Thompson v Smith

[1976] HCA 56

HIGH COURT OF AUSTRALIA

Gibbs, Mason and Aickin JJ.

THOMPSON v. SMITH

(1976) 135 CLR 102

1 November 1976

Bankruptcy

Bankruptcy—Estate of bankrupt—Property of spouse made available to bankrupt—Husband and wife owners of estate in land as joint tenants—Mortgage by husband and wife to secure advance to husband—Agreement by husband with wife that husband liable to creditor and advance to be repaid out of his own funds—Subsequent bankruptcy of husband—Whether wife's interest in land "made available" by wife to husband—Bankruptcy Act 1966 (Cth), s. 111.* * Section 111 of the Bankruptcy Act 1966 (Cth) provides: "Any money or other property of the spouse of a bankrupt lent or made available by the spouse to the bankrupt shall be treated as assets of the bankrupt's estate, and the spouse is not entitled to any dividend as a creditor in respect of that money or other property until all claims of the other creditors for valuable consideration in money or money's worth (other than claims in respect of excess interest under the next succeeding section and claims for interest on interest-bearing debts in respect of a period after the date of the bankruptcy) have been satisfied."

Decisions

November 1.
The following written judgments were delivered: -
GIBBS J. The appellant is the wife of Frederick Verner Thompson who on 7th February 1973 executed a deed of assignment under Pt X of the Bankruptcy Act 1966 (Cth). The respondent is the trustee of the deed. The appellant and her husband were at all material times the registered proprietors as joint tenants of an estate in fee simple in land situated at Yowie Bay on which was erected a dwelling-house in which they lived. On 1st July 1968 they executed a memorandum of mortgage over the land in favour of the Bank of New South Wales. The mortgage was a second mortgage, but that is not material. The mortgage was given to secure advances made or to be made to the husband by the bank. It was signed by the appellant as "Mortgagor" and by the husband as "Mortgagor and Debtor". The husband told the appellant that he needed overdraft accommodation for his business account and that his bankers required as security a mortgage over the property at Yowie Bay. She agreed to execute a mortgage on condition that her husband would be solely responsible for any liability incurred to the bank under the mortgage and that any payments to the bank on account of moneys due were to be repaid by him out of his own funds. The mortgage has not been discharged. (at p104)

2. Upon application made by the respondent the Bankruptcy Court made a declaration that the interest of the appellant in the land is, within s. 111 of the Bankruptcy Act, property of the appellant made available by her to her husband. Other declarations were made but they are not the subject of dispute. (at p104)

3. Section 231 of the Bankruptcy Act makes the provisions of (inter alia) s. 111 applicable to and in relation to a deed of assignment under Pt X as if (inter alia) a sequestration order had been made against the debtor by whom the deed was executed on the day on which he executed the deed and the trustee of the deed were the trustee in his bankruptcy. Section 111 provides as follows:

"Any money or other property of the spouse of a bankrupt lent or made available by the spouse to the bankrupt shall be treated as assets of the bankrupt's estate, and the spouse is not entitled to any dividend as a creditor in respect of that money or other property until all claims of the other creditors for valuable consideration in money or money's worth (other than claims in respect of excess interest under the next succeeding section and claims for interest on interest-bearing debts in respect of a period after the date of the bankruptcy) have been satisfied." (at p104)

4. The question for decision on this appeal is whether the appellant's interest in the land was "made available" by the appellant to her husband within the meaning of s. 111. Property is "made available", within the ordinary meaning of these words, when one person places it at the disposal of another, or in other words does something whereby the other person is enabled to use the property, either at will or in a particular way. It does not seem to me correct to say that a wife who joins with her husband in giving a mortgage over land which the two spouses own as joint tenants, for the purpose of providing security for the husband's overdraft, thereby makes the land available to her husband. The execution of the mortgage does not give the husband any right or power to use or dispose of the wife's interest in the jointly owned land. In such a case the husband of course benefits from the wife's act, and moneys may be made available to him by the bank because of it; but he is not enabled to deal with the wife's land in any way. If the matter were free from authority I should therefore consider that the appellant, in the present case, did not make her interest in the land available to her husband when she executed the mortgage. (at p105)

5. But the matter is not free from authority. The provisions of s. 111 were considered by this Court in Gosling v. McCombie (1972) 126 CLR 487 , and the learned Judge in Bankruptcy in the present case held that the decision in Gosling v. McCombie governed the case before him and led to the conclusion that the appellant had made her property available to her husband within the meaning of s. 111. The facts in Gosling v. McCombie were that a wife purchased four parcels of land out of her own funds and placed them in the names of herself and her husband as joint tenants. The husband held his undivided moiety in trust for his wife. The Court held that when the wife caused the title to be transferred into joint names she had not made the undivided moiety which became legally vested in the husband available to him within s. 111. That aspect of the decision does not concern us in the present case. Subsequently two of the properties were mortgaged to secure loans of money and the certificates of title to a third property were lodged to secure an overdraft. The case proceeded on the footing that the loans and the overdraft were for the benefit of the husband. Subsequently the husband became bankrupt and his trustee in bankruptcy applied for a declaration that a one-half interest in the lands was an asset of the estate. It was held by the majority of the Court (Menzies and Walsh JJ., Barwick C.J. dissenting) that the trustee was entitled to the declaration sought in respect of the three properties. The principal judgment for the majority was delivered by Walsh J., with whose reasons Menzies J. concurred. The opinion which Walsh J. expressed as to the meaning of the words "made available" in s. 111 is consistent with that which I have already expressed. He said that the provisions of s. 111 "would not be satisfied unless a spouse who subsequently became bankrupt had been enabled to make use of the property in some way for his own benefit or advantage" (1972) 126 CLR, at p 502 . Later he said (1972) 126 CLR, at p 506 :

"The expression 'made available' is one which has not any established technical meaning. In my opinion, the question whether or not property is caught by the section may be determined by considering whether or not the real effect of what has taken place is that the husband was enabled to carry out or to take part in a dealing with his wife's property, in a way which but for her concurrence would not have been possible, which is similar to that in which he could have dealt with property which he himself owned, and which gives to him a benefit or advantage."

The reason why Walsh J. considered that the wife had "made available", within the meaning which he attributed to the words of s. 111, her interest in the three properties was expressed as follows (1972) 126 CLR, at p 503 :

"In the present case the appellant did not put an end to the trust in her favour upon which the properties were held. Nor did she diminish her beneficial interest by conferring part of it upon her husband. But she allowed her husband to join with her in dealing with the properties in a manner which did affect her beneficial interest, in that rights in the property were obtained by the mortgagee, to which her own rights as beneficial owner were made subject. I have come to the conclusion that in allowing her husband to obtain money for his use by means of these transactions the appellant did make the properties available to him."

Again he said (1972) 126 CLR, at p 504 :

"But, in my opinion, upon the facts of the transactions as disclosed by the evidence, it would not be correct to hold that she obtained money from the bank and then made that money available to her husband. It is true, of course, that she did not transfer any proprietary interest in the properties of" (sic - ? to) "her husband. If she had done that the interest would have been part of his estate without recourse to s. 111. But, in my opinion, she made the proprietary interest 'available' in the sense that I have already endeavoured to explain. She enabled him, by dealing with the properties with her concurrence to arrange the transactions in the same way as he could have arranged them if he had been the beneficial owner of the interests which he held as trustee."

It is apparent that the basis of the decision of Walsh J. that the case fell within s. 111 was that the wife allowed the husband, as her trustee, to deal with her equitable interest for his own benefit. The property "made available" was the equitable interest in the moiety which the husband held as trustee. It is true that Walsh J. went on to say that upon a strict view it might perhaps be said that it was the whole legal and equitable ownership of the properties that was made available to him to be used, with her concurrence, to provide security for the loans and the overdraft (1972) 126 CLR, at p 503 . Since no greater claim was made by the respondent than a claim with respect to an undivided moiety in each property, he did not find it necessary to consider whether a larger claim would be justified. (at p107)

6. Menzies J., who agreed with the reasons of Walsh J., added some observations which particularly dealt with the lodgment by the husband with his wife's concurrence of her title deeds to secure his overdraft. He said (1972) 126 CLR, at p 497 : "The provision by a person of a title, to be used by another as security for an overdraft, could, however, be regarded as the simplest way whereby one person might make real property available to another." Those remarks, which related to the questions arising as to the third parcel of land in that case, are not apposite to the facts of the present case. Menzies J. did say that it was not necessary "to distinguish too nicely between property which was actually mortgaged and property which was merely used as security" (1972) 126 CLR, at p 497 , but he was, of course, dealing with a case in which the property mortgaged was held legally by the husband but in trust for the wife. Barwick C.J., who dissented, was clearly of the opinion that in the circumstances of that case no property was made available by the wife to the husband and it is clear from his remarks (1972) 126 CLR, at pp 495-496 that he would have taken the same view of the present case. (at p107)

7. Although Gosling v. McCombie (1972) 126 CLR 487 bears an apparent resemblance to the present case, the two cases are in my opinion distinguishable. There the decision of the majority was that the wife, by concurring in the transactions, enabled the husband to give a mortgage over the moiety of the lands which he held as trustee for her. It was held in effect that she "made available" to him her equitable interest, so that he could mortgage it. In the present case what occurred was that each of the spouses executed a mortgage of the lands of which they were joint tenants both in law and in equity; the appellant did not make her equitable interest available to her husband, but herself subjected that interest to the mortgage. It is true that, as the learned Judge in Bankruptcy said, the result of her participation in the transaction was that the whole of the interests of both herself and her husband were subjected to the mortgage, and that but for her co-operation the husband could not have offered as security anything but his own individual moiety. It does not follow, however, that she made her interest available to him. She did not enable her husband to use her property, or to carry out or take part in a dealing with it, for his own benefit; she herself dealt with the property so as to confer a benefit on him. What the appellant did does not satisfy the tests which Walsh J. suggested in Gosling v. McCombie for the purpose of deciding whether property is caught by the section, and it does not fall within the actual decision in that case. It is unnecessary to consider whether, if the question were re-opened, the decision reached by the majority in Gosling v. McCombie on the facts of that case would be supported. (at p108)

8. In a later case, Re Dassos (1973) 22 FLR 43 , Sweeney J., applying the tests suggested by Walsh J. in Gosling v. McCombie (1972) 126 CLR 487 , held that where a bankrupt, with the knowledge and approval of his wife, borrowed money on securities in which both spouses were beneficially interested, the wife's interest in the securities had been "made available" by her to the bankrupt. That decision is clearly distinguishable from the present case. (at p108)

9. The conclusion that the appellant's interest is not caught by s. 111 is a satisfactory one. It is difficult to see any reason in justice why a wife who mortgages her property to provide a benefit for her husband should suffer the penalty of having the property treated as an asset of his bankrupt estate. When she mortgages her own property she is not likely to mislead others into thinking that the property was really his. If, however, she allows the husband to deal with her property as if it were his own, other persons may be misled and the situation then resembles that to which the doctrine of reputed ownership applies. (at p108)

10. In the course of the argument for the appellant it was submitted that when the Parliament enacted s. 111, in words similar to, but not identical with, those of s. 85(1) of the Bankruptcy Act 1924 (Cth), it was intended that s. 111 should have the same meaning and effect as had been attributed to s. 85(1) by this Court in Davis v. Mackerras (1930) 43 CLR 488 . It may perhaps be assumed that the Parliament was aware of the interpretation which had been given to s. 85(1), but it cannot be assumed that it intended that the words "made available" in s. 111 should be interpreted according to the meaning previously assigned to the word "intrusted" which appeared in s. 85(1) and had been used in similar legislation since 1882. However, it may be that there is little difference in meaning between the two expressions. (at p109)

11. In my opinion the trustee was not entitled to the declaration made in his favour and the appeal should be allowed. (at p109)

MASON J. For the reasons expressed by Gibbs J., I consider that the decision of this Court in Gosling v. McCombie (1972) 126 CLR 487 is distinguishable from the facts of the present case and that the appellant's interest as joint tenant of an estate in fee simple in the land at Yowie Bay is not caught by s. 111 of the Bankruptcy Act. Accordingly, the declaration that the appellant's interest in the land is property of the bankrupt made available by her to her husband should not have been made and the appeal should be allowed. (at p109)

AICKIN J. I have had the advantage of reading the reasons for judgment prepared by Gibbs J. I agree with those reasons and the conclusion and have nothing to add. (at p109)

Orders

Appeal allowed with costs.

Judgment of the Federal Court of Bankruptcy varied by deleting the declaration numbered 1.