Re Estate of F.C. La Rosa & Anor Ex Parte R.S. Norgard & Anor v Gillbanks, S.L
[1989] FCA 639
•23 OCTOBER 1989
Re: ESTATE OF FRANCESCO CANDELORO LA ROSA AND LINDA ROBYN LA ROSA
Ex Parte: ROSS STEWART NOGARD
And: SANDRA LYNNE GILLBANKS
No. 616 of 1988
FED No. 639
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
French J.(1)
CATCHWORDS
Bankruptcy - settlement - retention requirement - purchaser for valuable consideration - large money payment - for purchase of house and to provide financial security - in return for exclusive provision of sexual services - retention requirement satisfied - relevance of quantum - settlement established - arrangement for provision of sexual services - not "valuable consideration".
Bankruptcy Act 1966 sub-s.120(1)
Re Kastropil (unrep., 14/7/89, French J.)
Re Ward (1984) 55 ALR 395
Barton v Official Receiver (1984) FCR 380
Barton v Official Receiver (1986) 161 CLR 75
Jack v Smail (1905) 2 CLR 684
Re Hermann (1916) 16 SR(NSW) 264
Williams v Lloyd (1934) 50 CLR 341
Re Pahoff; Ex parte Ogilvie (1961) 20 ABC 17
Re Hyams (1970) 19 FLR 232
HEARING
PERTH
#DATE 23:10:1989
Counsel for the Applicant: Mr R. Fisher and Mr G. Murphy
Solicitors for the Applicant: Blake Dawson Waldron
Counsel for the Respondent: Mr D. Clyne
Solicitors for the Respondent: Friedman & Bonomelli
JUDGE1
This is the hearing of an application by the trustee of the bankrupt estate of Francesco and Linda La Rosa who became bankrupt on 26 August 1988. It relates to a payment of $200,000 made on 25 May 1988 by Mr La Rosa out of a joint account operated by him and his wife to Sandra Gillbanks. When the payment was made, Mr La Rosa had known Ms Gillbanks, then working in an escort service, for less than 24 hours. It was said to have been made on the basis that she would cease work as an escort and make herself available as a companion to him as and when required. Other aspects of the evidence in relation to the arrangement will be mentioned later in these reasons.
The trustee seeks a declaration that the payment constituted a settlement of property void against the trustee under sub-s.120(1) of the Bankruptcy Act 1966. He also seeks an order that Ms. Gillbanks pay that amount to him together with interest from 26 August 1988 until judgment. Claims based upon s.121 of the Act and on the existence of a trust were abandoned at the hearing. In the notice of intention to oppose the application, Ms. Gillbanks contends that the payment was not a settlement, that she acted in good faith and that it was made for valuable consideration under an oral agreement between herself and La Rosa on or about 25 May.
The differing accounts given by La Rosa of the circumstances of the payment and that given by Ms Gillbanks have one thing in common - they are all bizarre. In May 1988, Mr La Rosa and his wife were carrying on in partnership a motor car sales business at Albany under the name Moor Motors. On 24 May, La Rosa attended a social function on a boat called the La Gonda moored at the Royal Perth Yacht Club at Fremantle. Ms Gillbanks was one of three women working for La Cherie Escort Agency who were directed by their employer to go to the boat and there meet three men who had booked their services. When she and her companions arrived at the boat, they were shown on by an accountant, Mr Rick O'Neill, and were introduced to the men, one of whom was La Rosa. He chose Ms Gillbanks out of the three, to be his companion. To the extent that he says in his affidavit evidence that he found out that she was an escort agent when she so informed him, I am inclined to disbelieve him, but the point is not critical for present purposes. After Ms Gillbanks and the others arrived some time was spent by various members of the party talking and drinking alcohol. Ms Gillbanks says she does not drink, and I am prepared to accept her evidence in that regard. At some stage in the proceedings she agreed to go with La Rosa, by car, into Fremantle to get some take-away food for those on the boat. By common consent she drove the car as she was not affected by alcohol. It appears from her evidence that La Rosa was so affected. It is not clear whether anyone other than La Rosa accompanied her. The vehicle in question was a new Jaguar XJS. Ms Gillbanks remarked to La Rosa before getting into the car that she liked it and wouldn't mind it. La Rosa offered her the keys and told her she could have it. She regarded this as some kind of a joke and said "get real". After they returned to the boat with the food and after the meal was over, those present paired off and Ms Gillbanks ended up with La Rosa in the master cabin. As they were lying on the bed he asked her why she worked as an escort. She told him that she hoped to make enough money to at least get a deposit on a home. When he asked what kind of home she was looking for, she said that she wanted "something moderate" in the $90,000 to $100,000 range. La Rosa asked whether she would become exclusively his companion if he gave her enough money to live on. She says that he initially suggested a figure of half a million dollars. He did not recall mentioning that amount, but I am quite prepared to accept the probability that some such sum was mentioned given the circumstances disclosed by the evidence. In the end, he said he would give her a sum of $200,000. The terms upon which he was prepared to pay her that amount do not emerge with precision from the evidence. According to Ms Gillbanks, she agreed in consideration of the payment, to cease working as an escort, to be available for companionship with La Rosa, to stay on the pill and to accept that when they had intercourse together he would not use condoms. I accept that these matters were mentioned in connection with the proposed payment.
According to La Rosa's affidavit sworn 10 October 1989 he said that he would give Ms. Gillbanks $200,000, that she could buy her house for $100,000, bank the rest and live off the interest. This he said was his intention in offering the gift. He also told her that if he were in Perth at any time and needed help with money he would like to think that she would help him out. In his oral testimony, La Rosa said that he foresaw that such a need would arise when he ceased a certain line of transactions involving the Rural and Industries Bank. His explanation in this regard was cryptic, but he anticipated that things might get "pretty hot" and that he might need some help.
Mr La Rosa has given varying accounts of what occurred according to the circumstances and so far as his credibility rests upon his oath, it rests upon a foundation of sand. In an affidavit sworn in cognate proceedings in the Supreme Court on 27 June 1988 he said:
"6. I was introduced to the Defendant and talked to her at length. I had been drinking at the party and because I found that the Defendant was a sympathetic listener, confided some of my business difficulties to her.
7. I met the Defendant on three or four other occasions on visiting Perth on business. I formed the view that the Defendant was someone I could trust.
8. I decided that I would pay the Defendant $200,000.00 from the account at the Bank's Albany Branch. It was my intention that the Defendant should retain these funds on my behalf so that in the event of my businesses collapsing and the Bank taking action against me I could use those funds to provide for myself and family.
9. I discussed my intentions with the Defendant, namely that if I ever needed some funds I could obtain them from her. On the 25 May 1988 I handed to her a cheque drawn on the account at the Bank's Albany Branch for $200,000.00. She was perfectly aware of the basis upon which the money was being paid to her. There was never any question of the money being a gift from me to her.
10. Although I referred to the money as being "my money" it was the Bank's as in effect the account was overdrawn.
11. In the first week of June 1988 I travelled to Melbourne with a view to obtaining loan finance from institutions based there with the intention of clearing the indebtedness to the Bank. I was accompanied by my solicitor and the Defendant. Although I had previously trusted the Defendant I was beginning to doubt whether my trust was well placed. I thought that one way of ensuring that the Defendant did not dissipate the funds was for her to accompany me on this trip.
12. My solicitor and the Defendant returned to Perth on 3 June 1988. I travelled to Brisbane and returned to Perth on 6 June 1988."
In a later affidavit in these proceedings sworn on 12 July 1989 he alleged that he was pressured by the Bank's solicitors into signing the earlier affidavit and that it was "worded in terms that I do not fully understand". For example he said, the word "dissipate" in para. 11 was not a word that he would use. He went on to say that he agreed with everything said by Sandra Gillbanks in an affidavit she had sworn on 7 December 1988. Part of that affidavit was not relied upon by the respondent after objection, and was therefore not directly in evidence but by agreeing with it, La Rosa appears to have accepted in his affidavit of 12 July 1989, that the money was paid to her under an agreement whereby she would:
1. Cease working as an escort.
2. Buy a house for herself.
3. Be available for visits and social occasions as required by him.
4. Not have a boyfriend.
He also appears by his affidavit of 12 July to have accepted that the payment was intended to be such as to enable her to maintain herself without the necessity of working as an escort or at any other job so that she could be available whenever required (see para.4 of the affidavit of 7 December 1988).
Ms Gillbanks said in her affidavit of 7 December at para. 5 and La Rosa agreed:
"At the time the payment was made I had absolutely no knowledge that Mr La Rosa was insolvent and in fact the contrary was the position. He expended considerable money on a trip and accommodation at or about the same time as this payment was made and offered to lavish me with gifts, being particularly expensive items, most of which I refused."
The point was made in respect of this part of her affidavit, that the conferring of gifts was over and above the $200,000 payment offered. La Rosa said in his affidavit of 12 July 1989 at para. 5.3, that he knew that Ms Gillbanks was going to spend the money. However he agreed that the money was not a gift. He thought if he were generous to her, she would be "understanding".
The sum of $200,000 was paid by cheque drawn on the Moor Motors' account on the afternoon of 25 May 1988, less than 24 hours after Ms Gillbanks had met La Rosa. Later that day she drove him to the airport at Jandakot so that he could fly to Albany. They apparently met again in Perth within a few days at the escort agency and later went to the La Gonda. About a week after the payment she accompanied La Rosa to Melbourne and stayed with him under the name "Mrs La Rosa" at the Presidential Suite of the Hyatt on Collins Hotel. Since the Melbourne trip it does not appear that she saw him more than once.
In an affidavit sworn in the Supreme Court proceedings on 27 June 1988, Ms Gillbanks said that La Rosa proposed giving her the $200,000 with which to buy a house in which she was to live. She said that after the Melbourne trip she next saw him on 10 June 1988 when he asked her to lend him $150,000 out of the money which he had given to her. Her affidavit continued:
"He told me that he wanted the money as a deposit on a business deal with he had transacted. He told me that were I to give him a cheque for this amount drawn on my bank account, and supply him with the number of the account, he would ensure that the sum was repaid into my account by no later than the 14th of June, 1988. This request the First Plaintiff (La Rosa) made to me on the telephone. I told him that if I was able to get to my bank before seeing the First Plaintiff later that day, I would get from my bank a bank cheque in that sum. When I saw the First Plaintiff later that day, I had not had an opportunity to get to my bank, and as I do not have a personal cheque account, I was not able to give him a cheque for the amount which he had requested. He informed me that it did not matter and that the matter was in hand."
Subsequently on 21 June La Rosa asked for the balance of the funds. This request she ultimately declined to accede to. At para 17 of her affidavit she said:
"...The arrangement with the First Plaintiff (La Rosa) was, at all times, that the money would be available for my use, and in particular for the purchase by me of a house."
And in para.21 of the same affidavit, she said:
"To date I have from the sum of $200,000, paid $19,500 by way of purchase price of the Starion motor vehicle and $20,000 by way of deposit on house in question. There is $154,067 left in my savings investment account, No. 900409, with Westpac Banking Corporation, Karrinyup branch. The balance of $6,500 I have spent on my holiday in Penang with my mother. I deny absolutely that I have dissipated the funds which were given to me by the First Plaintiff. I have no intention of dissipating such funds. It was, and still is, my intention to invest these funds in the property concerned, and to retain the remainder of the funds in my bank account."
The evidence taken as a whole appears as confused as no doubt the transaction itself was. Nevertheless I am satisifed that on the balance of probabilities the following facts can be found:
1. The payment made was made in order to provide a degree of financial security for Ms Gillbanks, enabling her to purchase a house and be left with a significant capital sum.
2. La Rosa did not specifically contemplate that her use of the money would be limited to interest earned from it.
3. He did contemplate in a rather muddled way that the fund would be a source of assistance to him if the need arose.
4. He would continue to pay Ms Gillbanks smaller sums as and when the need arose or the whim took him.
5. In return Ms Gillbanks agreed to make herself available to La Rosa exclusively as a social and sexual companion. She would abstain from escort work, stay on the pill and accept that he would not use condoms.
6. There was no legal limitation on her ability to expend the moneys.
7. She expended a sum of $98,448.50 on the purchase of a house, $19,500 to buy a Starion motor vehicle, $6,500 on a holiday in Penang and retains the sum of $87,288.76 in her passbook savings account into which the sum of $200,000 was originally deposited.
The application is brought under sub-s.120(1) of the Bankruptcy Act 1966, which provides in the relevant parts:
"120(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 bankruptcy. .
.
.
(8) In this section "settlement of property" includes any disposition of property."
In Re Kastropil (unrep., 14/7/89, French J.), I had occasion to review the history of the legislation and authorities on the question of what constitutes a settlement. Traditionally that concept has involved the notion of a disposition of property in contemplation that the donee will retain it in some permanent form. In the light of the current definition of "settlement" that requirement has been questioned by Wilcox J. in Re Ward (1984) 55 ALR 395 and by Sweeney and Fisher JJ in Barton v Official Receiver (1984) FCR 380 at 386. Notwithstanding that questioning, I adopted the view expressed obiter by the High Court in Barton v Official Receiver (1986) 161 CLR 75 that the retention requirement as enunciated in Jack v Smail (1905) 2 CLR 684, Re Hermann (1916) 16 SR(NSW) 264; Williams v Lloyd (1934) 50 CLR 341; Re Pahoff; Ex parte Ogilvie (1961) 20 ABC 17 and Re Hyams (1970) 19 FLR 232 applied notwithstanding the current definition of settlement in sub-s.120(8) of the Act which uses the broad term "disposition" in lieu of the more traditional formulation of "conveyance or transfer". I have been invited both in these and other proceedings involving Mr La Rosa, to reconsider that view in the light of the amended definition and the observations of Wilcox, Sweeney and Fisher JJ. In this case it is not necessary for me to embark upon that reconsideration for I am satisfied that the payment made was a settlement within the accepted understanding of that term. Apart from the findings of fact to which I have already referred, the quantum of the payment itself in the context and circumstances in which it was made takes it out of the class of money payments intended for immediate dissipation. The characterisation of a money payment as a settlement is a matter of degree and may not be without some difficulty. I adhere in that regard to what I said in Kastropil (supra) at p 14:
"The terms "permanency" or "retention" are used in a relative way and help to mark off the settlement from the gift intended for immediate consumption or dissipation. Judgments of degree may be involved. It may be possible broadly to say that money payments intended for expenditure of an income kind as for example a housekeeping allowance, may be difficult to characterise as a settlement. Payment of school fees or for entertainment or living expenses may fall into the same category. Each case will depend upon its own facts and it is unwise, even in the case of money payments or benefits of a monetary nature, to lay down general principles by reference to particular categories of expenditure."
The respondent contends, nevertheless, that she gave valuable consideration for the payment and was a purchaser in the sense contemplated by the section. The essence of the arrangement between herself and La Rosa was to make her sexual services available for a large sum of money. I do not comment on the morality of that arrangement. However its morality is viewed, it does not, in my opinion, fall within what the legislature would have contemplated by the term "purchaser for valuable consideration". In the event I find that the payment was a settlement under sub-s.120(1) and is void as against the trustee in bankruptcy. I will afford the parties an opportunity to be heard on the question of what orders should be made.
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