Re Zampatti, B. Ex parte R.J. Levack Limited and Anor
[1993] FCA 243
•21 APRIL 1993
Re: BERNARDO ZAMPATTI
Ex Parte: R.J. LEVACK LIMITED and RODERICK NEIL CONSTABLE AS TRUSTEE OF THE
ESTATE OF BERNARDO ZAMPATTI A DEBTOR
No. 78 of 1991 X
FED No. 243
Number of pages - 4
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
Lee J (1)
CATCHWORDS
Bankruptcy - settlement - whether equitable charge over property constitutes a settlement - forbearance to sue as valuable consideration - obtaining benefit of charge in good faith.
Bankruptcy Act 1966 Pt.X, s.120, sub-s.120(1)
Barton v. Official Receiver (1986) 161 CLR 75
P.T. Garuda Indonesia Limited v. Grellman (1992) 107 ALR 199
Re Hyams; Official Receiver v. Hyams ((1970) 19 FLR 232
Official Trustee v. Mitchell (1992) 110 ALR 484
Re Peninsula Services Pty. Ltd. (In Liquidation) (1987) 91 FLR 4
Re La Rosa; Ex parte Norgard (1990) 93 ALR 571
In Re Windle (1975) 1 WLR 1628
HEARING
PERTH, 2 February 1993
#DATE 21:4:1993
Counsel for the Applicant: Mr R.G.S. Harrison
Solicitors for the Applicant: Sly and Weigall
Counsel for the Respondent: Dr S.C. Churches
Solicitor for the Respondent: C.G. Nash
ORDER
The Court orders and declares that:
1. As at 12 August 1991 the Ferrari motor vehicle ("the Ferrari") (Registration No. 1976 Chassis No. 18727) owned by Bernardo
Zampatti ("the debtor") was subject to a charge granted by the debtor to R.J. Levack Limited ("the applicant") to secure the sum of $135,103.30 then owing to the applicant by General
Bulldozing Company Pty. Ltd.
2. The said charge was valid and effectual against Roderick Neil Constable ("the trustee") trustee of the estate of the debtor and the trustee holds the Ferrari subject to the charge.
3. The trustee do pay the applicant's costs of this application to be taxed.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
LEE J R.J. Levack Limited ("RJL") seeks a declaration that an agreement made between it and Bernardo Zampatti ("Zampatti") on 17 August 1990 created a charge in favour of RJL over a Ferrari motor vehicle ("the Ferrari") owned by Zampatti and a further declaration that the charge is valid and effectual against the respondent ("the trustee") appointed as trustee under a deed of assignment made under Pt.X of the Bankruptcy Act 1966 ("the Act") executed by Zampatti on 12 August 1991. RJL seeks an order that the trustee deliver up the Ferrari to RJL.
Most of the relevant facts are not in dispute.
It is accepted by the trustee that as at 17 August 1990 a company controlled by Zampatti, General Bulldozing Company Pty. Ltd., ("GBC") was indebted to RJL in a sum of $135,103.30. The trustee also accepts that on 17 August 1990 Zampatti granted a charge over the Ferrari to RJL to better secure monies owed by GBC to RJL.
The trustee contends that the grant of the charge over the Ferrari by Zampatti was a settlement of property to which sub-s.120(1) of the Act applied in that the settlement was not made in good faith or for valuable consideration.
The trustee argues that the consideration relied upon, namely the promise of RJL to Zampatti to forbear from suing GBC until 1 November 1990 in respect of GBC's indebtedness to RJL was not valuable consideration for the purpose of sub-s.120(1).
The equitable charge granted by Zampatti secured the full amount of the debt owed by GBC to RJL. Zampatti did not promise to pay the debt for GBC nor undertake the obligations of a surety for that debt. As an equitable charge it did not give RJL the right to take possession of the Ferrari but it did confer a proprietary interest in the vehicle. The conferral of that proprietary interest amounted to a disposition of property for the purpose of sub-s.120(8) of the Act. The question is whether the Ferrari in which the interest was created was to be retained in specie in a manner sufficient to attract the operation of s.120 of the Act to the transaction as a settlement within the meaning of that section. (See Re La Rosa; Ex parte Norgard (1990) 93 ALR 571 at pp 583-589; Re Hyams; Official Receiver v. Hyams (1970) 19 FLR 232 at pp 248-253.)
Whether the creation of a charge over property constitutes a settlement involves ascertainment of the purpose of the chargor and consideration of the circumstances in which the charge has been created.
In the present case the charge permitted RJL after 1 November 1990 to call upon Zampatti to sell the Ferrari and apply the proceeds of sale to the reduction of GBC's indebtedness to RJL. Although the immediate realization of the Ferrari may not have been contemplated, it should be inferred that Zampatti understood, and that RJL intended, that such a consequence would follow if GBC did not discharge or make satisfactory arrangements in respect of its indebtedness.
The onus is on the trustee to prove that the transaction was a settlement within the meaning of s.120 and in the absence of any further evidence indicating that it was, I should and do decline to hold that the creation of the charge on the Ferrari constituted a settlement of property by Zampatti for the purpose of s.120 of the Act. (P.T. Garuda Indonesia Limited v. Grellman (1992) 107 ALR 199 at p 211.)
However, if it should be found that the creation of the charge upon the Ferrari constituted a settlement, I am not satisfied that the trustee has shown that RJL did not acquire that interest in good faith or failed to provide valuable consideration.
It is acknowledged by the trustee that RJL forbore to sue GBC and that the period of forbearance would have been sufficient to constitute valuable consideration. The point taken by the trustee was that forbearance to sue a third party could not be valuable consideration for a settlement of property under s.120 of the Act.
What is required under s.120 of the Act is that the person obtaining the benefit of a settlement of property within the meaning of that section give consideration for that "purchase" that has a real and substantial value and not consideration that is merely nominal, trivial or colourable. (Barton v. Official Receiver (1986) 161 CLR 75 at p 86.)
As the High Court pointed out in Barton the purpose of s.120 of the Act is to prevent creditors being disadvantaged by a debtor's property being placed in the hands of others willing to retain that property in specie so that there would be no immediate dissipation or consumption of it (pp 78-85). The terms "purchaser" and "valuable consideration" are to be given a broad meaning and the consideration referred to is something amounting to a quid pro quo in a commercial sense. (In Re Windle (1975) 1 WLR 1628 per Goff J at p 1637.)
In commercial terms, the forbearance to sue a third party at the request of a grantor of a charge, is quite capable of constituting consideration of real value depending, of course, upon the extent of the forbearance and the circumstances it which it is given. It will not be necessary to show that in addition the grantor of the charge receives the benefit of that consideration. (Re Peninsula Services Pty. Ltd. (In Liquidation) (1987) 91 FLR 4 at p 8.)
In fact, in the present case it was likely that Zampatti, the controller of GBC and surety for much of the indebtedness of GBC to various creditors had much to gain from RJL refraining from commencing litigation against GBC.
The only attack the trustee makes upon the consideration provided is that it was not consideration flowing directly to Zampatti. There was no issue that the consideration itself was otherwise valuable consideration. I am satisfied that a benefit conferred on a third party by a "purchaser" under s.120 of the Act is sufficient for the purpose of that section.
The trustee's submission that RJL obtained the benefit of the charge in the absence of good faith rested upon the contention that RJL must have been aware of GBC's possible insolvency and that it was seeking a "preference" to the disadvantage of other creditors and, therefore, was not acting in good faith. GBC was placed under official management on 22 November 1990.
It may be accepted that the requirement of good faith meant that RJL was required to act without notice of any fraud or with the belief that all had been regularly and properly done. (P.T. Garuda pp 211-212.)
On the facts of this case it may have been relevant to that issue that Zampatti was a surety for GBC and it may have been possible for lack of good faith on the part of RJL to have been shown by proof of RJL's knowledge of GBC's inability to meet its debts and by proof of RJL's knowledge that Zampatti was unable to provide such a benefit to RJL without disadvantage being caused to Zampatti's creditors. But that was not the case put by the trustee. The trustee submitted that it was sufficient to show that RJL was on notice that GBC may have been insolvent.
Acceptance of security from Zampatti by RJL in respect of the indebtedness of GBC cannot in itself demonstrate lack of good faith by RJL even if it had express knowledge of the insolvency of GBC. There is no lack of commercial morality in a creditor obtaining security for the debt of a debtor from a third party prepared to provide it.
There was nothing untoward or irregular in the course of the commercial activity undertaken in this case that would indicate lack of good faith on the part of RJL. (See Official Trustee v. Mitchell (1992) 110 ALR 484 at p 493.)
In the absence of that evidence there can be no finding adverse to RJL.
There will be declarations in the terms sought but no order that the Ferrari be delivered up to RJL. Pursuant to the declarations now made RJL may call upon the trustee to sell the Ferrari and apply the proceeds of sale pursuant to the charge.
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