Re Shields, Geoffrey Neil Keith
[1996] FCA 632
•26 Jul 1996
CATCHWORDS
No. NG of
Coram: Whitlam J
Place:Sydney
Date: 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) NB 209 of 1992
)
GENERAL DIVISION )
RE: GEOFFREY NEIL KEITH SHIELDS and NORMA ROSE
SHIELDS
Bankrupts
EX PARTE:
THE OFFICIAL TRUSTEE IN
BANKRUPTCY
Applicant
ISAAC JOHN MACKAY
SHIELDS
DOROTHY ISOBEL SHIELDS
JAMES ISAAC KEITH SHIELDS
JENNIFER MARGARET HEATON
Respondents
Coram:Whitlam J
Place:Sydney
Date:26 July 1996
MINUTES OF ORDER
THE COURT DECLARES THAT:
The bill of sale given on 29 May 1990 by Geoffrey Neil Keith Shields and Norma Rose Shields to Isaac John Mackay Shields as grantee is void as against the Official Trustee in Bankruptcy as trustee of the bankrupt estates of Geoffrey Neil Keith Shields
and Norma Rose Shields.
The mortgage dated 19 October 1990 between Geoffrey Neil Keith Shields and Norma Rae Shields as mortgagors and Isaac John McKay Shields and Dorothy Isobel Shields as mortgagees in respect of the land in folio identifier 18/752879 is void as against the Official Trustee in Bankruptcy as trustee of the bankrupt estates of Geoffrey Neil Keith Shields and Norma Rose Shields.
AND THE COURT ORDERS THAT:
Isaac John Mackay Shields deliver up to the Official Trustee in Bankruptcy the bill of sale referred to in paragraph 1.
Dorothy Isobel Shields, James Isaac Keith Shields and Jennifer Margaret Heaton execute a discharge of the mortgage referred to in paragraph 2 in a form to be sent to them by the solicitors for the Official Trustee in Bankruptcy.
If any of the persons named in paragraph 4 fails to deliver an executed form of discharge to the solicitors for the Official Trustee in Bankruptcy within 21 days after those solicitors have sent such a form for execution by prepaid post addressed to that person at his or her last known place of residence, a form of discharge may be executed on behalf of such person by a Registrar of the Court.
The respondents deliver up to the Official Trustee in Bankruptcy the certificate of title for the land in folio identifier 18/752879 and the mortgage referred to in paragraph 2.
The respondents pay the Official Trustee in Bankruptcy's costs of its application filed on 4 August 1995, including any reserved costs.
The applicant have liberty to have this proceeding re-listed on 3 days' notice for the purpose of seeking any further orders or directions as may be necessary to give effect to the declarations and orders set out in the above paragraphs.
Note:Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) NB 209 of 1992
)
GENERAL DIVISION )
RE: GEOFFREY NEIL KEITH SHIELDS and NORMA ROSE
SHIELDS
Bankrupts
EX PARTE:
THE OFFICIAL TRUSTEE IN
BANKRUPTCY
Applicant
ISAAC JOHN MACKAY
SHIELDS
DOROTHY ISOBEL SHIELDS
JAMES ISAAC KEITH SHIELDS
JENNIFER MARGARET HEATON
Respondents
Coram: Whitlam J
Place: Sydney
Date: 26 July 1996
REASONS FOR JUDGMENT
The Official Trustee in Bankruptcy is the trustee of the joint and separate estates of Geoffrey Neil Keith Shields and his wife Norma Rose Shields, who became bankrupt on 29 January 1992 upon acceptance of their debtor's petitions. Although they were discharged from bankruptcy on 30 January 1995, it is convenient to refer to them as the bankrupts.
This is an application by the Official Trustee with respect
to two dispositions of property by the bankrupts, a bill of sale dated 29 May 1990 and a mortgage dated 19 October 1990. The grantee of the bill of sale is the male bankrupt's brother, Isaac John Mackay Shields, to whom I shall refer as Mr Shields. The mortgagees are Mr Shields and Dorothy Isobel Shields, who is the mother of the male bankrupt and Mr Shields.
The bankrupts, Mr Shields and Dorothy Isobel Shields are respondents to the application. So too are the bankrupts' son, James Isaac Keith Shields, and one Jennifer Margaret Heaton, who appear jointly to have subsequently taken a transfer of Mr Shields' interest in the mortgage.
When the application was called on for hearing, all the respondents were absent. Although none of them had filed a notice of intention to appear at the hearing of the application, Mr Shields had, in fact, appeared in person on all earlier occasions that the matter had been listed before a Registrar or the Court. On 17 October 1995 Davies J had refused Mr Shields leave to act for any of the other respondents. The hearing date had been fixed on 19 February 1996. Mr Shields had sent the Official Trustee's solicitors a fax dated 22 March 1996, baldly stating that the hearing date "is unsatisfactory for the respondents". On 28 March 1996 the District Register had written to the respondents at Mr Shields' postal address confirming that the hearing of the application would commence on 8 July 1996. Mr Shields had subsequently appeared on the hearing of interlocutory applications in the proceeding before Hill J on 2
April 1996 and myself on 21 May 1996. Yet no application to vacate the hearing date had been made. On the Sunday evening before the hearing date a fax had been received in the Registry from Mr Shields, who suggested, amongst other things, that the solicitors for the Official Trustee had failed to inform him of the hearing date. I was quite satisfied that the respondents had had due notice of the hearing and that, in particular, Mr Shields had made a conscious decision not to attend the hearing. Accordingly, the hearing proceeded in the absence of the respondents.
The consideration stated in the bill of sale dated 29 May 1990 is the advance of $100,000 by Mr Shields to the bankrupts. The loan is expressed to be repayable on demand. There is no provision for the payment of interest. The personal chattels comprised in the bill of sale are items of equipment listed in a schedule. The statutory declaration of the bankrupts endorsed on the bill states that those chattels are their absolute property and that no money is owing to any person upon the security of such chattels. The bill of sale was registered in the Land Titles Office on 20 June 1990.
The mortgage dated 19 October 1990 encumbers land in folio identifier 18/752879, which was the subject of a transfer to the bankrupts dated 19 October 1990. The land comprises a property called "White Gums" near Nyngan and is the bankrupts' residence. The consideration for the transfer is stated to be $60,000. The mortgagor acknowledges the receipt of $65,000 which is expressed
to be repayable upon demand by both mortgagees. Again, there is no provision for the payment of interest. The land is mortgaged to Mr Shields and his mother as tenants in common as to 734/1000 shares and 266/1000 shares respectively. The mortgage contains the following covenant:
"It is hereby agreed and declared that within mortgage is a collatoral [sic] security with the following bills of sale granted by the Mortgagors to each of the Mortgagees as follows:
(a)Bill of sale dated 29th October, 1987 between the Mortgagors and Dorothy Isobel Shieldss [sic] - registered number 706082
(b)Bill of sale dated 29th May 1990, from the Mortgageors [sic] to Isaac John McKay Shields, registered number 9002308.
Any payment made by the Mortgagors to either of [sic] both of the said Mortgagees under this mortgage shall also be of satisfaction with the whole or part (as the case may be) of monies owing under the said bills of sale."
The bill of sale dated 29 October 1987 in favour of Dorothy Isobel Shields referred to in that covenant secures an amount of $36,200 said to have been advanced by her to the bankrupts on 15 December 1981. The shares of Mr Shields and his mother in the mortgage dated 19 October 1990 are thus roughly proportionate to the amounts secured by each bill of sale. The transfer and the mortgage were registered on 11 December 1990.
In their statement of affairs dated 13 January 1992 the bankrupts disclosed as secured creditors Mr Shields in respect of the bill of sale dated 29 May 1990 and both mortgagees in respect of the mortgage dated 19 October 1990. The bill of sale dated 29 October 1987 was not mentioned. The bankrupts estimated
the value of the "machinery" comprised in the bill of sale as $25,000 and the value of the house and land at "White Gums" as $30,000.
Mr Shields was examined under s 81 of the Bankrupt Act 1966 ("the Act"). He had written to the Official Trustee on 7 October 1994 claiming, in effect, that he was a secured creditor of the bankrupts for a debt of $134,426 dating back to 1977, but that he would not be proving any part of it in the bankruptcy. Mr Shields' evidence is somewhat confused, but he clearly acknowledged that neither in May 1990 nor at any time afterwards did he advance any moneys to the bankrupts.
Asked specifically about the bill of sale dated 29 May 1990, Mr Shields said that he had advanced no moneys to the bankrupts for which it was security. He claimed that he and his mother owned the equipment comprised in the bill of sale, that the equipment represented part of his late father's estate, that his brother Geoff (the male bankrupt) used the equipment, and that the bill of sale had been executed on a solicitor's advice because it was feared a creditor, Esanda, might take the equipment. Mr Shields said that the amount of $100,000 referred to in the bill of sale was not part of the secured debt claimed in his letter of 7 October 1994.
The explanation offered about the amount of $134,426 was even more confusing. Mr Shields began by saying that the money was owing, not to him, but to the Shields Family Trust which he
had organized with the advice of H.J. Piper, a firm of accountants. He was the appointor of that trust, and the trustee was Nejeki Pty Ltd, of which James Isaac Keith Shields and Jennifer Margaret Heaton were directors. The beneficiaries of the trust were Mr Shields' children. Mr Shields said the he assigned the debt to the trust for a consideration of $10 at the time the trust was created.
Mr Shields said that the debt represented principal and interest owing on a loan of $20,000 originally made by him to the bankrupts in 1977, a date to which "the bankruptcy cannot go back". He refused to say what were the terms of repayment and, he was unable "off-hand" to recall the rate of interest. Mr Shields said that no payments had been made in reduction of any interest on that loan, that he had asked the bankrupts to repay the money prior to the end of 1989 and that he had instructed a solicitor Dan Simpson to recover the money plus "bank interest" about ten years ago. He also said that since 1977 he had made other advances to his brother, but that they had all been repaid prior to 1989.
The mortgage dated 19 October 1990 was shown to Mr Shields. He said that he assigned his interest in that mortgage to the Shields Family Trust when the trust was created and at the same time as he assigned the debt referred to in his letter of 7 October 1994. Mr Shields was not sure whether his mother's interest in the mortgage was assigned, but he did say that the bill of sale granted to him was not transferred to the trust.
In addition to the transcript of Mr Shields' evidence, the Official Trustee relies upon a number of other documents annexed to the affidavit in support of the application. The stamp affidavit lodged with the application for administration of the estate of Mr Shields' late father (who died on 12 May 1977) annexes an inventory of his property. This shows that the equipment comprised in the bill of sale dated 29 May 1990 did not form part of that estate. A letter from Dan Simpson, solicitor, confirms that his firm has not acted for Mr Shields in any debt recovery action against the bankrupts. A letter from H.J. Piper & Son, accountants, forwards a copy of a tax file number application for the Shields Family Trust apparently signed by Ms Heaton declaring that the trust was established on 14 March 1993. A Land Titles Office search dated 11 May 1995 shows that James Isaac Keith Shields and Ms Heaton are now registered tenants in common with Dorothy Isobel Shields as to a 734/1000 share in the mortgage. (The instrument of transfer is not in evidence.)
The affidavit in support also annexes a letter dated 28 July 1994 from the male bankrupt in respect of the proof of debt lodged by the Commonwealth Bank of Australia ("the bank"). The letter acknowledges that the bankrupts owed the bank $550,000 when the bank sold the property "Tarawera" securing that sum for only $285,000 on 7 November 1990. The bankrupts never made any subsequent payments to the bank. Although the letter insists that the bankrupts were only liable for a further $15,000 (being the shortfall on an anticipated sale price of $300,000), their
individual statements of affairs filed 15 January 1992 show that they finished farming in September 1990 and were unable to pay even the small amount later claimed by them to be owing to the bank.
The Official Trustee tendered a statutory declaration by Dorothy Isobel Shields made on 27 December 1991, in which she stated that she had no money lent on mortgages, together with statutory declarations by Mr Shields dated 2 May 1995 and
1 August 1995. These last declarations were made in connexion with applications for waiver of filing fees under rule 179 of the Bankruptcy Rules. They show that Mr Shields has no assets at all.
Both dispositions are challenged on several bases including, in the case of the bill of sale, the failure to renew its registration as required by the Bills of Sale Act 1898 (NSW). So far as the bill of sale dated 29 May 1990 is concerned, it is not necessary, in my opinion, to go beyond s 120(1) of the Act. The consideration stated is false. No other consideration for an encumbrance is suggested in the evidence. Indeed, Mr Shields said that he and his mother inherited from his late father the equipment comprised in the bill. This was shown to be wrong. Moreover, Mr Shields expressly acknowledged that he knew the bankrupts' purpose was to put the equipment beyond the reach of Esanda. The Official Trustee has discharged the burden of proving that the assignment by the bill was not made in favour of Mr Shields "in good faith and for valuable consideration".
Nor does the mortgage dated 19 October 1990 fare any better. It too states a false consideration. The sum of $65,000 was not advanced by the named mortgagees or either of them. (The figure was fixed, no doubt, with an eye on the purchase price and the prospect of any creditor perceiving any value in execution.) The bankrupts' statement of affairs does not suggest that any such security was given in respect of a debt contracted in 1977 for $20,000. Mr Shields' account is an obvious concoction. The lie is given by the covenant linking the mortgage with the earlier bills of sale. That was obviously drawn to put the bankrupts' new residence at "White Gums" in the same "protected" position as the farm equipment encumbered by two earlier bills of sale. Whatever may be the position with any consideration given for the bill of sale in favour of the mother in 1987, there was, as I have found, no consideration for the bill of sale created in May 1990. Both tenants in common must be visited with Mr Shields failure to meet the requirements for the exemption under
s 120(1)(a) of the Act.
The bankrupts estimated the value of the security under the mortgage at $30,000. Yet, when they don their mendicant caps, neither Mr Shields nor his mother ascribes any value to their mortgage interest. There would have been a whiff of humbug, had either of the mortgagee respondents sought to sustain the mortgage in these circumstance.
The Official Trustee is entitled to declarations that each
of the dispositions is void as against him in the bankruptcy. Orders are also sought that the respondents execute discharges of each encumbrance. However, I doubt that a discharge of the bill of sale will be necessary. Nor is it appropriate. The statutory form of discharge under the Bills of Sale Act requires a receipt of money. Only when such a receipt is acknowledged is the Registrar-General required to register the discharge.
The mortgage is different. A discharge is both necessary and appropriate. The registered interest of James Isaac Keith Shields and Ms Heaton cannot be maintained. It may be inferred that they are mere nominees for the trustee company of which they are directors. On no possible view could the Shields Family Trust be regarded within the meaning of s 120(7) as a purchaser in good faith and for valuable consideration. On the kindest view of the transferees' knowledge of the true situation, a consideration of $10 for the assignment of a security supposedly worth in excess of $130,000 is plainly nominal or illusory. The respondents will be required to deliver up all instruments necessary to procure the discharge of the mortgage. In default a registrar of the Court may execute any necessary documents.
The respondents must also pay the Official Trustee's costs of the application filed 4 August 1995, including any reserved costs.
I certify that this and the preceding 10 pages are a true copy of the reasons for judgment herein of the Hon. Justice A.P. Whitlam
Associate:
Date: 26 July 1996
Counsel for the applicant: J.T. Johnson
Solicitors for the applicant: Sally Nash & Co
The respondents did not appear.
Date of hearing: 8 July 1996
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