdom v Pavey and Co. (1896) 26 SCR 412 at 416, per Strong C.J., speaking for the Supreme Court of Canada; Marine Trust Co. v Weinig (1935) 3 DLR 282 at 283; The Minot Grocery Company v Durick (1913) 10 DLR 126 at 129; Haque v Haque (No. 2) (1965) 114 CLR 98; Cockerell v Dickens (1840) 3 Moore PC 99 at 132-133 (13 ER 45 at 57-58); Nygh, op. cit. 451; Castel, Canadian Conflict of Laws, 2 ed. (1986), paragraphs 295-302, 380; Story, op. cit., 591; Cheshire and North, op. cit., 785; Sykes and Pryles, op. cit., 646-647; Dicey and Morris, op. cit., 939; cf Cammell v Sewell (1860) 5 H. and N. 728 at 744-746 (157 ER 1371 at 1378-1379); Bank voor Handel (supra, at 257, 258). In Rosler v Rottwinkel (1986) QB 33, a decision of the European Court of Justice concerned with a provision of an international convention the terms of which were based on the supremacy of the lex situs with respect to immovables, it is interesting to note that Sir Gordon Slynn, the Advocate General, said (at 37) that an "explanation given for adopting an exclusivity rule in relation to disputes regarding immovable property is, partly, that in Germany and Italy the exclusive jurisdiction of the courts of the situs is regarded as a matter of public policy, so that rulings by other countries would neither be recognised nor enforced there, and partly that the interests of the proper administration of justice were thought to be better served by adopting such a rule." Clearly, then, this particular principle of our private international law reflects the laws of other nations, including Germany, which have gone further, so as to require, not simply that immovables be governed by the lex situs, but also that the courts of the situs alone shall decide any questions that arise. Such a principle, widely accepted and strongly held among nations, has a special importance for the rule of construction of statutes, drawing support from the comity of states, set out in Wanganui-Rangitikei and in Barcelo.
The terms of s.120 are consistent with the idea that the section should be subject to some territorial limitations. Not only is it concerned with the rights of third parties who may have received property with no suspicion of any impending bankruptcy; its very language ties it to the domestic law. There would be difficulty in translating that language into the legal setting of a foreign country which does not have the same legal history - where settlements and accrual of property in right of a spouse may be mysterious concepts. (The latter, of course, is a quaint antipodean survival of a species that has already vanished in the land of its evolution: see the Cork report para. 1222 and the subsequent English Insolvency Act 1986, s.339.) I think it is appropriate to view the word "settlement" in s.120 much as Sir George Mellish viewed the word "conveyance", when used to express an act of bankruptcy in the Bankruptcy Act 1869, in a passage which was quoted by the Earl of Halsbury L.C. in Cooke v The Charles A. Vogeler Company (1901) AC 102 at 109. Sir George Mellish said: "This seems clearly intended to relate to a conveyance which is to operate according to English law, which a conveyance executed by a domiciled Englishman, although out of England, may do; but a conveyance executed by a domiciled foreigner in his own country must necessarily operate according to the foreign law, and we think it was never intended that such a conveyance should be an act of bankruptcy."
A further difficulty which would confront any attempt to impose s.120 upon a transfer of land in a foreign country would be the incongruity of applying to the transferee a set of disqualifying conditions different from those that might apply, according to the law of the place where the land is situated, if the bankrupt were the subject of a sequestration order there. Indeed, as has already been pointed out, our principles of private international law contemplate that there may be bankruptcy proceedings in each country where there are assets. It would seem to follow from the suggested applicability of s.120 (an applicability emphatically denied to comparable provisions of a foreign law of company liquidations in In re Suidair International Airways, Ld. (Application of Vickers-Armstrongs, Ld.) (1951) Ch 165 at 172-174) that the transferee would have the worst of both worlds, being liable at the suit of whichever trustee had been appointed under a law the conditions of which would be most difficult for the transferee to satisfy. For example, the period of two years mentioned in s.120 is not found in all countries. In England, under the provisions of the Insolvency Act 1986, a disposition need not necessarily fall within the definition of a settlement. On the other hand, under the formerly applicable s.42 of the English Bankruptcy Act 1914, although not I understand now, no transaction could be impeached where, as in the present case, the debtor had died before a bankruptcy petition had been presented against him: the Cork report at 279. These considerations make applicable to the present problem some well known remarks of Lord Dunedin in Galbraith v Grimshaw (1910) AC 508 at 513. After referring to the arbitrariness necessarily involved in the fixing of any particular period of relation back, his Lordship said:
"Now so far as the general principle is concerned it is quite consistent with the comity of nations that it should be a rule of international law that if the Court finds that there is already pending a process of universal distribution of a bankrupt's effects it should not allow steps to be taken in its territory which would interfere with that process of universal distribution ... . But if you wish to extend that not only to the question of recognizing a process of universal distribution but also of introducing the law of relation back, then it seems to me you at once get into rather great difficulties, because the question at once arises, according to which law will you apply the doctrine of relation back? If you take the law of the country of the bankruptcy, then the execution or security in question may be and often is of a kind which is quite foreign to the system of law which you are administering in the Bankruptcy Court. If on the other hand you take the law of the country of the attachment, then you have to administer a law which is quite ignorant of the precise execution or security with which it has to deal. Accordingly, to say the least of it, there has been quoted to us no instance where as a question of international law a Court has applied the rule of relation back, and certainly there are dicta of Lord President Inglis which seem to point completely the other way."
In the same case, Lord Macnaghten said (at 512) that the court of an administration in bankruptcy, which extended into another jurisdiction where there were assets, "must take the assets of the bankrupt such as they were at that date (ie the date of the sequestration order) and with all the liabilities to which they were then subject".
In my opinion, what was held in Galbraith v Grimshaw to be true of the doctrine of relation back, as it would have affected an incomplete attachment, had it been applicable, is an appropriate analogy for the operation of s.120. The considerations to which I have referred and the principle of interpretation stated by Dixon J in Barcelo (supra) require that the universality which s.120 would have, if the definition of "property" were read into it without qualification, must be limited to exclude a settlement of a foreign immovable made under foreign law. It is unnecessary for the purposes of this case to consider whether any further limitation is required, although it is apparent from a number of the citations I have made that both academic opinion and case law provide some support for the wider proposition which is stated in Lewis, Australian Bankruptcy Law, 9 ed. (1990) at 133: "The doctrine of relation back, and the provisions in ss.120-122, would not apply (in relation to property abroad) unless the lex situs happened to give effect to those rules."
If I had concluded that the terms of s.120 are sufficiently broad to embrace the settlement alleged in this case, a further problem would have remained. A passage to which I have already referred in Sykes and Pryles, op. cit. 788 (footnote) makes the statement, in the present context, "that the local court will not try an action involving foreign immovables". There is authority for this proposition. In Deschamps v Miller (1908) 1 Ch 856 at 863, Parker J said:
"In my opinion the general rule is that the Court will not adjudicate on questions relating to the title to or the right to the possession of immovable property out of the jurisdiction. There are, no doubt, exceptions to the rule, but, without attempting to give an exhaustive statement of those exceptions, I think it will be found that they all depend on the existence between the parties to the suit of some personal obligation arising out of contract or implied contract, fiduciary relationship or fraud, or other conduct which, in the view of a Court of Equity in this country, would be unconscionable, and do not depend for their existence on the law of the locus of the immovable property. Thus, in cases of trusts, specific performance of contracts, foreclosure, or redemption of mortgages, or in the case of land obtained by the defendant by fraud, or other such unconscionable conduct as I have referred to, the Court may very well assume jurisdiction. But where there is no contract, no fiduciary relationship, and no fraud or other unconscionable conduct giving rise to a personal obligation between the parties, and the whole question is whether or not according to the law of the locus the claim of title set up by one party, whether a legal or equitable claim in the sense of those words as used in English law, would be preferred to the claim of another party, I do not think the Court ought to entertain jurisdiction to decide the matter."
In the application of this passage to a claim by a trustee made under s.120, it should be borne in mind that the section may operate although good faith may not be in any way lacking, simply because it is the policy of the bankruptcy law that a transaction of the requisite kind not entered into for valuable consideration, falling within the particular period selected by the legislature, should be capable of being avoided by the trustee in bankruptcy. Although the word "void" is used in the section, the transaction is not void in the normal sense, and will only be avoided to the extent necessary to meet the demand of the trustee: Williams and Muir Hunter, op. cit., 338; In re Macdonald. Ex parte McCallum (1920) 1 KB 205 at 212; Barton v Official Receiver (1984) 4 FCR 380 at 386, 389; and see Re Tapp; Ex parte Official Trustee in Bankruptcy (1987) 15 FCR 117 at 121.
The principle stated in Deschamps v Miller may be supported by reference to The British South Africa Company v The Companhia de Mocambique (1893) AC 602. Both cases were discussed by Woodward J in Inglis v Commonwealth Trading Bank of Australia (1972) 20 FLR 30, where he dismissed an action for a declaration in respect of a mortgage of foreign land, namely land in Tasmania. (It should be explained that Woodward J was sitting in the Supreme Court of the Australian Capital Territory.) The principle came under detailed examination by the House of Lords in Hesperides Hotels Ltd. v Muftizade (supra). In that case (at 537, 544) powerful reasons were given for refusing to alter by judicial decision the rule laid down in the Mocambique case. (Those reasons, i t seems to me, are also applicable to the accepted principles of private international law which underlie the construction I have given to s.120.)
Although this Court "has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part X or Part XI coming within the cognizance of the Court" (s.30(1)(a) of the Act), I do not think these words exclude the Mocambique rule. The matter must come "within the cognizance of the Court". The word "cognizance" relevantly means "the right of dealing with any matter judicially; jurisdiction": Re Amadio (1978) 24 ALR 455 at 469. Nor does s.30(1)(b) expand the jurisdiction, although it specifies the powers, of the Court; for it is limited to "any such case or matter" as is described by para. (a).
For these reasons, the trustee's application must be dismissed with costs.
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