Re Kuch, Phyllis Hilda and Official Trustee in Bankruptcy Re Kuch, Phyllis Hilda and Kuch, Wendy
[1995] FCA 955
•24 Nov 1995
CATCHWORDS
Bankruptcy - Administration of property - Effect of bankruptcy on antecedent transactions - Notice under s.139ZQ - Application to set aside - Grounds of application considered.
Bankruptcy - Administration of property - Effect of bankruptcy on antecedent transactions - Fraudulent dispositions - Disposition of property by person commencing action for tort - Whether with intent to defraud defendant to whom costs of action would be payable by disponor if action dismissed.
Bankruptcy Act 1966 s.121, Subdivision J of Division 4B of Part VI
Re Pearson; Ex parte Wansley v. Pearson (1993) 46 F.C.R. 55
Re Lucera; Ex parte Official Trustee in Bankruptcy v. Lucera (1994) 53 F.C.R. 329
Freeman v. Pope (1870) L.R. 5 Ch. App. 538
Noakes v. Harvy Holmes & Son (1979) 26 A.L.R. 297
Official Trustee v. Marchiori (1983) 69 F.L.R. 290
P.T. Garuda Indonesia v. Grellman (1992) 107 A.L.R. 199
RE: PHYLLIS HILDA KUCH Bankrupt
EX PARTE: WENDY KUCH Applicant
AND: THE OFFICIAL TRUSTEE IN BANKRUPTCY (As Trustee of the property of Phyllis Hilda Kuch, a Bankrupt) Respondent
RE: PHYLLIS HILDA KUCH Bankrupt
EX PARTE: OFFICIAL TRUSTEE IN BANKRUPTCY (As Trustee of the bankrupt estate of Phyllis Hilda Kuch) Applicant
AND: WENDY KUCH Respondent
VB2754 of 1992
Jenkinson J.
Melbourne
24 November, 1995
IN THE FEDERAL COURT OF AUSTRALIA )
BANKRUPTCY DISTRICT OF ) No. VB2754 of 1992
THE STATE OF VICTORIA )
Re: PHYLLIS HILDA KUCH Bankrupt
Ex Parte: WENDY KUCH
Applicant
And: THE OFFICIAL TRUSTEE IN BANKRUPTCY (as Trustee of the property of Phyllis Hilda Kuch, a Bankrupt)
Respondent
Ex Parte: OFFICIAL TRUSTEE IN BANKRUPTCY (As Trustee of the bankrupt estate of Phyllis Hilda Kuch)
Applicant
And: WENDY KUCH
Respondent
CORAM: Jenkinson J.
PLACE: Melbourne
DATE: 24 November, 1995
MINUTES OF ORDER
THE COURT ORDERS THAT:
The notice dated 2 September 1993 given by the Official Receiver for the Bankruptcy District of the State of Victoria to the applicant Wendy Kuch be set aside.
The costs (including reserved costs) of the applicant Wendy Kuch of her application filed 27 September 1993 be taxed and be paid by the respondent The Official Trustee in Bankruptcy.
The application of The Official Trustee in Bankruptcy filed 23 November 1993 be dismissed.
The costs (including reserved costs) of the respondent Wendy Kuch of the said application be taxed and be paid by the applicant The Official Trustee in Bankruptcy.
(Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.)
IN THE FEDERAL COURT OF AUSTRALIA )
BANKRUPTCY DISTRICT OF ) No. VB2754 of 1992
THE STATE OF VICTORIA )
Re: PHYLLIS HILDA KUCH Bankrupt
Ex Parte:WENDY KUCH
Applicant
And: THE OFFICIAL TRUSTEE IN BANKRUPTCY (as Trustee of the property of Phyllis Hilda Kuch, a bankrupt)
Respondent
Ex Parte:OFFICIAL TRUSTEE IN BANKRUPTCY (As Trustee of the bankrupt estate of Phyllis Hilda Kuch)
Applicant
And:WENDY KUCH
Respondent
CORAM: Jenkinson J.
PLACE: Melbourne
DATE: 24 November, 1995
REASONS FOR JUDGMENT
Trial of two proceedings in the bankruptcy of Phyllis Hilda Kuch.
At all material times Mrs. Kuch has lived in a house at 24 Jinjella Road Highton, a suburb of Geelong, with her daughter Wendy Kuch. That land is the subject of both proceedings. Subdivision J of Division 4B of Part VI of the Bankruptcy Act 1966, which was inserted by s.25 of the
Bankruptcy Amendment Act 1991, provides:
"Subdivision J - Collection of money or property by Official Receiver from party to transaction that is void against the trustee
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.
139ZQ(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.
139ZQ(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.
139ZQ(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.
139ZQ(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.
139ZQ(6) A notice to 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.
139ZQ(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.
139ZQ(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.
139ZR(1) If a notice under section 139ZQ is given to a person in respect of any property:
(a)the property is charged with the liability of the person to make payments to the trustee as required by the notice; and
(b)if the person makes the payments or transfers the property to the trustee, the property ceases to be subject to the charge.
139ZR(2) Subject to subsection (3), a charge under subsection (1) has priority over any existing or subsequent mortgage, lien, charge or other encumbrance over the property in favour of an associated entity of the bankrupt and has that priority despite any other law of the Commonwealth or any law of a State or Territory.
139ZR(3) A charge under subsection (1) does not have priority over a mortgage, lien, charge or other encumbrance in favour of an associated entity of the bankrupt if that entity satisfies the Court that that mortgage, lien, charge or other encumbrance arose from a transaction that was entered into at arm's length and for valuable and adequate consideration provided by that entity and is not void against the trustee under Division 3.
139ZR(4) If any property being land is subject to a charge under subsection (1), the Official Receiver may certify by signed writing that the land is subject to a charge under that
subsection and may lodge the certificate with the Registrar-General, Registrar of Titles or other proper officer of the State or Territory in which the land is situated.139ZR(5) The officer with whom the certificate is lodged may register the charge as nearly as practicable in the way in which mortgages over land are registered under the law in force in the State of Territory in which the land is situated.
139ZR(6) The trustee has power to sell any property over which a charge exists under subsection (1) and, if the property is so sold, then, subject to any charges that have priority over the first-mentioned charge, the proceeds of the sale are, to the extent of the charge, to be applied in or towards the discharge of the liability to make a payment or payments to the trustee of the person to whom the notice was given.
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.
139ZS(2) A notice that has been set aside is taken not to have been given.
139ZT(1) A person who refuses or fails to comply with a notice under section 139ZQ is guilty of an offence punishable upon conviction by imprisonment for a period not exceeding 6 months.
139ZT(2) If a person is convicted of an offence against subsection (1) in relation to the refusal or failure of the convicted person or another person to comply with a notice under section 139ZQ, the court that convicted the person may, in addition to imposing a penalty on the convicted person, order that person to pay to the trustee an amount not exceeding the amount, or the total of the amounts, that the convicted person or the other person, as the case may be, refused or failed to pay to the trustee in accordance with the notice."
Mrs. Kuch became a bankrupt on the acceptance of her own petition on 22 September 1992. The Official Receiver for the Bankruptcy District of the State of Victoria gave Wendy Kuch a written notice dated 2 September 1993 of the kind contemplated by s.139ZQ, in that month. The notice reads:
"TAKE NOTICE that I, ALISTAIR ASHLEY PAGE, of 360 Elizabeth Street, Melbourne, Official Receiver for the abovenamed Bankruptcy District, hereby give notice that you, being a person who has received property from Phyllis Hilda Kuch in the State of Victoria as a result of Phyllis Hilda Kuch transferring ("the transaction") to you her interest in the property at 24 Jinjella Road, Highton in the State of Victoria, more particularly described in Certificate of Title Volume 8326 Folio 898 ("the property") are required to pay to the Official Trustee, of Level 9, 360 Elizabeth Street, Melbourne the sum of forty-nine thousand dollars ($49,000) being the amount required to pay out the bankrupt estate in full.
The facts and circumstances by which I consider that the transaction is void under section 121 of the Bankruptcy Act 1966 ("the Act") are as follows:
1.Phyllis Hilda Kuch was declared bankrupt on 22 September 1992 by the acceptance of her debtors petition by the Registrar of the Federal Court of Australia. The basis for the petition was the inability of the bankrupt to pay legal costs of $33,819.50 as a result of an order made against her in the County Court.
2.ON 23 July 1990 you executed a deed with the bankrupt in which the bankrupt agree to transfer her house at 24 Jinjella Road, Highton to you. The consideration for this transfer was "natural love and affection". You in turn granted a life tenancy to the bankrupt and agreed not to encumber the property in any way. The transfer was registered on title on 23 August 1990.
3.On 26 June 1989, prior to the executing of the deed, the bankrupt alleged that she had
tripped over an electrical cord in a restaurant and suffered various injuries. The bankrupt visited a solicitor on 16 July 1990 and commenced action by way of the issuing of a writ on 24 September 1990. This action commenced in June 1992 and was subsequently dismissed by the jury. It was on this basis that the County Court made an order that the bankrupt pay the defendant's costs. It was prior to the institution of these proceedings that the bankrupt transferred the property to you. This was done with your full knowledge.4.The bankrupt has advised the trustee that the reason she transferred the property to you was due to the fact that you had not been as successful as your siblings and were therefore not in as stable a financial position. However, in contradiction to this, I note that you received an amount by way of settlement of one hundred and seventy eight thousand five hundred dollars ($178,500) in May 1990, two months prior to the executing of the deed.
5.In addition to this transfer, the bankrupt transferred all her goods and chattels to you on 11 February 1992. The only basis for this additional transfer was to ensure that creditors of the bankrupt would have no assets of the bankrupt to seek to recover.
6.I am therefore of the view that the transfer of the property to you by the bankrupt was done with the intent to place the bankrupt's assets out of the reach of the future creditors of the bankrupt in the event that she failed in her action commenced in September 1990 and is voidable as against the trustee pursuant to section 121 of the Act.
PAYMENT is required to be made by 28 September 1993.
This NOTICE shall be taken to be complied with, if the property specified in this notice is transferred to the Official Trustee.
AND TAKE FURTHER NOTICE that the property specified in this notice is charged with the liability referred to above and if you make the payment or transfer the property, the property ceases to be subject to the charge.
AND TAKE FURTHER NOTICE, that failure to comply with this notice may under Section 139ZT of the Bankruptcy Act 1966, render you liable upon conviction for a term of imprisonment not exceeding 6 months.
Where a person is convicted under this section, the Court in addition to imposing a penalty on the convicted person, may order that person to pay to the Trustee an amount not exceeding the amount referred to in this notice.
AND TAKE FURTHER NOTICE that the Court on application by you or any other interested person, may make an order setting aside this notice on the basis of the alleged facts and circumstances set out in this notice."
The statement in paragraph 3 of the notice that "This action commenced in June 1992" should be understood as a statement that the trial of the action commenced in June 1992. Miss Kuch's application, pursuant to s.138ZS(1), for an order setting aside the notice is one of the two proceedings tried. Both Wilcox J., in Re Pearson; Ex parte Wansley v. Pearson (1993) 46 F.C.R. 55 at 59-60, and Olney J., in Re Lucera; Ex parte Official Trustee in Bankruptcy v. Lucera (1994) 53 F.C.R. 329 at 335-336 have animadverted on subdivision J and particularly on s.139ZS(1). I respectfully agree with their observations, and in particular with these statements by Olney J. (53 F.C.R. at 336):
"There are many criticisms that can be made of the Subdivision, not the least being that if literally construed, the Official Receiver can render a person liable to a criminal sanction without having to prove more than the fact of service of a notice under s.139ZQ. Be that as it may, it would seem to be the case that whatever the words `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' mean, a person to whom a notice has been given may challenge the statement of facts and circumstances for the purpose of an application to set the notice aside. If this is not the case a notice based upon a wholly erroneous statement of facts which at its face value may lead to a conclusion that the person has received money or property as a result of a transaction that is void under Div. 3, would have no recourse either against an action based on the notice pursuant to s.139ZQ(8), or against a prosecution pursuant to s.139ZT(1). In the absence of clear words to that effect it cannot be thought that Parliament would have intended such consequences.
In the present case the trustee has thought it necessary to support the application by evidence directed to proving the facts asserted in the notice and in my opinion it is proper that this be done. However, the necessary consequence is that the person to whom the notice is given, or indeed the bankrupt, should be able to challenge the evidence so adduced."
There is a further difficulty : s.139ZS(1) appears to place on an applicant for an order setting aside the notice the onus of proof. In the other proceeding tried - an application by the Official Trustee in Bankruptcy as trustee of Mrs. Kuch's estate for a declaration that the transfer of her fee simple estate in the land to Miss Kuch was a disposition of property made with intent to defraud creditors and void as against her trustee in the bankruptcy by virtue of s.121 of the Bankruptcy Act 1966 - the onus of proof is on the trustee. The difficulty may be avoided in this particular case by determining Miss Kuch's application merely "on the basis of the alleged facts and circumstances set out in the notice". Although s.139ZS(1) must in my opinion be so construed as to leave an applicant free to adduce evidence intended to show the transaction which is the subject of the notice to be not void as against the trustee under Division 3 of Part VI, the sub-section should in my opinion be understood as also authorising an order setting aside the notice where the court is satisfied that, if each fact and circumstance set out in the notice in pursuance of s.139ZQ(2) is assumed to be established, those facts and circumstances do not justify a conclusion that the transaction is void as against the trustee under Division 3 . In this case the notice affords no information as to the bankrupt's financial position when the transaction the subject of the notice was effected, except that she owned a house near Geelong. For all that appears in the notice she might at that time have been without any other assets and without any income or she might have been a very wealthy woman. It may be inferred from facts and circumstances stated in the notice that in 1992 she was quite poor, but a finding to that effect of itself provides no basis for an inferred finding as to her financial position in July 1990. Absent such a finding, no conclusion that the transaction was effected with intent to defraud creditors is possible. There will be an order setting aside the notice.
Counsel found a reference in Hansard to the problems of construction raised by Wilcox J. and Olney J., not in the second reading speech on the Bill for the Bankruptcy Amendment Act 1991, but in a speech by the member for Higgins in the debate on the motion for the second reading on 19 December 1991. He observed (Hansard 3906-3908):
"A new subdivision J is to be inserted with proposed new sections 139ZQ and those following. This provides that, where a transaction is void against the trustee, the trustee can give a written notice that the money, or an amount equal to the value of the property, be paid back.
It is an administrative scheme to recover moneys which have been alienated from the trustee in void transactions. The trustee can also take a charge over property which is void as against the trustee by administrative mechanism and a person, who could be a third party, failing to comply with a notice is guilty of an offence punishable.
We were concerned about this particular provision because, under the provisions of the Act, certain transactions are declared void and then a defence is inserted in the Act which says that, if the third party can prove that the transaction was bona fide for consideration, the transaction which would otherwise be void is not avoided. The way in which the provisions have been drawn, it says in subdivision J that, where a void transaction is entered, the notice can be given.
It might be said that, since certain transactions, for example, under section 120 or section 122 are prima facie void and the obligation is on the third party to establish as a defence that it was done in good faith and for valuable consideration, the notice could be given on the basis of the transaction being prima facie void without the necessity to establish, as a precondition to giving the notice, that the defences do not apply; namely, the defences that it was done in good faith and for valuable consideration. This point was drawn to the attention of the Opposition by Mr Cholmondely Darvall, QC, a member for the New South Wales bar. I was sufficiently concerned about this to write to Senator Tate, and I received a reply from Senator Tate on 18 December 1991. I feel that I should read what Senator Tate said because second reading speeches can be taken into account by courts when interpreting the law. We have not had a lengthy second reading speech but, since this is a letter from Senator Tate, the responsible Minister, to me, it effectively takes the place of a second reading speech.
The letter does clarify that it is not the
intention of the Government, by the provisions of subdivision J, to effectively deprive third parties who acquire goods in good faith and for valuable consideration of their full rights and title by reason of the provisions of subdivision J. Senator Tate said this to me in his letter:'You sought my assurance that the Bill does not contain provision having the intention or effect suggested by Mr Darvall that third parties who have acquitted property from a bankrupt in good faith and for valuable consideration will be deprived of their title.
Nothing in the Bill has the effect which Mr Darvall suggests it has, nor was any such thing intended. The power of the Official Receiver to issue a notice to a person under proposed Subdivision J of Division 4B in Part VI can only be used where a transaction which under Division 3 of Part VI is void against a trustee has occurred. Where a person has received money or property from a bankrupt, but has acted in good faith and has provided adequate and valuable consideration, the transaction is not void, and the preconditions to the exercise of powers under Subdivision J simply would not arise. Any purported issue of a notice would be void ab initio.
A notice which is factually incorrect would not be valid. Apart from being subject to the general powers of the court to resolve all questions of fact or law arising in bankruptcy under section 30 of the Bankruptcy Act 1966, and to make such orders as may be necessary to give effect to and resolve such questions, decisions by the Official Receiver to issue such a notice are also subject to the Administrative Decision (Judicial Review) Act 1977 requiring the rules of natural justice to be observed, the decision to be authorised by the enactment concerned, the decision being supported by evidence and the other matters provided for in that Act.
Mr Darvall's submission is incorrect, and I can assure you that it is not the Government's intention that persons should be affected in the manner he has suggested, nor does the Bill in fact do so.'
I still have a legitimate concern about that, but I have read into the Hansard the reply of the Minister because we will accept the reply
of the Minister. We want to put it into the Hansard to make it clear that this is not intended, so if the matter does arise in a court of law we hope that the court will have reference to that Hansard, understand why we did not move amendments, understand why the Government took the position that it did, and understand that it is not the intention of those particular proceedings to deprive third parties who receive goods or money or property in good faith and for valuable consideration of their rights."
The trustee having made application for a declaratory order, I turn to consider that application, for a declaration that the transfer of the house by the bankrupt to Miss Kuch was a disposition of property made with intent to defraud creditors and void as against him by virtue of s.121(1).
Miss Kuch was born on 22 August 1955. In 1981 she was driving a motor car in which her mother was a passenger when a collision with another car occurred. Mrs. Kuch's injuries were not as severe as those which her daughter suffered, and which forced Miss Kuch to retire from her employment by the Motor Accidents Board in 1983. The only work Miss Kuch has undertaken successfully since the accident is part-time teaching of music. Several years after the accident Mrs. Kuch settled her claim for damages against the driver of the other car for about $30,000. Mrs. Kuch was injured by a slamming door at premises to which reference was made in evidence as "Safeway" and her claim in respect of that incident was settled for about $3,000. Later, in 1986, she was injured when she was a passenger involved in another motor car accident and her claim in respect of that accident was settled in February 1990 for about $19,000 On 26 June 1989 she fell in a restaurant which she and Miss Kuch had entered in order to eat a meal together. That is the accident to which reference is made in the notice given in pursuance of s.139ZQ.
At the time of the trial of these proceedings in August 1995 Mrs. Kuch was 75 years old, a divorcee who had separated from her husband in 1979. She became the sole registered proprietor of a fee simple estate in the land at 24 Jinjella Road, Highton in 1981, pursuant to an agreement with her former husband at about the time of the divorce. Her other two children, who are older than Miss Kuch, lived at material times far from Geelong. Each of them was at material times married and financially secure. Mrs. Kuch deposed in an affidavit, and I find, as follows:
"When she was about nine years old, my husband suffered a heart attack which caused us to sell our farm property at Tarwin Lower and to move to Leongatha where I opened a children's wear shop. My husband was unable to work for 12 months due to his illness during which time my business became the principal source of the family's income. I relied on Wendy to help me in the business, as her brother and sister were occupied by their studies. She would work in the shop outside school hours and, as she grew older, she assisted me in all aspects of the running of the business. From time to time, during various absences of mine from the business, she was left entirely in charge of it. During this time, Wendy and I formed a particularly close attachment. I was, and still am, grateful to my daughter for her assistance during those years. She has continued to live with me at 24 Jinjella Road, Highton since the accident and I have greatly valued her companionship in the years since my
divorce."
By a will dated 1 February 1989 Mrs. Kuch devised the Highton land to Miss Kuch. The will was handwritten by Mrs. Kuch on a printed will form. It includes the following:
"My reason for full sole transfer of the above mentioned property, including all carpets, drapes and light fittings of 24 Jinjella Road, Highton, Geelong 3216 to my daughter Wendy Joan Kuch is due to the unfortunate Motor Vehicle accident in which she was involved on the 27th July 1981, thus rendering her certified unfit to work as from the date of the aforementioned accident, to the date of signing this document and beyond the date of this document. She has been certified unfit for work, excluding three and half hours music teaching per week. Thus leaving her in an unstable monetary situation...."
The rest of that sentence is illegible on the photocopy of the will which is in evidence.
On 26 June 1989 Mrs. Kuch and Miss Kuch were in a restaurant in West Geelong known as Bon Appetit which they regularly patronised at that time. Mrs. Kuch fell and fractured her left wrist. She alleged that her fall was caused by an electric cord which ran across the floor of the restaurant. About a month later she took a photograph of the cord. On another occasion she asked the manager of the restaurant to tell her the name of the insurer which provided public liability insurance in respect of the restaurant. He refused her request. In February 1990 she received about $19,000 in settlement of her 1986 accident. In May 1990 Miss Kuch received $178,500 in settlement of her action in the County Court of Victoria in respect of the 1981 accident and about $11,000 in respect of injuries sustained when she suffered what was called "a slipping accident." On 3 July 1990 mother and daughter together instructed John Edward Boyall of Dunhill Madden Butler to enable the transfer of Mrs. Kuch's fee simple estate in the land to Miss Kuch and the making of an agreement between them. A deed dated 23 July 1990, which Mr. Boyall prepared on their instructions, and a registrable instrument of transfer of the land were executed by the parties in his presence on that date. The deed was in these terms:
"W H E R E A S
A.Mrs. Kuch and Miss Kuch reside at 24 Jinjella Road, Highton being the land described in Certificate of Title Volume 8326 Folio 898 (hereinafter called `the property').
B.Mrs. Kuch has agreed to transfer her interest in the property to Miss Kuch in consideration of natural love and affection.
C.Mrs. Kuch and Miss Kuch wish to ensure that Mrs. Kuch shall be entitled to continue to reside at and in the property during her lifetime.
D. Miss Kuch being registered or entitled to be registered as the owner of the property is entitled to reside in the property for so long as she is the owner thereof.
E.Mrs. Kuch and Miss Kuch wish to set out the terms of the agreement whereby Mrs. Kuch is entitled to reside in the property for her lifetime.
NOW THIS AGREEMENT witnesses as follows:-
1.Miss Kuch hereby grants to Mrs. Kuch the right to reside in the property for the term of her natural life.
2.If Mrs. Kuch shall remarry and if she and her then husband wish to reside in the property then they may do so but the person whom Mrs. Kuch marries shall enter into an agreement with Miss Kuch that upon termination of Mrs. Kuch's life interest he shall upon being requested to do so by Miss Kuch vacate the property and that he agrees that he shall not be entitled to make any claim whatsoever in relation to the property notwithstanding he may have contributed to the maintenance or made any payments relating to expenses or outgoings payable in relation to the property during his period of occupation thereof and the agreement shall contain such other terms and conditions as shall be considered appropriate to ensure that he shall not be entitled to make any claim against the property or Miss Kuch in relation to his occupancy or any other costs associated with him vacating the property or otherwise.
3.During Mrs. Kuch's lifetime Miss Kuch hereby agrees not to sell, transfer, assign, or sign mortgage or otherwise dispose of or encumber the property without the prior written consent of Mrs.
Kuch.
4.During Mrs. Kuch's lifetime Miss Kuch hereby agrees that she will not effect any alterations to the property without the prior written consent of Mrs. Kuch.
5.During Mrs. Kuch's lifetime Miss Kuch agrees that she will not permit any boarders or any other persons to reside at and in the property except any future husband of Mrs. Kuch or any future husband of Miss Kuch without the prior written consent of Mrs. Kuch.
6.During the lifetime of Mrs. Kuch it is agreed between Mrs. Kuch and Miss Kuch that payment of all rates and other outgoings and any maintenance or expenditure of any other monies required in relation to the property shall be borne in such proportions as Mrs. Kuch and Miss Kuch shall agree and failing agreement
shall be borne equally between them.7.Mrs. Kuch and Miss Kuch agree that the provisions of this Deed shall terminate and expire on the death of Mrs. Kuch.
8.Mrs. Kuch and Miss Kuch agree that the terms of this agreement shall bind their respective heirs, executors, administrators, transferees and assigns."
On 16 July 1990 Mrs. Kuch instructed John Raymond Hoban of J.R. and A. Hoban to act as her solicitor in respect of her claim for damages against the occupier of Bon Appetit. On her account, and her daughter's account, of the circumstances of the fall and his own view of the restaurant, Mr. Hoban informed Mrs. Kuch by letter dated 27 August 1990 : "We repeat that we believe you have a strong claim in negligence against the company". The letter also reported that Mr. Hoban had just received a letter denying liability for Mrs. Kuch's fall from the insurer of the occupier of the restaurant and that Mr. Hoban intended to commence legal proceedings. Mr. Hoban gave oral evidence that he had advised Mrs. Kuch "in general terms" on 16 July 1990 that "costs would be against her" if she lost the case. He did not believe, he swore, that he had said anything about the amount of money likely to be payable for costs.
Mr. Boyall did not give oral evidence. Exhibited to his affidavit, which was read in support of the trustee's application, were copies of his file notes in respect of the transactions concerning the land. A file note dated 20 July 1990 records an enquiry by Miss Kuch of Mr. Boyall : "has transfer been lodged at ST office ?". The note records that, when her enquiry was answered in the negative, Miss Kuch commented : "Why not? It should have been done two weeks ago".
The trustee relied in support of his claim that the transfer of the land was made with intent to defraud creditors on a number of circumstances which occurred in 1992. But Mr. Lewis of counsel for the trustee relied also on circumstances which occurred before the execution of the transfer. Mr. Lewis submitted that Mrs. Kuch and her daughter at that time had a good deal of experience of personal injury litigation and of the negotiation in search of settlement of damages claims in respect of personal injury claims. (Miss Kuch had at times herself engaged in such negotiation, although represented by a solicitor.) They had knowledge of the magnitude of legal costs involved in personal injury litigation and they knew that a plaintiff whose claim failed at trial would have to pay, not only her own legal costs, but also the legal costs of the defendant. In the middle of 1990 Mrs. Kuch had no assets except her land, the contents of the house, a car of little value, a little less than $20,000 at bank, and no prospect, if her claim for damages against the occupier of Bon Appetit failed, of receiving any money except her age pension. It was submitted by Mr. Lewis that the land, which had already been bequeathed to Miss Kuch and on which she and her mother were amicably residing, was transferred at the time legal proceedings were being commenced against the occupier of Bon Appetit in order to place it beyond the reach of that occupier if Mrs. Kuch were to be ordered to pay his costs of those proceedings.
Mrs. Kuch and her daughter denied any such an intention, or any advertence to the possibility that Mrs. Kuch might be unable to satisfy an order for costs against her. Mrs. Kuch's account was that when in 1986 or 1987 her daughter told her that Dr. Brendon Thomson, Miss Kuch's physician, was of the opinion that Miss Kuch would never completely recover from the injuries sustained in the 1981 accident, she was greatly moved to pity of her daughter, who had been an industrious and initially very successful administrative worker. (Miss Kuch had been the manager of a suburban Medicare office in the third decade of her life.) Mrs. Kuch believed that her daughter's inability to return to administrative work and her daughter's fear of financial insecurity and, as the mother believed, her daughter's loss of self-esteem should be off-set by the gift to her daughter of the land. Mrs. Kuch testified that she promised at that time to give the land to Miss Kuch. The will made in February 1989 was not intended as complete fulfilment of that promise. Mother and daughter had agreed that, when Miss Kuch's claim for damages in respect of the 1981 accident was satisfied by judgment or settlement, title to the land would be transferred, Miss Kuch paying out of the moneys she would receive the taxes and other expenses of transfer. And that is what happened, they both swore, in July 1990, after settlement of the daughter's damages claim in May 1990. Pressed under cross-examination as to why she had waited more than a year to consult a solicitor about her claim against the occupier of Bon Appetit, Mrs. Kuch swore that the process of settling the 1986 damages claim was troubling her until February 1990. She testified also to the pain and distress by which she was distracted for long after her fall in the restaurant. But she professed an inability to remember why she decided to consult Mr. Hoban in July rather than earlier that year.
At the time the transfer was executed Mrs. Kuch owed no significant debts. She was certainly not then indebted to the occupier of Bon Appetit, who is the creditor she is alleged to have intended to defraud. But an intent formed in relation to only one person who is anticipated by a disponor of property to become a creditor will satisfy the requirement of s.121(1) : Barton v. Deputy Commissioner of Taxation (1974) 131 C.L.R. 370. Nor is it a requirement of the sub-section that the intent to defraud be the sole intent of the disponor.
The action by Mrs. Kuch against the occupier of Bon Appetit in the County Court of Victoria was fixed for trial by jury at Geelong on 10 February 1992. On 6 February 1992 counsel briefed to appear for Mrs. Kuch at the trial conferred with her and her daughter. According to the evidence of Miss Kuch counsel declared his intention not to adduce in evidence documentary and photographic material on which she, and perhaps her mother, thought reliance should be placed at trial. On 7 February 1992 Mrs. Kuch and her daughter sought to speak with the solicitor for the defendant in the action, Anthony John McCabe Doyle, who arranged for Miss Kuch to speak by telephone to Mr. Hoban, whose retainer she declared to be terminated during that conversation, apparently because of dissatisfaction with the course proposed to be taken by counsel at the trial. On 10 February 1992 when the case was called on for trial Mrs. Kuch appeared unrepresented by a lawyer. The trial judge permitted Miss Kuch to speak on her mother's behalf in support of her mother's application for an adjournment of the trial, which was granted. An order was made that Mrs. Kuch pay the defendant's costs occasioned by the adjournment. A document was written out and signed by Mrs. Kuch the next day, in these terms:
"To Whom It May Concern
Dear Sir/Madam
I hereby declare, that this very day, the eleventh day of February, Nineteen Hundred and Ninety Two, that I give all my goods and chattles, which are at this date at No. 24 Jinjella Road, Highton, Geelong 3216 In the State of Victoria, to my youngest child, namely Wendy Joan Kuch of the above address.
Yours Faithfully"
A similarly worded document was signed by Mrs. Kuch in the form of a statutory declaration declared at Geelong on 17 February 1992, the text of which specifies 11 February 1992 as the date of the gift. Miss Kuch explained in evidence that the need for such documents arose out of her having "taken over" insurance of the house at 24 Jinjella Road. Mrs. Kuch did not give that explanation. The nearest she came to an intelligible explanation, during cross-examination which evoked much unresponsive evidence, was that she was feeling ill at the time and thought she should give all the chattels to her daughter.
The trial of the action having been fixed for hearing on 10 June 1992, Mrs. Kuch executed a chattel mortgage over her motor car in favour of her daughter, dated 4 June 1992. The document had been prepared by Dunhill Madden Butler, in standard form, expressed to be in consideration of "advances or accommodation" whether past or future. Miss Kuch at material times owned another car. She gave evidence that the charge was given as security in respect of moneys expended by her on her mother's car. She produced receipts for expenditure in and after July 1992 in relation to her mother's car. She swore that there had been other expenditure by her before execution of the chattel mortgage, but no detail of that expenditure was given in evidence. Mrs. Kuch's evidence was vague, but confirmatory of her daughter's evidence about the chattel mortgage. Judgment upon verdict for the defendant in the action with costs was pronounced on 15 June 1992 after a trial over four days. Mrs. Kuch was represented by counsel instructed by Peter Anthony O'Bryan of Galbally and O'Bryan. On 16 June 1992 the chattel mortgage was apparently registered under Part 3 of the Chattel Securities Act 1987 (Vic.), that being stated to be the "date of security" in Mrs. Kuch's statement of affairs which accompanied her debtor's petition presented on 22 September 1992.
At some time after 15 June 1992 Mrs. Kuch, in company with her daughter, sought advice from David Edward Whiting, a member of the legal firm Stedman Cameron, who had previously acted for both ladies, concerning bankruptcy and consequences of bankruptcy. No notes were kept by Mr. Whiting of the conference. No further detail of the advice sought or given was provided by Mr. Whiting, who did not give oral evidence. Miss Kuch gave evidence that Mr. Whiting talked to her about "bona fide" and "valuable consideration".
A letter dated 26 August 1992 was addressed by Miss Kuch to the Honourable P.J. Keating, Prime Minister of Australia. The photostatic copy tendered in evidence is very difficult to read, but a copy of a letter in reply from an officer of the Insolvency and Trustee Service Australia, which was in evidence, enables me to find that Miss Kuch was in her letter expressing her opinion that legislative amendment of what she described as "claw back" bankruptcy provisions should be considered.
The defendant's costs of the action by Mrs. Kuch which failed were taxed at just under $34,000. She paid J.R. and A. Hoban $9,500 for her own costs and she paid Galbally and O'Bryan $8,000 for her own costs and she paid the defendant about $2,000 for its costs occasioned by the adjournment of the trial in February 1992. She paid none of the $34,000. Her financial resources having been exhausted, she presented her petition in bankruptcy.
There was no evidence by means of which the court might evaluate the prospects of success for Mrs. Kuch in her action, either in 1990 or in February 1992 or immediately before trial in June 1992. It was said that no transcript of the trial was available. There were fragments of evidence from which it might be speculated that the defendant's case at trial was that Mrs. Kuch did not fall near any cord. But of the strength of either case no evaluation was suggested by counsel for either party before me. There was no evidence that any lawyer had advised mother or daughter before verdict in the action that there was a substantial risk of failure.
The explanation of the execution in February 1992 of the two documents declaring Mrs. Kuch's gift to her daughter of "all my goods and chattels" at the house was unsatisfactory. There was no evidence by mother or daughter as to whether an insurer had done or said something to induce the making of the documents. The costs ordered to be paid by Mrs. Kuch on 10 February 1992 were in fact paid. Mr. Lewis submitted that I should infer that the execution of the documents was done with the intent to put those goods and chattels beyond the defendant's reach in the event that the action failed. On the other hand the history of settlements of personal injury claims by mother and daughter suggests that they were reasonable in evaluating the prospects of success in such litigation and would have expected that this claim also could be settled.
I am persuaded to infer that mother and daughter in June 1992 apprehended the risk of failure in the mother's action and executed the chattel mortgage with the intent to put the mother's motor car beyond the defendant's reach. The conduct of Miss Kuch, in writing to the Prime Minister and in taking other action to which I have not yet referred, after judgment in the action suggests that she was then in a very disturbed state of mind. The state of mind was, as I find, induced by fear that her ownership of the land would be disturbed by proceedings in her mother's impending bankruptcy which she called "claw back" proceedings. The other conduct was a suggestion she made, in a letter dated 14 September 1992, to the solicitor who had acted for the defendant in her action in respect of the 1981 accident, that he swear an affidavit (a draft of which she enclosed) which, after reciting the happening of the accident, the institution of her action and the solicitor's involvement on behalf of the Transport Accident Commission (the defendant's third party insurer), was to conclude thus:
"7.That I became aware of difficulties in resolving these litigation proceedings due to the nature of the evidence presented in those proceedings, and having regard to current entitlement to damages under the law as it presently stands.
8.That taking into account all relevant
matters and evidence, discussion arose about a property at No. 24 Jinjella Road, Highton Geelong 3216 in the State of Victoria. Discussion during the negotiation proceeding brought the conclusion that it was in the interests of all parties concerned for the property referred to, to be assessed as part of the resolution of the medical and financial status of the Plaintiff.
9.That Dunhill Madden Butler, Solicitors & Notaries acted in the legal transfer of the property referred to in point seven (7) of this Affidavit."
The solicitor's response was this letter:
"The letter, and draft Affidavit, sent to us on Tuesday of this week is returned to you with this letter.
We are not in a position to sign any Affidavit in, or to the effect of, the draft delivered by you.
We have no recollection, nor can we find any evidence on the file of papers relating to your damages claim - that any regard was ever had either by this office or by the Transport Accident Commission - to the question of ownership or transfer of title of the Highton property in connection with your claim.
As a separate matter, we have closed the file which relates to instructions provided by you to Mr Darzins of this firm in connection with the security taken by you over your mother's motor vehicle. Our receipted account for professional charges in that transaction has been drawn, and is attached. Whilst we believe that you have been provided with copies of all relevant documents in connection with that transaction, you should write to us if you wish to be provided with any materials from the file.
This firm will be unable to accept any instructions from you in the future.
The fact of the matter is that we remain active solicitors for the Transport Accident Commission of Victoria and it is simply not appropriate for us to act for you in any
capacity, having regard to the fact that we have previously acted against you on behalf of the Transport Accident Commission. Even if it were to be considered theoretically possible that we could act for you in other transactions, we would prefer not to do so having regard to our ongoing relationship with the Commission."
The evidence does not, I think, enable me to form a view as to what exactly Miss Kuch hoped to gain from the swearing of such an affidavit. But I think the conduct of Miss Kuch in soliciting such an affidavit shows her to have been at that time very disturbed in her mind and fearful.
The conduct of both mother and daughter in 1992, particularly in and after June 1992, bespeaks the intent to deny the defendant satisfaction of any order in his favour for costs. And the evidence of each about their conduct in 1992 was disingenuous. Those circumstances strongly supported, according to Mr. Lewis's submission, the drawing of an inference that the transfer of the land in 1990 was also done with that intent. Those circumstances do of course greatly diminish the weight of their sworn denials, and show them to be willing to take in 1992 a course which Mr. Lewis submits they took in 1990. But, having seen and heard them in the witness box, I am persuaded that neither would engage in a calculated course of dishonest conduct for which she could provide herself with no moral justification or excuse. In 1992 and in the litigation which has followed Mrs. Kuch's bankruptcy each of them has been subject to fears and temptations out of which she has probably found means to justify to herself what she did. In 1990 there was nothing which the evidence suggests could have enabled either to disguise from herself the plain fact that to tell on oath a false story about tripping on a cord and to put the land beyond the defendant's reach in case the lie should not be believed was barefaced fraud. Unless the story about the cord was to their knowledge false, there seems no sufficient reason for either of them to effect a transfer of the land in order to deny the defendant recourse to it. Mr. Hoban had said that Mrs. Kuch had a strong case. There was no evidence that either of them had experienced the bitterness of defeat in litigation. And Mrs. Kuch's financial resources in 1990 were not obviously inadequate to meet the costs of both parties in what appeared to be a simple tripping case. Unless the story about the cord was a lie, why should their minds turn to fraud?
There is no evidence on which to find, and Mr. Lewis did not suggest, that the evidence given by either Mrs. Kuch or Miss Kuch about the circumstances of the fall was perjured. The account which Mrs. Kuch gave of the circumstances in which the land was given to her daughter, and of the reasons which she had for giving it, I found credible and consonant with the impression I formed of her personality and the relationship between mother and daughter. Notwithstanding the evidence tending to support an inference that the disposition of the land was with intent to defraud creditors, I am not persuaded on the whole of the evidence that the disposition was made with that intent.
Mr. Lewis sought to rely upon the established process of inference from known facts to a finding of intent to defraud creditors which is derived from Freeman v. Pope (1870) L.R. 5 Ch. App. 538 : see Noakes v. Harvy Holmes & Son (1979) 26 A.L.R. 297 at 303; Official Trustee v. Marchiori (1983) 69 F.L.R. 290 at 296; P.T. Garuda Indonesia v. Grellman (1992) 107 A.L.R. 199 at 207-210. But it was not in June 1990 "the necessary consequence" nor "the inevitable result" of the transfer of the house that payment by Mrs. Kuch of the defendant's costs of the action then in contemplation would be prevented or delayed, in the event that she were ordered to pay those costs. It was at that time not unlikely that the assets she then had (money at bank and car) would suffice for satisfaction of both parties' costs liabilities. And it was at that time not unlikely, upon the evidence before me, that Mrs. Kuch would not fall under a liability to pay costs to the proposed defendant.
On Miss Kuch's application under s.139ZS(1) there will be an order that the notice dated 2 September 1993 given to her by the Official Receiver be set aside, and an order that the Official Trustee pay her taxed costs of that application. The application of the Official Trustee will be dismissed and the Official Trustee will be ordered to pay
Wendy Kuch's taxed costs of its application.
I certify that this and the 29 preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice Jenkinson.
Associate
Dated: 24 November, 1995
Counsel for the Applicant : Mr. T.J. Walker
Counsel for the Respondent : Mr. G. Lewis
Solicitors for the Applicant : Slater & Gordon
Solicitors for the Respondent : Australian Government Solicitor
Dates of Hearing : 7, 8, and 9 August, 1995
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