Tapp, A.R. v Official Trustee in Bankruptcy

I-

C A T C H W O R D S	i.
r

BANKRUPTCY - settlement within

2 years of bankruptcy of bankrupt's

interest

property

on wife

- good faith conceded -

settlement pursuant

to agreement requiring approval of Family

Court -

lack of approval deprives agreement

effect

whether

"valuable

consideration"

- whether

Family

Court

approval after trustee's election to avoid could destroy

effect of election.

FAMILY LAW -

maintenance agreement requiring approval of Family

Court - whether effect of approval retrospective - interrelationship of trustee's electlon to avoid and effect of approval.

Re: Allan Ross Tapp

Ex parte: Official Trustee in Bankruptcy

Qld E152 of 1984

PINCUS J. BRISBANE 17 J U N E 1987

IN THE FDERAL COURT OF AUSTRALIA

)

GENERAL DIVISION

)	QLD E152 of 1984

BANKRUPTCY DISTRICT O F THE SOUTHERN )

DISTRICT OF THE STATE OF OUEENSLAND )

RE:	ALLAN ROSS TAPP

A Bankrupt

EX PARTE:

OFFICIAL TRUSTEE IN BANKRUPTCY

Applicant

ALLAN ROSS

TAPP

First Respondent

MARILYN PATRICIA	TAPP	I '
:
...

Second Respondent

I .

PINCUS J .

17 JUNE 1987

REASONS FOR

JUDGMENT

This is an application on behalf of the trustee of the

, -

estate of Allan	Ross Tapp, in	respect	of	whose	estate	a	!
I

sequestration order was made on 5 March 1984.

The applicant seeks

a declaration that

a maintenance agreement dated

20 January 1983

whereby the bankrupt agreed to transfer his interest in certain

_ .

property is void, a

declaration that the transfer in question is

void, and other relief. The only active opponent, the transferee,

will be called simply "the respondent".

I; ,

;

' .

2 .

Less

than

two

years

before

the

commencement

bankruptcy there was a matrimonial dispute between the bankrupt and his wife, in consequence of which he agreed to, and did,

transfer his half interest

in the matrimonial home to her. The

c ,

applicant concedes that was done in good faith but denies that

there

was

"valuable

consideration"

within

the

meaning

s.lZO(l)(a)

the Bankruptcy Act, which is set out below.

Questions of	the effect of the Family	Law Act 1975 are also
raised.

The date on

which the parties separated is not quite

certain, but it is common ground that the separation occurred

shortly prior to the executlon of the maintenance agreement which

issue;

that

document

dated

20 January 1983.

The

agreement is expressed to

"intended to be approved by

the

Family Court

of Australia at Brisbane under the provisions of

section 87 of the Family Law Act

1975 ...

Under clause 6 the

husband and wife agree to do all things necessary to obtain that

approval.

The

agreement recltes, among other things, that the

husband and wife are the registered proprietors of the "former

Matrimonial Home", that the wife and the four children presently

' _

reside and intend to reside in

it, and that the husband and wife

have a joint cheque account and joint savings account.	r
' I

Under clause

the husband promises to execute all

, '

relevant transfer documents

' I . . .

to enable the Wife to become the

registered proprietor of the matrimonial home". Under clause

2 he

3 .

I .

accepts responsibility to meet payments under mortgages on the

property. Clause	3 provides that	he "shall retain all his tools	I ,-
I.

of trade as a boiler maker". Clause

4 is as

follows:

"The Husband and Wife have divided their personal

assets and the Husband

has agreed that the Wife

shall

take

all

the

furniture,

electrical

appliances and accessaries [sic3 in the matrimonial

home.

Clause 5 reads as follows:

"This Agreement shall operate in relation to matters

of maintenance and alteration of property interest

in substitution for any rights

of the Husband

the Wife under Part	VI11 of the Familv Law Act
1975.

The

agreement

was

never

approved

the

Family

Court,

nor

submitted for approval.

As required by the agreement, the bankrupt executed a

transfer of his interest in the matrimonlal home

and

was

registered on

April 1983.

The petition was presented eight

* -

months later and,

as mentioned above, bankruptcy supervened and

(as also mentioned above) good faith is not disputed despite the

closeness of the agreement to bankruptcy.

The application is brought under s.120(1) which,

so far

as relevant, reads as follows:

"A settlement of property, whether made before	or
after 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;

...

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."

It was conceded on behalf of the respondent that there was a settlement of property but the exception in para.(a) was

relied on.

! '

Counsel for the applicants said that there was no

valuable consideration

because

the agreement was deprived

effect by the combined operation of the then

sub-ss.(l) and ( 2 ) of

5.87 of the Family Law Act 1975:

"(l)

Subject

this

section,

a maintenance

agreement may make provision

the effect

that the agreement shall operate, in relation

to the financial matters dealt with in the

agreement, in substitution for any rights

the parties to the agreement under this Part.

, _

( 2 )	A maintenance agreement that makes provision	I
I-

as mentioned in sub-section

(1) does not have

any effect unless it has been approved by the

court.

By s.44(1) of the Familv

Law Amendment Act 1983, 5.87 was repealed

and replaced, the new provision operating from 25 November 1983.

It is not immediately clear whether the ineffectiveness

the

agreement with which I am concerned presently derives from the

former provision or from the

1983 replacement. However, the newer

provision is not more favourably expressed, from the respondent's

point of view. It says "has no effect, and is not enforceable in

I	any way" instead of "does not have any effect".

It agreement does not include the precise words set out

will be noted that clause

of the maintenance

in s.87(1).

Nevertheless, it was common ground, and

I hold, that the agreement

was one that "makes provision

as mentioned in" sub-s.87(1).

The purpose of

s.87(2)

of the Family

Law Act was

doubt to ensure that agreements giving away rights which might

otherwise have been sought under the Act came under scrutiny. See

v. m (1965) 113

C.L.R. 545 and Perlman v. Perlman (1984)

51 A.L.R. 317 at 331.

Sub-s.(2) does not, however, say merely

that the agreement is deprived

of effect insofar as it purports to

take away rights; it	makes the whole agreement ineffective, as I	!
I-

read it, unless approval been given. Nor does there appear to be

any reason to read down the words "does not have any effect"

so as

to make the agreement effective to the extent of providing some

1 .

consideration.

I can see no escape from the conclusion that the

agreement,	being	deprived	of	effect	by	a statute,	cannot
-

constitute

sufficient

consideration

for' the

purpose

s.lZO(l)(a).

Counsel for the wife argued, however, that that is not

the end of the case. He argued that before the written agreement was made, the parties had reached an agreement, according to the evidence, sufficient to supply the necessary consideration.

2 -

The memorandum of transfer of the interest in question

is expressed to be executed

"in

consideration of

deed of

agreement dated 20

January 1983 between the parties pursuant to

s.87 of the Family

Law Act

1975"; that is, it is expressed to be

in consideration of the agreement

which

the Familv Law Act

deprives of effect. The consideration clause in the transfer

cannot create an estoppel except as between the parties and their

privies; but the trustee is in the latter category. There is some

doubt as to the extent to

which a consideration clause creates

estoppel: Greer v. Kettle (1938)

A.C.

156

at p.171, Mackav

Brice (1979) 25 A.L.R. 597

at p.603.

Without determining the estoppel point,

I shall proceed

on the assumption that there 1s no estoppel and that it is open to

the respondent to show a consideration other than that set out in

the transfer. The respondent said during her public examination

under the Bankruptcy Act that the purpose of the transfer of the

interest in the house was as follows:

"He just

said, you

know, that he would keep the

business and

I woul&have the house.

already

owned half the house anyway, and the other half was

for the children.

The respondent also explained on that occasion that she

had nothing to do with the business. She gave evidence that her

husband said he would pay her maintenance each week and that she

wanted him, notwithstanding the agreement,

to continue to pay

maintenance "until such time	as I could work myself and get	a
job".

In her evidence in this

case,

the respondent said ton

affidavit) that she had

no financial interest

in the business and

that shortly before the agreement was made, her husband said

"he

was quite happy to have the business and for me to have the

house". She said that:

"I was of the view that

the agreement provlded that

he signed the house

me as maintenance

and

property settlement. ... I was of the opinion that

the bankrupt was still required to pay maintenance

for the children.

On that evidence

it would not seem possible

to hold that there was

any consideration, express or implicit, in the oral agreement

which preceded the writing. It may be derived from the evidence

that it was part

of the agreement that the husband would have his

interest in his business; but he already owned that. There is no suggestion in the oral evidence that the respondent undertook not

to claim anything further from him,

and she emphasised that she

5 .

still expected to receive maintenance.

The expression

"purchaser

...

valuable

for

consideration" within the meaning of

s.120(1) means a purchaser

who has given consideration "which

has

real and substantial

value,

and

not colourable": Barton v, Official Receiver (1986) 66 A.L.R.

one

which

merely

nominal

trivial

355 at

p.362.

In that case,

a finding that no valuable consideration had

been provided f o r

a long term loan at low interest was upheld.

_ .

Here, the bankrupt received nothing which he did not already own in consideration for the transfer of his interest in the house,

nor was any promise made to him. Assuming in favour

the

respondent that one is entitled to

look behind the writing for

consideration, it does not seem possible rationally to hold that

the test in

s.120(1) is satisfied.

Mr. P. Allen, counsel for the respondent, also advanced

other arguments on the question of consideration. He said.	in
effect, that if the oral agreement did not itself include any

valuable promise, nevertheless there was

actual forbearance

which could constitute good consideration. Some evidence was led

on this subject, but

is enough

t o

say that it could not

possibly constitute consideratlon of the kind s.120(1)	requires;
there was nothing to suggest that the bankrupt obtained any

significant advantage by way of forbearance as

result of any

oral agreement mentioned in the respondent's evidence.

There

could

not

have

been

any

problem

for

the

respondent, had the approval of the Family Court been obtained.

Mr. Allen drew attention to the fact that during the pendency of	. .
these proceedings the respondent has been restralned by Injunction

from applying for approval.

A question arises as to whether, in

view of the conclusions expressed above, the applicant should be

glven relief now, or whether, on the other hand, the respondent

should be allowed an opportunity to consider these reasons and to

apply, if so advised, to the Family Court for approval.

The relevant dates are as follows.

The petition was

issued on 8 December 1983.	The sequestration order was made on	20	I	=
,

March 1984.

The application

to have the maintenance agreement

declared void was made on

June 1986, and the order (of Spender

J.) restraining application to the Family Court was made on	6 June
1986 and continued from time to time thereafter.

At first sight there	is	something to be said for the	I - ,
r

view that if not restrained, the respondent may have been able to

obtain approval taking effect at the date

of the agreement - i.e.

before commencement of the bankruptcy. Although

I have found no

authority directly in point, I proceed on the assumption, which

appears to me likely to be correct, that once approval

is given,

the agreement is deemed to have been effective

as from its date; a

similar view seems to have been taken of

a comparable provision in

divorce

legislation:

m v.

(1965) 113 C.L.R.

545

at 549.4. But it is my opinion that by the time the respondent was restrained from approaching the Family Court it was already

too late to do

so.

That was so because the avoidance under s.120

:I'

had already occurred.	The trustee had an election to avoid and	.
r .

exercised

it,

plamly

enough, by filing the application:

Carter and Kenderdine's Contract E18971

1 Ch. 776; N.A. Kratzmann

Pty. Ltd. (In Liquidation) v. Tucker	(No. 1) 123 C.L.R. 257 at	!
I I

277.

It is true that in the latter case the application

for a

declaration of voidness had been heard, and not merely commenced,

at the

relevant

time.

But

view,

the

filing

the

application itself was sufficient election if (as	I have held to
be the case) that election was good. Once it was made, the

trustee was entitled to treat the maintenance agreement

as void ab

initio:

Kratzmann's

case

(ibid.)

(above).

Carter

and

Kenderdine's Contract (above)

at pp.781 and

782, it appears to

have been held under the then English equivalent of

s.120 of the

10.

1 -

B_ankruptcv

Act

1966 that

the

avoidance

dates

back

only

the

accrual of the trustee's title, but that conclusion was based upon

,,-

i	the	absence	in	the	then	English	legislation	of	any	provision,	,-
I	p \

protecting the rights

of bona fide purchasers, such as

s.120(7) of

the Bankruptcy Act

1966.

Whether or not

an election to avoid, once it occurs,

makes the transaction in question void ab initlo, it is my view

that on filing the application the trustee's right accrued and it

became impossible to displace it by

a grant of approval under

s . 8 7

of the Family

Law Act.

should

added

that

s.123(6),

which

saves

transactions

effected

under

maintenance

agreements

from

invalidity, cannot assist the respondent, because "maintenance

! ,

I !

agreement" is defined in 5.5

to mean one reglstered or approved.

Counsel for the applicant argued that no maintenance agreement not

saved by s.123(6) can be valid for the purpose

of the Bankruptcy

do not decide the case on that view, which seems

incorrect; the respondent fails because she cannot show there was

valuable

consideration

since

the

written

agreement

primarily

relied on was at the date of accrual	of the trustee's right, and
still is, of no effect.

"he trustee is entitled to succeed, but not,

I think, to

have all the relief claimed; I shall ask for submissions on the

11.

latter question.

certify tha t this and :he

/ C

preceding

p q z s ;re

a trus copy of rhe reasons fc:

judgmmlt h c x i n of	His klo?.cUr
Mr. Justice Plncus

Assocm

Counsel for the	Applicant:	Mr. T.F. Carmody
Nicol Robinson & Kidd

Solicitors for the

Applicant:

Mr. P. Allen

Counsel far the

Respondent:

I .

Solicitors for the Respondent:	Eastman & Co.
Date of Hearing:	26 May 1987

! .

[1987] FCA 317

17 Jun 1987