Roufeil as Trustee of the Bankrupt Estate of Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the Mrt Family Trust (No 2)
[2022] FedCFamC2G 1077
Federal Circuit and Family Court of Australia
(DIVISION 2)
Roufeil as Trustee of the Bankrupt Estate of Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the MRT Family Trust (No 2) [2022] FedCFamC2G 1077
File number(s): SYG 446 of 2021 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 23 December 2022 Catchwords: BANKRUPTCY – application by trustee in bankruptcy for remedies in relation to 27 transfers made from a bank account of which the bankrupt was the holder before he became bankrupt into a loan account a company held with the same bank – whether each transfer constituted a “payment of money” within the meaning of s 120(7)(a) and s 121(9)(a) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) – if so whether each payment was made by the bankrupt to the company or whether the payment was made to the bank in discharge of a loan the company owed the bank to the extent of each payment – payment made to the bank in discharge of loan owed by company to the extent of the payment – no “transfer of property” from the bankrupt to the company for the purposes of s 120(1) or s 121(1) of the Bankruptcy Act – application dismissed. Legislation: Australian Constitution ss 51(xii), 51(xiii)
Bankruptcy Act 1966 (Cth) ss 86, 120, 121, 121A, 149D(1)(ab)
Corporations Act 2001 (Cth) s 601ND(1)(a)
Currency Act 1965 (Cth) ss 8, 9, 11
Payment Systems (Regulation) Act 1998 (Cth) s 7
Reserve Bank Act 1959 (Cth) ss 7, 34(1), 35, 36
Cases cited: Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71
Carrafa & Lofthouse v Tile Mart (Vic) Pty Ltd [2018] FCCA 2164
Dovey v Bank of New Zealand [1999] NZCA 328
European Bank Ltd v Citibank Ltd [2004] NSWCA 76
Finch v Brook [1834] EngR 1015; (1834) 1 Bing NC 253; 131 ER 1114
Foley v Hill [1848] EngR 837; (1848) 11 HLC 28
Foskett v McKeown [2000] UKHL 29
Ilich v R [1987] HCA 1
In re Paraguassu Steam Tramroad Company (Ferrao's Case) (1874) LR 9 Ch App 355
Joachimson v Swiss Bank Corporation [1921] 3 KB 110
Johnson v Royal Mail Steam Packet Company (1867) LR 3 CP 38
Kassem and Secatore v Commissioner of Taxation [2012] FCA 152
Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728
Lordianto v Commissioner of the Australian Federal Police; Kalimuthu v Commissioner of the Australian Federal Police [2019] HCA 39
R v Preddy [1996] AC 815
Re Harmony and Montague Tin and Copper Mining Company (Spargo's case.) (1873) LR 8 Ch App 407
Tarrant v Australian Securities and Investments Commission [2015] FCAFC 8
Tenax Steamship Co Ltd v The Brimnes (Owners) [1974] EWCA Civ 15; [1975] QB 929 (CA)
The Commissioner for Customs and Excise v FDR [2000] EWCA Civ 216
Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd & Ors [2010] NSWSC 286
Division: General Number of paragraphs: 90 Date of last submission/s: 10 December 2021 Date of hearing: 25-26 October 2021 Place: Sydney Counsel for the Applicant: Mr S Golledge SC, by video Solicitor for the Applicant: TurksLegal Counsel for the Respondent: Mr Q Rares, by video Solicitor for the Respondent: M Russoniello Solicitor ORDERS
SYG 446 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MARK DAMIAN CHARLES ROUFEIL AS TRUSTEE OF THE BANKRUPT ESTATE OF MERVYN ROSS TARRANT
Applicant
AND: TARRANT ENTERPRISES PTY LTD AS TRUSTEE FOR THE MRT FAMILY TRUST ACN 066 439 316
Respondent
order made by:
JUDGE MANOUSARIDIS
DATE OF ORDER:
23 December 2022
THE COURT ORDERS THAT:
1.The application is dismissed.
2.Subject to order 3, the applicant pay the respondent’s costs.
3.The parties have liberty to apply within 28 days after the day on which these orders are pronounced to vary or discharge order 2.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
introduction
On 8 September 2016 a sequestration order was made against the estate of Mr Mervyn Ross Tarrant, and the applicant (Trustee) was appointed his trustee in bankruptcy. In the course of administering Mr Tarrant’s estate, the Trustee became aware that from 21 July 2015 to 29 August 2016, 27 amounts totalling $194,290 were paid or transferred from a bank account of which Mr Tarrant was the holder to a bank loan account of which the respondent (Tarrant Enterprises) was the holder. (I will use the expressions “transfer of money” and “payment of money” interchangeably without assigning any particular meaning to them until I consider their meaning later in these reasons.) In this proceeding the Trustee claims the payments constituted payments of money by Mr Tarrant to Tarrant Enterprises in circumstances covered by s 120, and s 121 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) and, for that reason, are each void as against the Trustee;[1] or, if they are not payments of money to Tarrant Enterprises, they constitute transfers of property that are covered by s 121A of the Bankruptcy Act.
[1] The Trustee also made a claim based on subrogation, but the Trustee does not press that claim.
Tarrant Enterprises accepts the transfers or payments were made, but otherwise insists that the “Trustee is put to his proof on the matters for which he has the onus”.[2] Tarrant Enterprises also pleads a number of affirmative defences. In relation to the Trustee’s claim based on s 120 of the Bankruptcy Act, Tarrant Enterprises pleads that it was not the transferee or payee of the transfers or, if Tarrant Enterprises were the transferee or payee, it gave consideration for the transfer of a value equal to the value of the amounts of the transfers; s 120 of the Bankruptcy Act does not apply because the transfers are of a kind covered by regulations made for the purpose of s 120(2)(d) of the Bankruptcy Act; to permit the Trustee to recover the 27 transfers would offend the rule against double recovery and, for that reason, should not be permitted; and to the extent Tarrant Enterprises is liable to repay the transfers, it is entitled to set-off under s 86 of the Bankruptcy Act a claim for damages it says it has against Mr Tarrant for losses he caused to Tarrant Enterprises because he gave negligent financial advice. Tarrant Enterprises pleads similar defences in relation to the Trustee’s claims based on s 121 of the Bankruptcy Act, but additionally pleads that Tarrant Enterprises acted in good faith, and Mr Tarrant was not about to become insolvent at the time of each transfer.
[2] Submissions of Tarrant Enterprises, [2]
In addition to these defences Tarrant Enterprises pleads that the Trustee is estopped from maintaining his claims in relation to the transfers or, in the alternative, the Trustee’s seeking to recover by action the amount of the transfers is an abuse of process. The basis of that defence are events that occurred in connection with the Trustee’s having filed on about 1 October 2019 a notice objecting to Mr Tarrant’s release from bankruptcy. More particularly, Tarrant Enterprises pleads that the Trustee objected to Mr Tarrant’s discharge from bankruptcy on grounds that included the ground provided for by s 149D(1)(ab) of the Bankruptcy Act, namely, that “any transfer is void against the trustee in the bankruptcy because of section 121”; and that, on 6 August 2021 the Administrative Appeals Tribunal (AAT) made an order by consent that the “ground relating to s 149D(1)(ab) is cancelled”.
The principal issues that arise are whether the payments or transfers constitute a “payment of money” within the meaning of s 120(7)(a) and s 121(9)(a) of the Bankruptcy Act from Mr Tarrant to Tarrant Enterprises or, if they do not, whether the transfers otherwise constitute a “transfer of property” within the meaning of s 120(1), s 121(1), or s 121A of the Bankruptcy Act, from Mr Tarrant to Tarrant Enterprises.
Before I consider the Trustee’s claims, and the issues that arise on the matters on which Tarrant Enterprises relies, it will be necessary to set out the facts that are relevant to understanding and determining those issues.
evidence and some findings
Incorporation of Tarrant Enterprises
On 14 September 1994 Tarrant Enterprises was incorporated, and Mr Tarrant was appointed a director.[3] On 23 March 1999 Tarrant Enterprises executed a deed under which it was appointed the trustee of the MRT Family Trust.[4] The trust deed specified Mr Tarrant’s children, Ms Lara Tarrant (Lara), and Mr Mervyn Steven Tarrant (Steven), as the “Specified Beneficiaries”; and Mr Tarrant, being a parent of the “Specified Beneficiaries”, falls within the definition of “General Beneficiary”. Mr Tarrant was the sole director of Tarrant Enterprises from 31 July 2004 until 1 May 2013, when Lara and Steven were appointed directors. Mr Tarrant resigned as a director on 12 January 2015. From that date Lara and Steven have been the only directors of Tarrant Enterprises.[5]
[3] Affidavit M R Tarrant 08.10.2021; CB702
[4] CB727
[5] ASIC search, CB1173-1185
Mr Tarrant’s advisory services
Mr Tarrant was also a former director of other companies. These included Tarrant Financial Consultants Pty Ltd (TFC). Mr Tarrant was appointed director of TFC on 12 March 1999 when it was incorporated, and Mr Tarrant was the sole director of TFC from 3 June 2006 until TFC was deregistered in 2017.[6] TFC was the holder of an Australian Financial Services licence from October 2003.[7] Mr Tarrant says that, through TFC, he provided to Tarrant Enterprises professional advisory services as financial advisor; and he was the only authorised representative of TFC.[8]
[6] ASIC search, CB770-779
[7] CB775
[8] Affidavit M R Tarrant 08.10.2021, [6(c)]; CB703
Tarrant Enterprises buys Penthouse
On 20 December 2007 Tarrant Enterprises completed the purchase of a penthouse unit (Penthouse) that formed part a property at Market Street, Wollongong.[9] Tarrant Enterprises funded the purchase entirely by drawing down $2,151,951.13 from a loan facility of $2.16 million NAB granted to Tarrant Enterprises (NAB Loan).[10] It was a term of the NAB Loan that Tarrant Enterprises would make 359 monthly repayments of $16,736.31, and a final payment of $12,476.88.
[9] CB822
[10] CB806, CB819
Mr Tarrant says he provided a guarantee for the NAB Loan.[11] There is in evidence an unsigned document titled “Guarantee and Indemnity” that identifies Mr Tarrant as “[t]he Guarantor”, and Tarrant Enterprises as the “[t]he customer”. There is no dispute that Mr Tarrant provided a guarantee for the NAB Loan, and I will assume that Mr Tarrant did so by executing a guarantee and indemnity in the form of the unsigned guarantee and indemnity that is in evidence (Guarantee).
[11] Affidavit M R Tarrant 08.10.2021, [10(b)]
Under cl 6.2 of the Guarantee Mr Tarrant guaranteed to NAB that Tarrant Enterprises will pay NAB “all the amounts which [Tarrant Enterprises] owes NAB at any time”, and that if Tarrant Enterprises “does not pay an amount when due” Mr Tarrant agreed “to pay that amount to NAB when NAB demands it”. Clause 10.1 of the Guarantee provides that Mr Tarrant indemnifies NAB “for any loss it suffers, up to the amount of the Guarantee Limit, because [Tarrant Enterprises] is ever incapacitated or [Mr Tarrant does] not comply with a term of this Guarantee”.
Servicing of NAB Loan
The amount Tarrant Enterprises drew down on the NAB Loan was debited to a loan account that was created shortly before the loan was drawn down (TE Bank Account). There is in evidence bank statements NAB issued in relation to the TE Bank Account from 1 July 2015 to 20 October 2016.[12]
[12] CB612-621
In evidence given under cross-examination Mr Tarrant accepted that in 2015 he was conducting a business as a sole trader under the name “Tarrant Accountants and Business Advisors”, and that he maintained an account with NAB under the name of “Tarrant Accountants and Business Advisors” (TABA Bank Account). Mr Tarrant was taken to an entry in the TABA Bank Account for 21 July 2015 which recorded “Internet Transfer Mrt Penthouse Tarrants 10,000.00”, with the “10,000.00” being recorded in the column headed “Debits”;[13] and Mr Tarrant was also taken to an entry in the TE Bank Account “Internet Transfer Mrt Penthouse Tarrants 10,000.00”, with the “10,000.00” being recorded in the column headed “Credits”.[14] Mr Tarrant agreed that these two records illustrate a practice that existed for a number of years before July 2015 where Mr Tarrant caused payments to be made from the TABA Bank Account into the TE Bank Account in relation to the NAB Loan.[15] Mr Tarrant also agreed that this practice operated from the inception of the NAB Loan.[16]
Yes. So from its inception, there was this practice of transfer of the funds between your personal account into the loan account of the company. And was that done on a regular basis? And by that, I mean at least once a month throughout that period?‑‑‑I would say yes. There wasn’t always what the bank would have liked, but yes. It was common practice to make payments on a monthly basis.
And those payments into that account have the effect of meeting and, on some occasions at least, exceeding the amount that the bank would deduct from the loan account by way of interest and monthly charges; correct?‑‑‑If you’re referring to the fact that it was principal and interest being paid at some stage, yes
[13] CB562
[14] CB617
[15] T116.5
[16] T116.15
Until 1 July 2015 Mr Tarrant’s contributions were recorded by two sets of entries in Tarrant Enterprises’ general ledger. One consisted of debiting to an account titled “NAB: Penthouse #1 Account” the amounts paid out of the TABA Bank Account to the TE Bank Account,[17] and the other constituted crediting the same amount to an account titled “UPE reduction via InvestLoan”.[18] “UPE” stands for “unpaid present entitlements”. Mr Tarrant gave the following evidence in relation to these records:[19]
And the effect of this treatment, at least as reflected in the ledger accounts, is that your UPEs, if in credit, either increased so that the amount owed to you by the company increased or the payments reduced any liability you had to the company for overdrawings?‑‑‑Yes.
That’s correct?‑‑‑Yes.
And that, putting aside the description of the accounts, is how the payments were treated from – that you made into the Penthouse Number 1 account from inception late ’07, early ’08, through to the end of June 2015, isn’t it?‑‑‑Yes, I would say so.
[17] CB1428
[18] CB1431-1432
[19] T117.15
Mr Tarrant encounters difficulties
After Tarrant Enterprises purchased the Penthouse Mr Tarrant’s fortunes took a turn for the worse. The principal source of this turn appears to have been Mr Tarrant’s causing TFC, from around March 2008 to December 2009, to recommend to its clients, including Tarrant Enterprises, that they invest in a managed investment scheme known as the Astarra Strategic Fund (ASF). ASF was one of five managed schemes of which the responsible entity was Trio Capital Ltd.[20] The investment schemes were fraudulent, although Mr Tarrant himself was not aware of the fraud.
[20] Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd & Ors [2010] NSWSC 286, at [1]
In October 2009 the Australian Securities and Investments Commission (ASIC) issued stop orders in relation to ASF, and redemptions in ASF were frozen on 16 December 2009.[21] On 19 March 2010 Palmer J of the Supreme Court of New South Wales made an order pursuant to s 601ND(1)(a) of the Corporations Act 2001 (Cth) winding up each of the five managed investment schemes, including ASF, on the ground that it was in the public interest that it be wound up.[22] All of TFC’s clients that had acquired units in ASF, including Tarrant Enterprises, lost their capital.[23]
[21] Tarrant v Australian Securities and Investments Commission [2015] FCAFC 8, at [4], [5]
[22] Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd & Ors [2010] NSWSC 286
[23] Affidavit M R Tarrant 08.10.2021, [13]
Commencing in around December 2009 ASIC investigated Mr Tarrant and TFC about TFC’s recommending to its clients that they invest in ASF.[24] Additionally, former clients of TFC had commenced three sets of proceedings against it. In August 2010 TFC was wound up, and its Australian Financial Services licence was suspended.[25]
[24] Affidavit M R Tarrant 08.10.2021, [14], [15]
[25] Affidavit M R Tarrant 08.10.2021, [17]-[20]
Losses to MRT Family Trust and alleged agreement to make good losses
The income statement for the MRT Family Trust for the financial year ended 2010 recorded “abnormal items” of $1,910,090. This represented the sum of the following classes of capital losses.[26]
(a)$51,194, being “[r]ealised capital losses on investments”. That represented the value of shares the MRT Family Trust held in a listed company on the London Stock Exchange.[27]
(b)$137,748, being “[r]ealised capital loss on distributions not recoverable”. Mr Tarrant says this represents income Tarrants Finance Unit Trust had “distributed” but not paid to the MRT Family Trust.[28]
(c)$1,601,148, being “[u]nrealised capital loss on investments in related entities”. Mr Tarrant says this is the sum of $1,495,042 invested in TFC, $94,706 invested in Rodota Pty Ltd, and $11,400 in Tarrants Finance Unit Trust.[29]
(d)$120,000, being “[p]rovision for impairment”. Mr Tarrant says this represents the value of the MRT Family Trust’s units in ASF written off to nil.[30]
[26] Affidavit M R Tarrant 08.10.2021, [22]
[27] Affidavit M R Tarrant 08.10.2021, [23.A.]
[28] Affidavit M R Tarrant 08.10.2021, [23.B.]
[29] Affidavit M R Tarrant 08.10.2021, [23.C.]
[30] Affidavit M R Tarrant 08.10.2021, [23.D.]
Mr Tarrant says he had a number conversations with Ms Seco about the MRT Family Trust. Mr Tarrant had employed Ms Seco as an accountant in his practice from around December 2003 until 2015. Ms Seco has deposed that, while employed by Mr Tarrant, her accounting duties included performing all accounting functions in relation to the operation of the MRT Family Trust.[31] Mr Tarrant says that in one conversation Ms Seco said to him:[32]
What about MRT Family Trust? You recommended Trio to the Trust. Your recommendations caused the liquidation of TFC. The Trust could also have a claim against you or your PI Policy.
[31] Affidavit S Seco 11.10.2021, [1] – [6]
[32] Affidavit M R Tarrant 08.10.2021, [30]
Mr Tarrant further says that, during 2010 and after TFC’s liquidation, he had several discussions with Lara and Steven which included his saying words to the following effect:[33]
There is a class action on foot, which as you know has been well advertised in the local papers. You also know that there are other cases related to my financial advice. You need to consider an arm’s length position for the trust and you in pursuing me and TFC’s PI insurance policy.
[33] Affidavit M R Tarrant 08.10.2021, [32]
Mr Tarrant says that Lara and Steven initially seemed to respond with surprise because Mr Tarrant “was really suggesting that they sue [Mr Tarrant] for negligence and anything else their lawyers thought appropriate”. But the discussions continued as follows:[34]
Over several of these conversations I did my best to make Lara and Steven each reconsider their initial refusal to consider suing me, I said words to the effect “you have to think about this more - this is very important.”
Lara and Steven would respond words to the effect “there has to be something else we can do so we don't have to sue you.”
I would then tell Lara and Steven words to the effect that:
“If the Trust doesn't sue me, I can pay back the losses. I'm not sure when I'll be able to start making the repayments. It could be years before the court cases are wrapped up, but I promise to pay the money back when I can” and
“I will do what I can to restore the trust to its previous position and pay back the losses that I caused it” and
“If you don't sue me, I'll eventually put you both back in the position you were in before all this mess.”
Both Lara and Steven said words to the effect “ok, that's fine” and “we agree to that”. I understood the agreement was that they and the Trust would not sue me and that I would slowly repay the losses caused to them as best as I could. They were my children and we had a good family bond and I knew we trusted each other and they knew they could trust me to pay them back as and when I could. Even though I did not write the agreement down, I always understood the agreement to be binding on me.
[34] Affidavit M R Tarrant 08.10.2021, [34]-[37]
On 25 November 2011 a delegate of ASIC banned Mr Tarrant from providing financial services for seven years. Mr Tarrant applied to the AAT for a review of the delegate’s decision. The hearing (which ultimately occupied ten days) commenced on 24 October 2012. The AAT affirmed the decision of the delegate to ban Mr Tarrant for seven years, and it found that he had contravened various financial services laws. Mr Tarrant appealed to the Full Federal Court against the AAT’s decision, but on 6 February 2015 the Full Federal Court dismissed his appeal.[35]
[35] Tarrant v Australian Securities and Investments Commission [2015] FCAFC 8
NAB makes demands
In February 2014 Mr Tarrant met with a representative or representatives of NAB about the banking facilities Mr Tarrant had with NAB, including the NAB Loan. It appears that NAB had agreed to allow Mr Tarrant a “period of time to recover from the collapse of Trio Capital and the Astarra Funds by allowing an informal period of interest only on your home loans”, that is the NAB Loan.[36] By letter dated 23 July 2014 NAB confirmed what a representative told Mr Tarrant in a telephone conversation on 18 July 2014 that NAB was not prepared to restructure the “home loans” (being the NAB Loan) to interest only; and that NAB “now intends to commence enforcement action in respect of the home loan defaults”. NAB continued:[37]
We would be please[d] to review these actions if your circumstances change during enforcement, and you are able to demonstrate, to the satisfaction of the Bank in its absolute discretion, the ability to meet principal and interest payments at a level which would clear the home loans over the existing term.
[36] CB947
[37] CB948
On 29 July 2014 NAB issued a default notice (Notice) addressed to Tarrant Enterprises with a “copy to” Mr Tarrant as “Guarantor”.[38] The Notice states that Tarrant Enterprises is in arrears in the amount of $265,175.54, and states that to remedy the default Tarrant Enterprises or any guarantor must pay that amount. The Notice further states that if the default is not remedied within 31 days from the date of the Notice, Tarrant Enterprises would become liable to repay the “Default Amount” of $265,175.54. Tarrant Enterprises did not comply with the Notice. That resulted in NAB sending to Mr Tarrant a demand dated 3 October 2014 that he pay NAB $1,902,679.40.[39]
[38] CB949
[39] CB952
Mr Tarrant’s financial position as at January 2015
There is in evidence a balance sheet that shows Mr Tarrant’s financial position as at January 2015.[40] The balance sheet shows Mr Tarrant held assets of $1,650,600 and total liabilities of $5.689 million. Mr Tarrant’s liabilities included the costs he was ordered to pay ASIC as a result of his unsuccessful appeal to the Full Federal Court, tax debts, a debt of $1.7 million owed to Bendigo Bank, credit card debts, and a debt of $101,960 owing to Tarrant Enterprises.
[40] CB672
Change in accounting treatment of payments
On 22 June 2015 Ms Seco had a conversation with Mr Tarrant, the effect of which she recorded in the following note:[41]
[The MRT Family Trust] suffered the most from the liquidation of Tarrants Group. Ross wants to start making those losses good in the Trust.
Ross will continue to meet NAB requirements of loan repayments until Megan’s properties start to settle and his payments come through. [H]e asked that from 01/07/2015 these loan repayments be allocated to Lara and Steven. [H]e has spoken to them and they want the payments directed to the Trust loans to reduce the loan balances over time.
Change in accounting to be effective from 01/07/2016.
[41] CB978
The 27 transfers
The bank statements for the TABA Bank Account and the TE Bank Account record the following:[42]
[42] The bank statements for the TABA Bank Account are at CB537-611, and the bank statements for the TE Bank Account are at CB612-621
Date Description (TABA Bank Account) Debit (TABA Bank Account) Description (TE Bank Account) Credit (TE Bank Account) 21.07.2015 Internet Transfer Mrt Penthouse Tarrants 10,000 Internet Transfer Mrt Penthouse Tarrants 10,000 22.07.2015 Internet Transfer Mrt Penthouse Tarrants 6,000 Internet Transfer Mrt Penthouse Tarrants 6,000 14.08.2015 Internet Transfer Mrt Penthouse Tarrants 5,300 Internet Transfer Mrt Penthouse Tarrants 5,300 31.08.2015 Internet Transfer Mrt Penthouse Tarrants 600 Internet Transfer Mrt Penthouse Tarrants 600 31.08.2015 Internet Transfer Mrt Penthouse Tarrants 750 Internet Transfer Mrt Penthouse Tarrants 750 04.09.2015 Internet Transfer Mrt Penthouse Tarrants 8,250 Internet Transfer Mrt Penthouse Tarrants 8,250 11.09.2015 Internet Transfer Mrt Penthouse Tarrants 400 Internet Transfer Mrt Penthouse Tarrants 400 24.09.2015 Internet Transfer Mrt Penthouse Tarrants 16,000 Internet Transfer Mrt Penthouse Tarrants 16,000 29.10.2015 Internet Transfer Mrt Penthouse Tarrants 16,000 Internet Transfer Mrt Penthouse Tarrants 16,000 25.11.2015 Internet Transfer Mrt Penthouse Tarrants 16,000 Internet Transfer Mrt Penthouse Tarrants 16,000 28.01.2016 Internet Transfer Pymt-Id 74266131 Penthouse Account 16,000 Penthouse Account Ta Rran Accou 16,000 15.02.2016 Internet Transfer Mrt Penthouse Tarrants 3,000 Internet Transfer Mrt Penthouse Tarrants 3,000 19.02.2016 Internet Transfer Mrt Penthouse Tarrants 2,000 Internet Transfer Mrt Penthouse Tarrants 2,000 25.02.2016 Internet Transfer Mrt Penthouse Tarrants 11,000 Internet Transfer Mrt Penthouse Tarrants 11,000 21.03.2016 Internet Transfer Mrt Penthouse Tarrants 2,000 Internet Transfer Mrt Penthouse Tarrants 2,000 23.03.2016 Internet Transfer Penthouseloan Tarrants 10,000 Internet Transfer Penthouseloan Tarrants 10,000 24.03.2016 Internet Transfer Mrt Penthouse PMT Tarrants 2,000 Internet Transfer Mrt Penthouse PMT Tarrants 2,000 31.03.2016 Internet Transfer Rtarrantpenthouse Tarrants 1,000 Internet Transfer Rtarrantpenthouse Tarrants 1,000 15.04.2016 Internet Transfer Penthouseloan Tarrants 3,340 Internet Transfer Penthouseloan Tarrants 3,340 29.04.2016 Internet Transfer Penthouseloan Tarrants 12,000 Internet Transfer Penthouseloan Tarrants 12,000 25.05.2016 Internet Transfer penthouseloan Tarrants 1,150 Internet Transfer penthouseloan Tarrants 1,150 25.05.2016 Internet Transfer Penthouseloan Tarrants 13,000 Internet Transfer Penthouseloan Tarrants 13,000 30.06.2016 Internet Transfer Penthouseloan Taba 10,000 Internet Transfer Penthouseloan Taba 10,000 04.07.2016 Internet Transfer Penthouseloan Tarrants 1,500 Internet Transfer Penthouseloan Tarrants 1,500 29.07.2016 Internet Transfer Penthouseloan Tarrants 13,000 Internet Transfer Penthouseloan Tarrants 13,000 24.08.2016 Internet Transfer Penthouse Loan Tarrants 13,000 Internet Transfer Penthouse Loan Tarrants 13,000 29.08.2016 Internet Transfer Penthouse loan Tarrants 1,000 Internet Transfer Penthouse loan Tarrants 1,000
Mr Tarrant has characterised these payments, and the reasons he caused them to be made, as follows:[43]
The current proceedings relate to payments I made from the bank account of my sole trader business, TABA directly to the NAB Loan account/s in relation to which I was a guarantor from 21 July 2015 to 29 August 2016. . . .
I understood that I was required to make these payments as I had personally guaranteed this loan and that guarantee had been called in by the letters I set out above.
[43] Affidavit M R Tarrant 08.10.2021, [45], [46]
That evidence, however, must be considered with other evidence that is relevant to the purposes for which Mr Tarrant made the payments, and in particular the evidence given at the public examinations of Mr Tarrant, and Lara and Steven, where Mr Tarrant’s payments were said to have been regarded as gifts by Mr Tarrant. Mr Tarrant gave evidence that included the following:[44]
[44] CB496, commencing at line 33
Q.And you also recall that I asked you, did you tell them, referring to Lara and Steven, that the moneys that would be paid on their behalves would be a gift from you, and do you remember your answer saying, “It would’ve been – I spelled out that it wasn’t repayable to me, yes”? Do you recall that?
Mr Tarrant:Yes.
Q.You didn’t, so far as you were aware, have a legal obligation to make good those losses; is that right?
Mr Tarrant:Not a legal obligation, no.
Q.You viewed it as - well, how did you view it?
Mr Tarrant:As a personal obligation.
Q.Something in the order of a moral obligation; is that right?
Mr Tarrant:Yes you could say that.
trustee’s claims under s 120 of the bankruptcy act
Subsection 120(1) of the Bankruptcy Act provides as follows:
A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b) the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
Subsection 120(1) of the Bankruptcy Act must be read with s 120(7)(a), which provides that for “the purposes of this section . . . transfer of property includes a payment of money”. If “payment of money” is substituted for “transfer of property”, “money” is substituted for “property”, and “payer” and “payee” are substituted for “transferor” and “transferee” respectively, s 120(1) of the Bankruptcy Act would read as follows (substituted words in bold):
A payment of money by a person who later becomes a bankrupt (the payer) to another person (the payee) is void against the trustee in the payer’s bankruptcy if:
(a) the payment took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b) the payee gave no consideration for the payment or gave consideration of less value than the market value of the money.
The Trustee claims that each of the 27 transfers constituted “a payment of money” within the meaning of s 120(7)(a) of the Bankruptcy Act and, for that reason, constituted a transfer of property for the purposes of s 120(1). More particularly, the Trustee claims that Mr Tarrant made each payment, and, therefore, was the payer (and therefore the “transferor”) of the money; and Mr Tarrant made the payment to Tarrant Enterprises, who was the payee (and therefore the “transferee”) of the money.
Tarrant Enterprises’ first answer to the Trustee’s claim is that, although each of the 27 transfers constituted a payment of money, Mr Tarrant paid the money to NAB, not to Tarrant Enterprises; and Tarrant Enterprises, therefore, is not the payee and therefore the transferee of the money. Tarrant Enterprises further submits that the Trustee cannot rely on s 121A of the Bankruptcy Act because the Trustee has not pleaded a cause of action based on it.
It would be convenient if I consider the issues that arise on this part of Tarrant Enterprises’ defence before I consider the other defences on which Tarrant Enterprises relies.
Did the 27 transfers constitute the “payment of money” by Mr Tarrant to Tarrant Enterprises?
Parties’ submissions
The Trustee submits that the fact that all of the 27 payments were entered as credits in the TE Bank Account alone establishes that each payment was made to Tarrant Enterprises. The Trustee relies on the judgment of Judge Hartnett in Carrafa & Lofthouse v Tile Mart (Vic) Pty Ltd,[45] and the judgment of Nicholas J in Kassem and Secatore v Commissioner of Taxation.[46] The Trustee further submits that Tarrant Enterprises’ contention that Mr Tarrant made the payments to NAB to reduce his obligations as guarantor confuses what Tarrant Enterprises alleges motivated Mr Tarrant to make the 27 payments with the factual question of who actually received the payment. A credit balance in the customer’s account constitutes a debt owed by the bank to the customer, and a debit balance constitutes a debt owed to the bank; and on the deposit of funds into a customer’s account, “the customer transfers the property in the money from the customer to the bank”; and that analysis applied to “a deposit made by” Tarrant Enterprises into the TE Bank Account.[47]
[45] Carrafa & Lofthouse v Tile Mart (Vic) Pty Ltd [2018] FCCA 2164
[46] Kassem and Secatore v Commissioner of Taxation [2012] FCA 152
[47] Trustee’s written submissions filed 17 November 2021, [39]
The Trustee also submits that it was the common intention of Mr Tarrant and Tarrant Enterprises that Tarrant Enterprises was to receive the money, and then deal with it.[48] The Trustee relies on the following matters:
(a)The payments were credited to the capital accounts of Lara and Steven. That does not manifest an intention by Mr Tarrant that the payments were made to NAB pursuant to the Guarantee.[49]
(b)The payments were described in Tarrant Enterprises’ financial statements as being in respect of the NAB Loan, and not in respect of any guarantee.[50]
(c)Mr Tarrant answered “no” in response to question 36 of his statement of affairs, which asked whether, as a result of pressure for payment from creditors, Mr Tarrant, in the previous 12 months, paid a total of more than $1,000 over and above his normal repayments, or surrendered any assets to a creditor.[51]
(d)The payments Mr Tarrant made to NAB before July 2015 were credited to Mr Tarrant’s capital account maintained by Tarrant Enterprises.[52]
(e)In its tax returns for 2016 and 2017 Tarrant Enterprises claimed the payments as expenses paid by it for which it was entitled to claim a deduction. That “is only consistent with what the bank statements confirm – the money was received by [Tarrant Enterprises] into its bank account and applied by it in reduction of its loan debt”.[53]
[48] Trustee’s written submissions filed 17 November 2021, [40]
[49] Trustee’s written submissions filed 17 November 2021, [40(a)]
[50] Trustee’s written submissions filed 17 November 2021, [40(b)]
[51] Trustee’s written submissions filed 17 November 2021, [40(c)]; CB66
[52] Trustee’s written submissions filed 17 November 2021, [40(d)]
[53] Trustee’s written submissions filed 17 November 2021, [40(e)]
Tarrant Enterprises, on the other hand, submits that each of the 27 payments constituted a payment by Mr Tarrant in discharge, pro tanto, of a liability that had crystallised under the Guarantee. Tarrant Enterprises relies on cl 17.3 of the Guarantee which provides that NAB has the right to place and keep in a suspense account for as long as NAB thinks prudent any payments NAB receives from Mr Tarrant.[54] Tarrant Enterprises also submits that Tarrant Enterprises had no choice or control in relation to any of the 27 payments Mr Tarrant made.[55]
[54] Submissions of Tarrant Enterprises, [24]
[55] Submissions of Tarrant Enterprises, [30]
Issues
The competing submissions give rise to the following issues:
(a)What is the proper construction of the expression “payment of money” in s 120(7)(a) of the Bankruptcy Act?
(b)Did each of the 27 payments constitute a “payment of money”, properly construed? If so, who was the payer and who was the payee?
(c)If the 27 payments did not constitute a “payment of money”, properly construed, did the payments nevertheless constitute a “transfer of property”?
(d)If so does s 120(1) of the Bankruptcy Act apply?
Meaning of “payment of money”
Section 120 of the Bankruptcy Act, in its current form, was introduced by the Bankruptcy Legislation Amendment Act 1996 (Cth) in substitution for the previous s 120, which dealt with certain settlements of property.[56] In Anscor Pty Ltd v Clout(Trustee) Lindgren J, sitting in the Full Federal Court, noted that the substituted s 120 replaced the notion of “a settlement of property” with the notion of “a transfer of property”; and his Honour explained the reason for this substitution as follows: [57]
The former s 120(8) provided that in s 120 ‘settlement of property’ included any disposition of property. The word ‘property’ was (and is) defined widely in s 5. The notion was understood to include money; cf Jack v Smail [1905] HCA 25; (1905) 2 CLR 684 at 700. But it was established that a ‘settlement’ required a purpose of conferring benefit on the disponee, and therefore contemplated retention by the disponee of the property settled for at least some period, rather than its immediate dissipation or consumption: see Jack v Smail at 700-701 per Griffith CJ, 709-710 per Barton J; In re Williams; Williams v Lloyd [1934] HCA 1; (1934) 50 CLR 341 at 364 per Starke J, 375-6 per Dixon J with whom McTiernan J agreed; Re Pahoff; Ex parte Oglivie v Pahoff (1961) 20 ABC 17; Re La Rosa; Ex parte Norgard v Rocom Pty Ltd (1990) 21 FCR 270 (approved on appeal by Northrop, Davies and Lee JJ on 16 August 1990, unreported); P T Garuda Indonesia Ltd v Grellman [1992] FCA 188; (1992) 35 FCR 515 at 533-534; Re Fiorino; Fiorino v Woodgate [1994] FCA 181 (unreported, Gummow J, 14 April 1994) (‘Fiorino’) at 9-10 (page numbers in original judgment).
Money is easily dissipated or consumed. Accordingly, it was held that ‘a gift of money which is not hedged about with conditions that it shall be invested and kept in a certain way cannot be called a “settlement” ...’: Jack v Smail at 701 per Griffith CJ.
The notion of a ‘transfer of property’ in the present s 120 does not require retention of the transferred property for any period. Section 120(7) provides expressly that a transfer of property includes a payment of money. Accordingly, any payment of money, even one ‘not hedged about with conditions that it shall be invested and kept in a certain way’ is a transfer of property for the purposes of s 120.
[56] Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71, at [24]
[57] Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71, at [29]-[31]
This passage appeared to suggest to Wilcox and Moore JJ (the other two justices who, with Lindgren J, constituted the Full Federal Court in Anscor) that Lindgren J may have been of the view that “the amendments to the section which enable a payment of money to be treated as a transfer of property were intended to result in money paid being treated as property for the purposes of applying principles developed in authorities concerning the “settlement of property” decided before the amendment”.[58] Wilcox and Moore JJ said, however, that Parliament may have intended that the amendments of s 120 of the Bankruptcy Act to go further:[59]
Money in the form of currency can be property: see, for example, Ilich v The Queen [1987] HCA 1; (1987) 162 CLR 110 at 129, but the payment of money does not readily fall into the description of a conveyance or transfer of property: see, for example, Robert Reid Pty Ltd v Cassidy [1966] HCA 7; (1996) 114 CLR 558 at 573. Also, the expression “payment of money” can have wide application: see East Finchley Pty Ltd v Federal Commissioner of Taxation (1989) 90 ALR 457. It may well be, for example, that the legislature intended that the Trustee in Bankruptcy could avoid a transaction involving the payment of money under s 120 in a way (and by orders) that was not on all fours with the avoidance of the settlement of property under the earlier legislative provisions.
We emphasise that we are not expressing a concluded view that is opposed to anything said by Lindgren J. We merely reserve our position in relation to his Honour’s statement of principles.
[58] Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71, at [1]
[59] Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71, at [2], [3]
It is therefore necessary to construe the expression “payment of money” as it appears in s 120(7)(a) of the Bankruptcy Act. The starting point is the text of the expression itself. It denotes three things: an object, “money”; an act, “payment”; and a relationship between “payment” and “money”. The expression “payment of money” also implies a grammatical subject – a person who does something with “money”; and a grammatical indirect object – a person in relation to whom or for whom the subject does something with “money”. All of this suggests that the meaning of “money” and “payment” should be considered separately. I will proceed in that way although, as will appear later, the meaning of the words “money” and “payment” depend to a large extent on the meaning of the other.
“Money”
“Money” has been used to denote a number of different things.[60] It will be sufficient, however, if I identify two classes of things to which “money” has been used to refer.
[60] See, for example, Proctor, C., Mann on the Legal Aspect of Money, Oxford University Press 7th ed 2012, Chapter 1
Cash. “Money” is used to refer to that with respect to which s 51(xii) and s 51(xiii) of the Constitution confers power on the Parliament to make laws, namely, “[c]urrency, coinage, and legal tender” (in the case of s 51(xii) of the Constitution), and “paper money” (the issue of which being one of the subjects in respect of which s 51(xiii) empowers Parliament to make laws). Parliament has enacted laws in relation to these subjects, the fundamental laws being the Currency Act 1965 (Cth) (Currency Act), and the Reserve Bank Act 1959 (Cth) (Reserve Bank Act). These Acts do not in terms define “money”; but they make it clear that “money” denotes physical objects that record units of currency, and the Acts identify the objects to which they give the character of “money”. I will refer to these physical objects as “cash”.
I begin with s 9(1) of the Currency Act, which provides:
Subject to this section, every sale, every bill of exchange or promissory note, every security for money, and every other contract, agreement, deed, instrument, transaction, dealing, matter or thing relating to money, or involving the payment of, or a liability to pay, money, that is made, executed, entered into or done, shall, unless it is made, executed, entered into or done according to the currency of some country other than Australia, be made, executed, entered into or done according to the currency of Australia provided for by this Act.
The “currency of Australia provided for by this Act” is a reference to s 8(1) of the Currency Act, which provides that “the monetary unit, or unit of currency, of Australia is the dollar”; the “denominations of money in the currency of Australia are the dollar and the cent”; and a “cent is one-hundredth part of a dollar”.[61]
[61] Currency Act, s 8
Subsection 9(1) of the Currency Act is broad enough to include the payment of money; but s 11(1) makes a separate provision in relation to payment.
Every payment that is made shall, unless it is made according to the currency of some country other than Australia, be made according to the currency of Australia provided for by this Act.
It will be seen that s 9(1) of the Currency Act is directed to all manner of transactions or agreements that relate to or involve “money”. More particularly, s 9(1) of the Currency Act is directed to the payment of “money”, or to obligations to pay “money”, or to any other obligation in relation to “money”. The effect of s 9(1) of the Currency Act is that, unless parties to the transaction or agreement that relates to or involves “money” agree otherwise, the unit of currency of the “money” that is the subject of the agreement or transaction is taken to be the Australian dollar.
To this point the Currency Act does not identify “money” any more precisely than as a thing that has a unit of currency, namely, the “dollar”, in relation to which a person may have a liability to pay and which a person may pay. The Currency Act and the Reserve Bank Act, however, contain provisions that specify two things that are to count as “money” for the purpose of s 9 and s 11 of the Currency Act. The first is coins. Subsection 14(1) of the Currency Act provides that the Treasurer “may cause to be made and issued coins of the denominations of money specified, or taken to be specified, in the Schedule”. The second class of things that count as money are “Australian notes”. Paragraph (a) of s 34(1) of the Reserve Bank Act provides that the “Bank” (being the Reserve Bank of Australia referred to in s 7 of the Reserve Bank Act) “may issue Australian notes”; and s 35 provides that Australian notes may be issued in the denominations the section specifies, “or in any other denomination that the Treasurer determines by legislative instrument”.
The Currency Act and the Reserve Bank Act also assign an important quality to the things those Acts specify as “money”, namely, that of being “legal tender”. Section 16 of the Currency Act assigns that quality to coins by providing that a “tender of payment of money is a legal tender if it is made in coins that are made and issued under this Act”; and s 36 of the Reserve Bank Act assigns that quality to Australian notes by providing that “Australian notes are a legal tender throughout Australia”. “Legal tender” is “the act of tending, in the performance of a contract, or in satisfaction of a claim, that which the law prescribes or permits, and at such time and place as the law prescribes or permits”.[62] When used in relation to an obligation to pay “money”, tender requires “an actual production of the money, or a dispensation of such production”.[63]
[62] Quirk, J., and Garran, R. R., The Annotated Constitution of the Australian Commonwealth, 1901, page 575
[63] Finch v Brook [1834] EngR 1015; (1834) 1 Bing NC 253; 131 ER 1114
Unconditional promises to pay money on demand. A second class of things that have been identified as “money” are legally binding promises to pay on demand particular amounts of cash (debts). More specifically, “money” has been applied to denote a debt that is available to be discharged, and is discharged, as consideration for the discharge of another debt. This notion of “money” captures credit balances held by customers in a current bank account; but the notion applies more generally. I consider money held in current accounts later, but before I do so it would be useful to refer to cases that do not involve bank balances. That is so, not only because these cases particularly elucidate instances of “payment” of “money” that is not cash; they to a large extent provide the legal foundation of payments of “money” held in a current account.
I first consider Re Harmony and Montague Tin and Copper Mining Company (Spargo's Case).[64] In that case the promoter of a company entered into an agreement with the company under which he agreed to assign to the company a mining lease in consideration of the company issuing shares to him. Pursuant to this agreement, the company issued shares to the promoter; credited the promoter’s account with the company for the purchase price of the mining lease; and debited the promoter’s account with the shares that were issued to the promoter for the mining lease. The company was wound up and the liquidator applied for, and at first instance obtained, an order that the promoter pay an amount equal to the nominal value of the shares that were issued to him. The liquidator alleged the promoter obtained the shares without making a “payment in cash” for those shares, as was required by s 25 of the Companies Act 1867 (UK); and that, as a consequence, the shares the company had issued to the promoter were unpaid. The promoter resisted the claim on the ground that, at the time the book entries were made, the company was under a present liability to pay for the mining lease and the promoter was under a present liability to pay for the shares; and that what occurred was the setting off by agreement of the two debts, and that these facts would have supported a plea of payment.
[64] Re Harmony and Montague Tin and Copper Mining Company (Spargo's case.) (1873) LR 8 Ch App 407
The Court of Appeal held there was a “payment in cash” because the statutory requirement of “payment in cash” would be satisfied if there were “anything which amounted to what would be in law sufficient evidence to support a plea of payment”.[65] James LJ said:[66]
But if a transaction resulted in this, that there was on the one side a bona fide debt payable in money at once for the purchase of property, and on the other side a bona fide liability to pay money at once on shares, so that if bank notes had been handed from one side of the table to the other in payment of calls, they might legitimately have been handed back in payment for the property, it did appear to me in Fothergill’s Case [(1873) LR B Ch App 270], and does appear to me now, that this Act of Parliament did not make it necessary that the formality should be gone through of the money being handed over and taken back again; but that if the two demands are set off against each other the shares had been paid for in cash. If it came to this, that there was a debt in money payable immediately by the company to the shareholders, and an equal debt payable immediately by the shareholders to the company, and that each was accepted in full payment of the other, the company could have pleaded payment in an action brought against them, and the shareholder could have pleaded payment in cash in a corresponding action brought by the company against him for calls.
[65] Re Harmony and Montague Tin and Copper Mining Company (Spargo's case.) (1873) LR 8 Ch App 407, at page 412
[66] Re Harmony and Montague Tin and Copper Mining Company (Spargo's case.) (1873) LR 8 Ch App 407, at page 412
Mellish LJ said:[67]
I gave my opinion in Fothergill’s Case yesterday, on the proper construction of the 25th section of the Act of 1867. I then stated, that in my opinion, if the circumstances relied on would in an action for the money due upon shares be evidence only in support of a plea of accord and satisfaction, this section would prevent their being a good defence; but that if they would support a plea of payment, then the 25th section did not prevent their being a good defence. In the present case, I am of the opinion that if an action were brought at law for the amount originally payable on these shares, there would be a valid defence, under a plea of payment. Nothing is clearer than that if parties account with each other, and sums are stated to be due on one side, and sums to an equal amount due on the other side on that account, and those accounts are settled by both parties, it is exactly the same thing as if the sums due on both sides had been paid. Indeed, it is a general rule of law, that in every case where a transaction resolves itself into paying money by A. to B., and then handing it back again by B. to A., if the parties meet together and agree to set one demand against the other, they need not go through the form and ceremony of handing the money backwards and forwards.
[67] Re Harmony and Montague Tin and Copper Mining Company (Spargo's case.) (1873) LR 8 Ch App 407, at page 414
Spargo’s Case concerned the setting off of debts A and B owed to each other. That was held to be equivalent to each of A and B paying cash to the other in the amount of the debts. The same analysis has been applied to where B owes a debt to A, and A owes a debt to C. A, B, and C may agree that the debt B owes to A be set off against the debt A owes to C; and on the making of book entries to give effect to such agreement, B will be taken to have paid A, and A will be taken to have paid C. That is what occurred in In re Paraguassu Steam Tramroad Company (Ferrao’s Case).[68]
[68] In re Paraguassu Steam Tramroad Company (Ferrao's Case) (1874) LR 9 Ch App 355
In Ferrao’s Case a company sought to recover from Mr Ferrao an amount the company alleged to be unpaid on shares that had been issued to him. Mr Ferrao contended that the company had been paid pursuant to an agreement between a Mr Webb and the company under which the company’s liability to pay to Mr Webb a judgment in the sum of £3,900 would be partly paid by the company crediting £700 to the unpaid shares that were held by Mr Ferrao. The company credited Mr Ferrao’s share account with £700. The liquidator submitted the facts did not fall within the principles of Spargo's Case because no debt was due by the company to Mr Ferrao. The Court of Appeal (who did not call on counsel for Mr Ferrao) rejected the argument of the liquidator. James LJ said:[69]
The £700 was written off as between the company and Webb, and was written off on the other side as between the company and Mr Ferrao.
[69] In re Paraguassu Steam Tramroad Company (Ferrao's Case) (1874) LR 9 Ch App 355, at page 357
Mellish LJ said:[70]
In my opinion, the moment the company, in pursuance of that Judge's order, did credit the shares of Ferrao with the £700 so as to make them fully paid-up shares, the moment the £700 was paid by the company to Webb, just as if it were paid in cash. . . . Then, if it became paid by the company to Webb, it obviously follows that the £700 was also paid by Ferrao to the company, because crediting means acknowledging that they had received that amount in cash. It is exactly the same thing as if Webb had gone to the company and the company handed over to Webb £700 in bank notes, and then Webb had said, “I wish to pay up the shares of my friend Ferrao: there is the £700 in bank notes back again”. There was no need to go through that form; and, in my opinion, writing it off in the books is perfectly equivalent to payment.
[70] In re Paraguassu Steam Tramroad Company (Ferrao's Case) (1874) LR 9 Ch App 355, at page 357
I now turn to balances recorded in a current account (current account) held by a customer with his or her bank; and that is because “money” is often used to denote balances held in current accounts: “[w]e speak of money at the bank, and of money passing into and out of a bank account”.[71] Such speech, however, is incorrect if by “money” is meant cash. A credit balance recorded in a current account signifies a debt, so that if a customer pays an amount in cash (or its equivalent) to a bank, the cash becomes the property of the bank, and the bank becomes a debtor of the person who paid the cash to the bank in the amount of the cash. That principle was confirmed in Foley v Hill, where Lord Cottenham LC said:[72]
Money, when paid into a bank, ceases altogether to be the money of the principal . . . ; it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. The money paid into the banker’s, is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker’s money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains to himself, paying back only the principal, according to the custom of bankers in some places, or the principal and a small rate of interest, according to the custom of bankers in other places. The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal, but he is of course answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands.
[71] Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102, at page 127
[72] Foley v Hill [1848] EngR 837; (1848) 11 HLC 28, at pages 36-37; 9 ER 1002, at pages 1005-1006
“Money” in a current account, therefore, is a “chose in action represented by [the] credit balance”.[73] The chose in action is a debt, namely, a promise by the bank to pay the account holder cash on demand; and it is such debts that are often referred to as “money”. I will refer to such debts as “bank money”.
[73] Dovey v Bank of New Zealand [1999] NZCA 328, at [22]
“Payment”
The word “payment” in the expression “payment of money” usually denotes the use of money to discharge an obligation to pay money, that is, a debt. But “payment of money” may also denote the “transfer” (in the sense I will discuss shortly) of money as a gift, or in some other way that does not involve the discharge, or at least the immediate discharge, of a debt. The means by which money may be paid or transferred differs according to whether the money is cash, a debt (other than bank money), or bank money. Payment by cash is effected by tendering the amount of cash to a person, and the person to whom the cash is tendered accepting it. If the cash is tendered to a creditor to discharge a debt, the creditor’s acceptance of the tender operates to discharge the debt.[74] If the cash is tendered as a gift, the acceptance of the tender operates to transfer title in the cash to the person who accepts the tender. In the case of debts, payment is effected by the creditor discharging his or her debtor in consideration of the debtor or some other person discharging a debt the creditor owes the debtor or the other person, as in Spargo’s Case and in Ferrao’s Case.
[74] See, for example, Proctor, C., Mann on the Legal Aspect of Money, Oxford University Press 7th ed 2012, at page 183
By far the more usual method of payment of money involves bank money. The payment consists of person A directing his or her bank, as A’s agent, to use an amount ($X) standing to the credit of A’s current account to pay $X to a current account B holds with the same bank, or with another bank. If A and B each hold a current account with the same bank, and the bank acts on A’s direction, the bank will debit A’s current account and credit B’s current account in the amount of $X. The legal effect of this transaction, as between A and the bank, is that A will have released the bank of its obligation to pay $X to A in consideration of the bank assuming a liability to pay $X to B. The legal effect of the transaction as between the bank and B is that the bank will have assumed a promise to pay $X to B; that is, the bank’s debt to A in the amount of $X will have been replaced with the bank’s debt to B in the amount of $X. The same analysis applies where A and B hold accounts with different banks, except that payment must also be made between the banks; and these will be effected in Australia “through the clearing house system when their accounts with the Reserve Bank are debited and credited”.[75]
[75] European Bank Ltd v Citibank Ltd [2004] NSWCA 76, at [57]
This description of the payment of bank money requires a slight modification where A has an overdraft arrangement with A’s bank. In those circumstances if the bank acts on A’s direction, the bank will debit A’s account, just as the bank would do if A had an amount standing to the credit of A’s current account. The legal effect as between A and A’s bank, however, is different. Instead of A having agreed to release the bank of a liability the bank had to pay $X to A, A will have agreed to assume a liability to pay the bank $X as consideration for the bank assuming a liability to credit $X to B’s current account or to an account the bank holds in another bank.
The payment by bank money, therefore, manifests itself as a chain of debit and credit entries which commences with the payer’s bank debiting the payer’s current account with the amount the payer intends to pay the payee, and which ends with the payee’s bank crediting the payee’s account with that amount. The crediting of the payee’s account, however, does not necessarily mean the payment has been completed, or that the transaction can properly be characterised as a payment:[76]
Whatever mode or process is used, “payment” is not achieved until the process has reached the stage at which the creditor has received cash or that which he is prepared to treat as the equivalent of cash or has a credit available on which, in the normal course of business or banking practice, he can draw, if he wishes, in the form of cash.
[76] Tenax Steamship Co Ltd v The Brimnes (Owners) [1974] EWCA Civ 15; [1975] QB 929 (CA), at page 963 (Megaw LJ)
There are three observations that may be made about payment by use of bank money. First, the method is predicated on each of the parties to the payment being a party to a contract with the bank with whom the party holds a current account. Such contracts are subject to terms the law implies in contracts between customer and banker, unless the parties agree otherwise. Atkin LJ, in Joachimson v Swiss Bank Corporation, described the principal terms as follows:[77]
I think that there is only one contract made between the bank and its customer. The terms of that contract involve obligations on both sides and require careful statement. They appear upon consideration to include the following provisions. The bank undertakes to receive money and to collect bills for its customer’s account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch, and as such written orders may be outstanding in the ordinary course of business for two or three days, it is a term of the contract that the bank will not cease to do business with the customer except upon reasonable notice. The customer on his part undertakes to exercise reasonable care in executing his written orders so as not to mislead the bank or to facilitate forgery. I think it is necessarily a term of such contract that the bank is not liable to pay the customer the full amount of his balance until he demands payment from the bank at the branch at which the current account is kept.
[77] Joachimson v Swiss Bank Corporation [1921] 3 KB 110, at page 127
Second, a customer’s contractual relationship with a bank is part of a system or network devoted to the crediting and debiting of amounts to effect payment without the use of cash. Such systems and networks are referred to as “payment systems”[78] or “payment mechanisms”.[79] A useful description of a cashless payment system that is involved in the payment of bank money is given by Benjamin Geva:[80]
A cashless payment transaction consists of the following elements:
1.the pre-existing account relationships of customers with account- (or value -) holding institutions. Account-holding institutions may be depository or non-depository institutions that may provide asset, investment, and credit accounts that can be used for payments;
2.the communication of payment instructions by customers;
3.clearing of payment instructions (namely, the processing and exchange mechanism that enables participants to determine their debit and credit positions towards others); and
4.settlement (namely, the process of payment for positions established in the clearing).
[78] See, for example, s 7 of the Payment Systems (Regulation) Act 1998 (Cth), which defines “payment system” to mean “a funds transfer system that facilitates the circulation of money, and includes any instruments and procedures that relate to the system”.
[79] See, for example, Geva, Benjamin. “The Concept of Payment Mechanism.” Osgoode Hall Law Journal 24.1 (1986): 1-34
[80] Geva, B., Bank Collections and Payment Transactions, Oxford University Press, 2001, page 3
Third, a number of judges have noted that the word “money”, and the expressions “transfer of money”, and “payment of money”, are inapt to describe bank money and the processes by which bank money is used to effect payment. For example, in The Commissioner for Customs and Excise v FDR, Laws LJ said (emphasis in bold added):[81]
It is, even nowadays, not difficult to be beguiled by the old model of a transfer in specie, when money in the shape of tangible coin was moved from one place, and one owner, to another place and another owner. . . . [I]f one leaves aside transfers in specie (of coin, goods or other property), a transfer of money means no more nor less than the entry of a credit in the payee’s account and the entry of a corresponding debit in the payor’s account. There may be - will be - problems in cases of error or fraud in the posting of entries to the accounts. But however those may fall to be resolved, there is no further, elusive, event by which the money is really transferred: no Platonic Form, of which day-to-day transfers are only shadows. The pro and con entries constitute the transfer. There is nothing else.
[81] The Commissioner for Customs and Excise v FDR[2000] EWCA Civ 216, at [36], [37]
To similar effect, although directed to the principles of tracing, are the following observations Lord Millett made in Foskett v McKeown (emphasis added):[82]
We speak of money at the bank, and of money passing into and out of a bank account. But of course the account holder has no money at the bank. Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder. The bank gives value for it, and it is accordingly not usually possible to make the money itself the subject of an adverse claim. Instead a claimant normally sues the account holder rather than the bank and lays claim to the proceeds of the money in his hands. These consist of the debt or part of the debt due to him from the bank. We speak of tracing money into and out of the account, but there is no money in the account. There is merely a single debt of an amount equal to the final balance standing to the credit of the account holder. No money passes from paying bank to receiving bank or through the clearing system (where the money flows may be in the opposite direction). There is simply a series of debits and credits which are causally and transactionally linked.
[82] Foskett v McKeown [2001] 1 AC 102, at pages 127-128
Notwithstanding these observations, it remains convenient to use the expressions “transfer of money” or “payment of money” to describe the debiting of money to a current account in response to the payer’s request to his or her bank to pay; and, moreover, the use of these expressions reflects the common usage of “money”, “transfer of money” or “payment of money” to denote what the law characterises as debts, and the chain of debits and credits made in bank accounts by means of which payments are made by the use of bank money.
Conclusion
The expression “payment of money” in s 120(7)(a) of the Bankruptcy Act at the very least includes:
(a)the tender by A (the payer/transferor) to B (payee/transferee) of cash in a certain amount, and B’s acceptance of that tender;
(b)the discharge by A (the payee/transferee) of a debt in a certain amount B (the payer/transferor) owes to A in consideration of the discharge by B of a debt of at least the same amount A or some other person owes to B; and
(c)person A (payer/transferor) instructing his or her bank to debit an amount to A’s current account and to cause the same amount to be credited in a current account B holds with his or her bank.
Determination
As I have already noted, it is common ground Mr Tarrant made 27 payments, and that each payment was effected by an entry for the amount of the payment in the TABA Bank Account, and an entry for the same amount in the TE Bank Account. The following matters may be noted:
(a)It is open to find, and I do find, that during the period over which the 27 payments were made (Payment Period) the TABA Bank Account was a current account in the hands of Mr Tarrant. Until 31 December 2015 the TABA Bank Account had debit balances for the most part, which implies that during this part of the Payment Period NAB had provided Mr Tarrant an overdraft facility up to a certain amount. After 31 December 2015 the TABA Bank Account had credit or debit balances in small amounts, which suggests NAB was no longer willing to provide an overdraft facility to Mr Tarrant.
(b)Each entry made in relation to each payment was debited to the TABA Bank Account. If at the time the amount was debited the TABA Bank Account had a debit balance, the debiting of the amount (on the corresponding amount being credited to the TE Bank Account) resulted in Mr Tarrant increasing his indebtedness to NAB by the amount debited to his account. If at the time the amount was debited the TABA Bank Account had a credit balance, the debiting of the amount (on the corresponding amount being credited to the TE Bank Account) resulted in NAB’s indebtedness to Mr Tarrant (as represented by the amount standing to the credit of the account) decreasing by the amount debited to Mr Tarrant’s account, or being extinguished to the extent the amount debited equalled or exceeded the credit balance.
(c)There is nothing to suggest that the TE Bank Account was a current account in the hands of Tarrant Enterprises. That is, there is nothing to suggest that Tarrant Enterprises had an arrangement with NAB in relation to the TE Bank Account under which it could direct NAB to pay amounts to its order, and debit those amounts to the TE Bank Account. That is apparent from the nature of the debits and credits made to the TE Bank Account. I have already noted that on NAB advancing money under the NAB Loan, the amount of the loan was debited to the TE Bank Account. The bank statements for the TE Bank Account for the Payment Period show the debiting of amounts for interest and fees, and the crediting of amounts to reduce the debit balance. That, in turn, suggests, and I find, that any amount credited to the TE Bank Account was not “a credit available [to Tarrant Enterprises] on which, in the normal course of business or banking practice” Tarrant Enterprises was entitled to draw, if it so wished, “in the form of cash”,[83] and for that reason it cannot be said that the credit entries that were made in the TE Bank Account constituted payment to Tarrant Enterprises.
(d)Each of the 27 amounts that was debited to the TABA Bank Account was credited to the TE Bank Account. On the debiting of each amount, NAB discharged Tarrant Enterprises, to the extent of the amount credited, part of the amount Tarrant Enterprises owed NAB under the NAB Loan.
[83] Tenax Steamship Co Ltd v The Brimnes (Owners) [1974] EWCA Civ 15; [1975] QB 929 (CA), at page 963 (Megaw LJ)
On the crediting by NAB of each of the 27 amounts to the TE Bank Account, therefore, NAB discharged Tarrant Enterprises, to the extent of the amount credited, part of the amount Tarrant Enterprises owed NAB under the NAB Loan. NAB so discharged Tarrant Enterprises in consideration of one or both of the following two things:
(a)Mr Tarrant’s assuming a liability to pay to NAB on demand the amount credited to the TE Bank Account. That was the consideration Mr Tarrant gave where, at the time the amount was debited to the TABA Bank Account, the TABA Bank Account either had a debit balance or had a credit balance that was less than the amount that was debited.
(b)Mr Tarrant’s discharging NAB of its indebtedness to him in the amount credited to the TE Bank Account (if the amount debited was less than the amount standing to the credit of the TABA Bank Account) or in an amount equal to the amount standing to the credit of the TABA Bank Account (if the amount exceeded the amount standing to the credit of the TABA Bank Account).
In short, on NAB, at the direction of Mr Tarrant, making each set of debits and credits to the TABA Bank Account and the TE Bank Account respectively, Mr Tarrant discharged, to the extent of the amount of each debit and credit, a debt (the NAB Loan) Tarrant Enterprises owed to NAB. For that reason, each set of the debits and credits constituted a payment by Mr Tarrant to NAB in the amount of each debit and corresponding credit. I therefore do not accept the Trustee’s submission that the crediting of each amount to the TE Bank Account made money available to Tarrant Enterprises which it was free to use, and which it did use, to transfer to NAB “the property in the money” it received from Mr Tarrant.[84]
[84] Trustee’s written submissions filed 17 November 2021, [39]
That Tarrant Enterprises credited the amounts of the 27 payments to the capital accounts of Lara and Steven does not affect the conclusion that Mr Tarrant paid to NAB the 27 amounts and, by doing so, discharged Tarrant Enterprises’ debt under the NAB Loan to the extent of the amounts paid. The credits made to the capital accounts of Lara and Steven, however, are potentially relevant to the legal consequences that followed from Mr Tarrant making each of the payments. Those legal consequences arise out of the principle that a person, A, who under compulsion, or at the express or implied request of another person, B, pays B’s debt, acquires a right to recover from B the amount of the payment. In other words, by A in these circumstances paying B’s debt, A makes himself or herself the creditor of B for the amount of the debt A paid. That right is enforceable by the action for money paid, which is based on the principles stated by Willes LJ in Johnson v Royal Mail Steam Packet Company (emphasis in original):[85]
[N]obody can make himself the creditor of another by paying the other’s debt against his will or without his consent; this is expressed by the common formula of the count for money paid for the defendant’s use, at his request. That is the general rule, undoubtedly, but it is subject to this modification, that money paid to discharge the debt of another cannot be recovered unless it is paid at his request, or under compulsion, or in respect of a liability imposed upon that other.
[85] Johnson v Royal Mail Steam Packet Company (1867) LR 3 CP 38, at page 43
By paying $194,290 of the debt Tarrant Enterprises owed NAB, Mr Tarrant either made the payment at the implied request of Tarrant Enterprises, or under compulsion, namely, because of Mr Tarrant’s liability under the Guarantee to pay the NAB Loan. By the time Mr Tarrant made the first of the 27 payments, NAB had already made a demand under the Guarantee that Mr Tarrant pay NAB $1,902,679.40.[86] By making the payments, Mr Tarrant made himself a creditor of Tarrant Enterprises to the extent of the payments. The questions that arise are whether the crediting of each of the amounts of the 27 payments to Lara’s and Steven’s capital account evidences Mr Tarrant’s releasing Tarrant Enterprises of the liability that accrued to it to reimburse Mr Tarrant for the payments he made to NAB; and, if so, whether such purported release has any legal effect.
[86] CB952
Evidence Mr Tarrant gave at his public examination is reasonably capable of supporting the finding that Mr Tarrant did indeed intend to release Tarrant Enterprises of the liability that accrued to it to reimburse Mr Tarrant the 27 payments he made to NAB. I find that this was Mr Tarrant’s intention. There is no evidence, however, that Tarrant Enterprises gave any consideration for such release, other than matters on which Tarrant Enterprises relies for contending Mr Tarrant agreed to release his rights to be reimbursed in consideration of Tarrant Enterprises agreeing to forebear suing Mr Tarrant for negligence. I am not satisfied there was any such agreement, for the reasons the Trustee in his written submissions submits there was no such agreement.[87] In those circumstances, there being no consideration for Mr Tarrant’s purported release of his rights to be reimbursed for the $194,290 worth of payments he made to NAB, the purported release is of no legal effect.
[87] Trustee’s written submissions filed 17 November 2021, [49]-[50]
Conclusion
I am not satisfied that any of the 27 payments that were made from the TABA Bank Account to the TE Bank Account constituted a payment of money by Mr Tarrant to Tarrant Enterprises. On the contrary, I am satisfied that each of the 27 payments constituted payments by Mr Tarrant to NAB in discharge of the debt Tarrant Enterprises owed to NAB under the NAB Loan to the extent of the payments.
Did the 27 transfers constitute the “transfer of property” by Mr Tarrant to Tarrant Enterprises?
The Trustee appears to assume that “payment of money” and the transfer of property in money are one and the same thing. If that is correct, my conclusion that the 27 payments were payments Mr Tarrant made to NAB necessarily means that the payments constituted the transfer of property in money from Mr Tarrant to NAB. I am not prepared to assume, however, that “payment of money” is coterminous with the “transfer of property” in money. That requires me to consider the notion of “property in money” that is property in cash or in bank money, and the “transfer” of such property.
“Transfer of Property” in money
Money in the form of “cash” is capable of being the subject of property.[88]
Money is, of course, capable of being stolen and if it is stolen, property in the notes or coins does not pass to the thief. But if the thief passes the money into currency, which he may do by making payment with it, ownership will pass with possession notwithstanding the thief’s lack of title providing the transaction was bona fide and for valuable consideration . . . That is because of the doctrine of negotiability - and negotiability was first attributed to chattels in the form of money - which constitutes an exception to the common law rule that a man who has no title himself cannot pass title to another; nemo potest dare quod non habet . . .
[88] Ilich v R [1987] HCA 1, at [24]; (1987) 162 CLR 110, at page 128 (Wilson and Dawson JJ)
Bank money, being a debt, can also be the subject of property. It is a chose in action; and it is a chose in action that is capable of being transferred by assignment. Bank money, however, is rarely the subject of any assignment. Bank money is predominantly used to effect payment through use in a payment system that relies on the crediting and debiting of amounts to accounts; and the use of bank money to make a payment in that way does not constitute any transfer of any property. The House of Lords held that to be the case in R v Preddy.[89]
[89] R v Preddy [1996] AC 815
In Preddy persons had fraudulently induced financial institutions to make payments that involved the debiting of a lender’s bank account with a corresponding credit in another person’s bank account. The question was whether the transaction that was constituted by the debiting and crediting of bank accounts involved the obtaining of any property. The House of Lords answered that question in the negative. Lord Goff said (emphasis in original):[90]
The crucial question, as I see it, is whether the defendant obtained (or attempted to obtain) property belonging to another. Let it be assumed that the lending institution's bank account is in credit, and that there is therefore no difficulty in identifying a credit balance standing in the account as representing property, i.e. a chose in action, belonging to the lending institution. The question remains however whether the debiting of the lending institution’s bank account, and the corresponding crediting of the bank account of the defendant or his solicitor, constitutes obtaining of that property. The difficulty in the way of that conclusion is simply that, when the bank account of the defendant (or his solicitor) is credited, he does not obtain the lending institution’s chose in action. On the contrary that chose in action is extinguished or reduced pro tanto, and a chose in action is brought into existence representing a debt in an equivalent sum owed by a different bank to the defendant or his solicitor. In these circumstances, it is difficult to see how the defendant thereby obtained property belonging to another, i.e. to the lending institution.
[90] R v Preddy [1996] AC 815, at page 834
The plurality in Lordianto v Commissioner of the Australian Federal Police; Kalimuthu v Commissioner of the Australian Federal Police adopted the same analysis when describing a “typical transaction for the payment of a debt or the transfer of money, there is no delivery of a physical asset in the form of notes and coins but a transfer through the electronic clearing and settlement systems used by the banking industry”. The plurality said (emphasis added):[91]
The essential initiating event is an instruction by a payer (or the originator of a payment) to their bank to reduce the value of their bank balance in an account and to increase, correspondingly, the bank balance of an account held by a named recipient (also known as the beneficiary). The form of the instruction is not fixed. The originator's title to "money" is not transferred. The transfer operates by adjusting the total amount of the debts owed by the participants, the banks, to each other by a process which the banks commercially describe as “netting”. It is a process whereby a series of obligations between two participants is replaced with a single obligation which is calculated by adding all of the obligations owed by each participant to the other and deducting the smaller from the larger. On any one day, the netting involves multiple participants in the industry, often using clearing houses, which operate as multilateral contracts. The process of netting determines the net sum which each bank owes to each other in the clearing system, which is then settled.
There are a number of consequences. First, when an originator instructs a bank to make a transfer from their account, the chose in action representing that credit balance is extinguished or reduced by the amount of the transfer. Second, a fresh chose in action is created, or the value of an existing chose in action is increased, for the beneficiary which entitles them to withdraw an equivalent amount from their bank, subject always to the terms of their contract with their bank. Third, the property the beneficiary acquires is wholly distinct from the property which the originator had before the transfer.
[91] Lordianto v Commissioner of the Australian Federal Police; Kalimuthu v Commissioner of the Australian Federal Police [2019] HCA 39, at [75], [76]
Could it be said that although the use of bank money to make a payment does not involve any transfer of property, there is nevertheless a transfer of property in circumstances where, under the relevant rules of tracing, the person who had title to bank money could lay claim to property that had been acquired by the use of the bank money? The answer to that question would seem to be “no”. Tracing is a set of rules that permits a person who had an interest in an asset to identify a new asset as a substitute for the asset to assert a claim in relation to the new asset; and the process of identifying a new asset to substitute for another asset is often distinguished from “following” an asset, which is another name for identifying an asset that has been transferred. Lord Millett made the distinction in Foskett:[92]
The process of ascertaining what happened to the plaintiffs' money involves both tracing and following. These are both exercises in locating assets which are or may be taken to represent an asset belonging to the plaintiffs and to which they assert ownership. The processes of following and tracing are, however, distinct. Following is the process of following the same asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner. In practice his choice is often dictated by the circumstances.
[92] Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102, at page 127
Determination
The entries by which the 27 payments were made from the TABA Bank Account to the TE Bank Account did not involve the transfer of any chose in action and, therefore, did not constitute the transfer of any property by Mr Tarrant to Tarrant Enterprises. To the extent there was a debit balance in the TABA Bank Account immediately before a payment was debited, the debt Mr Tarrant owed NAB increased in the amount debited to the account, and the amount of the debt Tarrant Enterprises owed to NAB was reduced by the amount credited to the TE Bank Account. To the extent there was a credit balance in the TABA Bank Account immediately before a payment was debited, the debt NAB owed to Mr Tarrant was either reduced or extinguished, and the amount of the debt Tarrant Enterprises owed to NAB was reduced by the amount credited to the TE Bank Account.
Conclusion on claims made under s 120(1) of the Bankruptcy Act
Given my conclusion that none of the 27 payments constituted a payment of money by Mr Tarrant to Tarrant Enterprises, and therefore none of the payments constituted a transfer of property from Mr Tarrant to Tarrant Enterprises, the Trustee’s claims against Tarrant Enterprises under s 120(1) of the Bankruptcy Act must fail. There was no payment of money, and therefore no transfer of property, from Mr Tarrant to Tarrant Enterprises that was capable of being void under s 120(1) of the Bankruptcy Act.
I do not propose to consider the other defences on which Tarrant Enterprises relies.
Trustee’s claim under s 121A of the Bankruptcy Act
Section 121A of the Bankruptcy Act provides as follows:
(1)This section applies if:
(a) a person who later becomes a bankrupt (the transferor) transfers property to another person (the transferee); and
(b) the transferee gives some or all of the consideration for the transfer to a person (a third party) other than the transferor.
(2) Sections 120 and 121 apply as if the giving of the consideration to the third party were a transfer by the transferor of the property constituting the consideration.
(3) If the giving of the consideration to the third party is void against the trustee in the transferor’s bankruptcy under section 120 or 121, the trustee has the same rights to recover the property constituting the consideration as the trustee would have if the giving of the consideration had actually been a transfer by the transferor of the property constituting the consideration.
Unlike s 120 and s 121 of the Bankruptcy Act, s 121A does not provide that “transfer of property” includes “payment of money”. Given my conclusion that the payment of bank money does not constitute a transfer of property, s 121A of the Bankruptcy Act does not apply to the payments that were made from the TABA Bank Account to the TE Bank Account. Assume, however, that s 121A of the Bankruptcy Act does apply to those payments. What then?
Given my conclusion that Mr Tarrant paid NAB, NAB would be the transferee of each of the 27 payments for the purpose of s 121A of the Bankruptcy Act. The consideration it gave for each of those payments was to discharge, to the extent of the amount of the payment, Tarrant Enterprises of the debt it owed NAB under the NAB Loan. Subsection 121A(2) of the Bankruptcy Act, then, would apply as if Mr Tarrant discharged Tarrant Enterprises of the debt it owed NAB. That scenario would make no sense, because there is no debt Tarrant Enterprises owed to Mr Tarrant that could be deemed to have been discharged by Mr Tarrant making any of the 27 payments.
trustee’s claims under s 121 of the bankruptcy act
Subsection 121(1) of the Bankruptcy Act provides as follows:
A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a) the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and
(b) the transferor’s main purpose in making the transfer was:
(i) to prevent the transferred property from becoming divisible among the transferor’s creditors; or
(ii) to hinder or delay the process of making property available for division among the transferor’s creditors.
Like s 120(1) of the Bankruptcy Act, s 121(1) applies to a transfer of property by a person who later becomes a bankrupt to another person; and like s 120(7)(a), s 121(9)(a) provides that “transfer of property” includes a “payment of money”. Given my conclusion that none of the 27 payments made from the TABA Bank Account to the TE Bank Account constituted a payment of money by Mr Tarrant to Tarrant Enterprises, and therefore a transfer of property from Mr Tarrant to Tarrant Enterprises, the Trustee’s claims under s 121(1) of the Bankruptcy Act must also fail.
I do not propose to consider the other defences on which Tarrant Enterprises relies.
disposition
I propose to make an order that the application be dismissed. I also propose to make an order that the Trustee pay Tarrant Enterprises’ costs, but I will reserve to the parties liberty to apply within 28 days of my pronouncing my orders to vary or discharge the order for costs I propose to make.
I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 23 December 2022
1
15
0