Simpson, M.F. v Grellman, R.J

[1990] FCA 315

Re: MARINA FERIAL SIMPSON
And: RICHARD JOHN GRELLMAN
No. G40 of 1990
FED No. 315
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lockhart(1), Wilcox(1) and Einfeld(1) JJ.

CATCHWORDS

Bankruptcy - Application to set aside settlement - Order that wife held a one half interest in a property registered in her name alone on behalf of trustee of bankrupt husband - Property purchased out of proceeds of sale of earlier property registered in joint names of the spouses - Finding by trial judge that wife may have made some contribution to purchase of earlier property - Whether wife was a "purchaser for valuable consideration" of settled property - Funds for purchase of subject property paid out of joint bank account - Application of the principle In re Bishop (1965) Ch 450 - Form of order.

Bankruptcy Act 1966 s.120

HEARING

SYDNEY

#DATE 28:6:1990

Counsel for the applicant: Mr M Broun, QC and Mr J Atkin

Solicitors for the applicant: Phillips Fox

Counsel for the respondent: Mr R A Conti, QC and Ms H Coonan

Solicitors for the respondent: Abbott Tout Russell Kennedy

ORDER

1. The appeal be dismissed.

2. The appellant pay to the respondent his costs of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The matter before the Court is an appeal by Marina Ferial Simpson against an order made by Burchett J declaring that Richard John Grellman, the trustee of the bankrupt estate of Mrs Simpson's husband, Paul Anthony Simpson, is entitled to a one half interest in a property situated at 36 Newcastle Street, Rose Bay. The order of his Honour was made pursuant to s.120(1) of the Bankruptcy Act 1966. That sub-section provides:

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

(a) a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or

(b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor, is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 2 years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy."

1. Reference should also be made to s.120(7) and (8) which read:
   

"(7) Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired from the persons entitled to the benefit of the settlement, covenant or contract or from the trustee of the settlement the money or property the subject of the settlement, covenant or contract or an interest in that money or property.

(8) In this section, 'settlement of property' includes any disposition of property."

1. The appellant was born in Indonesia but she came to live in Australia in 1972. On 15 December 1979 she married Mr Simpson. Mr Simpson was then employed by Garuda Indonesian Airways. He was the sole owner of a house in Trafalgar Street, Brighton-Le-Sands which he had purchased in 1977. In March 1981 a sum of US$250,000 was loaned to Mr Simpson by Garuda and, in the same month, Mr and Mrs Simpson purchased, as joint tenants, a house in The Kings Road, Brighton-Le-Sands. During the following month Mr Simpson sold his Trafalgar Street property.

2. Mr and Mrs Simpson occupied the house in The Kings Road, Brighton-Le-Sands as their matrimonial home. They had three children, the eldest being born on 18 January 1981 and the youngest on 1 April 1985. On 17 September 1981 they sold The Kings Road property. Six days later they purchased for $400,000 a house in Beresford Road, Rose Bay. This property was registered in their joint names. Initially, it was encumbered with a mortgage to a finance company but that mortgage was discharged in January 1983.

3. In August 1983 Mr Simpson left the employment of Garuda. However, he did not immediately repay the loan from that company. On 5 February 1985 Mr Simpson purchased, in his name alone, a property at Marrickville. This property cost $134,425. Seven weeks later, on 20 March 1985 - this was the date of settlement - Mr and Mrs Simpson sold their home at Beresford Road, Rose Bay for $450,000. The actual amount received by them, by three separate cheques and after deducting expenses, was approximately $440,000. The first instalment of this money was in the form of a cheque for $402,972.51 which was received on 21 March 1985 and paid to the joint account of Mr and Mrs Simpson at the National Australia Bank, Pitt and Hunter Streets, Sydney. On the same day, Mr Simpson withdrew $400,000 from the joint account and deposited that sum in an account he maintained, in his name alone, with Hambros Australia Limited. Eight days later, after the banking of the cheque representing the deposit less commission, Mr Simpson transferred a further $25,000 to the Hambros account.

4. On 6 June 1985 Mr Simpson attended the auction of 36 Newcastle Street, Rose Bay. He was the successful bidder, purchasing the property for $260,000. He signed the contract at the auction, the purchaser being shown as "Paul Simpson or nominee". Mr Simpson paid the deposit by drawing a cheque on the NAB joint account.

5. On the same day Coroba Pty Limited, a shelf company recently acquired by Mr and Mrs Simpson and of which they were both directors and shareholders, agreed to purchase for $140,000 a travel agency business situated in Maroubra.

6. The purchase of the Newcastle Street property was completed on 2 August 1985. The funds necessary for the purchase were obtained from the joint account. For that purpose, on 31 July 1985, Mr Simpson had transferred $234,000 from his Hambros account to the joint account. The sole purchaser named on the Memorandum of Transfer was Mrs Simpson.

7. Mr Simpson commenced to work in the travel agency, apparently on a trial basis, shortly after Coroba's contract to purchase. But he became dissatisfied with what he learned about the business, apparently taking the view that the vendor had misrepresented aspects of its affairs. He sought legal advice in October but then decided to take more direct action. On 13 October 1985 Mr Simpson set fire to the premises in which the business was conducted. Possibly foreseeing one result of this drastic step, Mr Simpson set about adjusting his position qua Garuda. On 1 November he withdrew $124,000 from his Hambros account and paid $100,000 to Garuda. On 10 December he transferred the Marrickville house to Garuda in satisfaction of the balance of his debt.

8. On 29 April 1986 the owner and lessee of the Maroubra property obtained judgment against Mr Simpson in the sum of $496,529. On 17 August he was made bankrupt.

9. On 1 March 1989 Mr Simpson's trustee in bankruptcy, Richard John Grellman, filed an Application to which Mrs Simpson was made respondent. The Application sought a declaration that Mrs Simpson was the beneficial owner of the Newcastle Street property in trust for him as registered trustee, together with an order that Mrs Simpson transfer to him "all of her right title and interest" in the property. Alternatively, the Application claimed a declaration that Mrs Simpson held a one half interest in the property in trust for him and an order that she transfer that one half interest as tenant in common in the property. As already mentioned, Mr Grellman was successful only on his alternative claim.

10. The case put on behalf of the appellant at the trial, and supported by evidence given by both herself and her husband, was that substantial sums of money - amounting to some US$200,000-250,000 - had been remitted to her from Indonesia during the period 1981-1983. It was said that these sums emanated from the estate of the appellant's father, who died in 1977, and that they were used in the purchase of the Newcastle Street property. Burchett J did not accept that case. His Honour conceded the possibility that some "relatively small" sums were sent to Mrs Simpson by her mother from Indonesia but he was not satisfied that they made a significant contribution to the cost of purchasing the Newcastle Street property. Burchett J found, as indeed was obvious from the bank records, that the Newcastle Street purchase was funded directly from the sale of Beresford Road, with the interposition of the brief deposit with Hambros. He said that, prima facie, it followed that "Mrs Simpson was beneficially entitled in right of her pre-existing interest in the purchase moneys, as to an undivided one half share, and that, if the presumption of advancement applies, she had become entitled as to the other one half share beneficially by virtue of the presumption". His Honour went on to say that, having regard to Calverley v Green (1980) 155 CLR 242, the presumption of advancement did not apply; but that - for s.120 purposes - it would make no difference if it did. His Honour considered, but rejected, the case put by Mrs Simpson that she had contributed more than one half of the purchase price of Beresford Road from funds made available to her from her father's estate.

11. Before us, no serious attack was made upon the factual findings of Burchett J. Reference was made to some aspects of the evidence surrounding the purchase of Newcastle Street: the failure of Mrs Simpson to attend the auction, notwithstanding that she said in evidence that it had always been agreed between herself and her husband that the Newcastle Street property should be hers alone (Mrs Simpson was breast-feeding a young baby at the time), the names of the purchaser used in various documents created by the solicitor acting on the purchase, and the fact that the Marrickville property had been purchased shortly before the auction in Mr Simpson's name alone (this being said to be an anticipation of his share of the proceeds of the sale of Beresford Road). But counsel for the appellant recognised that, at best, these matters were equivocal. They did not dispute that the learned trial Judge was fully entitled to reach the conclusion which he did about the factual case put to him on behalf of their client.

12. However, counsel argue that his Honour misdirected himself in law in reaching the conclusion that Mrs Simpson held a one half interest in the house in trust for Mr Grellman, as registered trustee. They say that, even fully accepting his findings of fact, his Honour fell into two separate errors of law.

13. The first proposition put on behalf of the appellant is founded on Barton v Official Receiver (1986) 161 CLR 75. In that case the High Court addressed the meaning of "valuable consideration" in s.120, holding that the term required the giving of something by a purchaser which had "a real and substantial value", not "merely nominal or trivial or colourable": see p 86. Once it be accepted, say counsel, that some part of the moneys used in the purchase of the Newcastle Street property emanated from Mrs Simpson, being moneys received by her from her father's estate, Mrs Simpson was a purchaser of the property for "valuable consideration"; accordingly, s.120 could not apply to the settlement upon her of the Newcastle Street property. Counsel say that, even conceding that the amount received from the estate was "relatively small", by comparison with US$250,000, his Honour apparently thought that it was an amount of some thousands of dollars, perhaps even tens of thousands.

14. It seems to us, with respect, that this submission exhibits some confusion of thought. The principle of Barton is clear. It is not necessary that the consideration given by a purchaser be equal, or even nearly equal, to the value of a property the subject of a s.120 application. We need express no opinion as to whether a contribution of the order of magnitude accepted by his Honour would meet the test required by Barton. The vice in the appellant's submission is that it does not properly identify the relevant "property".

15. It is true that the primary claim made by the respondent at the trial was that the whole of Mrs Simpson's interest in the Newcastle Street property was held in trust for him. But the respondent also put an alternative case, confined to a one half interest in the property. That claim was upheld by the trial Judge. Specifically, his Honour found that the Newcastle Street property had been purchased out of funds jointly owned, and emanating from the sale of Beresford Road. The Beresford Road property, in turn, had been purchased from the proceeds of the sale of The Kings Road, Brighton-Le-Sands and other moneys unable to be identified. But, accepting that Mrs Simpson had made a personal contribution to the purchase of Beresford Road, on his Honour's factual findings there could be no suggestion that her contribution exceeded one half of the $400,000 purchase price. If anything, Mr Simpson subsidised his wife's share in the property, not the reverse. And Mr Simpson did not settle his one half interest in Beresford Road on Mrs Simpson. The property was registered in both their names. When Beresford Road was replaced by Newcastle Street, Mrs Simpson took with her the one half interest she had earlier enjoyed, and possibly contributed to out of estate moneys, but no more. The other half interest belonged to her husband. By agreeing to the registration of the Newcastle Street property in her name alone, Mr Simpson settled his one half interest in that property on Mrs Simpson. The relevant "property", for s.120 purposes, was Mr Simpson's one half interest. Mrs Simpson gave no consideration whatever for that interest. She was not a "purchaser for valuable consideration".

16. The second error imputed by the appellant to Burchett J is that he ignored the legal consequences of the fact that the purchase price of Newcastle Street came from a bank account held in the joint names of Mr and Mrs Simpson. Counsel refer to In re Bishop (1965) 1 Ch 450, a decision which has been recognised as good law in Australia: see Croton v R (1967) 117 CLR 326 at p 338.

17. Bishop involved the administration of a deceased estate. In 1946 a husband and wife had opened a bank account in their joint names. They contributed to the initial fund, in unequal amounts, out of their own resources and, over the years, the account was fed by receipts (both of an income and a capital nature) resulting from investments held by one or both of the spouses. Moneys were withdrawn at will by both spouses for their own purposes, for housekeeping and for investments. In 1959 the husband died and a question arose as to the extent of any beneficial interests of the wife and the estate, respectively, in assets purchased in the separate names of the husband and wife from account moneys. Stamp J held that there were no such interests. The principle adopted by the judge was stated by him in these terms, at p 456:
    

"Where a husband and wife open a joint account at a bank on terms that cheques may be drawn on the account by either of them, then, in my judgment, in the absence of facts or circumstances which indicate that the account was intended, or was kept, for some specific or limited purpose, each spouse can draw upon it not only for the benefit of both spouses but for his or her own benefit. Each spouse, in drawing money out of the account, is to be treated as doing so with the authority of the other and, in my judgment, if one of the spouses purchases a chattel for his own benefit or an investment in his or her own name, that chattel or investment belongs to the person in whose name it is purchased or invested: for in such a case there is, in my judgment, no equity in the other spouse to displace the legal ownership of the one in whose name the investment is purchased. What is purchased is not to be regarded as purchased out of a fund belonging to the spouses in the proportions in which they contribute to the account or in equal proportions, but out of a pool or fund of which they were, at law and in equity, joint tenants. It also follows that if one of the spouses draws on the account to make a purchase in the joint names of the spouses, the property purchased, since it is purchased in joint names, is, prima facie, joint property and there is no equity to displace the joint legal ownership. There is, in my judgment, no room for any presumption which would constitute the joint holders as trustees for the parties in equal or some other shares."

1. Counsel for the appellant seek to obtain from this statement of principle the proposition that any assets purchased by a spouse out of moneys in a joint bank account belong solely to the spouse in whose name they are purchased. But we do not think that Stamp J went so far. His Lordship was careful to qualify the proposition contained in the opening sentence of the quoted passage by the inclusion of the words "in the absence of facts or circumstances which indicate that the account was intended, or was kept, for some limited or specific purpose". In the case of ordinary transactions on an ordinary bank account, these words may have little significance. Husbands and wives, no doubt, ordinarily regard themselves as being free, without reference to the other, to draw upon their joint account for everyday needs. Although circumstances may vary from case to case, this will usually be the purpose for which the account is kept. But it is wrong to extrapolate from this ordinary situation a rule of universal application. The question is always one of intention. As Stamp J pointed out, the general rule has no application to cases where it appears that the account was intended, or kept, for a limited or specific purpose. We would add that it can have no application to a case where the surrounding circumstances show that a particular deposit in a general account is intended, or kept, for a specific or limited purpose. In such a case, it must be inferred that the parties intended that their usual mutual freedom to dispose unilaterally of moneys in the account did not extend to the deposit.

2. This is the present case. The bank statements which are in evidence suggest that the joint account of Mr and Mrs Simpson usually held only limited funds, not much exceeding $1,000. The principle of Bishop no doubt extends to ordinary withdrawals from those limited funds, for personal or household expenses, etc. But the moneys paid into the account as a result of the sale of the Beresford Road property were in another category altogether. They were a major capital asset of the couple - probably their greatest asset. They were treated as special, $400,000 being immediately withdrawn for deposit with Hambros and another $25,000 eight days later. Those moneys remained with Hambros until they were required for later capital expenditure. The amount required for the purchase of Newcastle Street was returned only briefly to the joint account before being paid out on settlement of that purchase. It is obvious that, during the three days in which the funds for Newcastle Street were back in the joint account, it was the intention of the parties that they be applied for that purpose. There is, of course, no direct evidence on the point, as both Mr and Mrs Simpson were putting a different case which was rejected by the trial Judge, but it may safely be inferred from the history of the moneys that neither spouse would have accepted the entitlement of the other to use those moneys during that time for some other purpose. As between husband and wife the funds transferred back from Hambros were impressed with a special purpose: the purchase of Newcastle Street. The usual situation, recognised in Bishop, has no application to such a case.

1. Finally, it is said by counsel for the appellant that - if all else fails - the order made by Burchett J should be varied so as to speak of a specified money sum being one half of the cost of Newcastle Street, rather than a one half interest in the property. It is obvious that, in times of escalating real estate values, such a variation might make a significant practical difference. As counsel point out, the order made in Barton referred to a specific sum of money. But that was because, in Barton, the property settled was a sum of money. In the present case, it was not. Mr Simpson was entitled to take a one half interest in the property. In agreeing to the transfer being taken by Mrs Simpson alone, he forewent that right. He settled his one half interest on her. It is that interest which she now holds on behalf of her husband's trustee, pursuant to s.120.

2. In our judgment there is no substance in any of the points of law argued on behalf of the appellant. The appeal should be dismissed with costs.