Re Starkey, G.L. v Ex parte Douglas, A.D

[1987] FCA 380

Re: ALEXANDER DAVID DOUGLAS
Ex parte: GRAHAM LINDSAY STARKEY
No. QLD X28 of 1987
Bankruptcy - Stamp Duties - Contract - Bills of Sale

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Pincus J.

CATCHWORDS

Bankruptcy - application to set aside security - whether Queensland Bill of Sale effective from execution, from stamping, or from registration - whether bill of sale a "settlement" - going behind stated consideration.

Stamp Duties - bill of sale - stamped after execution - whether effective before stamping.

Contract - consideration - uncertain agreement to give security - later made precise - whether security given for good consideration.

Bills of Sale - Queensland - registered late - effectiveness as to period before registration.

Bankruptcy Act 1966, ss.120, 122

Bills of Sale and Other Instruments Act 1955-1981 (Q.), s.7

Stamp Act 1894-1985 (Q.), s.4A

HEARING

BRISBANE

#DATE 20:7:1987

Counsel for the Applicant: Mr A.J.H. Morris

Solicitors for the Applicant: Messrs Cooper Grace and Ward

Counsel for the Respondent: Mr P. Applegarth

Solicitors for the Respondent: Messrs Marrinan & Associates

ORDER

The application made by the trustee be dismissed;

The trustee pay the respondents' costs of and incidental to the application, to be taxed.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This is an application by a trustee of a deed of assignment under Part X of the Bankruptcy Act for a declaration that a certain bill of sale be declared void. The application is made under s.120, and alternatively under s.122, of the Bankruptcy Act and is opposed. The points involved, as will appear, are essentially technical ones.

1. In outline, the facts are that about August 1986, the assignor borrowed money from a bank on the security of a guarantee given by his parents, the respondents. He executed a bill of sale in their favour to cover his contingent liability to them, but it was not dated or registered until December 1986, about which time he was showing distinct signs of being in financial trouble. The deed of assignment was executed on 6 March 1987, pursuant to a resolution at a meeting of creditors passed on that day.

2. In more detail, the evidence and my findings are as follows; I proceed, at this stage, on the assumption that evidence contradicting the date shown on the bill of sale is admissible. In July 1986, the assignor approached the National Australia Bank for a loan and they agreed to make one if his parents would guarantee it. The amount of the loan was to be $40,000 and it was to be expended in buying machinery, a saw.

3. The assignor's account of this transaction is slightly different from that of his father. The assignor says his parents initially declined to guarantee the bank loan but subsequently agreed on condition that he gave them a bill of sale over the saw which was being purchased. He says, "The loan and guarantee were organised in late July 1986 on the basis that a Bill of Sale was to be given to my parents ..." The father of the assignor, Mr A.J. Douglas, says that his son approached Mr Douglas and his wife for a guarantee to the bank, that they initially declined to give one, but eventually agreed "insisting that if a guarantee were to be given then some form of security must be provided". The affidavit goes on:
   
   

"My wife and I were unsure as to the type of security and we discussed this with our Bank Manager who suggested a Bill of Sale. We then had initial discussions with our Solicitor, and on 6 August 1986 we instructed him to draw up the Bill of Sale over the saw only."

1. It will be seen that the assignor's version suggests that the agreement to give the guarantee was subject to a rather precise condition, whereas his father's account is that initially "some form of security" was to be provided and it was only later that it was decided that there should be a bill of sale over the saw. I return to this point below.

2. The guarantee by the respondents was signed on 30 July 1986. On 6 August 1986 the respondent's solicitor is said to have been instructed by letter to draw up a bill of sale; there is no letter in evidence. On 22 August 1986, the respondents collected the form of the bill of sale from the solicitor, and it was executed on 24 August 1986. On 5 September 1986 the bank advanced the $40,000. At that time, as far as the evidence shows, there was no reason to suspect insolvency, nor is there any suggestion of lack of good faith at that time.

3. On 6 December 1986 two significant things happened. One is that the assignor saw an accountant about his deteriorating financial position and was told to see the man who ultimately became his controlling trustee. On the same day he told his father to register the bill of sale. The inference that the two events were connected is a powerful one. On 9 December 1986 the bill of sale was dated and on 10 December 1986 registered. On 24 February 1987 creditors met and, as mentioned above, on 6 March 1987 they passed a resolution requiring execution of a deed of assignment and it was executed on the same day.

4. In making his application, the trustee seeks to rely on either s.122 or s.120 of the Bankruptcy Act. I shall deal with each in turn:
   1. Section 122
   
   

5. This section deals with the avoidance of preferences given by debtors to their creditors within six months before the presentation of a bankruptcy petition. It also applies, pursuant to s.231(2), to debtors who execute deeds of assignment under Part X of the Act.

6. Under s.231(2)(a) the provisions of s.122 of the Bankruptcy Act apply as if a creditor's petition had been presented on the day of the special resolution requiring execution of the deed, namely 6 March 1987. The bill of sale was executed before 6 September 1986, but registered after that date. Section 7 of the Bills of Sale and Other Instruments Act of 1955-1981 (Q.) reads in part as follows:
   
   

"(1) Subject to subsection two of this section, an unregistered instrument, executed after the commencement of this Act, shall not have any effect as to the chattels comprised therein or subject thereto, against any person other than the grantor and grantee.

(2) (a) Subject to paragraph (b) of this subsection, every instrument when registered under this Act shall be deemed to be given on the day on which it is executed, and shall take force and effect from the time of its execution.

(b) Every instrument registered under this Act shall in respect of the chattels comprised therein or subject thereto be entitled to priority, as regards the title to or right to the possession of such chattels, according to the time of its registration."

There is no time limit for registration and an initial question is whether, for the purposes of bankruptcy law, the retrospective effect given to registration by s.7(2)(a) of the Queensland Act takes the bill of sale outside the six month period. Reading s.7(1) and s.7(2)(a) together, in combination they achieve the result that when executed the bill of sale is only potentially effective (against persons other than grantor and grantee), but when registered it is taken to be effective from the beginning. It was held by the Queensland Supreme Court in Permanent Finance Corporation Limited v. Tornabene (1968) QdR 236 at p 245, that s.2(a) was enacted "to reverse the effect of" previous legislation which provided that, "in relation to certain provisions of the bankruptcy law, the date of registration should be deemed to be the date of execution". For that reason, s.7 of the Queensland Act should not be read as having any invalidating effect as against the trustee in bankruptcy with respect to a registered bill of sale - not even as to the period between execution and registration. The deferment of entitlement to priority, in s.7(2)(b), does not advance the trustee in bankruptcy.

1. Mr Morris for the trustee nevertheless argued that -
   
   

(a) the evidence that the bill of sale was executed on 24 August 1986, rather than on the date which it bears (9 December 1986) is inadmissible; and

(b) the bill of sale did not have effect as a security until it was stamped, which, on the evidence, was some time in December 1986.

In making his objection Mr Morris relies upon the "parol evidence rule", which is stated in Cross on Evidence as follows:

"Extrinsic evidence is generally inadmissible when it would, if accepted, have the effect of adding to, varying or contradicting ... a document constituting a valid and effective contract or other transaction." (6th ed., p.1023)

The rule does not apply to the statement of consideration and I have found no authority for the view that it applies to the date of an instrument. In Dillon v. Gange (1941) 64 CLR 253 the High Court assumed that the date shown on an agreement may be contradicted. I do not think this point has any substance.

1. As will have been noticed from the dates given, the bill of sale was stamped long after execution. It was argued on behalf of the trustee that by reason of s.4A of the Stamp Act 1894-1985 (Q.), it was ineffective until stamped. Section 4A reads as follows, so far as relevant:
   
   

"An instrument chargeable with stamp duty (whether under this Act or under any prior Act) shall not, except in criminal proceedings, be given in evidence, or be available for any purpose whatever, unless it is duly stamped ..." (emphasis added).

1. There follow two provisos, the first empowering a court to admit an unstamped document as evidence on the giving of an undertaking to pay duty and penalty, and the second allowing a copy in on similar terms.

2. Counsel's point was that if one reads the words "not ... available for any purpose whatever" literally, they must include availability against the trustee for the purpose of setting up a security.

3. There is authority in New South Wales in favour of the submission: Wagga Finance Company Limited v. Lever (1929) 30 SR(NSW) 76, but that case was overruled by the High Court in Shepherd v. Felt and Textiles of Australia Ltd. (1931) 45 CLR 359. The relevant New South Wales provision, s.29 of their Stamp Duties Act 1920-1924, was similar in wording to our s.4A but began -
   
   

"Except as aforesaid, no instrument executed in New South Wales or relating (wheresoever executed) to any property situate ... shall, except in criminal proceedings, be pleaded ..."

1. Dixon J., at pp.382 and 383 of the report, relied upon these excepting words as one reason for avoiding the conclusion now contended, but also added a separate reason:
   
   

"Further, the condition expressed in the section upon which the usefulness of the instrument is made to depend is not introduced by the word 'until' but by the word 'unless'. ... The expressions 'pleaded', 'given in evidence' and 'admitted' refer to the use or the recognition of the document or of its operation in judicial proceedings or otherwise, and, I think, would naturally be understood as intending that when by due stamping it had become pleadable, receiveable in evidence and admissible as good, useful and available, then its validity and operation as from the beginning were to be construed as unaffected by the enactment." (Emphasis added.)

Starke J., at p.374, agreed with the views of Dixon J. on this subject and Evatt J., in a separate judgment, expressed much the same opinions. A similar conclusion was come to (by majority) by the South Australian Full Court in the matter of In Re Dehy Fodders (Australia) Pty. Ltd. (1973) 4 SASR 538, although there the section to be construed was somewhat different.

1. Although I have been referred to no Queensland authority on the problem, in my view the High Court decision is decisive against the applicant's contention and I hold that once stamped, the bill of sale was unaffected by s.4A of the Stamp Act.

2. Accordingly, the trustee cannot succeed in having the bill of sale declared void as a preference, as the security was given prior to the six-month period mentioned in s.122.
   2. Section 120
   
   

3. The trustee alternatively applies to have the bill of sale set aside as a settlement under s.120 of the Bankruptcy Act, the relevant part of which reads as follows:
   
   

"(1) A settlement of property, whether made before or after the commencement of this Act, not being -

(a) ... made in favour of a purchaser or encumbrancer in good faith and for valuable consideration ...

is, if the settlor becomes a bankrupt and the settlement came into operation after or within 2 years before, the commencement of the bankruptcy, void as against the trustee in bankruptcy."

Again, s.231 of the Act makes this section applicable to debtors who execute deeds of assignment under Part X. Good faith is not disputed.

1. The bill of sale was executed within the two year period. Two questions then remain:
   
   

(a) Does the granting of a bill of sale amount to a "settlement of property" within the terms of the Act? If so,

(b) have the grantees of the bill of sale given "valuable consideration" in order to bring themselves within the exception?

As to (a,) s.120(8) of the Act provides that for the purposes of s.120, a "settlement of property" includes any disposition of property. Although the granting of a security might not in the ordinary sense of the word be thought to amount to a settlement, s.120(1)(a) itself clearly contemplates that it may be, by the use of the word "encumbrancer". In Re Pahoff; Ex parte Ogilvie (1961) 20 ABC 17, it was held that a mortgage given by a bankrupt to her sons over land of which she was the registered proprietor was a settlement, even though the legal interest in the land was not transferred. That decision was approved by the Full Court in Official Trustee v. Arcadiou (1985) 8 FCR 4. I hold that the disposition here in question was a "settlement", within the meaning of s.120.

1. As to (b), the bill of sale, in accordance with s.19(1) of the Bills of Sale and Other Instruments Act 1955-1981 (Q.), states that it was entered into "IN CONSIDERATION of the said sum of FORTY THOUSAND dollars ... so guaranteed by the Grantee and for which security was given by them."

2. It is clear, however, that the trustee is not bound by the statement of the consideration; the Court will go behind the written agreement in order to ascertain the reality of the transaction - see for example, Re Trimbole, Ex parte Donnelly (decision of Beaumont J., unreported, 11 July 1986; affirmed, 5 November 1986, by the Full Court).

3. The evidence as to the precise nature of the transaction in the present case is not entirely consistent, as mentioned above. The guarantee was given by Mr and Mrs Douglas on 30 July 1986 and, on the evidence of the assignor, was given on the basis that a bill of sale be executed. The evidence of Mr Douglas (senior), however, suggests the existence of a period after the signing of the guarantee during which he and his wife were left uncertain as to the nature of the security to be provided for the guarantee, thus raising the question as to whether it is possible to derive a certain and enforceable contract to give security; that distinguishes the case, on the facts, from Burns v. Stapleton (1959) 102 CLR 97, at p 105.4. There is no particular reason to accept one version of the facts rather than the other, but I find it unnecessary to attempt to choose between them, as even on the latter account there was good consideration.

4. An act done before the giving of a promise to confer a benefit is valid consideration for that promise if the act has been done at the promisor's request, the parties understood that the act was to be remunerated by conferment of a benefit and the conferment of the benefit would have been enforceable if it had been promised in advance - see Pao On v. Lau Yiu Long (1980) AC 614 at p 629 (Privy Council).

5. The guarantee was, on the evidence, entered into at the request of the assignor, but on the clear understanding of some benefit's being granted to his parents in the form of security. On this principle, then, consideration sufficient to support a contract was given for the signing of the bill of sale. No question arises as to adequacy.

6. Looking at the matter more broadly, it is doubtful whether the trustee could take advantage of any lack of definition, at the time the guarantee was given, of the precise kind of security to be granted. It is not in dispute that the assignor's parents executed the guarantee on the basis that appropriate security would be given, and it was promptly given. It is doubtful whether, consistently with the rule in Ex parte James (1874) 9 ChApp 609, the trustee could be allowed to upset the transaction merely because selection of the precise form of security was briefly deferred. Particularly is that so when it is recalled that the bank advanced no money, as it happened, until after the security was given to the guarantors; had it not been given, Mr and Mrs Douglas could have withdrawn their guarantee.

7. The application must be dismissed with costs.