Re Fiorino; Fiorino v Woodgate

RE: MICHAEL FIORINO and MARY ANNE FIORINO
MARIA FIORINO v. GILES GEOFFREY WOODGATE and OFFICIAL RECEIVER FOR THE
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GILES GEOFFREY WOODGATE v. MARIA FIORINO
No. NB2929 of 1992
FED No. 181/94
Number of pages - 16
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF THE NEW SOUTH WALES
GENERAL DIVISION
GUMMOW J

CATCHWORDS

Bankruptcy - voluntary settlement - arm's length sale to third party after commencement of bankruptcy - recovery of amount representing receipt of proceeds from that sale.

Bankruptcy Act 1966, ss. 120, 139ZQ - 139ZT

Williams v Lloyd (1934) 50 CLR 341

Brady v Stapleton (1952) 88 CLR 322

Re La Rosa; Ex parte Norgard v Rocom Pty Ltd (1990) 21 FCR 270; affirmed, Northrop, Davies, Lee JJ, 16 August 1990, unreported.

HEARING

SYDNEY, 25, 29 March 1994
#DATE 14:4:1994

Counsel and Solicitors Mr M.R. Aldridge instructed by
for the Trustee and the P.W. Turk and Associates.
Official Receiver:

Counsel and Solicitors Mr B.J. Skinner instructed by
for Mrs Fiorino: Malfanti and Kaye.

ORDER

UPON THE APPLICATION BY MARIA FIORINO, DATED 12 AUGUST 1993, THE COURT ORDERS THAT:
(1) The notice dated 5 July 1993, exhibit A, be set aside.

(2) There be no order as to costs.

UPON THE APPLICATION BY THE TRUSTEE, GILES GEOFFREY WOODGATE, DATED 30 SEPTEMBER 1993, THE COURT DECLARES THAT:
(1) The disposition of property by Michael Fiorino effected by Memorandum of Transfer Registration No. 7291008, became and is void against the Trustee in the bankruptcy of Mr Fiorino and that the Transferee, Maria Fiorino, became trustee of the said property for the said Trustee.

AND THE COURT ORDERS THAT:
(1) There be judgment against the respondent, Maria Fiorino, in the sum of $38,000.

(2) The respondent pay the costs of the applicant.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

GUMMOW J On 29 October 1992, a sequestration order was made by this Court against the estates of Michael Fiorino and Mary Anne Fiorino, on the petition of NEC Home Electronics Australia Pty Limited. The bankruptcy petition was presented on 11 August 1992 and relied upon an act of bankruptcy committed on 10 August 1992. Mr G.G. Woodgate is Trustee of the joint and separate estates of the bankrupts.

The bankrupts are siblings. Their mother is Mrs Maria Fiorino.
Most of the claims of creditors in the bankruptcy have arisen as a consequence of the calling of guarantees given by the bankrupts in relation to the supply of goods to Lawncove Pty Limited (In Liquidation). This was a company which operated in the period 30 October 1990 to 1 February 1991. The bankrupts were shareholders and directors. The evidence suggests that at the date of the sequestration order, there were creditors in the sum of $197,778.
On 5 July 1993, the Official Receiver for the Bankruptcy District of the State of New South Wales issued what was described as a notice under s. 139ZQ of the Bankruptcy Act 1966 ("the Act"). This required Mrs Fiorino to pay to the Trustee $55,000 on the footing that Mrs Fiorino was a person who had received money or property as a result of a transaction void against the Trustee.
By application filed 12 August 1993, Mrs Fiorino applies to the Court under s. 139ZS of the Act for an order setting aside the notice. The respondents to the application are the Trustee and the Official Receiver. The Official Receiver issued the notice on application by the Trustee, as provided by para. 139ZQ (1) (b). The Official Receiver submits to such order as the Court may make on Mrs Fiorino's application, save as to costs.
By application filed 30 September 1993, the Trustee seeks against Mrs Fiorino a declaration that a certain transaction is void as against him. An order also is sought that Mrs Fiorino pay the Trustee "$60,000 or such other sum as the Court thinks fit". The transaction is said to be void against the Trustee as a settlement of property to which sub-s. 120 (1) of the Act applies, or as a preference to which s. 122 applies. The Trustee places primary reliance upon s. 120.
The applications were heard together and the evidence in each was treated as evidence in the other.
The 6 month period before the presentation of the petition, referred to in para. 122 (1) (a) of the Act, commenced on 11 February 1992. The time of the commission of the earliest act of bankruptcy within the period of 6 months immediately preceding the presentation of the petition on 11 August 1992 (referred to in sub-s. 115 (1)), appears to be 10 August 1992. The result is that the 2 year period referred to in s. 120 commenced on 10 August 1990. Any preference must have occurred after 11 February 1992.
I turn now to the events leading to the transaction which the Trustee seeks to impeach.
By memorandum of transfer bearing date 7 November 1990, which was registered on 21 December 1990, Mr Michael Fiorino acquired for a price of $49,950 a property known as Unit 10, 225 Anzac Highway, Plympton, South Australia. The licensed land broker acting in the matter, this being South Australia, was Mr Con Zannis. By memorandum of mortgage also bearing date 7 November 1990, Mr Fiorino mortgaged the Plympton property to Treziza Pty Limited ("Treziza") to secure a principal of $15,000. The mortgage was registered. The principal was to be repaid in full by 7 December 1995 by equal monthly payments of $250 plus interest. Interest was calculated at 17 per centum per annum, payable on the 7th day of each month.
By memorandum of transfer bearing date 3 December 1991, Mr Michael Fiorino transferred the property to Mrs Fiorino. South Australian stamp duty of $1,080 and a penalty of $108 were paid on 28 April 1992. The transfer was lodged on 4 May 1992 and registered on 23 June 1992. The delay between December and May largely is explained by the loss of the duplicate certificate of title and the need to obtain the issue of a substitute. The transfer shows as an encumbrance the registered mortgage to Treziza. Mr Zannis again acted as licensed land broker.
What is important for the present litigation is that the consideration stated in the transfer is as follows:

"In consideration of the love and affection which the Transferor bears towards the Transferee."

The transfer also bears a statement, for the purposes of the South Australian stamp duties legislation, which certifies that the value of the land "does not exceed $50,000-00". The transfer was signed by Mrs Fiorino in the presence of her daughter.

The evidence includes correspondence passing in this period between Mr Zannis and his principals, Malfanti and Kaye, solicitors of Sydney. On 30 October 1991, Malfanti and Kaye wrote a letter headed:

re Michael Fiorino - Property 10225 Anzac Highway Plympton".

The text was as follows:

"Further to our telephone conversation of to-day wherein you kindly advised that you would forward documentation to us to enable Mr. Fiorino to transfer the property to his mother either by sale or by gifting, should a valuation be required to enble (sic) such transfer, we would be grateful if you would organise this on our behalf."

On 1 November 1991, Mr Zannis wrote to Malfanti and Kaye a letter including the following statement:

"I refer to your recent telephone conversation and as requested enclosed herewith the undermentioned documents for your attention:-

(a) Contract Note.

(b) Form 18 pursuant to the Land Agents Brokers and Valuers Act 1973 of South Australia.

(c) Transfer document.

You are advised that should a sale be contemplated, both (a) and (b) will be required to be completed."

Documents (a) and (b) are not in evidence. Rather, the correspondence indicates that what was done was to follow the other course, and the memorandum of transfer was prepared showing consideration in the terms I have set out above. The transfer had been sent by Mr Zannis to Malfanti and Kaye under cover of a letter dated 22 November 1991.

Mr Kaye was the partner of Malfanti and Kaye acting in the matter. He also acts for Mrs Fiorino in the present litigation with the Trustee. Further, Mrs Fiorino also dealt with Mr Kaye as a principal of Treziza.
As I have indicated, Mrs Fiorino became registered proprietor of the property on 23 June 1992, but this was subject to the encumbrance in favour of Treziza. The earlier correspondence between Mr Zannis and Malfanti and Kaye had made it clear that if a discharge by Treziza of the personal liability of Mr Fiorino was not prepared and registered, he would remain subject to the personal covenants in the security, notwithstanding the registration of the transfer to his mother. There is no evidence of any such release.
Rather, by instrument dated 22 September 1992, the mortgage was discharged. Mrs Fiorino's evidence, which was not challenged, was that she had paid it out on 28 August. This was 17 days after the presentation of the bankruptcy petition against her son.
After the making of the sequestration order on 29 October 1992, a caveat by the Trustee was registered against the title. The caveat eventually lapsed in May 1993. By transfer dated 31 May 1993, Mrs Fiorino sold the property to third parties for a consideration shown on the transfer for $50,000. There is no challenge to the position of these transferees as independent parties dealing at arm's length with Mrs Fiorino. Thus, they are purchasers protected by sub-s. 120 (7) and sub-s. 122 (2) of the Act.
Upon his application, the Trustee impeaches the transfer of the property to Mrs Fiorino by her son which was effected by the memorandum of transfer dated 3 December 1991, registered 23 June 1992. It will be recalled that the consideration stated therein was the love and affection which the transferor bore towards the transferee.
Sub-section 120 (8) defines, for that section, "settlement of property" as including "any disposition of property". Sub-section 120 (1) is as follows:

"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 two years before, the commencement of th e bankruptcy, void as against the trustee in the bankruptcy."

The phrase "for valuable consideration" as it appears in this provision was construed in Barton v The Official Receiver (1986) 161 CLR 75 at 86. In their joint judgment, 4 members of the High Court there said that a "purchaser . . . for valuable consideration" within the meaning of sub-s. 120 (1) is "one who has given consideration for his purchase 'which has a real and substantial value, and not one which is merely nominal or trivial or colourable' . . ."

In the present case, counsel for Mrs Fiorino submitted that contrary to what appeared on the face of the transfer to his client and in the accompanying correspondence, to which I have referred, the consideration for the transfer was not nominal. The contention is that the evidence as to the financial dealings between Mrs Fiorino and her son, Mr Michael Fiorino, shows the provision by her for the transfer of consideration which had a real and substantial value. To a significant degree, counsel relies for this conclusion upon the oral evidence of Mrs Fiorino.
Before turning to that evidence, there is another point of construction of s. 120 to which I should briefly refer. In Barton v Official Receiver (1984) 4 FCR 380 (being the decision affirmed by the High Court), Lockhart J (at 395) said:

"In my opinion for there to be a 'settlement of property' within the meaning of s. 120 there must be a settlement in the ordinary sense of the word, a transaction in the nature of a settlement, though it may be effected by any disposition. The retention of the property in some sense must be contemplated and not its immediate dispersion."

Counsel for Mrs Fiorino suggested in his oral submissions that the retention and dispersion referred to identifies activities by the "settlor", in this case Mr Michael Fiorino. However, I accept the submission by counsel for the Trustee that what are identified are activities of the person or persons in favour of whom the settlement is made, see Re Hyams; Official Receiver v Hyams (1970) 19 FLR 232 at 252-253, per Gibbs J.
Further, in his oral and written submissions counsel for Mrs Fiorino submitted that there was no evidence that the property was to be retained in any way by his client. In Re La Rosa; Ex parte Norgard v Rocom Pty Ltd (1990) 21 FCR 270, French J held that a disposition of property is a settlement within the meaning of s. 120 if made with the intention that the property be retained by the recipient and not in contemplation of its immediate dissipation or consumption. That decision was affirmed on appeal and his Honour's treatment of the subject was expressly approved (Northrop, Davies, Lee JJ, 16 August 1990, unrep.). Hence, the reference by the Full Court in P.T. Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 533-534 to authority that a settlement within s. 120 is a disposition of property made with the intention that the property be retained or preserved in one form or another and enjoyed by the recipient, not intended for immediate disposal or consumption.
On the facts of the present case, the property was enjoyed by Mrs Fiorino whilst she was the registered proprietor. Her evidence on the matter, which I accept, is that the property was leased and she received the rent, by monthly payments from the agent. The amounts so received were not quantified in the evidence. Nevertheless this state of affairs is consistent with an intention at the outset to retain rather than immediately to dissipate or otherwise part with the asset.
I turn now to consider the evidence bearing upon the question of the provision of real and substantial value for the transfer to Mrs Fiorino by her son, Mr Michael Fiorino.
The evidence discloses that at least 3 relevant accounts were conducted with the National Australia Bank Limited. Account 3781-6046 was in the name of Mr Michael Fiorino. Account 4885-6553 was styled "Kenthurst Flowers A/c No. 2". Mrs Fiorino's evidence was that Kenthurst Flowers was her florist business and she controlled this account. Account 4892-5846 is in the name of Mr and Mrs Guilio Fiorino. This is a joint account opened by Mrs Fiorino with her husband in July 1990. They were the signatories to the account. However, Mr Michael Fiorino was also made a signatory to provide for occasions when Mr and Mrs Fiorino were absent from Sydney. The joint account operated with an overdraft limit of which in February 1992 was $54,000.
I first consider the provision of funds for the purchase by Mr Fiorino in 1990. On the settlement of the transaction, $15,000 was advanced on the mortgage from Treziza. As to the balance, a bank cheque for $32,028.08 in favour of Mr Zannis was issued on 11 October 1990. Of this sum, $14,000 came from Mr Michael Fiorino's account. In her affidavit evidence, Mrs Fiorino said that the balance of these moneys was advanced by her as an interest free loan to her son. In her oral evidence in chief, there is the following passage:

"Now, do you recall in about August 1990 Mr Michael Fiorino purchasing a property in South Australia? - Yes.

Did you do anything to assist him in that transaction? - Yes. What did you do? - I gave him money for the deposit. Do you remember how much you gave him? - Maybe $17,000, something like that.

That is $17,000? - And cash, some cash, about $5,000 or - bit less."

Mrs Fiorino also gave oral evidence that in about October 1991 her son told her that he was going to start a business and he proposed that his mother buy the Plympton property off him for "around $15,000". In her affidavit evidence she had said that the agreement was that she would purchase the property for the original purchase price; her previous loan was to be part payment and, as to the amount which had been paid by her son towards his purchase, she would pay it within a short time.

The evidence shows that payments were made from account 4885-6553 of $2,000, $2,000, $100, $1,400 respectively on 29 November 1991, 6 December 1991, 30 December 1991 and 5 February 1992. From the joint account $10,000 was paid on 18 February 1992. It will be recalled that the transfer in favour of Mrs Fiorino was dated 3 December 1991.
Counsel for the Trustee relies heavily upon the form taken by the transfer dated 3 December 1991 from Mr Fiorino to Mrs Fiorino and, in particular, to the statement therein of the consideration as love and affection and the certification of the value of the land, for stamp duty purposes, as not exceeding $50,000. He relies also upon the correspondence between Mr Zannis and Mr Kaye as indicating that the transaction deliberately was cast as one of gift rather than sale.
In her oral evidence, although not in her affidavits, Mrs Fiorino said that there had been a contract for sale which she had signed. When shown the transfer, she said that there had to be another document, saying "How could I have purchased the unit if I didn't sign the contract?". Mr Kaye who had acted on the transfer also acted for Mrs Fiorino in the present litigation. He was present in Court when this evidence was given. No contract was produced.
Mrs Fiorino's evidence both as to the amounts and characterization of payments passing between her and her son was unsatisfactory. This is so as regards both the acquisition of the property by Mr Fiorino by the transfer dated 7 November 1990 (supported by the mortgage to Treziza bearing the same date) and the transfer by him to Mrs Fiorino dated 3 December 1991. I do not decide that she set out to deceive the Court, but her evidence upon these financial matters was confused and unreliable. Certainly it provides no adequate foundation to reach a conclusion as to the nature of the transfer from Mr Fiorino which is at odds with that which appears from the face of the transfer and the surrounding correspondence between the land broker and the solicitors. In particular, even if one could be satisfied as to the amounts allegedly involved, Mrs Fiorino's evidence does not provide adequate support for the conclusion that moneys were lent to her son rather than given to him. This is so of the payments relied upon as having been made in 1990 and in 1991 and 1992.
For example, as to the initial purchase by Mr Fiorino, Mrs Fiorino instructed her solicitor in March 1993 that she had provided $21,000 towards the purchase price of $49,950. Of the sum advanced by her, $3,000 was said to represent the deposit. Later in March 1993, Mr Kaye was instructed that Mrs Fiorino had made two advances to her son, one of $17,528.08 on 11 October 1990, and another of $14,000 on 18 December 1990.
In her affidavit sworn 15 November 1993, Mrs Fiorino said that on about 18 December 1990 she provided $5,000 to her son, as an interest free loan, "for him to use as the deposit". In cross-examination, Mrs Fiorino said that the $5,000 was paid over in cash and that she had no documents which established that the money in fact was paid. In her affidavit, Mrs Fiorino also said that on or about 11 October 1990 she advanced to her son towards the settlement a cheque for $17,528.08 together with $500 in cash. The evidence indicates a payment of $17,528.08 from account 4885-6553 applied by Mr Fiorino on 11 October 1990 towards the purchase by him from National Australia Bank of a bank cheque for $32,028.08 in favour of Mr Zannis. No pass sheets for the period for account 4885-6553, the "Kenthurst Flowers A/c No. 2" account, are in evidence. Nor are any of the cheques said to have been drawn on the various accounts.

Counsel for Mrs Fiorino submitted that in October 1991 Mr Fiorino arranged for his mother "to buy out his interest in the property". In her affidavit sworn 15 November 1993, Mrs Fiorino said that in about October 1991 her son spoke to her about wanting to start a business and expressed concern, during this conversation, at having also to service the mortgage to Treziza over the property. She said that she and her son agreed that she would purchase the property for the original purchase price "with my loan being part payment", and that she would repay "within a short time" the amount "paid by Michael towards the purchase". She said that one such repayment by her was the sum of $10,000 paid on 18 February 1992.
The evidence shows that a cheque No. 169 was drawn on 18 February 1992 upon Mr and Mrs Fiorino's joint account 4892-5846. It will be recalled that that account at all material times was in overdraft, with a limit of $54,000. On 17 February, the overdraft had stood at $49,746.84. However, on 18 February 1992, $10,000 in cash had been paid into the account, thus enabling the drawing of cheque 169 on the same day. Mrs Fiorino's evidence was that this cash was deposited by her and represented "the proceeds of our business". She said:

"We had saved from Christmas time and some from Valentine's. 14 February was Valentine's Day."

The cheque butt is in evidence. It describes the payee as "Loan Michael Fiorino". In another hand is written "Michael - income". When shown this in her examination in chief, Mrs Fiorino said that the $10,000 could have been paid "to Michael or Treziza". Mrs Fiorino said that the hand writing on the butt was not hers. The words "Loan Michael Fiorino" could be in the handwriting of her son or her daughter. Mrs Fiorino's evidence was that her daughter did "all my book work". Mrs Fiorino was certain that the additional words "Michael - income" written across the butt were placed there by her accountant for the preparation of a claim for expenses in relation to her income tax.
In her affidavit evidence, Mrs Fiorino identified, in addition to the $10,000 paid on 18 February 1992, 4 payments of $2,000, $2,000, $100 and $1,400 made respectively on 29 November 1991, 6 December 1991, 30 December 1991 and 5 February 1992. In her oral evidence, she identified cheque butts drawn on account 4885-6553 for these amounts. She also identified a payment of $2,000 on 30 October 1991. When cross-examined upon this discrepancy, Mrs Fiorino said "A person could get mixed up, you know". Earlier, when cross-examined as to the payment of $10,000, and in response to the assertion that she really did not remember what exactly happened in relation to any particular cheque, Mrs Fiorino said "Well, I didn't think I had to remember".
As I have said, I find Mrs Fiorino's evidence unpersuasive. It doe s not make out a case that, contrary to the tenor of the transfer to her by Mr Fiorino and the surrounding correspondence, the transfer was one of purchase for a consideration, representing the equity of the son in the property, the consideration to be provided as to part by forgiveness of the money allegedly already lent by Mrs Fiorino to her son and, as to the balance, to be left outstanding on loan to Mrs Fiorino to be repaid by her to her son "within a short time". There is force in the submission by counsel for the Trustee that if the transaction truly had been a sale for value there would have been little point in casting the transfer in the form of a voluntary conveyance.
Accordingly, I accept the submission that the transfer was not made in favour of a purchaser in good faith and for valuable consideration and that it is, by force of sub-s. 120 (1) of the Act, void as against the Trustee.
The consideration on the transfer to the third parties by Mrs Fiorino was $50,000. As I have indicated, the transfer is dated 31 May 1993. In the meantime, by discharge dated 22 September 1992, whilst Mrs Fiorino was registered proprietor, the Treziza mortgage had been discharged. Accordingly, in any accounting between Mrs Fiorino and the Trustee in respect of the $50,000 received by her on the transfer, allowance would have to be made for the payment by her to procure the discharge. The evidence does not disclose the sum actually paid to obtain the discharge, nor the payments made earlier on the mortgage by Mrs Fiorino and before that by her son. The mortgage provided for equal monthly payments of principal of $250. I would allow $3,000 as having been paid off by Mr Fiorino in the 12 months before the date of the transfer to Mrs Fiorino. Accordingly, the principal outstanding which was assumed by Mrs Fiorino and for which she should receive allowance, would be treated as $12,000. That sum would be subtracted from moneys otherwise accountable by Mrs Fiorino to the Trustee.
In final address, counsel for the Trustee accepted this as an approach which was open on the facts.
As I have indicated, the commencement of the bankruptcy, for the purposes of s. 120, is 10 August 1992. The effect of s. 120, as of s. 94 of the Bankruptcy Act 1924, is that a disposition of the description in the section is voidable at the instance of the trustee "as from the time as at which his title accrues" and that the section makes ineffectual every step taken by the bankrupt which would otherwise cause the beneficial title to pass: Williams v Lloyd (1934) 50 CLR 341 at 374. The "settlement" is void against the trustee from the date of the accrual of his title, that is to say the date of the act of bankruptcy to which the trustee's title relates back, here 10 August 1992; see In re Carter and Kenderdine's Contract (1897) 1 Ch 776 at 780-781, 782, 784-785.
The transfer which is impeached by the Trustee bore the date 3 December 1991 and was registered on 23 June 1992. Whichever date be taken, the transfer falls within the 2 year period which, for the purposes of s. 120, commenced on 10 August 1990. Further, the transfer by Mrs Fiorino to the third parties occurred after the commencement of the bankruptcy, that is to say on 31 May 1993. Those third parties are protected by sub-s. 120 (7).
The question then is one of the operation of s. 120 upon the position of Mrs Fiorino as recipient of the value provided by the third parties on the sale by her to them.
The matter is usefully approached first by a comparison with the operation of the English statute 13 Eliz. I c. 5, as adopted in the various States, for example in New South Wales by s. 37A of the Conveyancing Act 1919 (N.S.W.) and in South Australia by s. 86 of the Law of Property Act 1936 (S.A.). The counterparts of the Elizabethan statute may be relied upon by a trustee in bankruptcy in a proceeding where he also relies upon s. 120 or other provisions of the Act (P.T. Garuda Indonesia Limited v Grellman, supra at 522, but the statute operates upon the transactions which are impeached in a manner different to s. 120. There must be an intent to defraud creditors and the alienation is "voidable" at the instance of "any person thereby prejudiced", and the defeasance of the title of the disponee occurs differently to that brought about by s. 120.
The results under the Statute of Elizabeth were explained by Dixon CJ and Fullagar J in their joint judgment in Brady v Stapleton (1952) 88 CLR 322. The title to the asset taken by the disponee (in this case a company) was defeasible. But it was effective unless and until a creditor or creditors intervened by levying execution or legal proceedings were taken by them or by the trustee. If before any such proceeding was taken to set aside the disposition, the disponee sold the asset to a bona fide purchaser for value but the proceeds of sale could not later be traced in equity into the hands of the disponee, the disponee would not be liable for money had and received and would not be obliged to pay to the trustee in bankruptcy the moneys received on the disposition. Their Honours said (at 334):

"It is only on the footing that the company sold something to which it had no title or that the sale was otherwise wrongful when made, that a personal liability on the part of the company could be based. But the company, when it sold the assets in question, sold something to which it had a title, albeit a defeasible title. The sale was not wrongful when made. If the company were selling something to which it had no title, it might well be that the trustee in bankruptcy could claim to stand in the shoes of the true owner, the bankrupt, and maintain money had and received. But this is not the position. The company had a title, though a defeasible title. The defeasance has, in the event, taken place, but it cannot relate back so as to make a sale by the company wrongful and impose a personal liability on the company."

(It also should be noted that in Brady v Stapleton, a claim that the company was accountable in equity to the trustee on a personal claim for the value of the asset, had been abandoned at the trial; see 88 CLR at 331.)

In the present case, at the time of the sale by Mrs Fiorino to the third parties, s. 120 had operated to make ineffectual every step taken by Mr Fiorino which otherwise would cause the beneficial interest in the property to pass to Mrs Fiorino, with the result that at the time of this sale by her she was a trustee of the property for the Trustee; see the form of declaration made in Williams v Lloyd supra at 374-375, 378. The trust was brought about by the interaction of s. 120 and the general law; cf Fouche v The Superannuation Fund Board (1951) 88 CLR 609 at 640, Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 at 274, Registrar, Accident Compensation Tribunal v Commissioner of Taxation (1993) 67 ALJR 922 at 927-931, 938-940.
It follows that Mrs Fiorino came under a personal liability to the Trustee to account for, as moneys had and received, the proceeds of the sale of the property by her, on the footing that she was selling something to which she had no title and that the Trustee stood in the shoes of the true owner to maintain money had and received; see Brady v Stapleton supra at 334, Re Hermann; Ex parte The Official Assignee (1916) 16 SR (N.S.W.) 264 at 273, Lipkin Gorman (a firm) v Karpnale Ltd (1991) 2 AC 548 at 572.
No case was made by the Trustee that the proceeds of sale were represented, in Mrs Fiorino's hands, by any specific asset to which in equity the Trustee was entitled; cf Brady v Stapleton supra at 332-333, In re Mouat (1899) 1 Ch 831, Noakes v J Harvy Holmes and Son (1979) 37 FLR 5 at 13. Nor was it contended that Mrs Fiorino was in equity bound to account to the Trustee, not for money had and received, but to restore the equivalent, at its present value, of the property; cf Re Dawson deceased (1966) 2 NSWR 211. The Trustee's application, as I have indicated, sought an order for payment of $60,000. However, in address, counsel for the Trustee indicated that no valuation of the property to support such a claim was in evidence and that on the evidence the most that could be obtained was the $50,000 received on the sale itself, with a proper allowance in respect of the mortgage. That, as I have indicated, is $12,000.
In the result there will be judgment for the Trustee against Mrs Fiorino in the sum of $38,000. There should also be a declaration that the disposition of property by Mr Fiorino effected by Memorandum of Transfer Registration No. 7291008 became and is void against the Trustee in the bankruptcy of Mr Fiorino and that the transferee, Mrs Fiorino, became trustee of the said property for the said trustee in bankruptcy. Although the property is now owned by third parties, a declaration in this form plainly has utility in the administration of the bankruptcy; cf Trautwein v Richardson (1946) Argus LR 129 at 130, 134-135. It is unnecessary to consider the further ground on which the Trustee relied, that based on s. 122.
There remains the other application, that by which Mrs Fiorino seeks to have set aside the notice purportedly issued under s. 139ZQ of the Act.
Sub-Division J (ss. 139ZQ - 139ZT) of Division 4B of Part VI of the Act was inserted by the Bankruptcy Amendment Act 1991, with effect 1 July 1992, that is to say before the making of the sequestration order in respect of the estate of Mr Fiorino.
Section 339 of the Insolvency Act 1986 (U.K.) provides that where an individual has within what is defined as a relevant time entered into a transaction with any person at an undervalue, the trustee of the estate of the bankrupt may apply to the Court for an order to restore the position to that which it would have been if that individual had not entered into the transaction. In such a case, the Court is authorised by s. 342 to make various orders including an order requiring payment to the trustee of the estate of the bankrupt such sums in respect of benefits received from the individual, as the Court may direct. In Australia, in its report No. 45 "General Insolvency Inquiry", 1988, The Law Reform Commission proposed an enabling provision for applications in respect of preferences, and transactions at an undervalue, giving the Court wide powers to make appropriate orders to fit the particular circumstances (para. 687). It recommended the giving of a power to make an order requiring payment of such sums as fairly represent the benefits received by a person as a result of the impugned transaction.
The system introduced by the Bankruptcy Amendment Act 1991 operates rather differently. Section 139ZQ provides:

"139ZQ (1) If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver:

(a) if the Official Trustee is the trustee - on the initiative of the Official Receiver; or

(b) if a registered trustee is the trustee - on application by the trustee;

may require the person, by written notice given to the person, to pay to the trustee an amount equal to the money or the value of the property received.

(2) The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee.

(3) The notice may:

(a) require the amount to be paid at a time or within a period set out in the notice; or

(b) require the amount to be paid at such times, and in such instalments, as are set out in the notice.

(4) After the Official Receiver has given a notice to a person under subsection (1), the Official Receiver may at any time, by a further notice given to the person, revoke or amend the first-mentioned notice.

(5) If the Official Receiver gives a notice under this section, the Official Receiver must send a copy of the notice to the bankrupt and, if a registered trustee is the trustee, to the trustee.

(6) A notice may be given under this section to the Commonwealth, a State or a Territory, or to an authority of the Commonwealth, of a State or of a Territory, is taken to be duly given if it is given to a person who, by any law, regulation, appointment or authority, has the function of paying, or in fact pays, money on behalf of a Department of the Commonwealth, of that State or of that Territory, or on behalf of the authority, as the case may be.

(7) If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee.

(8) An amount payable by a person to the trustee under this section is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction."

Section 139ZR charges with the liability to make payments as required by the notice, any property in respect of which the notice is given to that person. Section 139ZT creates a criminal offence for refusal or failure to comply with a notice.

The present application is brought by Mrs Fiorino under s. 139ZS. This states:

"139ZS (1) If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice.

(2) A notice that has been set aside is taken not to have been given."

The notice to Mrs Fiorino commences with the following paragraph:

"TAKE NOTICE that I, GEORGE LIONEL CADDY, Official Receiver for the abovenamed Bankruptcy District, hereby give notice that you, being a person who has received money or property as a result of a transaction that is void as against the Trustee of the joint bankrupt estate of Michael Fiorino and Mary Anne Fiorino both of 105 Kenthurst Road, Kenthurst, N.S.W. 2156, REQUIRE YOU TO PAY TO THE TRUSTEE, Giles Geoffrey Woodgate of Woodgate and Co., Level 4, 412-414 George Street, Sydney, N.S.W., 2000, an amount of $55,000 being the value of the real estate property received by you and the total amount of rent received from any tenant of that property, after deducting property expenses (but not payments for interest and principal), during the period from 4 May 1992 to date."

The date 4 May 1992 was the date of lodgment of the transfer to Mrs Fiorino. There follows in 13 numbered paragraphs what are said to be the facts and circumstances by which the Official Receiver considers void "the transactions", pursuant to s. 120. The notice concludes with a number of statements including the following:

"PAYMENT is required to be made within 30 days of the date of this Notice.

Further, an accounting of receipts and payments in relation to the real estate property for the period from 4 May 1992 to the date of this Notice is also required to be made within 30 days."

In final address, counsel for the Trustee did not seek to defend the notice. The quantification of the claim arising pursuant to s. 120 in an amount considerably less than the $55,000 explains why this course was taken. Counsel for Mrs Fiorino earlier had indicated that he would be pointing to other numerous and fatal defects in the notice, but in view of the course taken by the matter, it was unnecessary for him to develop those submissions.
Upon the application by Mrs Fiorino, I order that the notice dated 5 July 1993, exhibit A, be set aside. Upon the application by the Trustee, I make the declaration in the terms indicated earlier, and order that there be judgment against the respondent in the sum of $38,000, and that the respondent pay the costs of the applicant. I make no order as to costs of the other application.

[1994] FCA 181

14 APRIL 1994