Re Mitchell, D. & anor; Ex Parte Official Trustee v Mitchell, D
[1992] FCA 190
•11 MARCH 1992
Re: DAVID MITCHELL and PATRICIA ELIZABETH RUSSELL
Ex parte: OFFICIAL TRUSTEE
No. N B1150 of 1991
FED No. 190
Bankruptcy - Family Law
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Foster J.(1)
CATCHWORDS
Bankruptcy - Control over Person and Property of Debtors and Bankrupts - ss 120 and 121 Bankruptcy Act 1966 - dispositions of property with intent to defraud creditors - what amounts to valuable consideration and good faith - settlements made before and in consideration of marriage.
Family Law - Maintenance and Property - ss 86 and 87 Family Law Act 1975 - what amounts to a maintenance agreement.
Bankruptcy Act 1966 (Cth)
Family Law Act 1975 (Cth)
Columbine v Penhall 65 ER 98
Bulmer v Hunter (1869) 8 LR Eq 46
Re Walsh; Hamilton v Walsh (1982) 47 ALR 396
Re Oades; Ex parte: Official Trustee in Bankruptcy v Bunora Pty Limited, unreported, Federal Court of Australia, 27 March 1991
Barton v The Official Receiver (1986) 161 CLR 75
Re Hyams; Official Receiver v Hyams (1970) 19 FLR 232
Re Abbott; Ex parte: The Trustee of the Property of the Bankrupt v Abbott (1983) Ch 45
HEARING
SYDNEY
#DATE 11:3:1992
Counsel for the applicant: M.R. Aldridge
Instructed by: Australian Government Solicitor
Counsel for the respondent: C.P. Comans
Instructed by: Blake Dawson Waldron
ORDER
The Court orders:
1. The application be dismissed.
2. costs be paid by the bankrupt estate.
3. Caveat 378196 currently lodged in the Australian Capital Territory in respect of Crown Lease volume 42, folio 113 be extended for 14 days from 11 March 1992 and in the event of an appeal being lodged against this decision until further order of the Court.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
I have been much assisted by the very able arguments of counsel in this matter. I have had the opportunity over the course of the hearing which has occupied the last two days to consider in depth the material that has been placed before me and the oral evidence which has been given. I have come to a firm view as to what my decision should be and I consider that in those circumstances I should give it and my reasons for it immediately.
The application before me is brought by the Official Trustee in Bankruptcy of the bankrupt estate of David Mitchell. Mr Mitchell is the first respondent to this application and Patricia Elizabeth Russell is the second respondent. The second respondent is in fact the wife of the first respondent, having married him on 15 November 1990. The application is brought pursuant to ss 120 and 121 of the Bankruptcy Act 1966 (Cth) (the "Act"). In the application a number of declarations and consequential orders are sought, to which I need not refer at this point. The orders that are sought relate, however, to certain arrangements that were entered into between the first and second respondent prior to and shortly after the date of the marriage to which I have made reference. These are arrangements which affected the property of Mr Mitchell before he became bankrupt, that event having occurred on 15 May 1991. On that date he was adjudicated bankrupt under the Act on his own petition.
The particular arrangements which are attacked in this application and to which I shall make more detailed reference later can at this stage be described as an ante nuptial agreement in relation to property entered into between the bankrupt and the second respondent on 13 November 1990. This consisted of a deed which purported to be pursuant to s 86 of the Family Law Act 1975 (Cth) (the "Family Law Act") entered into on 27 November 1991 and an instrument of transfer under the appropriate legislation of the Australian Capital Territory intended to effect a change in the registered ownership of property in the name of the bankrupt, being a dwelling house at 6 Goreen Place, Reid (the "Reid property"), in the Australian Capital Territory, with the change of ownership being in favour of the second respondent.
Although in some cases it might be necessary to seek to make some distinction between these various arrangements to determine which, if any of them, answered the description of "a settlement of a property" under s 120 or a "disposition of property" under s 121 of the Act it is not necessary so to do in this case. Counsel agree that the case may properly be approached on the basis that all formed part of one transaction affecting the property of the bankrupt and that they may be considered, as it were, in a composite way so far as the application of these sections are concerned.
Although the relevant bankruptcy of Mr Mitchell occurred in May 1991 it is necessary in determining the issues that arise in this matter to have regard to events taking place in the previous year. So far as the relationship between the first and second respondents is concerned, the evidence establishes that during 1990 in pursuance of a meeting which apparently occurred in 1989 they commenced a relationship and for the most part during that year lived together, either in the home of the second respondent which was in another suburb of Canberra or at the Reid property, the home of the first respondent. The relationship was obviously a close one in that year and it resulted in marriage between the two being discussed in September or October. A decision was made by them to marry later in the year. It is clear that during 1990 the first and second respondents as a result of cohabitation would have been in a position where the second respondent would at least have had some knowledge of the business life of the first respondent. Indeed the question of the degree of that knowledge is a matter of some importance in this case and one which has exercised me considerably in considering what my decision should be.
The evidence establishes that Mr Mitchell in 1990, and obviously for some time before that, had been actively engaged in a business which was conducted through a company structure, Elburz Holdings Pty Limited. He was associated in that company with other persons who are referred to in the evidence but who it is unnecessary to name. The company conducted the business of the outfitting of offices. It is clear that in the conduct of the business it was necessary for it to undertake borrowings. It is also clear that it incurred trading debts. Mr Mitchell, along, as it would appear, with other persons involved in the company entered into personal guarantees with lenders to and trading creditors of the company as a necessary adjunct of the continuing financing of the company's operations.
The company did not trade successfully in 1990. It reached a stage where it was unable to trade and went into voluntary liquidation. It was wound up on 23 August 1990. There was at that time an estimated deficiency of funds available for the payment of creditors of $708,370. The necessary result of the company's liquidation and its indebtedness was exposure of Mr Mitchell to liability under the guarantees which he had given. When he eventually became bankrupt on his own petition the contingent liabilities in his bankruptcy were $555,034. The basis of those liabilities, as is established by the evidence, is largely the result of his exposure under the personal guarantees. It was a consequence of the winding up of the company that Mr Mitchell became unemployed. He remained unemployed throughout the remainder of the year and into the following year and so far as the evidence indicates he was unemployed at the time of his bankruptcy. It is perfectly clear on the evidence that the fact of his lack of employment and therefore lack of earnings from his own personal efforts was at all relevant times well known to the second respondent. She makes this quite clear in her evidence.
The evidence also establishes that in 1990, as a result of what would appear to have been investments made in the past, Mr Mitchell was the owner of certain properties, the precise addresses of which appear in the evidence. One such property was in Monash in the Australian Capital Territory. Another was in a suburb of Sydney and another was in Terrigal in the state of New South Wales and the fourth property was the Reid property. These properties were all subject to mortgages in respect of which interest payments were required. The mortgages have been referred to in evidence as comprising a blanket mortgage. It appears that the National Australia Bank had a first mortgage over all the properties to secure borrowings which apparently were required to finance the purchase of the properties in the first instance. Additionally, there was a second mortgage which apparently can also be described as being a blanket mortgage which had been raised to provide finance for the ongoing needs of Elburz Holdings Pty Limited.
Contemporaneously with the financial collapse of that company and the loss of income earnings by Mr Mitchell problems obviously arose in relation to the servicing of these mortgages. These problems led of necessity to the sale of some of the properties to enable the paying out of the mortgages. The property in Monash was apparently sold and arrangements made with the banks that the securities could be released in respect of that property, there being sufficient security held in relation to the other properties. There was as a result of this a release to Mr Mitchell of an amount of some $100,000, which he put to use thereafter throughout 1990. He used the money to provide living expenses and also to service the interest indebtedness accruing on the other mortgages.
It is plain from the evidence provided in the case by the transcript of the examination of the second respondent before the Registrar under s 81 of the Act and the evidence which she has given in this case that she was aware of the existence of this amount of $100,000 and apparently of the use to which it was being put. I shall make some reference to this matter later.
On 13 November 1990, as I have already indicated, the first and second respondents entered into a deed. This deed is annexed to one of the affidavits in the case but has been admitted separately as exhibit C. In terms it dealt with two items of property, one being the property at Terrigal and the other the Reid property. It refers to the arrangement of the marriage between the parties and its intended solemnisation on 15 November 1990. The operative portions read as follows:
"1. That DAVID MITCHELL agrees that in consideration of PATRICIA ELIZABETH RUSSELL marrying him he will on the date of that marriage transfer all his equitable interest in the freehold property and the Leasehold property to the said PATRICIA ELIZABETH RUSSELL.
2. That PATRICIA ELIZABETH RUSSELL agrees that in consideration of DAVID MITCHELL transferring his equitable interests in the aforesaid properties to her on the date of their marriage she will marry DAVID MITCHELL."
The schedule to the deed refers to the Terrigal property which is a freehold property and the Reid property which is the leasehold property referred to. It may be remembered of course that title in the Australia Capital Territory is leasehold rather than freehold. However, nothing turns on the fact that it was such a title.
The marriage having taken place on 15 November the parties thereafter entered into the other deed to which reference has already been made. It is exhibit D in the proceedings. It again refers to the two items of real property. It purports to be under s 86 of the Family Law Act. It recites the marriage. It further recites that:
"B. As a consequence of the marriage of the husband and the wife each has rights in certain circumstances under the Family Law Act 1975 to make claims over the property of the other and to claim maintenance from the other."
It recites the desire to enter into the agreement. The operative clause reads as follows:
"2. That in consideration of the wife agreeing that the husband shall pay no maintenance to her, the husband agrees to transfer to the wife all his legal right, title and interests in the properties as described in the Schedule subject only to the wife indemnifying him and keeping him indemnified in respect of the mortgages over those properties."
I should perhaps add at this stage that the Terrigal property was in fact sold to a third party and has never been transferred to the second respondent pursuant to the provisions of either of these agreements. An appropriate instrument of transfer to which I have already made reference was, however, executed in respect of the property at Reid. It has been presented for registration in the appropriate manner in the Australian Capital Territory in order that the title of the transferee can be perfected. There has also been presented with it relevant instruments of discharge of mortgage and of fresh mortgage to which I shall make reference later. All these documents await registration but the registration is currently prevented by a caveat which has been lodged by the Official Trustee, the applicant in these proceedings. It is clear, however, that nothing further remained to be done by the parties in relation to giving effect to the agreement in respect of the property at Reid and also the altered mortgage arrangements as at the time when these documents were lodged for registration.
It is clear that these transactions have taken place within the relevant period of two years before the bankruptcy of the first respondent. Accordingly, they would be void against the Trustee under s 120 of the Act unless they fell within the exempting provisions of s 120(1)(a). That subsection provides that "a settlement made before and in consideration of marriage is exempted from the provisions of the section". It is the contention of the respondents that the relevant arrangements made between them constituted such a settlement. Indeed the deed of 13 November clearly on its face professes to be a settlement of property made before and in consideration of marriage. This deed is attacked by the Trustee on two bases: first, on the basis that it could not properly be said to have been made in consideration of marriage and secondly, on the basis that it was not a settlement made in good faith and therefore did not qualify for the protection accorded by the section.
It may be noted that the section perhaps does not express itself in quite these terms but it is conceded on behalf of the respondents that a relevant absence of good faith in the entering into of the settlement on the part of the transferee would have the effect of taking the settlement, although in consideration of marriage, outside the exempting effects of the subsection. This much appears in the old case of Colombine v Penhall and Ors; Penhall v Miller (1853) 1 SM and Giff 228; 65 ER 98 and the case which followed it; Bulmer v Hunter (1869) 8 LR Eq 46. There is no need for me to set out the relevant passages in view of the concession which in my view has been quite properly made.
Additionally, an attack is made under s 121 of the Act on the basis that the arrangements were relevantly dispositions of property "with intent to defraud creditors", not being dispositions for valuable consideration in favour of a person who acted in good faith. It is apparent, therefore, that the issue of good faith is a relevant and significant issue in respect of both the attacks made on these transactions.
It is convenient in the first instance, however, to deal with the submission that the deed of 13 November cannot properly be regarded as having been entered into in consideration of marriage. The meaning of those words has been the subject of judicial consideration in the past. Earlier authorities were considered by Sheppard J in Re Walsh; Hamilton v Walsh (1982) 47 ALR 396 at 398, where his Honour said in relation to these words:
"These words have not been the subject of a great deal of judicial attention at least so far as the researches of counsel disclosed. It seems to me that I should adopt what was said of the words by R.W. Goff J as he then was in Re Densham (1975) 1 WLR 1519. The English section with which his Lordship was concerned is in similar terms to the Australian section. After referring to the decision of House of Lords in Rennell v Inland Revenue Commissioners
(1964) AC 173, his Lordship said at 1526-7: `Lord Cohen and Lord Guest, in considering whether a settlement was made in consideration of marriage within s 59(2) of the Finance
(1909-10) Act 1910 (not the legislation in question in the Densham Case), adopted three tests (1) it must be made on the occasion of the marriage; (2) it must be conditioned only to take effect on the marriage taking place; (3) it must be made by a person for the purpose of or with a view to encouraging or facilitating the marriage. Of these three conditions, the settlement with which I am dealing plainly satisfies the first, for it was made on the occasion of the marriage, but, in my judgment it fails to satisfy either the second or the third. It is true that some conveyancing difficulty seems to have been felt about the wife executing the contract or the transfer before marriage, but I do not think the settlement of a share of the beneficial interest on her was in any way conditional on the marriage taking place, but even if I am wrong about that, on the facts of this case it was not made for a purpose of or with a view to encouraging or facilitating the marriage."
Applying these tests I have come to the conclusion that I should regard the settlement as having been made properly in consideration of marriage. The first two tests are satisfied in my view by the terms of the deed. The third test, which in a sense seems to go to the bona fides of the situation though not so expressed, is answered by the evidence in the case, which I accept. I do not think that in any way this marriage was a sham. I am satisfied on the evidence that the parties had a genuine affection for each other which flowered into marriage over the space of the time to which I have already made reference. The result of so finding is to satisfy me that the deed can properly be regarded as a settlement which had the effect of furthering or encouraging the marriage.
I am also satisfied on the evidence of the second respondent that she had concerns relating to the property situation which might occur after marriage. These concerns related to her own property and its intermingling with the property of the first respondent and that these matters were taken into account in her general approach to marriage with the first respondent. The result of these findings goes to support the view that I have formed that the deed can properly be said to be in consideration of marriage and not merely in contemplation of it.
I turn to the question then of good faith as it applies to both these sections. Before doing so, however, it is appropriate that I give consideration to the separate matter arising under s 121(1), namely, whether there was a relevant intent to defraud creditors on the part of the first respondent. This matter has not been the subject of concession but no submissions have been put to me to the contrary of my finding that the first respondent had this intent. I am of the view that I should so find. There can be no doubt whatever that the first respondent would have known himself to have been in a parlous financial situation during 1990, both before and after the liquidation of the company. Despite what he may have had to say to the second respondent on the subject he must have been aware that he himself was in considerable financial difficulties over and above and distinct from the financial disabilities of the company.
He would clearly have known of his very substantial exposures to the guarantees that had been given and that having regard to the very considerable indebtedness of the company that he would be the subject of action on the part of the guaranteed creditors to recover against him such amounts as could not be recovered from the company in liquidation or from his co-guarantors. As I have already indicated, he sold up in 1990 at least two of the properties that he held with a view to discharging the debts on those properties to secured creditors. In my view he must have foreseen the necessity of disposing of the other properties for the purpose of payment of the debts which had accrued and which were going to accrue. The inference in my view is inescapable that at the time he turned his mind to dealing with the Terrigal property and more particularly the property which is essentially the subject of these proceedings, the Reid property, he would have been well aware that those properties would necessarily have to be dealt with as assets in the event of his becoming bankrupt. They would have been assets available to his creditors.
The authorities, to which I need not make reference, make it quite clear that by abstracting from the property otherwise available for his creditors these properties and dealing with them in a way which might place them beyond the reach of creditors in the event of his bankruptcy he was acting in a way that could hinder, delay or defeat those creditors. This is sufficient within the meaning of the authorities to affix him with an intent to defraud them within the meaning of the bankruptcy legislation. I am satisfied therefore that there was relevantly a disposition of property as a result of these transactions, "with intent to defraud creditors."
The only issue that arises then under s 121 of the Act is whether or not the disposition had been done for "valuable consideration in favour of a person who acted in good faith." The issue in the case has therefore come down in effect to this: did the transferee, the second respondent, provide valuable consideration and did she act in good faith? The issue of good faith, as I have said, also arises in relation to the claim under s 120. It is precisely the same issue. In respect of these issues the applicant bears the onus of proof. In the first instance the evidentiary onus can be quite clearly displaced by the production of a fairly small amount of evidence, as the information in relation to the issue of good faith and also in a sense the issue of valuable consideration lies very much within the knowledge of the respondents. The first respondent has not given evidence before me but the second respondent has. The case turns to a very large extent upon the view that I formed of her in the witness box and also of course in relation to evidence previously given.
It is convenient to consider the issue of good faith before turning to the issue of valuable consideration. The cases, to which I do not intend to make detailed reference, are replete with the efforts of judges to provide meaning to this expression in the context of the cases falling for decision. For the purpose of deciding this case I am happy to adopt an exposition of the phrase which found favour with Sheppard J in the decision of Re Oades; Ex parte: Official Trustee in Bankruptcy v Bunora Pty Limited, unreported, Federal Court of Australia, 27 March 1991. His Honour in a passage which I will not set out in full made reference to the decision of Barton v The Official Receiver (1986) 161 CLR 75 and to the apparent acceptance in that case in the joint judgment of Gibbs C.J. and Mason, Wilson and Dawson JJ. of the decision in Re Hyams; Official Receiver v Hyams (1970) 19 FLR 232. In the latter case Gibbs J, as he then was, said as follows, at page 256:
"In Mackintosh v Pogose, (1895) 1 Ch 505 at page 510, it was said that the words "in good faith" in the corresponding section in an English Bankruptcy Act must be taken to mean `without notice that any fraud or fraudulent preference is intended', and in the context of the Australian statute this exposition may be modified to read `without notice that any fraud or preference contrary to the statute is intended'."
As I have said, I am satisfied that this exposition of the phrase, "in good faith" is an appropriate one to apply in the decision of this present litigation. What I must determine then is whether it has been established that the second respondent entered into these transactions without notice that any fraud was intended. The question of preference does not arise. I should perhaps interpolate that fraud in this context is not as narrow as the concept is in the tort of deceit but more specifically refers to the hindering, delaying or defeating of the interests of the creditors of the transferor, the first respondent. It is therefore essential to the decision to determine whether I am satisfied that she had notice at the time she entered into these transactions of any relevant effect upon the interests of creditors as a result of the transactions going forward.
The second respondent has given evidence on this particular topic on two occasions, first in her examination under s 81 of the Act and also today. On each occasion she was cross-examined in considerable detail. I have read her evidence in chief and cross-examination in the previous proceedings and of course I have had the considerable benefit of seeing her in the witness box and observing her whilst being cross-examined again. She was asked the question in evidence-in-chief before me what reasons activated her when she signed the first deed. She said:
"I was living with David Mitchell, whose business had gone into liquidation and I felt concerned that he wasn't employed. We were living in my house which was too small and we were basically living between the two houses. We spoke about living in his house and selling my house and I felt concerned because for many reasons, possibly a lot were experience, and the first one was that my first husband died and I received money as compensation due to his death and when I married the second husband he tried to hide or conceal some money that he had. At first he said he had the same amount as me and then he said he had made a mistake, he had less, which made me suspicious, but it turned out that he was using that money to pay some debts and he was concealing it from me. So when the situation arose with David I didn't really discuss it with him at length but I was very concerned and very cautious because of where I had got the money. I feel it belongs to my children and I am very protective of it and I expressed concern to David about moving to his house. I realised the property would have to be refinanced and I was very concerned, knowing he wasn't working and it was such a large house it would require a larger mortgage and I felt if something happened and we weren't able to meet the mortgage and I also felt concerned generally, due to my past experience and David suggested that he seek legal advice."
She said that David first raised the topic of transferring the property to her and that that was prior to getting married but "after he had asked me to marry him". She was asked a number of questions in her evidence as to her state of knowledge of the first respondent's financial affairs before entering into the impugned arrangements with him. Her evidence in this regard is of course of considerable significance in determining whether or not she acted in good faith. More particularly, it is of considerable importance in determining whether she had any relevant knowledge that her entering into these transactions might have a deleterious effect upon the interests of creditors. She was asked to what extent she was aware of the financial details surrounding the liquidation of the company. She said:
"David had never really discussed it with me. He just said that he had to close the company down and it was in the hands of liquidators. He was owed a lot of money and he hoped it would all sort itself out. That's all I knew."
She said that she did not know of any details of any personal debts he had as a result of the liquidation of the company and that she did not understand that he had guaranteed the debts of the company. She found out about that much later, in my view, after all the transactions had been completed. She was cross-examined about her state of knowledge with a view of course to putting to her that she had a far greater degree of knowledge and could have made reasonable inferences in all the circumstances as to the parlous state of the first respondent's finances and of his likely exposure and the exposure of his property to the company's creditors.
Generally speaking, I was impressed with her as a witness and with her testimony. I considered her demeanour quite extensively whilst she was giving evidence and I am disposed to accept what she says, subject of course to ordinary considerations of whether her evidence is necessarily inconsistent with other matters in the case. She undoubtedly added one or two matters to her general statement as to the reasons for entering into the deed over and above what she had said whilst being examined before the Registrar. I have considered submissions made in relation to that but they do not carry any particular weight with me in light of the fact that I found her to be a genuine witness.
It has of course been very reasonably urged upon me that the whole of these transactions have a certain oddity about them. If it were simply the desire of the first respondent who was about to enter into marriage with the second respondent to render her more financially secure as part of the general arrangements relating to the marriage and also to pay due regard to the fact that she would be bringing a certain amount of finance, indeed an amount of $80,000 referred to in the evidence, into the marriage, that this could have been achieved in a far easier way than it was in fact achieved through the use of the transactions in issue in this case. It is put to me very forcefully that the use of the pre-nuptial property settlement was made purely and simply and colourably to obtain the protection of s 121(1)(a) of the Act. In the absence of that agreement qualifying as a settlement before and in consideration of marriage a settlement of property upon her would have been of course vulnerable under the general provisions of the section.
I have considered the quite powerful submission in relation to her general evidence that, it having been accepted between the parties that her concerns as expressed in the passage of evidence to which I have already made reference would be answered by the first respondent seeking to take appropriate steps. Whatever his motivation might have been in adopting this particular procedure there is no sufficient indication in the evidence that she shared that motivation or in fact was aware of its underlying purpose. I am satisfied that, as is not unusually the case, she accepted his statement that he would attend to the legal details of achieving what was in mind. She was advised that there would be a document to be signed before marriage and after marriage which would answer her concerns. She did not at that point of time know anything about personal liability on the part of the first respondent other than liabilities arising under the mortgages on the properties with which he was dealing. I am prepared to accept her evidence that she was unaware of the exposure under the guarantees at all relevant times, this exposure being of course the real basis of the bankruptcy of the first respondent. I am not prepared to draw any adverse inferences in all the circumstances of the case and in the whole of the evidence, which I do not propose to go to in detail, on the question of her good faith from the fact that these arrangements might be seen as being somewhat unusual. There was a passage in the evidence given before the Registrar which was relied upon as providing some indication that she had an awareness of potential problems in relation to creditors. I was concerned as to the possible effect of that passage in relation to this issue of her good faith. The passage in question was as follows:
"Was it ever suggested to anybody that this procedure had to be adopted, otherwise your husband might be and you might be in danger of losing the property to its creditors?
She answered:
I suppose there - I don't know as though anyone said it directly but I suppose there could have been."
It was put to her that that answer given before the Registrar was in conflict with her answers given before this Court in which there was a clear denial of knowledge of adverse effect on creditors at any relevant stage. In answer to a question to that effect she said:
"No one ever suggested to me, it's such a lengthy question that I may have answered it. If it was a simple question and you said, had anyone suggested it to you, what I was saying, it may have been in the back of his mind but I can't answer for him. It certainly wasn't in my mind and no one had ever said that."
It was then put to her:
"I suggest to you, Ms Russell, this procedure that was adopted by you was to try and make sure that you got the property and not his creditors?"
She said in answer:
"I'm not a greedy, grasping person. I was just marrying the man I cared for. He had a good relationship with my children and I felt concerned about things and he sought legal advice. This came out of it. Afterwards the papers were served and that's when all this happened. I was not doing anything wrong."
She also said:
"I would have married him whether he transferred the property or not but I expressed concern and that's when he suggested he seek legal advice."
This was an important passage in her evidence. I was impressed by her general demeanour when she was giving it. I have come to the conclusion I should accept what she says. This amounts to her being somewhat confused by what was a lengthy question before and by answering having regard more to considerations of what might have been in the mind of her husband at the relevant time than what was in fact in her own mind. I have considered all the arguments that have been put to me very ably by counsel in relation to this question of absence of good faith on her part. I have come to the conclusion that it has not been established that there was a lack of good faith and I accordingly determine this issue in her favour under both ss 120 and 121 of the Act.
There remains for consideration the question of whether there was valuable consideration provided by her in relation to this property settlement. The attack is made in two ways by the Trustee and has been put very clearly on his behalf by Mr Aldridge. The phrase has not been without judicial exposition in the past. It is generally accepted that the definition of valuable consideration in the case of in Re Abbott; Ex parte: The Trustee of the Property of the Bankrupt v Abbott (1983) Ch 45 at 57, is an appropriate definition for the purpose of bankruptcy legislation. This definition is as follows:
"A purchaser for valuable consideration 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."
See Barton v Official Receiver (1986) 161 CLR 75 at 86 and cases there cited.
The consideration which has been supplied in this case in accordance with the document of transfer, to which I have already made reference, is expressed as "pursuant to an agreement made under section 86 of the Family (Law) Act, dated 27.11.90".
I should add that it has been accepted that the actual instrument of transfer was dated 10 December 1990. The consideration expressed in the deed, exhibit D, I have already set out. It consists of an agreement on the part of the second respondent that the first respondent, "shall pay no maintenance to her" and that she should indemnify him and keep him indemnified in respect of the mortgages over the properties. The relevant property, the Terrigal property having been disposed of, is the property in Reid. That property was subject to a mortgage in excess of $200,000, the first respondent being the mortgagor. The evidence satisfies me that as a means of or by way of giving effect to the obligation to indemnify the first respondent in respect of his mortgage liabilities relating to this property, the second respondent provided the proceeds of sale of her own property, namely, $80,000, and undertook herself the mortgage liability in respect of the Reid property.
It appears that this was effected by direct payment to the mortgagee bank of the $80,000. This payment had the effect of reducing the capital of the mortgage to $125,000. She then took out a mortgage in her name for that amount. She thereby incurred all the obligations under that mortgage. The first respondent, conversely, was released from all his obligations. The relevant discharge of mortgage and the mortgage in her favour are, as I have already said, awaiting registration along with the relevant instrument of transfer.
I ask myself whether her agreement that she would receive no maintenance from her husband and the payment and undertaking of mortgage obligation that I have referred to can relevantly amount to a consideration of real and substantial value. It is clearly not one which is merely nominal, trivial or colourable. There is no doubt that allowing for the valuation of the property there would be an equity in it of some $115,000. I have been asked to accept that when one takes into account that she is the recipient of that equity then the amount of consideration she has given is not real and substantial but something less than that. However, quite clearly, it is not necessary that the consideration should be fully adequate in the sense of being an arm's length price in order to fall within the description of "real and substantial". I have decided that this consideration furnished by her was real and substantial. Accordingly, I reject this submission.
The final submission made in relation to the consideration is that it was no consideration at all. It was submitted to me that because of the way in which the consideration is expressed in the instrument of transfer one can have only regard to the obligations that she assumes under the agreement pursuant to s 86 of the Family Law Act, namely, the agreement of 27 November 1990. I have some misgivings about accepting that submission in full, having regard to the fact that she has, outside the provisions and indeed pursuant to them, made the payments and accepted the obligations to which I have referred. I think it may be rather unreal to consider the question of the consideration supplied by her only in terms of the obligations assumed under the deed without paying regard to what in fact she has done. I put that matter to one side, however, and turn to consider what is the attack made by the Official Trustee in this regard.
The Official Trustee says that the deed can furnish no consideration on her part because it is relevantly a maintenance agreement under the Family Law Act and by reason of s 87(2) it "has no effect and is not enforceable in any way unless it has been approved by the court." It is common ground that the deed has never been so approved. Accordingly, it is submitted that it can, because it has no effect and is not enforceable, furnish no consideration. There is no doubt that the deed can be regarded as a maintenance agreement under s 86(1), having regard to the definition of maintenance agreement in s 4 of the Family Law Act. The question is whether the agreement is in fact an agreement under s 87(1). That section provides that:
"subject to this section, a maintenance agreement may make provision to the effect that the agreement shall operate, in relation to the financial matters dealt with in the agreement, in substitution for any rights of the parties to the agreement under this Part."
The relevant part of the Family Law Act provides for, inter alia, the maintenance of parties to a marriage. The relevant conception in s 87(1) is, "the rights of the parties under this part." It seems quite clear to me that those rights are relevantly the rights to make a claim for maintenance through the Family Court. Obviously, an agreement qualifying as a maintenance agreement under s 87(1) would have to contain within it provisions between the parties which would operate in substitution for such rights. I have been referred to the decision of the Full Family Court In the Marriage of Plut (1987) 11 Fam LR 687, particularly to the judgment of Strauss J at 713. His Honour says:
"In my opinion the elaborate scheme of s 87 makes it clear that the only way by which the right to seek orders for spousal maintenance ... under Pt VIII can be foregone is by entering into an agreement which is approved by the court."
Although I have experienced some doubt and hesitation about this matter, relating particularly to the provision of recital (b) to which I have already made reference, I have come ultimately to the conclusion that Clause 2 of the agreement as it is framed does not operate as an agreement for the substituting of rights to make a claim under Pt VIII of the Family Law Act. It is not so expressed and I consider on balance that I should not construe it as though it were an agreement pursuant to s 87(1), rather than pursuant simply to s 86(1). It purports, I should add, to be an agreement pursuant only to s 86. Should I be wrong about this I would, nevertheless, for the reasons which I have already expressed, be of the view that the provisions in fact made by the second respondent and the obligations in fact incurred would in themselves constitute sufficient valuable consideration within the meaning of s 121 of the Act to prevent that section operating against her.
For these reasons I have come to the conclusion that the case brought by the Official Receiver under s 120 and also under s 121 of the Act must necessarily fail and I accordingly dismiss the application and order that the costs be paid by the bankrupt estate.
There remains one matter to be disposed of. Counsel for the applicants has submitted that the caveat over the Reid property ought to be extended pending a possible appeal being lodged. As counsel for the respondents has agreed with this submission, I accordingly order that in relation to caveat 378196 currently lodged in the Australian Capital Territory in respect of Crown Lease volume 42, folio 4113 the caveat be extended for a further 14 days from this date and in the event of an appeal being lodged against this decision I extend the operation of the caveat until a further order of the Court.
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