FEDERAL CIRCUIT COURT OF AUSTRALIA
| WOODS & LOMBE AS TRUSTEES OF THE BANKRUPT ESTATE OF ULUSOYLU v ULUSOYLU | [2017] FCCA 935 |
| Catchwords: BANKRUPTCY – Claim for declaratory and certain monetary relief – property of bankrupt sold to bona fide purchaser – proceeds of sale transferred to mother of bankrupt – sequestration order made – applicants appointed trustees of estate – respondent alleged property and proceeds of sale held by bankrupt on trust for respondent and bankrupt’s father – no resulting trust – no express trust – no constructive trust – property held legally and beneficially by the bankrupt – Bankruptcy Act 1966 (Cth) s.120 – bankrupt’s transfer of the net proceeds of sale void – declaration made – source of entitlement to payment – jurisdictional foundation for orders – applicants entitled to monetary relief – claim for interest – basis of calculation. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.5, 19, 30, 31, 34A, 116, 120, 121, 127(3), 129, 139 Bankruptcy Act 1869 (UK) |
| Texts and publications: Lexis Nexis Annotated Bankruptcy Act 6th Ed, (2015)McDonald Henry & Meek, Australian Bankruptcy Law & Practice Meagher Gummow & Lehane’s Equity, Doctrines & Remedies, 5th Ed (2015) Pearce and Geddes, Statutory Interpretation in Australia 8th Ed (2014) |
| Applicant: | ROBERT SCOTT WOODS & DAVID JOHN FRANK LOMBE AS TRUSTEES OF THE BANKRUPT ESTATE OF ULAS ULUSOYLU, A BANKRUPT |
| Respondent: | CAVIDE ULUSOYLU |
| File Number: | MLG 2699 of 2015 |
| Judgment of: | Judge A Kelly |
| Hearing date: | 30 March 2017 |
| Date of Last Submission: | 30 March 2017 |
| Delivered at: | Melbourne |
| Delivered on: | 12 May 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr Morris |
| Solicitors for the Applicant: | White Cleland |
| Respondent: | No appearance |
DECLARATION
The transfers of property by the payments amounting to $110,003.64 from Ulas Ulusoylu to the respondent on 4-5 March 2010 (representing the net proceeds of sale of the property situate at Unit 6, 180 Union Street, Brunswick West in the State of Victoria, being the land described in certificate of title volume 10658 folio 624), became and are void as against the applicants as trustees in bankruptcy of the estate of Ulas Ulusoylu by reason of and pursuant to s.120 of the Bankruptcy Act 1966 (Cth).
ORDERS
The respondent pay the applicants the sum of $110,003.64 plus interest in the sum of $18,914 in all the sum of $128,917.64.
The respondent pay the applicants their taxed costs of this proceeding.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 2699 OF 2015
| ROBERT SCOTT WOODS & DAVID JOHN FRANK LOMBE AS TRUSTEES OF THE BANKRUPT ESTATE OF ULAS ULUSOYLU, A BANKRUPT |
Applicant
And
| CAVIDE ULUSOYLU |
Respondent
REASONS FOR JUDGMENT
Introduction
By application filed on 7 December 2015, the trustees of the estate of Ulas Ulusoylu (bankrupt) claim for declaratory and certain monetary relief (being the sum of $110,003.64 together with interest). The claim is made against the respondent, Cavide Ulusoylu, pursuant to s.120 of the Bankruptcy Act1966 (Cth). Unless indicated otherwise, a reference to legislation in these reasons is a reference to that Act. Cavide Ulusoylu is the mother of the bankrupt.
The claim for relief arises from a series of transfers by the bankrupt of monies which represent the net proceeds of sale consequent upon the completion of a contract of sale of a property situate at Unit 6, 180 Union Street, Brunswick West in the State of Victoria, being the land contained in certificate of title volume 10658 folio 624 (property). The applicants claim is that $110,003.64 (being the net proceeds of sale), was transferred to the respondent at the bankrupt’s direction. Based upon her affidavits, the respondent, who did not appear, advances a defence that the property and the net proceeds of sale were held on trust by the bankrupt for the respondent and her husband.
In my opinion, the applicants are entitled to relief. In summary, I conclude that neither the property, nor the net proceeds of sale, was held by the bankrupt upon trust for the respondent or her husband. I also conclude the transfers of the net proceeds of sale of the property, which were effected at the direction of the bankrupt to the respondent on 4-5 March 2010 were and are void as against the applicants. In the circumstances of this case I also hold that the applicants are entitled to an order that the respondent pay the applicants a sum equal to the net proceeds of sale together with interest. My reasons follow.
Background
Purchase & use of the property: 2002
On 1 August 2002, the bankrupt became registered as proprietor of the fee simple estate in the property. The bankrupt paid $180,000 to purchase the property. On the same date, 1 August 2002, the Commonwealth Bank of Australia (CBA) became registered proprietor of the estate of first mortgagee in that property.
On the evidence adduced by the respondent, the bankrupt occupied the property for no more than 3-4 weeks. He then returned to live at home with his parents.
The property was rented for much of the period from late 2002 until early 2010.
Sale of the property: 2010
On 11 January 2010, a contract of sale of the property (contract) was entered into and executed by the bankrupt as vendor and Lilly Antoneavic as purchaser. The purchase price under the contract was $275,000 and a deposit of $27,500 was payable. The contract provided that settlement was to occur on 12 March 2010.
The contract also recorded that the bankrupt’s real estate agent for the sale was Hocking Stuart (CBN) Pty Ltd (estate agent).
Roxburgh Park Conveyancing acted for the bankrupt in the sale of the property. By letter dated 25 January 2010, prepared on the letterhead of Roxburgh Park Conveyancing, the bankrupt gave an authority in favour of Roxburgh Park Conveyancing “to disburse all balance of sale proceeds of the above property as requested by my mother Cavide Ulusoylu.” The bankrupt’s signed authority was acted upon in the manner described below.
The parties to that contract executed a transfer of land that is dated 3 March 2010. The transfer was prepared by a lawyer, Mr Aloni.
Payment of proceeds of settlement to respondent
By letter dated 3 March 2010, Roxburgh Park Conveyancing wrote to the bankrupt’s estate agent concerning the sale of the property by the bankrupt to Ms Antoneavic and stated that settlement would take place at 3.00pm on 4 March 2010. The change in the settlement date from 12 March 2010 to 4 March 2010 was not otherwise the subject of evidence. At all events, the letter from Roxburgh Park Conveyancing to the estate agent further stated that “we require the balance of deposit monies to be made payable to ‘Cavide Ulusoylu’” (emphasis in original).
Following their appointment, the trustees contacted Mr Aloni who confirmed that he had acted for the purchaser in relation to completion of the contract so as to acquire the property from the bankrupt. It was from Mr Aloni that the trustees obtained copies of the contract together with the statement of adjustments that was prepared for the settlement under the contract.
The statement of adjustments showed that, after adjustments, the balance of the price payable at settlement was $247,303.61. From that that sum there was to be applied amounts in satisfaction of various encumbrances and statutory charges levied against the land. The statement of adjustments also provided that the balance of the settlement monies would be paid by cheques as follows:
Payee Amount Commonwealth Bank of Australia $156,270.11 C Ulusoylu $ 84,366.42 C Ulusoylu $5,681.80
Consistently with that statement of adjustments, there was also adduced in evidence two bank cheques payable to the respondent for $84,366.42 and $5,681.80 that are dated 2 and 3 March 2010 respectively. The total sum paid to the respondent at settlement from the net proceeds of sale of the property was thus $90,050.22.
In addition, it is necessary to examine the manner in which the bankrupt’s estate agent accounted for the deposit which had been paid under the contract.
The trustees adduced in evidence a document entitled “Account Sale/Tax Invoice” dated Friday, 5 March 2010 which they had obtained from the estate agent in the course of their investigation. The Account Sale/Tax Invoice identified the vendor as Javi Ulusoylu, the property by its residential address, the sale price and the settlement date as 12 March 2010. Although the use of the name Javi Ulusoylu was not further explained by the evidence, I attach no significance to this in light of the affidavits sworn by the respondent and the bankrupt confirming the sale of the property together with the documentary evidence comprising the certificate of title, contract of sale, transfer of land and statement of adjustments (all of which identified the bankrupt by his name, Ulas Ulusoylu).
The Account Sale/Tax Invoice confirmed that the deposit paid on 19 January 2010 was in the sum of $27,500 and that (after allowance for agent’s commission, GST and advertising), those agents had accounted on 5 March 2010 for the balance of the deposit; namely, by payment of a sum of $19,247. The estate agent’s payment of $19,247 is to be read in the context of the letter dated 3 March 2010 addressed to the estate agents by Roxburgh Park Conveyancing referred to above. Relevantly, the letter required that the balance of deposit monies were to be made payable by those agents to Cavide Ulusoylu.
Finally, as concerns accounting for the net proceeds of sale, the trustees produced in evidence a trust account cheque dated 4 March 2010 made payable to the respondent in the sum of $708.42. A copy of this cheque had been located within the file of Roxburgh Park Conveyancers during the trustees’ investigation.
The total of the sums identified above is $110,003.64.
From the certificate of title adduced in evidence, it appears that on 16 April 2010:
(a)the CBA mortgage was discharged; and
(b)the purchaser became registered as proprietor of the fee simple estate.
Accordingly, upon completion of that settlement, the bankrupt ceased to have any interest in the property.
The matters stated above support conclusions that the contract was completed, that CBA was paid the amount of its secured indebtedness and that the net proceeds of sale being $110,003.64 were paid to the respondent on 4-5 May 2010. The contemporaneous records and cheques also confirm that the payments which were made to the respondent were so made upon the direction of the bankrupt to do so.
Bankruptcy & demands
On 25 June 2013, a sequestration order was made against the bankrupt’s estate. The order noted that the date of the act of bankruptcy was 27 February 2013. The order noted that the applicants had signed a consent to act as trustees.
In the period June 2014 to August 2015, the trustees or their solicitors corresponded with the respondent, making demand for repayment of the net proceeds of sale which had been paid to her at the direction of the bankrupt. For reasons which were not explained, the sum for which demand was made was not $110,003.64 but $103,633.42. Although this may have been a matter of minor concern, the issue is to be considered in the context that when this proceeding was instituted on 7 December 2015, the application claimed for payment of $110,003.64. So too, the affidavit sworn by the first applicant on that date identified each of the sums which were believed to have been paid to the respondent. When answering affidavits were filed by the respondent and on her behalf by the bankrupt, no suggestion appeared from which payment of a total sum of $110,003.64 was put in issue.
In the course of that correspondence, the trustees stated their “view that the payment of those funds to you is void as against me as trustee of the bankrupt estate pursuant to sections 120 and/or 121 of the Bankruptcy Act.” Each of these letters was addressed to the respondent at 71 Arncliffe Boulevard, Greenvale. The trustees received no reply from the respondent to this correspondence. This was not put in issue by the respondent’s affidavits. In those affidavits, each deponent swore that their address was 71 Arncliffe Boulevard, Greenvale.
Procedural history
The application commencing this proceeding was filed on 7 December 2015. The trustees’ substantive claim was for declaratory relief that the payments amounting in aggregate to $110,003.64 were void as against the trustees by force of s.120. The further claims made were for payment of that sum and interest.
On the same date, the first named applicant, Robert Scott Woods swore an affidavit which provided a history of the trustees’ investigation of the matter. This included, in particular, the bankrupt's ownership and sale of the property, the entry into the contract of sale, the statement of adjustments, the estate agent’s account for the deposit and the bankrupt’s direction that the net proceeds of sale be disbursed to the respondent. Mr Wood’s affidavit exhibited the unanswered demands made of the respondent for recovery of the net proceeds of sale.
I note that the application had been listed for first directions on 15 March 2016. Before that date, on 11 March 2016, a notice of appearance was filed on behalf of the respondent by Messrs Madgwicks, lawyers. Two affidavits were also filed, each of which was sworn on 11 March 2016; the first by the bankrupt, the second by the respondent. It is convenient to address the detail of those affidavits in the consideration of the merits of the application.
Some time later, Mr Woods swore an answering affidavit.
On 6 July 2016, a case management conference was held and orders made. Each of the parties was represented on that date by their respective legal representatives. An order was made that the proceeding be listed for hearing on 30 March 2017. Orders were made that regulated the filing of further affidavits and submissions.
On 5 August 2016, Madgwicks gave notice of their intention to withdraw as lawyers for the respondent in this proceeding. On 8 September 2016, Madgwicks gave notice that they had withdrawn and no longer acted for the respondent.
Consistently with the case management directions given in this matter, the applicant filed a court book and a detailed outline of argument.
When the proceeding was called on for hearing, the respondent did not appear. Although the respondent did not appear, it is evident from the above that a number of steps were taken on her behalf in the course of the proceeding.
Absent an appearance by the respondent at the final hearing, the application was determined on its merits: Federal Circuit Court Rules 1999, r.13C(1)(e).
Consideration
Overview
For the purposes of this proceeding, it is sufficient for the facts in issue to be established on the balance of probabilities: s.34A. The evidence establishes that the bankrupt acquired the property in 2002 and then sold it in 2010. It also establishes that the net proceeds of sale were paid – at the direction of the bankrupt – to the respondent. From the date appointed for settlement and the date of the estate agent’s Account Sale/Tax Invoice respectively, I infer that the three bank cheques and the balance of the deposit were paid to the respondent on 4-5 March 2010. The total of those payments was $110,003.64.
As noted, the foundation of the applicants claim is grounded upon s.120 which allows that a trustee may avoid certain transfers of property. Are the applicants entitled to any, and if so what, relief?
A difficulty arising from the respondent’s non-appearance at the hearing was that the matters contained in the affidavits filed on her behalf could not be tested by cross-examination. The difficulty was compounded by the lack of detailed submissions on behalf of the applicants. Although it may have ignored them, the court was left to examine the affidavits for itself and to discern that which constituted evidence and that which was a submission. This was unsatisfactory. In light of the respondent’s non-appearance and the failure to file any submissions, it was necessary to attempt to divine from the respondent’s evidence the nature of the case that was being made in answer to this claim. The difficulty is not a new one and has been described as the category of case where evidence of negligible value presents the familiar problem whenever a person purchases and pays for property, the legal title to which is transferred by his or her direction into the name of another person: cfCharles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353, 363 (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ).
In this case, an anterior question is whether the property was in fact paid for by the person asserting the beneficial interest in the property.
Threshold objection – property owned by respondent?
The substantive contention emerging from the respondent’s evidence appears to be that the property was held by the bankrupt on some form of trust for his parents; namely, the respondent and her husband. It is convenient to consider the merit of such claims before addressing the applicants’ claim under s.120.
The burden of the two affidavits filed on behalf of the respondent advanced, more by way of submission than by evidence, a contention that the property was owned beneficially by the respondent and her husband (who did not file an affidavit). An introductory paragraph in the respondent’s affidavit stated that “the purpose of [the] affidavit was to provide evidence that [the property] was purchased and maintained by my husband, Baki Ulusoylu, and me and that the proceeds of sale of the property belong rightfully to us.” Those affidavits record a somewhat truncated history of an attempt which was made by the respondent and her husband to assist the bankrupt to move out of the family home so as to establish his independence as a young adult and their description of just how quickly that attempt went awry.
It is convenient to consolidate the evidence of the two affidavits.
Decision to acquire the property
The bankrupt’s affidavit deposed that he was the respondent’s son and that his parents “decided that they were going to purchase the [property] for me so I could move out of the family home . . . and begin living independently.” Nothing was said in the bankrupt’s evidence to support a conclusion that the bankrupt or his parents, or any of them, had held any discussion, or reached any concluded agreement, other than that they were going to purchase the property for him. This evidence may be read in the context of other statements made in the respondent’s affidavits as to the absence of any contributions made by the bankrupt toward the purchase of the property.
The respondent’s affidavit also deposed that the bankrupt was her son and gave an account of the circumstances leading to the purchase of the property for him. The respondent stated that she and her husband had made a decision to purchase the property when the bankrupt was about to turn 18 years of age. She stated that “[i]t was our intention that when Ulas turned 18, he would move out of the family home and begin living at the [property]. We believed that by providing Ulas with his own [property], he would begin living independently and start establishing himself as a responsible, mature adult. It was for this reason that we purchased the [property]” (emphasis added). The respondent reiterated that evidence in a later section of her affidavit concluding that “to this end, we purchased the property in Ulas’ name”. It is to be emphasised that the respondent’s belief, before purchase of the property, was that she and her husband would provide the Bankrupt with his own property.
As with the bankrupt’s affidavit, the respondent’s history of the events leading up to the purchase of the property was notable for the lack of any evidence of any discussions or formal agreement with her husband or the bankrupt other than that the property would be purchased by the bankrupt. Features of the respondent’s affidavit concerning the purchase of the property include an asserted intention that Ulas would move out of the family home when he achieved his majority and that the property would be purchased for him and in his name. The evidence did not attempt to prove any formal discussion or agreement as to the basis on which the property would be purchased by or for the bankrupt or registered in his name.
Put another way, the respondent’s affidavits were largely assertive and conclusory in form with the result that little weight could properly be attached to them.
Purchase & finance of the property
The bankrupt stated that the property was purchased “in around 2002, [when] I was 18 years old and working as an apprentice.” The bankrupt swore that the property was: (1) purchased for the sum of $180,000 (2) paid for, as to the deposit, using a gift of $20,000 from his parents; (3) paid as to $120,000 using a home loan obtained by the bankrupt from CBA; (4) registered in his name. From the bankrupt’s account, it is apparent that there was a shortfall of $40,000 between the purchase price and the funds that were provided to complete the purchase. By contrast, the respondent’s affidavit contained some information suggestive of a ‘contra’ deal that was made with the developer of the property to assist in the fitout of apartments.
The respondent also deposed that the purchase price for the property was $180,000. As to the provision of the monies required to pay the purchase price, the respondent exhibited a CBA home loan application dated 31 May 2002, which application recorded, amongst other things, that the respondent and her husband had agreed: (a) to make a gift to the bankrupt of $20,000 to facilitate the purchase of the property; (b) to pay him the salary of a fourth year apprentice so as to assist him to meet repayments on the loan. An available inference is that the respondent and her husband had agreed to pay the bankrupt a salary calculated upon the entitlement of a fourth year apprentice so that he could satisfy qualifying criteria for the CBA home loan application. A further notation to the CBA home loan application suggested that, as purchaser of the property, the bankrupt would be eligible for a first home owners grant (the quantum of which was not stated). The respondent’s evidence passed over the issue of a home owner’s grant.
Collectively, these matters support a conclusion that, on the respondent’s own case, it was the bankrupt who was the applicant for the CBA home loan and that he sought that loan in order that he could purchase, and pay for, the property.
The respondent’s affidavit, while conceding the $20,000 gift as recorded in the CBA home loan application, deposed that “it was always our intention that if the property was to be sold for whatever reason, payment of the $20,000.00 deposit would be paid back to my husband and me.” This evidence was important in several respects; first, that the respondent’s asserted intention was confined to a claim that the $20,000 gift would be repaid in certain circumstances; secondly, that the so-called gift was therefore expressed as being subject to a condition; thirdly, that the condition was one which only required repayment of the money if the property was sold; fourthly, that the decision to buy the property was said to be coupled with an intention that if it were to be sold, the gifted sum would be returned; fifthly, that there was no evidence that any of the preceding matters were discussed by the respondent or her husband or the bankrupt at any time.
The respondent’s asserted intention as concerned the condition for the return of the gift is difficult to reconcile with her other evidence that the property was bought in the bankrupt’s name and bought subject to an expectation that it would be sold at some future unspecified time. More difficult, however, is a proposition that the respondent intended (whether before the purchase of the property or at any other relevant time), that the whole of the beneficial interest in the property would be held by the bankrupt for the respondent and her husband. At its highest, the respondent’s asserted intention was that the bankrupt would repay the specified sum of $20,000 but only if the property bought in his name was sold at any time.
In addition, the respondent deposed that all monies contributed towards the purchase of the property had been provided by the respondent and her husband. According to the respondent’s affidavit, the consideration paid for the property was comprised of three components: (1) a home loan of $120,000; (2) a contra deal for the provision of kitchen cabinets to a value of $33,000 from a business owned by the respondent and her husband; (3) cash of $27,000 made up of: (a) a gift of $20,000 to the bankrupt from the respondent and her husband; (b) $7,000 paid by the respondent and her husband drawn from an existing home loan.
Each of the bankrupt and the respondent swore that the bankrupt did not contribute anything toward the purchase of the property or otherwise in the entire time that it was owned. The generality of that assertion warrants scrutiny. First, as concerned the home loan of $120,000 from the CBA, this was undoubtedly a loan obtained by the bankrupt – not the respondent – and employed by him in the purchase of the property. Secondly, there was little evidence as to the provision of kitchen cabinets to a value of $33,000 by the respondent and her husband. For the purposes of this application it may be assumed that this occurred. Thirdly, as to the balance of $27,000: (a) it seems clear that the respondent and her husband made a $20,000 gift to the bankrupt; (b) on the respondent’s evidence, the residue of $7,000 was provided by the respondent and her husband using an existing loan. The evidence was silent as to the application of the first home owners grant towards payment of the purchase price.
Occupation & use of the property
Although the bankrupt deposed as to moving into the property, he did not depose as to when this occurred. His affidavit merely explained that he moved back to his parent’s home after a relatively short period of occupation of the property.
The respondent’s affidavit deposed that the bankrupt moved into the property toward the end of 2002 and that he resided there for three to four weeks, after which he moved home, and where, it seems, he remained until at least 2010.
Nothing was said by the bankrupt as to the use or occupation of the property in the period after he vacated possession and returned to the family home until 2010. By his account, for the whole of the period between his vacating the property until its sale in 2010, the bankrupt left the responsibility for the property to the respondent.
The respondent’s affidavits were notable for the paucity of detail concerning the use and occupation of the property in the period late 2002 until early 2010. The respondent deposed that the property was rented and that “it continued in this operation until it was sold in March 2010.”
The contract also recorded that the property was sold subject to a tenancy.
As to the receipt of income from the property, the respondent deposed that the rental income was deposited into an account held in her name. Yet, from other documents it emerged that the property had been tenanted and the income derived and expenditure incurred in relation to the property had been declared and claimed respectively by the bankrupt in his taxation return for the year ended 30 June 2007.
In the combined circumstances that CBA held a registered mortgage on the property as security for performance of the obligations under the bankrupt’s home loan and that the property was not sold until 2010, an available inference was that the CBA home loan was not in default for that period. Coupled with the bankrupt’s tax return it may be inferred that the income derived from the property was applied in satisfaction of the repayment obligations under that loan.
Further advances using the property as security
The bankrupt’s affidavit deposed to the circumstances which culminated in his bankruptcy, including that in 2009 he had obtained a further advance of $50,000 from CBA, which had also been secured by the CBA mortgage. His limited explanation was that “I was able to do this because I was still recognised as the registered proprietor of the [property].” Piecing together the statements made by the bankrupt, it appears that he was able to obtain an increase of $50,000 from the CBA at a time when he was living at home and when, as he said, the respondent had assumed complete responsibility for the property.
The respondent deposed as to the difficulties leading up to the sale of the property in March 2010, including that, after she and her husband discovered that the bankrupt had borrowed more money from CBA, they decided to sell the property as they were concerned by the prospect of him incurring yet further debts.
Other evidence adduced by the applicants indicated that the additional advance obtained from CBA was for a sum of $45,000 (and not $50,000).
At all events, the statement of adjustments indicated that in March 2010, the sum of $156,270.11 was required to secure a discharge of the CBA first mortgage.
Sale of the property & application of proceeds
The bankrupt’s affidavit explained the circumstances leading to the sale of the property in 2010. He asserted that “[i]t was always my intention that the proceeds of sale would go to my mother as she was the one who had paid for the [property] and who maintained it during the entire time we owned it.” This statement may be contrasted with the absence of any contemporaneous evidence of the bankrupt’s intention at the time that the property was purchased. At best, the bankrupt’s stated intention may be attributed to the bankrupt’s state of mind as at the time of the sale of the property in January 2010. The bankrupt’s asserted intent – that the whole of the proceeds of sale would go to the respondent – stands in contrast, and is inconsistent, with the respondent’s asserted intention that only the conditional gift of $20,000 would be repaid if the property was ever sold. The bankrupt’s asserted state of mind is notable also for the fact that it leaves out of account altogether the alleged contributions that were made by his father to the purchase of the property. On the bankrupts view, he always intended that the whole of the proceeds of sale would go only to the respondent. The picture might have been filled out by evidence from the respondent’s husband, from whom no evidence was called.
The bankrupt deposed that at the time of the sale, he was unemployed and had no debts. How that statement was to be reconciled with the CBA home loan or the further advance of $50,000 was not explained except, perhaps, as a statement that the bankrupt had no other indebtedness apart from that to the CBA which was secured by mortgage over the property. As concerned the disposition of the proceeds of sale, the bankrupt stated “I recall signing a document which would allow my mother to have the proceeds of sale paid into her bank account.”
The respondent deposed to the sale of the property for $275,000 and that, after deduction of the amount required to repay the CBA mortgage and costs associated with the sale, “the proceeds of sale amounted to approximately $110,000 (Sale Proceeds). This amount was paid to me with the authorisation of [the bankrupt].” The respondent exhibited the authority made by the bankrupt in favour of Roxburgh Park Conveyancing dated 25 January 2010. The respondent’s evidence put beyond any sensible argument that, upon settlement of the sale in March 2010, the net proceeds of sale were in fact paid to her and were so paid in accordance with the bankrupt’s direction given to Roxburgh Park Conveyancing.
Applicants’ response to respondent’s affidavits
Given the matters deposed to by the respondent’s affidavits, the applicant identified a number of matters which, it was submitted, weighed in favour of a conclusion that the property was held legally and beneficially by the bankrupt. It included the following:
(a)the property was registered solely in the bankrupt’s name;
(b)neither the respondent nor her husband had lodged any caveat by which they asserted any interest in the property;
(c)the bankrupt had applied to CBA for a home loan in his own name for the purpose of purchasing the property and agreed to secure the obligations of borrower by mortgage registered on title to the property;
(d)CBA had approved that facility and the bankrupt assumed the obligations to repay the monies secured by that mortgage;
(e)the bankrupt had sought a first home owner’s grant for the purchase of the property;
(f)$20,000 had been gifted to the bankrupt by his parents for the purpose of assisting him to purchase the property;
(g)the bankrupt duly granted CBA a mortgage over the property;
(h)cl.2.1 of that mortgage recorded a declaration by the bankrupt that he owned the property (or would do so once the mortgage was granted);
(i)the bankrupt’s tax return also contained a declaration that the property was 100% owned by him. The bankrupt declared the income and claimed the expenses associated with ownership of that property, including the interest expense (which I infer was incurred pursuant to the CBA mortgage);
(j)the bankrupt had unilaterally increased the amount secured by the CBA mortgage by a sum of (at least) $45,000;
(k)contrary to the respondent’s evidence, payments for the CBA mortgage were made from the bankrupt’s bank account;
(l)contrary to the respondent’s evidence, rental income from the property was credited to the bankrupt’s bank account;
(m)the bankrupt confirmed his ownership of the property in the course of a discussion with the trustees held on 28 October 2015.
Some of those matters may not have been admissible in other circumstances. However, the respondent’s affidavits raised issues which entail consideration of the subjective states of mind of the respondent and the bankrupt and so the breadth of admissible material was somewhat widened.
Each of those matters are relevant to an evaluation of the respondent’s claim that the bankrupt held the net proceeds of sale – as to a sum of $20,000 or absolutely – on trust for the respondent and her husband.
Property, or proceeds, held on trust?
As stated, I am satisfied by the contemporaneous documentary evidence that on 4-5 March 2010 the respondent was paid the net proceeds of sale which amounted in aggregate to $110,003.64. I am further satisfied that those payments were made at the bankrupt’s direction as constituted by his written authority to his conveyancer, Roxburgh Park Conveyancing. Those findings are effectively confirmed by the respondent’s own evidence.
On proper analysis, the property was purchased by the bankrupt who in fact contributed no less than $140,000 toward that purchase. The sum of $140,000 was made up, as to: (1) $120,000 being the monies advanced to the bankrupt for that purpose, and; (2) $20,000 being the monies utilised by the bankrupt from the gift made to him for that same purpose. It also appears that the bankrupt qualified for a first home owner’s grant in respect of the purchase. Otherwise, it may be accepted that the bankrupt’s parents supplied the balance of the consideration required to enable the purchase to be completed.
In the period, 2002 to 2010, the bankrupt received the rental income and paid the expenditure associated with ownership of the property. The bankrupt’s available tax return indicates that both this rental income and expenditure was disclosed.
A comparison between the original purchase price and the sale price indicates that the capital gain made from the sale of the property was in the order of $95,000. On one view, the respondent’s claim is that she and her husband should be permitted to retain that gain over the unsecured creditors of the bankrupt’s estate.
Excluded from the property which vests in a trustee at the commencement of the bankruptcy is any property held in trust by the bankrupt. As by Lindgren J explained in Anscor Pty Ltd v Clout (2004) 135 FCR 469, at [42]-[43] “[s]ince property held on trust by the bankrupt does not vest in the trustee in bankruptcy, he or she cannot recover it.” It is clear that, where the circumstances exist, a conclusion that property (or some proportion of it) is held by a bankrupt on trust precludes the trustee of the bankrupt’s estate from recovering that property (or that proportion of it): see, for example, Parsons v McBain (2001) 109 FCR 120 (Black CJ, Kiefel and Finkelstein JJ); The Trustees of the property of Cummins v Cummins (2006) 227 CLR 278, [75] (per curiam); Draper v Official Trustee in Brankruptcy (2006) 156 FCR 53 (Mansfield, Rares and Besanko JJ); Huen v Official Receiver (2008) 248 ALR 1, [70], [78] (Ryan, Moore and Tamberlin JJ); Rich v Westpac Banking Corporation [2014] NSWCA 136, [63]-[64] (Ward JA, Emmett and Gleeson JJA agreeing); Cane Hire Pty Ltd v Themis Holdings Pty Ltd [2014] QCA 296, [54]-[55] (Muir JA, Fraser and Mullins JJA agreeing).
Applied here, if the evidence established that the whole, or a proportion, of the property was held on trust by the bankrupt for the respondent or her husband, s.120 could have no operation as to so much of the property as was held on trust.
Should the contention be accepted that the proceeds of sale belong to the respondent and her husband? As to this, I put to one side that the respondent’s husband was not a party to the proceeding. The conceivable bases on which the respondent might have advanced a claim that the proceeds of sale (alternatively, that $20,000 of those proceeds) belonged to the respondent and her husband are that the property was held by the bankrupt on an express, resulting or constructive trust. I consider each in turn.
In doing so, I approach the issue on the basis that the respondent bore the onus of proof to establish that the bankrupt should only acquire the legal title to the property as trustee: Martin v Martin (1959) 110 CLR 297, 303-305 (Dixon CJ, McTiernan, Fullagar and Windeyer JJ).
Express trust
On settled equitable principles, to constitute an express trust, the intention to do so must be clear. There must also be clarity as to the property that is subject to the trust and reasonable certainty as to who are the beneficiaries of that trust: Kauter v Hilton (1953) 90 CLR 86, 97 (Dixon CJ, Williams and Fullagar JJ).
It may be accepted that no formal or technical words are required to establish an express trust. But it is essential that there is a sufficiently clear intention to create such a trust: cf Jacobs’ Law of Trusts in Australia 8th Ed (2016) (Jacobs) at [5-02]. Unless the intention to create a trust is clearly to be collected from the language used and the circumstances of the case, the court ought not to be astute to discover the indications of such an intention: Re Schebsman [1944] Ch 83, 104 (Du Parcq LJ). As the learned authors of Jacobs observe, the statement of principle in Re Schebsman has been a repeatedly approved: see also Korda v Australian Executor Trustees (SA) Limited (2015) 255 CLR 62, [228] (Keane J). The principles were recently stated by Elliot J in Nguyen v Phan (No 2) [2015] VSC 634 at [237] as follows:
In order to find an express trust was created, it is not necessary for the plaintiffs to prove the parties specifically and formally turned their minds to the fact that a trust was being created; no special or technical language needs to be used; it is sufficient if the intention to create a trust may be ascertained from what the parties actually agreed or said. The intention is imputed when manifest in what is expressly agreed or declared. That intention must be clear from the language used, as objectively understood in the relevant circumstances of the case, including the relationship of the parties. More than once, Gummow J has observed that the precision that might be expected in arms-length commercial transactions is not to be expected in private family dealings. (footnotes omitted)
I treat the statement of principles in Nguyen v Phan (No 2) as applicable to the circumstances of this case. However, in doing so I consider that the issue is to be determined objectively: Byrnes v Kendle (2011) 243 CLR 253, [51]-[66] (Gummow and Hayne JJ). Accordingly, I discount the evidence of subjective intent as being largely if not wholly irrelevant to a determination of the matter: cf Calverly v Green (1984) 155 CLR 242, 261 (Mason and Brennan JJ).
Here, it may be assumed in favour of the respondent that there was clarity as to the identity of both the subject property and the supposed beneficiaries of the alleged trust. However, in my opinion, the consideration which is fatal to the conclusion of a finding that there was an express trust is the absence of any sufficiently clear intention to create such trust. The events leading up to the acquisition of the property in 2002 and those which occurred immediately afterwards do not amount to even a general proposal about what was intended beyond the notion that the respondent and her husband would organise the purchase of, and provide, the property for the bankrupt. The circumstances do not support any sufficiently clear intention that the property would be held on trust for the respondent and her husband.
A claim grounded on an express trust is rejected.
Resulting trust
One circumstance in which a resulting trust may be presumed to arise is where the legal title is vested in a person other than the person who is proved to have provided the purchase money: Jacobs, [12-10].
The conclusion that property is held on a resulting trust requires close consideration of all the facts and circumstances. The existence of a resulting trust is to be determined, objectively, from the circumstances obtaining at the time of, or so immediately after, acquisition of the subject property as to form part of that transaction: The Trustees of the property of Cummins v Cummins (2006) 227 CLR 278, [65]-[67] (per curiam); see also Calverly v Green (1984) 155 CLR 242 at 251 (Gibbs CJ), citing Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353, 364-5; at 261 (Mason and Brennan JJ) citing Gissing v Gissing [1971] AC 886, 906 (Diplock LJ). As Cummins illustrates, the ‘transaction’ upon which evidence could be adduced was the composite of the property acquisition, the execution of a mortgage and the construction of the dwelling. However, beyond evidence relating to that transaction, later statements of intention are neither relevant nor admissible.
Even taking the most favourable view of the evidence here, the entire purchase money was not provided by the respondent and her husband.
First, the respondent cannot approbate and reprobate as to an admitted gift of $20,000. Contemporaneous records confirm that the gift was given. The respondents belated assertion, years after the event, was not a denial of the making of the gift. What was sought to be advanced was that a different gloss should be placed on the making of that gift such as to suggest that it was intended the gift would be recouped from the sale proceeds if ever the property be sold. I do not accept that.
Secondly, the sum of $120,000 obtained from CBA was likewise not contributed by the respondent or her husband. It was an advance obtained by the bankrupt from CBA. It was he who assumed an obligation for repayment of that loan.
Thirdly, the evidence does not disclose what was the amount of the first home owner’s grant. But on the assumption that the grant was obtained it cannot be concluded in favour of the respondent that any part of this sum represented a contribution by the respondent or her husband.
Fourthly, as to the balance of the purchase price, it may be assumed in favour of the respondent that some form of contra arrangement was carried into effect whereby cabinet joinery was supplied by the respondent and her husband as part of the consideration for the purchase price.
Further, it may now be regarded as settled that the presumption of a resulting trust cannot prevail over the actual intention of a party as established by the evidence as a whole: Jacobs, [12-10]. In this case there is a paucity of evidence of any agreement or understanding of the kind that would support the conclusion of a resulting trust. And as noted above, I attach significance to the respondent’s evidence of her belief – before purchase of the property – that she and her husband would provide the bankrupt with his own property.
The present case is, for example, very different from Bloch v Bloch (1981) 180 CLR 390 where the parents and son had agreed, at the time of purchase, that they would divide the proceeds of any sale in proportion to their respective contributions to the purchase price. In the reasons of Wilson J at 397, with whom Gibbs CJ, Murphy and Aickin JJ agreed, “the facts were a classic illustration of the creation of a resulting trust [and that] . . . the contribution was not a gift. It was not a loan” (see also Brennan J at 401-402).
By contrast, the respondent’s own case was one of gift at least as to $20,000. I regard the admission of the gift as relevant for a further reason. The admission of gift, coupled with the evidence that the respondent wanted to provide the bankrupt with a property, supports a presumption of advancement of any further consideration as was provided to enable the purchase of the property. Both the respondent and the bankrupt placed at the forefront of their affidavits that the bankrupt had barely attained his majority at the time of the purchase and that the respondent and her husband had decided to purchase a property in order that their son could establish some independence in his own home. They wished to provide a home for him. The respondent and her husband stood in the relation of loco parentis towards their son and to which a presumption of advancement may apply: cf Nelson v Nelson (1994) 33 NSWLR 740 (CA); (1995) 184 CLR 538; Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353, 364-5 (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ).
It is to be emphasised that where a resulting trust is in issue, the task is essentially one of ascertaining the rights in property at the time of acquisition. Rights so ascertained cannot be altered by subsequent events, absent an enforceable agreement or conveyance. For those reasons the inquiry is focussed upon the parties’ intention at the time of their transaction: see Jacobs, [12-13]; citing Martin v Martin (1959) 110 CLR 297 at 304; Pettit v Pettit [1970] AC 777 at 803, 813. On those principles, the evidence adduced by the respondent of a supposed intention at the time of disposal of the property does not assist.
A claim grounded on a resulting trust is rejected.
Constructive trust
Consideration whether a constructive trust may be imposed is assisted by recognition of how it differs from an express trust. A constructive trust arises by operation of law and does not require satisfaction of the requirements of writing. The categories of constructive trust are not closed, yet the present case does not demand an examination of each of them. To discern the category of case which, perhaps, most closely resembles the current claim of the respondent, one might consider claims where the parties held a common intention as to the basis on which property would be held and whether it is then unconscionable for one party to retain a benefit after the failure of a venture.
Mushinski v Dodds (1985) 160 CLR 583 was such a case. There, an unmarried couple purchased land under a contract pursuant to which they were both liable. They intended to improve the property. The woman paid the price from her own funds and agreed to include the man’s name on the title if he undertook to renovate a cottage and pay for the cost of installing a prefabricated house also. The parties were registered as tenants in common on title to the land. The man neither renovated the cottage nor paid for the installation of a prefabricated house. The High Court (by a 3:2 majority), held that the parties were entitled in equal shares to the residue of the value of the property after payment of any joint debts. The majority held that it would be unconscionable for the man to retain his registered interest without recognising the woman’s payment to acquire the land. Despite the division on the result, the court was unanimous in holding that the remedy of a constructive trust was not available by resort to a judicial discretion upon some idiosyncratic view of which party ought win; cfStern v McArthur (1988) 165 CLR 489, 514 (Brennan J, diss).
Nor is this a case like Baumgartner v Baumgartner (1987) 164 CLR 137 in which the parties had pooled their earnings for the purposes of a joint relationship and one party denied the purchase had been financed through the use of pooled resources. Each judgment in that case applied the reasoning in Mushinski v Dodds to hold that it was, in the circumstances, unconscionable for the man to deny the contributions of the woman that had been pooled toward the purchase.
My attention was drawn to the statements of principle in Calverly v Green (1984) 155 CLR 242, 257-259. There Mason and Brennan JJ considered whether, absent proof of a common intention to hold certain property on trust, equity might impose one. Their Honours’ analysis underlined the error in equating the payments under a mortgage with, or as constituting the, payment of the purchase price. The payment of the purchase price is that which is paid to the vendor, while mortgage payments are made to the mortgagee. A decisive fact in that appeal was that both parties were liable under the mortgage and the money borrowed from the mortgagee had been used to pay two thirds of the purchase price. It was this fact which supported the conclusion that both parties had contributed to the purchase of the property.
The holding in Calverly v Green was that “[w]hen two or more purchasers contribute to the purchase of property and the property is conveyed to them as joint tenants the equitable presumption is that they hold the legal estate in trust for themselves as tenants in common in shares proportionate to their contributions unless their contributions are equal. This is the basic presumption, though it may be displaced by the presumption of advancement or, perhaps, be qualified . . .” (footnotes omitted). Calverly v Green was decided upon facts and circumstances very different from the present case. Here, only the bankrupt had borrowed from CBA. Neither the respondent nor her spouse was a borrower from, or liable to, CBA for the secured debt. They were not liable under the mortgage. Nor were they registered as proprietors of the fee simple estate in the property. For reasons given earlier the sum advanced to assist the bankrupt in the purchase of the property was avowedly a gift. The respondent intended that she and her husband would provide the bankrupt with the property.
For similar reasons, the present case may be distinguished from Parsons v McBain where no attempt was made on appeal to disturb the findings at trial that each of the married couples had expressly agreed the properties purchased some years earlier (by the husband in each case), should become their matrimonial homes and would be owned equally by the parties. The substantive issue decided on appeal by Black CJ, Kiefel and Finkelstein JJ was to reject the notion that a constructive trust came into existence only at the time a declaration was made. The Full Court endorsed the view that there did not need to be a prior curial declaration before equity would recognise a constructive trust: (2001) 109 FCR 120 at [2]-[3], [12]-[13] citing Mushinski v Dodds (1985) 160 CLR 583, 614 (Deane J).
Finally, as appellate authority confirms repeatedly, ordinarily a constructive trust arises only where some other remedy is not suitable: Giumelli v Giumelli (1999) 196 CLR 101, [10], [49]-[50]; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, [200] (per curiam); Huen v Official Receiver (2008) 248 ALR 1, [78].
In the present case, the transaction was first and foremost one in which the respondent and her husband, standing in the relation of parents toward a son (who had yet to attain his majority), decided that he should leave the family home and reside in a property where he could live independently. The property was purchased in the manner I have described because they wished to provide for him. It included that a gift of $20,000 was used to effect the purchase. The vast majority of the balance of the purchase price was obtained from CBA under a loan for which the bankrupt alone was legally liable. A further part of the purchase price appears to have come from a first home owner’s grant. I do not accept that the residue of the purchase price was a loan to the bankrupt or otherwise. Rent was then applied in satisfaction of the payments made under the mortgage. Assessing the whole of the circumstances concerning the transaction relating to the property, I discern no basis for a finding of unconscionable conduct by the bankrupt, or by extension, the trustees of the bankrupt’s estate, in denying the respondent an equitable interest. The decision having been made in 2010 to sell the property, the whole of the secured debt was repaid. Why should it be found that the bankrupt held the property or proceeds of sale upon a constructive trust for the respondent?
A claim grounded on a constructive trust is rejected.
Accordingly, I hold that neither the property, nor the proceeds of sale, was held on trust by the bankrupt for the respondent or her husband.
An undervalued transaction? s.120
Is the applicants’ claim made out? Section 120 renders void as against the trustee of a bankrupt’s estate certain transfers of property by a person who later becomes bankrupt. A fundamental feature of the law of bankruptcy, of which s.120 is part, is that in certain circumstances it operates to enable property, whether gifted or transferred by a person who subsequently becomes bankrupt, to be recovered by the trustee so as to enable that property to be employed in the distribution of the proceeds to the bankrupt’s creditors: Report of Senate Legal and Constitutional Legislation Committee, Bankruptcy Legislation Amendment Bill 1995 (Senate Report), at para [1.40].
From the outset, it is important to maintain the distinction between establishing the elements required to satisfy s.120 and the determination of what relief may be available. This is of some importance in the present case because the property in this claim comprised a series of bank cheques. As noted, the respondent received $110,003.64 some years before the commencement of the bankruptcy and it is in this context that it is necessary to examine the scope and operation of s.120 as applied to the subject of those transfers.
Section 120 is located within Part VI of the Bankruptcy Act which concerns the subject Administration of Property. It is arranged in seven divisions, comprising ss.82-147. The essential scheme of Part VI is fourfold: (1) to identify the debts that are provable in the bankruptcy; (2) to prescribe the order in which proven debts are to rank for payment; (3) to identify the property which is available for payment of such debts, and; (4) to provide for the: (a) realisation; (b) recovery, and; (c) distribution, of property comprising the bankrupt’s estate.
Division 3 of Part VI concerns Property Available for Payment of Debts. Relevantly, sub-division A contains provisions which address the commencement of bankruptcy (s.115), property divisible among creditors (s.116), transactions, transfers and preferences that may be avoided as against the trustee (ss.120-122) and the protections that are afforded in respect of certain transfers of property and payments made by a bankrupt (ss.123-124). From an historical perspective s.121 – concerning transfers to defeat creditors – was central amongst those provisions and may be traced to 13 Eliz I c 5 (Elizabethan Statute), passed in 1571. The history of ss.120-121, the ensuing changes effected to those provisions and the reasons for those changes are traced comprehensively in Barton v Official Receiver (1986) 161 CLR 75, 80-84; Marcolongo v Chen (2011) 242 CLR 546, [1], [12]-[23] and Anscor Pty Ltd v Clout (2004) 135 FCR 469 (Anscor), [24]-[32].
These authorities confirm that an understanding of the scope and operation of s.120 is assisted by an appreciation of its origins. In particular, they confirm that bankruptcy provisions such as ss.120-122 should receive a liberal construction in effecting their respective purposes: Marcolongo (2011) 242 CLR 546, [20]. One purpose of s.120 is to prevent properties from being put into the hands of relatives to the disadvantage of creditors: Cook v Benson (2003) 214 CLR 370, [30] citing Barton v Official Receiver (1986) 161 CLR 75, 85.
At the same time, authorities decided by reference to earlier statutory provisions should not be permitted to obscure or distract attention from the determination of the legal consequences that flow from the proper construction and application of s.120 in its current form: cf PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515, [28] (FC). The present application falls for determination under s.120 and the general law.
The operation of s.120 differs in at least three respects from the operation of the Elizabethan Statute: (1) under s.120, it is the commencement of the bankruptcy that brings about the avoidance of the transfer – avoidance does not turn upon the decision of the trustee to intervene in a transfer; (2) under the Elizabethan Statute, “dealings by a transferee that involve the entire dissipation of that property, between the date of receipt of the property from the debtor and the date on which the creditor invokes the statute will be valid” Westpac Banking Corporation v Bell Group Ltd (In Liquidation) (No 3) (Bell Group) (2012) 44 WAR 1, [2526], [2535] (Drummond JA); (3) since s.120(1) is triggered by a transfer for no consideration or consideration that was less than market value, the section obviates the need to address whether the consideration was real or substantial: Anscor [32], [36] (Lindgren J) citing Barton v Official Receiver (1986) 161 CLR 75.
Structure of s.120
Section 120, which lies within Division 3 of Part VI, relevantly provides:
Transfers that are void against trustee
(1)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.
Exemptions
(2). . . ;
(3)Despite subsection (1), a transfer is not void against the trustee if:
(a)in the case of a transfer to a related entity of the transferor:
(i)the transfer took place more than 4 years before the commencement of the bankruptcy; and
(ii)the transferee proves that, at the time of the transfer, the transferor was solvent; or
(b) in any other case: …
Rebuttable presumption of insolvency
(3A)…
Refund of consideration
(4) …
What is not consideration
(5) …
Protection of successors in title
(6) …
Meaning of transfer of property and market value
(7) For the purposes of this section:
(a)transfer of property includes a payment of money; and
(b)a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) . . .
(Emphasis in original)
By the Bankruptcy Legislation Amendment Act 1996 (Cth), the predecessor to s.120 of the Act was repealed and s.120 was substituted in its current form on 25 October 1996: s.208. Further amendments were effected to s.120 in 2006 and 2008. These amendments were aimed at simplifying and expanding the reach of the provision so as to enhance the ability of trustees to avoid certain transfers of property which had been effected during an extended period before the commencement of the bankruptcy: Senate Report, [1.66]-[1.69].
Foremost amongst the legislative changes effected to s.120 was the repeal of the concept of settlements and the substitution of transfers as the object upon which a trustee might avoid a transaction. The criterion of settlements in the Bankruptcy Act 1966 (Cth) and analogue provisions in earlier Australian and English bankruptcy statutes served to limit the operation of those provisions. The repeal of the provision which turned upon settlement and the substitution of the new s.120 which is now focussed upon transfer aimed to enhance and broaden the scope of the trustee’s right to avoid impugned transactions.
The object of s.120 is to enable trustees to recapture the amount of the shortfall in consideration between the value of the property transferred and the consideration paid: Vale v Sutherland (2009) 237 CLR 638, [6] (per curiam), citing Anscor (2004) 135 FCR 469, 479 (Lindgren J). In the latter case, Lindgren J observed at [34] that a transfer of property for less than full consideration triggered the section and it mattered not that the transferee was a purchaser in good faith.
A significant difference between the Elizabethan Statute and s.120 is that in the former case, its operation is not triggered unless or until it is invoked by a creditor: Bell Group (2012) WAR 1, [2535] (Drummond JA) citing Brady v Stapleton (1952) 88 CLR 332 (Brady), at 332-333 (Dixon and Fullagar JJ). In Bell Group, Drummond JA observed that s.120 operates differently to the Elizabethan Statute: s.120 is engaged by the commencement of the bankruptcy of the person who made the transfer of property. As his Honour observed, s.120 is triggered and operates to as to avoid the subject transfer where two conditions exist: (1) the transferor must become bankrupt; (2) there must be a trustee of the bankrupt’s estate: ss.43(2), 120, 156A(3). Those conditions will be satisfied by the making of a sequestration order.
In Bell Group, Drummond JA further considered that s.120 did not require that a trustee take some further action – for example, by election – to avoid a transfer. As is apparent, the text of s.120 does not provide that a trustee may avoid a transfer. Instead, the section now states that the transfer is void. In reality, statutory avoidance will be of no practical effect unless and until a trustee takes steps to enforce the consequences of a void transfer, but that is a separate question. On this construction of s.120, where those conditions exist, the section is engaged if the transfer is within the scope of para’s 120(1)(a)-(b).
Following the completion of the sale of the property in March 2010, Ulas Ulusoylu became bankrupt. This occurred on 25 June 2013. The applicants were appointed trustees of his estate. The conditions necessary to engage s.120 then existed.
Section 120 does not purport to apply to every transfer of property by a bankrupt. A transfer of property may only be avoided against the trustee of bankruptcy pursuant to s.120 where two features are present:
(1)the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy;
(2)the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
The commission of an act of bankruptcy marks the commencement of bankruptcy: ss.5, 115; Vale v Sutherland (2009) 237 CLR 638, [28] (per curiam); Anscor (2004) 135 FCR 469, [43(g)] (Lindgren J). In the present case, the proven act of bankruptcy occurred on 27 February 2013 and that date fixes the commencement of this bankruptcy. Here, the five year period marked out by sub-s.120(1)(a) is the period from 28 February 2008 to 27 February 2013. The payments made to the respondent on 4-5 March 2010 took place within that period.
The second condition prescribed by sub-s.120(1)(b) is also satisfied. The respondent gave no consideration for the transfer of that money.
A ‘transfer’ of property
The next question concerns the meaning of transfer of property for the purposes of s.120. As noted, s.120 operates to avoid a transfer of property. It does not simply fix upon the property that was the subject of transfer. The object of s.120 is the transfer itself. The section provides that the transfer is void as against the trustees in the bankruptcy. Thus s.120 may be contrasted with its predecessors, the target of which concerned a settlement of property.
The term transfer is not given a defined meaning (either by ss.5, 120 or in Part VI), and so is to be given its ordinary meaning. The ordinary meaning of transfer is to remove from one place and move to another, to make over or convey. This ordinary meaning does not require that the movement effected by that transfer was achieved with intent or that the transfer should result in a permanent retention of property.
A transfer of property – money
The term property is given a very broad definition under the Act: ss.5, 116(1). Here, the property, the subject of the transfers on 4-5 March 2010, comprised a series of bank cheques and possibly a direct transfer of money (see below).
Cases from at least 1802 support the conclusion that a transaction in the nature of a gift of money was not within the ambit of earlier statutes: Ex parte Shorland 7 Ves 88. When Ex parte Shorland was decided the statute did not refer to money.
While it is unnecessary to trace in detail the legislative changes to bankruptcy legislation, amendments have progressively extended the operation of the avoidance provisions such that: (1) settlement of property included “any transfer or conveyance”, and; (2) “property” included “money”: cf Bankruptcy Act 1849 (UK), Bankruptcy Act 1869 (UK). Yet it continued to be held that, properly construed, the legislation applied only to a settlement (albeit a settlement by way of conveyance or transfer), as distinct from some lesser, impermanent, form of transfer.
In In re Player: Ex parte Harvey (1885) 15 QBD 682, a father had advanced £650 to his son (aged 22 years) to enable him to carry on business as a manufacturer of building materials. The advance was made, for no consideration, a matter of years before the father’s bankruptcy. A declaration was sought that the advance was void as against him as trustee, together with an order for payment. The Court of Appeal affirmed a decision that the advance was not a settlement. Mathew J held at 684 that where the property which was settled was money it may be recovered by a trustee, but that the Act did not apply to all advances made by a father to his son. Cave J held at 686-7 that to be avoided under the then relevant provision:
The transaction must be in the nature of a settlement, though it may be effected by a conveyance or transfer. The end or purpose of the thing must be a settlement, that is a disposition of property to be held for the enjoyment of some other person . . . But where the gift is money, to be expended at once, the transaction is not, in my opinion, within sec. 47 of the Act of 1883. (emphasis added).
Wills J agreed at 687.
Notably, it was of little account in the Court of Appeal’s consideration of the matter that the subject property was money. The focus of the analysis was upon the nature of the transaction and whether the property was to be retained, or expended at once. Mathew and Cave JJ each acknowledged that a transfer of money might attract the operation of the Act but held that it would do so only if it was a settlement.
In Williams v Lloyd (1934) 50 CLR 341 one of the transactions the subject of the proceeding concerned the depositing of £1,000 to a savings bank account. Dixon J (with whom Rich, Evatt and McTiernan JJ agreed), concluded that the payment of £1,000 was impugned. His Honour examined In re Player and traced its approval in a series of English authorities. Dixon J’s analysis of the principles focussed upon the nature of the transaction and whether it contemplated the retention, as opposed to the immediate dissipation, of the money. His Honour endorsed the passage from In re Player that a transfer of money could constitute a settlement. Starke J (with whom Gavan-Duffy CJ agreed) dissented in part as to the result, but at 363-4 agreed that the transfer of £1,000 was a transaction made void as against the Official Receiver.
Both In re Player and Williams v Lloyd confirm that under the then applicable legislation, a settlement was not void unless it contemplated the retention of the subject property. Where the property was money and had been transferred so as to be expended at once, the conclusion of immediate dissipation undermined a conclusion that there had been a settlement within the meaning of the section. By contrast, as applied to the present case, the amendments to s.120 have dispensed with the use of settlement. Section 120 is not concerned to inquire whether, in the case of a transfer of money, the funds were to be expended at once or were to be retained for some period.
Further, for the purposes of s.120, a transfer of property is now given an expanded meaning and includes a payment of money: sub-s.120(7). Despite that amendment, a question has been posed whether the payment of money may constitute a transfer of property within the meaning of s.120.
In Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372 (Alvaro), 387G, 423-424, 426-427, Wilcox and Cooper JJ (with whom Moore J agreed on this issue), had no difficulty in regarding the proceeds of sale of several properties as constituting property for the purposes of a disposition of property that might attract the avoidance provisions of s.121.
Yet in Anscor, Wilcox and Moore JJ left open whether the amendments to s.120 “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.” Their Honours, while accepting that money – in the form of currency – could be property, queried whether a payment of money readily fell into the description of a conveyance or transfer of property: (2004) 135 FCR 469, [1]-[2]. In a seminal judgment, Lindgren J considered whether a payment of money constituted a transfer of property under s.120. His Honour recognised that it was because money was easily dissipated and consumed, earlier authority had declined to characterise a payment of money as constituting a settlement of property within earlier avoidance provisions: (2004) 135 FCR 469 at [30] citing Jack v Smail (1905) 2 CLR 684. His Honour noted the textual changes in s.120 from a settlement of property to a transfer of property and that ‘property’ was given a wide definition in the Act. Lindgren J held that for the purposes of s.120, a transfer of property did not require retention of the property for any period and included a payment of money (particularly in light of the inclusive definition in s.120(7)): see at [29]-[31].
Other recent authority confirms that a payment of money may be effected by a variety of means including as by execution of a deed of gift and mere book entry, and may constitute a transfer of property within the meaning of ss.120 or 121: Combis (Trustee) v Spottiswood (No 2) [2013] FCA 240, [18], [44] (Logan J); Donnelly v Windoval Pty Ltd [2014] FCA 80, [131] (Foster J).
In my opinion, the ordinary meaning of transfer, coupled with the expanded meaning of a transfer of property given by s.120(7), are sufficient to apply to a transfer of money arising from the sale of property owned by a person who later became bankrupt. Despite the limitations that were historically placed upon avoidance provisions with respect to settlements, I conclude that a payment of money may constitute a transfer of property for the purposes of s.120.
Transfer ‘by’ a person
Section 120(1) has no application unless, relevantly, the transfer of property was by a person who later becomes bankrupt. The use of the prefix by in s.120 may be taken to import a causative connection between the transfer of property and the person (who later becomes bankrupt) by whom it is effected: cf Wardley v State of Western Australia (1992) 175 CLR 514, 525 (Mason CJ). Such analysis does not suggest that it is necessary to establish that the bankrupt had any purpose of causing loss to the creditors of his estate: cf Marcolongo (2011) 242 CLR 546, [32].
In the context of a provision such as s.120 a limited causal connection is required. The question of fact is whether the person who later became bankrupt can be identified as the person by whom the transfer of property took place. The point is of passing note in this case only because the transfers of property constituted by the drawing up and delivery of bank cheques (and any direct crediting of the balance of the deposit) occurred at the direction of the bankrupt to his conveyancer.
The authority signed by the bankrupt on 25 January 2010 required the conveyancer to “disburse all balance of sale proceeds of the above property as directed by my mother, Cavide Ulusoylu.” I regard that as a direction by the vendor under the contract; that is, the bankrupt, that his conveyancer should disburse the net proceeds of sale as the respondent directed should occur. That is how the bankrupt’s authority would have been read by two reasonable persons at that time: cf Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288, 300 (Isaacs J).
An authority to disburse funds to a person other than the bankrupt was necessary only because the bankrupt was registered proprietor of the property. The bankrupt was the vendor under the contract and the conveyancer was otherwise obliged to account to the vendor. Yet the conveyancer, who was bound to act upon the bankrupt’s direction, was to instead required pay the net proceeds of sale as directed by the respondent. It was only by reason of the bankrupt’s authority that the payments comprising the net proceeds of sale were made to the respondent. The bankrupt’s execution of the authority served to confirm that, as he was concerned, the subsequent transfer of the net proceeds of sale was fait accompli. The conveyancer acted at the behest of the respondent, but pursuant to the bankrupt’s authority. It is of no account that the cheques were drawn or that the payments were in fact made to the respondent at the respondent’s direction instead of being made at the direction of the bankrupt himself: cf Sargentv ASL Developments (1974) 131 CLR 634, 659 (Mason J).
The transfers of property constituted by the drawing and delivery of bank cheques (and the payment of the balance of the deposit from the estate agent’s account) were effected by the bankrupt in the manner described and transferred by the bankrupt within the meaning of s.120.
Transfers are prima facie void against trustee
The applicants bear the onus of proof on the elements necessary to establish that the transfers are void by operation of s.120: Cook v Benson (2003) 214 CLR 370, [28]; see also, Lexis Nexis Annotated Bankruptcy Act 6th Ed, (2015) at [81,884.8].
However, as Dixon and Fullagar JJ recognised, the scope of that principle was not as unqualified as may first appear. Their Honours further held that, where sufficient money was still held by the transferee, equity would allow recovery from the indistinguishable mass or permit a charge over the whole. More specifically, in the case of money “equity would have followed the money even if put into a bag or into an indistinguishable mass, by taking out the same quantity”: citing Frith v Cartland (1865) 71 ER 525, 527; Re Hallett’s Estate (1879) 13 Ch D 696, 719-720 (Jessel MR). In the reasoning that followed, their Honours confirmed that it was a ‘great mistake’ to suppose that Re Hallett’s Estate laid down a doctrine peculiar to money: “ . . . it extends to money paid into a bank account, and so losing its identity as money, a doctrine which equity would never have had the slightest hesitation in applying to money physically existing or to any other kind of personal property which it could as a matter of practical possibility, be applied” (1952) 88 CLR 322, 337-338.
The authorities confirm that attention must be focused upon the property in respect of which relief is sought if only because consideration of the available relief is informed by a conclusion whether – at the commencement of the bankruptcy – such property still exists, or has been transferred in specie, transformed into some other property, mixed or dissipated such that that the original property is no longer identifiable: cfDonnelly v Windoval Pty Ltd [2014] FCA 80, [159] (Foster J); Anscor (2004) 135 FCR 469, [43(h)-(k)]; Fodare Pty Ltd v Official Receiver [2000] FCA 1388, [27]-[28] (FC); Alvaro (1996) 66 FCR 372, 426C-428B; Brady (1952) 88 CLR 332, 332-335; Trautwein v Weinstock [1946] Arg LR 129, 132-133; Re Mouat; Kingston Cotton Mills Co v Mouat [1899] 1 Ch 831, 834-835; Re Hallett’s Estate (1879) 13 Ch D 696.
Authorities concerning the Elizabethan Statute held that where property had been transferred but the proceeds dissipated, the transferee was not liable for the value of the property so lost. Cases under s.120 appear not to be so confined (see below).
Statutory relief
While the range of available ancillary orders that may be made where a transfer is void pursuant to s.120(1) are considered by the learned authors of McDonald Henry & Meek, Australian Bankruptcy Law & Practice, curiously there is almost no commentary as to orders for payment of money: see [120.0.30] at pp.10-2452 – 10-2455. Discussion of the topic is limited to a proposition that the right to follow property ceased where the means of ascertainment failed: citing Brady. But as Brady demonstrated, this conclusion was qualified. In equity, the mixing and withdrawal of funds was treated on the basis that the trustee was not in breach; it being assumed that the trustee had withdrawn their own funds first, and so, leaving the beneficiaries own funds intact, they were recoverable: (1952) 88 CLR 322, 337 citing Re Hallett. The absence of such commentary is perhaps explicable on the basis that historically the predecessors to s.120 were concerned principally with the recovery of property under a void transfer. Recovery of money was made possible by later amendments to bankruptcy legislation but it was confined by the requirement that the money had been transferred under a settlement. It was only more recently that in ss.120-121 settlement was replaced by transfer.
Does the Act provide a basis for imposing personal liability upon the recipient of money under a transfer that is void as against a trustee pursuant to s.120? On one view, it would seem futile for trustees to obtain a declaration that a transfer was void if this declaration was not augmented by coercive relief for payment of the value of the property obtained by the transferee under the impugned transfer. The argument based on futility is reinforced when it is recognised that by force of sub-s.120(4), a trustee must pay a transferee an amount equal to the value of any consideration given by a transferee under a void transfer. It would seem absurd to require a trustee to pay the transferee such an amount if the trustee did not possess a correlative entitlement to recover the shortfall in the value of the property that had been transferred: cf sub-s.120(4). In my view, resort to notions of futility does not supply a sufficient basis to impose an unqualified liability upon the transferee from a bankrupt in all cases. It would not suffice where evidence established that the property, being money, had been dissipated before trustee’s title had accrued to the bankrupt’s estate. Yet a different result may flow where the evidence did not go so far.
Section 120 should also be considered in the context of the Act as a whole. Part of that context includes that the duties of a trustee of a bankrupt estate include the determination of whether the estate included property that could be realised and whether the bankrupt had made a transfer of property that was void against the trustee and the taking of steps to recover property for the benefit of the estate: cf para’s.19(1)(b), (e), (f). Other powers and rights conferred on a trustee also include the power to take control of the debtor’s property, to obtain order for delivery of property and to protect that property by injunction: see ss.50, 81(13), s139ZIJ.
As noted, para.30(1)(b) confers a general power on the court in a bankruptcy proceeding to make such orders as it considers necessary for the purposes of carrying out or giving effect to the Act in any case or matter. Section 30 has been described as the jurisdictional foundation for the making of orders for payment of money in the context of relief arising from a transfer of property that is void pursuant to s.120: Ambrose (Trustee) v Poumako (No 3) [2013] FCA 22, [20] (Mansfield J). The power conferred by s.30 should not be construed narrowly: Vale v Sutherland (2009) 237 CLR 638, [19]. Yet s.30 does not authorise the making of orders that would bring about a result which differs from that prescribed elsewhere in the Act; cf Coshott v Prentice (2014) 221 FCR 450 (FC); Poumako (No 3) [2013] FCA 22, [16]; Tyler v Thomas (2006) 150 FCR 357, [13], [78], [208] (FC).
In my view, the general power conferred by para.30(1)(b) should not be construed as authorising a court to make coercive orders subjecting a transferee to personal liability for payment in circumstances where no legal, equitable or statutory liability could be identified as the foundation for that judgment. To give s.30 such a liberal construction would undermine the principle stated in Brady that a transferee who held a good, albeit defeasible, title at the time of disposal of property acquired from a person who became bankrupt, is under no personal liability for the proceeds of sale if dissipated.
Before the power is engaged to make an order for payment under s.30, the applicant must establish that the respondent is under a personal liability in respect of the property transferred. That the transfer is void pursuant to s.120 does not secure that conclusion. Some other more concrete foundation must be identified as grounding liability.
The objects of Part VI of the Act are to assist trustees in the administration of the property comprised in the bankrupt’s estate and to secure that property which ought to comprise part of that estate is recovered and restored to it. More particularly, Division 3 and s.120 of the Act facilitate the object that property available for the payment of debts (including property transferred in certain periods before the date of bankruptcy), is recovered by the trustees of the bankrupt’s estate. Property so recovered will then be available for distribution to creditors under the scheme of the Act: see Part VI, Division 5.
As a general rule, where a debtor becomes bankrupt, property of the bankrupt (which is broadly defined) vests in the trustee: ss.5, 58. By s.5 the property of the bankrupt is defined relevantly to comprise the property which is divisible amongst the bankrupt’s creditors and any rights and powers in relation to that property that would have been exercisable by the bankrupt had she not become a bankrupt. To similar effect, the property which is divisible amongst the creditors of a bankrupt relevantly includes all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy and:
. . . the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge; and . . . (see sub-para’s.116(1)(a)-(b)).
The combined effect of these provisions is to vest in a trustee not merely any real or personal property of every description, but also the capacity to take proceedings for exercising all such powers in or over such property as might have been exercised by the bankrupt at the commencement of the bankruptcy.
Only the trustees of a bankrupt estate, or the Official Receiver, have standing to avoid a transfer under s.120: McNamara v San (No 3) (2010) 183 FCR 328, [89], [98] (Graham J); Bell Group (2012) WAR 1, [2535] (Drummond JA).
An obligation to pay a trustee may be found in s.129. Section 129 is contained in Division 4 of Part VI – Realization of property – and provides for a trustee to take possession of property of the bankrupt. Relevantly, sub-section (4) reads:
If a person has in his or her possession or power any moneys or security that he or she is not by law entitled to retain as against the bankrupt or the trustee, he or she shall pay or deliver the moneys or security to the trustee. (emphasis added)
McDonald Henry & Meek, Australian Bankruptcy Law & Practice has no relevant commentary as to sub-s.129(4): see [129.04.05] at pp.10-3053.
Section 129 proceeds upon a premise that a person has money in their possession that he or she is not entitled to retain as against the trustee or bankrupt. The obligation to pay or deliver that money is conditioned expressly on the absence of an entitlement to retain it as against the bankrupt or trustee.
In this case, the anterior question is whether the trustee has an entitlement to recover the proceeds of sale from the respondent. Absent such an entitlement, s.129 has no application to this case.
A further obligation to pay a trustee is located in Division 4B of Part VI which concerns, amongst other things, recovery of property. A stated object of Division 4B is to enable the recovery of certain money and property for the benefit of the bankrupt’s estate: s.139J. To define the objects of Division 4B in such terms indicates that the recovery of certain money is permitted. The text may be contrasted with the recovery of any money or property. Subdivision J of Division 4 concerns the collection of money or property from a party to a transaction that is void as against the trustee of a bankrupt estate. Sub-section 139ZQ(1) provides, relevantly, that if a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver may on the application of the trustee, give notice which requires the recipient to pay to the trustee an amount equal to the amount of the money or the value of the property received as a result of that transaction. The notice may require the amount to be paid.
Sub-section 139ZQ(8) provides that an amount payable by a person to the trustee under that section is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction: cfVale v Sutherland (2009) 237 CLR 638.
It may therefore be questioned whether, in the face of such specific provisions as ss.129 and 139ZQ(8), a more general provision such as that contained in s.30 of the Act could found a liability for payment of money under a void transfer: cf Anthony Horden & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1, 7 (Gavan Duffy CJ, Dixon J). The alternative, and I think preferable, view is that sections 30, 129 and 139ZQ(8) are complementary: MIMIA v Nystrom (2006) 228 CLR 566, [59]-[62] (Gummow and Hayne JJ); Pearce and Geddes, Statutory Interpretation in Australia 8th Ed (2014) [4.36] at p.183. Section 30 can be seen as the jurisdictional foundation authorising the making of orders for payment while ss.129 and 139ZQ provide sources of liability to pay.
Interaction of s.120 and general law
In Bell Group, two members of the court concluded that the right to obtain remedial orders under s.120 did not depend upon a continuing ability to identify the property that had been transferred. The claim in that case was in fact made pursuant to analogue provisions of ss.120-121 under the Corporations Act 2001. Lee AJA observed that jurisdiction in bankruptcy had commenced as an exclusive equitable jurisdiction: (2012) 44 WAR 1, [713]-[729]. His Honour considered that s.120 had its genesis in that equitable jurisdiction and was likely to include jurisdiction over conduct for which equity would grant relief. Lee AJA reasoned that: (1) where money had been transferred and was no longer identifiable, there still remained a right to obtain orders in equity: (2012) 44 WAR 1, [723] citing Brady (1952) 88 CLR 322, 342-343 (McTiernan J diss); (2) the proper consideration of the scope and purpose of s.120 militated against a conclusion that statutory relief was constrained by common law or equitable remedies: citing Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, [99]-[102] (Gummow J); (3) s.120 neither defined the form of proceeding or the remedy for which it provided; (4) s.120 should be construed in a manner that promoted the purpose or object of the legislation: citing s.15AA Acts Interpretation Act 1901 (Cth); (5) s.565 of the Corporations Act 2001 contemplated a full panoply of remedies available to the circumstances of each case. In the result, while the scope of the new rights provided by s.565 would continue to be informed by past developments of bankruptcy law, the remedies available under the statute should not be treated as having been trammelled by those laws.
Lee AJA held at [741]-[743], that to assist achievement of the purposes of the Corporations Act 2001:
. . . courts should read the provisions of s.565 as contemplating the use of all appropriate remedial orders, including those that would be regarded as appropriate in equity: . . .
That means that where property dealt with in a dealing contrary to s.565 consists of money, the right to obtain remedial orders will not depend upon a continuing ability to identify the object dealt with. . .
By definition, the business of the Banks involved mixing of moneys in an amalgam of funds which led to loss of identity of the property concerned. But in that circumstance, an order may be made that the Banks account and make compensation for the use of that money . . .
Carr AJA agreed in the reasoning of Lee AJA above: [3231].
Carr AJA also considered liability under s.120 from another perspective. While the Bank syndicates relied upon Brady arguing that no relief was available under s.565 unless the funds or an identified product of the funds was identifiable at the time of avoidance, his Honour distinguished Brady on the basis that the only claim pursued in that appeal had been a common law claim for money had and received. Carr AJA reasoned that the question which arose in Bell Group was “whether equity’s jurisdiction is attracted so as to provide an in personam remedy in aid of the bankruptcy statute.” His Honour reasoned that there was no equitable principle which exonerated a transferee from liability to account merely by reason that the money had been mingled with its own funds. Carr AJA held that the trustee of a bankrupt’s estate had an equitable right in personam to recover a sum equivalent to the proceeds of sale subject, however, to the protection afforded by the statute to a bona fide purchaser who had taken for value without notice: (2012) 44 WAR 1, [3220]-[3228], [3232]. As concerned the claim under s.120, Carr AJA held that the Liquidators were entitled to relief based upon equitable principles in aid of enforcing the statutory avoidance provisions: [3543], [3554].
Drummond AJA disagreed in the holding of Carr AJA: (2012) 44 WAR 1, [2576]-[2578]. Drummond AJA dissented as to the extent of relief available under s.120 where the proceeds of realisation could not be traced as at the date of avoidance. His Honour maintained a sharp distinction between cases in which the transferee, having a good but defeasible title before commencement of the bankruptcy, had dissipated the proceeds of sale (Brady), and those in which the statute operated upon property which a transferee continued to hold and where the transfer was deprived retroactively of validity (Price v Parsons (1936) 54 CLR 332).
However, Drummond AJA accepted that where the transferee’s defeasible title was destroyed retroactively, the transferee became liable to the trustee in bankruptcy for monies had and received. Of some importance was that his Honour distinguished between the commencement of the bankruptcy (s.115) and the retroactive avoidance of an impugned transfer:
The retrospective effect of avoidance operates independently of the bankruptcy doctrine of relation back, now contained in s 115 of the Bankruptcy Act. In Price v Parsons, . . . what triggered the retrospective avoidance ab initio of G's disposition of the goods to P was the commencement of G's bankruptcy. . . .
The avoidance, so triggered, operates retrospectively to make the subject matter of the transfer once again the property of the bankrupt and thus of the trustee, . . . as if he had never parted with that property.
See (2012) 44 WAR 1 [2542]-[2543], [2557], [2561]-[2567], [2680].
Drummond AJA concluded that a transferee could be under no personal liability if the proceeds of sale had been dissipated before avoidance. Equally, his Honour accepted that a proprietary remedy may be available if the proceeds were retained in some form: (2012) 44 WAR 1, [2568]-[2569]. Notwithstanding his conclusion that s.120 was not engaged, his Honour held the Banks liable under s.121: [2586].
An appeal to the High Court was not determined as the matter was settled. The High Court appeal granted special leave on other issues, the Full Court’s statements in relation to s.120 being obiter. While Bell Group has been cited in more than 80 decisions, the passages discussed above appear not to have been addressed.
Adapting the reasoning from Bell Group above, I conclude that in the present case the respondent’s liability to pay the sum claimed derives from the interaction of ss.120, 129 and the general law.
In my opinion, the route by which a remedy may be identified is to be found in Williams v Lloyd, Re Fiorino, O’Halloran and in Bell Group. As Gummow J held in Re Fiorino and in contrast with the Elizabethan Statute, s.120 operated according to its terms immediately upon the making of a sequestration order and the appointment of a trustee. As Allsop J observed in O’Halloran, the transfer is avoided as and from the date of the accrual of the trustee’s title – the commencement of the bankruptcy. As Drummond JA observed in Bell Group, the section operates automatically to bring about retrospective avoidance of the bankrupt’s transfer. As Dixon J held in Williams v Lloyd, avoidance invalidated every step taken by the bankrupt which otherwise would have caused the beneficial interest in the property to pass from the bankrupt to the transferee. I consider the approach to relief as taken by Lee and Carr AJA in Bell Group to be persuasive, particularly when regard is had to the scope and objects of modern bankruptcy.
Applied here, s.120 operated retrospectively to avoid the bankrupt’s authority to his conveyancer to pay the proceeds of sale as directed by his mother. Every step thereafter which would otherwise have been effectual to pass the beneficial interest in those proceeds of sale to the respondent was invalidated by operation of s.120. Title to the net proceeds of sale vested in the applicants as from the moment of accrual of their title to the bankrupt’s estate. The respondent received the proceeds of sale under a defeasible title and, from the commencement of the bankruptcy, held those proceeds as trustee for the applicants – such trust arising upon the interaction of s.120 and the general law. The respondent is liable, as trustee, to account for those proceeds as money had and received. Given that conclusion, s.129 is engaged, so founding a liability for payment to the trustees. Section 30 then authorises the making of an order for payment to the trustees.
The applicants are thus entitled to an order for the payment of $110,003.64.
Onus of proof
The conclusion expressed above may be reached on an alternate basis.
As I have noted, the applicants bore the onus of proof on the elements necessary to establish that the transfers are void by operation of s.120. I have found that the applicants have made out their claim and held that the payments of the net proceeds of sale are void as against them in this bankruptcy.
However, I have also addressed whether the respondent’s evidence established that the bankrupt held the property and all or any part of the proceeds of sale on trust for the respondent. The respondent bore the onus of proof on those trust issues and also whether, despite s.120(1), the transfers of property were exempt from the reach of that provision. To establish exemption the respondent bore an onus to establish the bankrupt’s solvency. No attempt was made to discharge that onus.
Marcolongo v Chen also illustrates the important proposition that where an onus of proof may lie will vary having regard to the particular matter in issue: (2011) 242 CLR 546, [24]. The plurality there referred to the principle that in some circumstances, evidence may be of a species which has sufficient weight to entitle the fact finder to decide an issue in favour of the moving party although not obliged to do so and notwithstanding that some other evidence may appear decisive to the contrary: (2011) 242 CLR 546, [25]. This analysis draws attention to the potential importance of onus in this matter.
In Brady, the two transferees of shares from the bankrupt were liable to re-transfer those shares to the trustee in bankruptcy on application of the doctrine in Re Hallett’s Estate. As Dixon and Fullagar JJ observed, it was a mistaken view that such an order was precluded by reason of the impossibility of precise identification of the shares that had been comprised in the bankrupt’s estate. Their Honours considered this to be an inversion of the true position and one which “place[d] the burden of identification on the wrong shoulders” (1952) 88 CLR, 322, 336. Although that holding concerned the onus of proof in relation to a claim for the return of personal property (shares), the reasoning seems equally applicable to other personal property; namely, money. Their Honours applying the doctrine in Re Hallett’s Estate, emphasised that it would have been a great mistake to suppose that it applied only to money: compare, albeit in quite different circumstances, Lipkin Gorman v Karpnale [1991] 2 AC 548 at 572B per Lord Goff.
In Re Fiorino, property transferred by a son to his mother was not sold by the transferee until after a sequestration order had been made: [1994] FCA 1023. In Bell Group, Drummond AJA noted that liability was established in Re Fiorino where the trustees made no attempt to show whether the mother had retained in her hands – or dissipated – any part of the proceeds of sale: (2012) 44 WAR 1, [2565]-[2567].
A similar analysis was adopted by Lindgren J in Anscor in relation to monies that had become part of an indistinguishable mass. His Honour, dismissing an appeal from the trustee’s successful claim, held against the appellant banks by reason of their inability to point to contemporaneous documentary evidence upon which an accounting exercise could be carried out so as to identify which monies belonged to the trustee and which was the appellants own money: (2004) 135 FCR 469, [79], [83].
A like approach to onus was taken by Logan J in Combis v Spottiswood (No 2) on the adducing of evidence to establish the difference between the value of the sums transferred under certain book entries and any difference in the amount of the consideration given for those transfers. His Honour noted that no evidence had been adduced but that forensic accounting and asset valuation evidence would have been required in that case: [2013] FCA 240, [45]-[46].
In Bell Group, Drummond JA observed that various banks, against whom claims were made under both ss.120 and 121, had not shown that the proceeds of realisation of certain securities no longer existed. His Honour considered it not in point that those proceeds were no longer identifiable: (2010) 44 WAR 1, [2522], [2541]; see also Carr AJA at [3216]-[3217], [3226].
So here, if I am wrong in the conclusion that s.120 operated upon the bankrupt’ direction to transfer the proceeds of sale to the respondent, the holding in Brady would still mean that it fell to the respondent to prove both the fact, the extent and the date of any dissipation of the net proceeds of sale. Had the respondent sought to defend the claim on the basis that she had disposed of the whole or some part of the proceeds of sale at a time when she had a good title to that property, the onus of proving that dissipation would have fallen upon her.
As a general principle, when a cheque is given in payment of a debt it is treated as operating as a conditional payment. The condition is that the payment is subject to the cheque being paid upon presentation. By extension, payment is not complete until the cheque is accepted by the creditor: National Australia Bank Ltd v KDS Construction Services Pty Ltd (1987) 163 CLR 668, 676 (per curiam). This decision has been applied in the context of s.120 in the consideration of whether there has in fact been a transfer of property: Macks v Morris [2003] FMCA 208, [32]. In KDS Construction, the Court observed that where a cheque had been honoured, this would bring about different consequences depending upon the manner of the application of the proceeds. If the monies were applied to an account in credit, the bank would stand in the position of debtor to the customer. If the monies were applied in reduction of an overdraft, this served to reduce the customer’s indebtedness to its bank: (1987) 163 CLR 668, 676. Alternatively, when the cheque was honoured, the proceeds might be paid in cash – being personal property in the hands of the payee.
As I have held, had the respondent sought to defend this claim on the basis that the proceeds of those cheques had been dissipated before the commencement of the bankruptcy, the burden of establishing that fact fell on the respondent. And to adapt the reasoning in Cook v Benson, in this case, any issue of incompleteness in the evidence is to the respondent’s disadvantage, not the trustees: (2003) 214 CLR 370, [28].
There is no evidence as to the manner of application of the proceeds of the bank cheques. Nor is it known whether they were simply cashed so that the respondent then held the money as personal property. Equally, it is not known if the proceeds of those cheques were placed on deposit. It is a matter of speculation whether the net proceeds of sale have been cashed, retained on deposit, applied in reduction of an overdraft, mixed with monies in some other account, or dissipated.
Conclusions on monetary relief
Fundamental to the law of bankruptcy is that trustees should be enabled to recover property that it can be employed in the distribution of the proceeds to the bankrupt’s creditors. One foundation of the trustee's right of recovery is s.120, which identifies those transfers of property which are void as against the trustee. A purpose of s.120 is to enable recovery of property transferred to the relatives of a bankrupt. It would subvert those purposes to construe s.120 in a way that was unduly narrow. Conversely, a liberal construction of the section would promote the objects of the Act and so operate to the advantage of unsecured creditors. Section 120 serves to facilitate the process of realisation and distribution for which Part VI provides. The progressive series of amendments to s.120 should be understood as being designed to enhance and broaden the trustee’s right of recovery in respect of an impugned transfer under modern bankruptcy laws.
The applicants have proved the elements necessary to support a conclusion that the bankrupt’s transfers of the net proceeds of sale were and are void as against them by operation of s.120. By contrast, there is no evidence as to the ultimate destination of the net proceeds of sale after the transfers took effect.
Had the claim for recovery been defended on the basis that the whole or a part of the proceeds of sale had been dissipated, whether before or after commencement of the bankruptcy, proof of total or partial dissipation was an issue upon which the respondent bore the onus. Any incompleteness in the evidence on this issue is to the respondent’s disadvantage not the trustees.
What became of the $110,003.64 is a matter of speculation. In contrast with Brady, there is no evidence supporting a conclusion that the net proceeds of sale can no longer be identified.
The applicants are entitled to relief upon the basis that the property represented by the net proceeds of sale remains in the respondent’s hands and is recoverable for the benefit of and distribution to the creditors of the bankrupt’s estate. The respondent is liable pursuant to s.129 and an order for payment should be made under s.30.
If I am wrong in the conclusion that the bankrupt did not hold the gift of $20,000 on trust for the respondent, I would have allowed a sum of $20,000 in favour of the respondent on the basis that she would otherwise have been entitled to recover the conditional gift made to enable the bankrupt to purchase the property. I would, in that event, still have allowed recovery, albeit for a lesser sum: cf Re Fiorino.
Liability for interest on $110,003.64
The trustees’ application included a claim for interest.
Reliance was placed upon s.76 of the Federal Circuit Court of Australia Act 1999 (Cth) (FCC Act), as founding an entitlement to interest. Sub-section 76(2) confers an entitlement in this court for a party to apply for an order for interest where the proceedings are “for the recovery of any money (including any debtor damages or the value of any goods) in respect of a particular cause of action.”
The present application is for the recovery of money: see prayer for relief, paras 1-2. This conclusion is supported both by the claim for a money sum and perhaps also because a declaration is sought in respect of the avoidance of the transfer of property; cf Bloch v Bloch (1981) 180 CLR 390, 398-9 (Wilson J).
Awards of interest may be allowed in claims under s.120: Fodare Pty Ltd v Official Trustee in Bankruptcy [2000] FCA 1721, [11] (FC); Anscor (2004) 135 FCR 469, [43(j)]; Combis v Spottiswood (No 2) [2013] FCA 240, [76]. In the latter case, interest was allowed from the date of a demand made by notice under s.139ZQ.
The court is then given a discretionary power by sub-s.76(3) whether to allow a claim for interest and the basis on which such claim may be allowed and calculated. The statutory power is not engaged where good cause is shown to the contrary against an award of interest. Once engaged, the power conferred by s.76(3) does not limit the operation of any enactment which would otherwise provide for the award of interest: cf Re Lyons (Debtor) Ex Parte: Allpass (Trustee) (1989) 87 ALR 69, [16] (Spender, J).
Section 76 of the FCC Act does not prescribe the rate at which interest is to be awarded and in that context may be contrasted with s.77 which does so. Instead, s.76(3)(c) provides that the court may allow interest on one of two bases. Relevantly, it allows for interest to be calculated at such rate as the court thinks fit on the whole or any part of the money and for the whole or any part of the period between the date on which the cause of action arose and the date of judgment. The same principles apply in the Federal Court: Federal Court of Australia Act 1976 (Cth), s.51A(1)(a); Kazar v Kargarian (2011) 197 FCR 113, [97] (Foster J, Greenwood and Rares JJ agreeing generally).
What interest rate is appropriate in this court?
An award of interest is intended to be compensatory: Marsh v Ruby (1975) 132 CLR 642, 652-3 (Barwick CJ), 664 (Stephen J). For that reason, the Federal Court considers that it is inappropriate to employ a rate derived from a penalty interest rate provision. Instead, the appropriate rate should be one that reflects the cost of money to the applicant. One means of ascertaining that cost is by reference to the prevailing market rate for money: Management 3 Group Pty Ltd (In Liq’n) v Lenny’s Commercial Kitchen Pty Ltd (No 2) (2012) 203 FCR 283, [25] (Lander, Gilmour and Gordon JJ).
The Federal Court Practice Note CM 16 stated that an appropriate rate for pre-judgment interest is 4% above the Reserve Bank’s prevailing cash rate. The use of a rate calculated on that basis was endorsed as a ‘rough and ready’ guide to the prevailing market rate which should be applied to pre-judgment interest: Management 3 Group, supra; see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425, [18] (Macfarlan, Meagher and Barrett JJA agreeing). This practice is endorsed by the replacement Interest on Judgments Practice Note in the Federal Court (GPN-INT), see cl.2.2. For completeness, I note that the post-judgment rate in this court may also be calculated by reference to the applicable Federal Court Rules: FCC Act, s.77(3)(a); FCC Rules, r.26.01.
By contrast, the applicant’s claim for interest was calculated upon the Penalty Interest RatesAct1983 (Vic). In light of the principles discussed above, I decline to adopt a calculation based upon that legislation. An award of interest in this application may be informed by the Federal Court Practice Notes and authorities above.
The Reserve Bank prevailing cash rate from 1 July 2014 to date is as follows:
1 July 2014 – 3 Feb 2015 2.50%
4 Feb 2015 – 5 May 2015 2.25%
6 May 2015 – 3 May 2016 2.00%
4 May 2016 – 2 Aug 2016 1.75%
3 Aug 2016 – to date 1.50%
However, as noted, s.76 of the FCC Act is not as prescriptive as s.77, the terms of which make provision for post-judgment interest. Instead, in allowing pre-judgment interest, by s.76 the interest calculation may be made using such rate as the court thinks fit. Adopting the Full Court’s observations above that a rough and ready indication of the cost of money is 4% above the prevailing cash rate, I award interest calculated at a rate of 6% for the period of the calculation.
Since the award of interest ought to reflect the cost of money to the applicant, the calculation may be made from the date that the cause of action arose: Kazar v Kargarian (2011) 197 FCR 113, [77].
There trustees made repeated demand for payment since June 2014. I allow the claim for interest, particularly in the face of the trustees’ evidence, which was not contradicted, that several demands had been made for payment of that sum in the period June 2014 – August 2015 and that those demands were unanswered: cfWeaver v Harburn [2014] WASCA 227, [133]-[137] (McLure, P, Buss and Murphy JJA agreeing), citing Kazar v Kargarian (2011) 197 FCR 113, [93].
The respondent has had the proceeds of sale of $110,003.64 since early March 2010; that is, some 7 years. The applicants first made demand of the respondent for repayment of the net proceeds of sale on 16 June 2014. Yet the proceeding was not instituted until 7 December 2015.
In light of the delivery of reasons for judgment it has been necessary to adjust the proposed minute of orders to allow for the calculation of interest on a daily basis up to the delivery of judgment. The claim will be allowed for simple interest at 6% for the period 1 July 2014 to entry of judgment. The calculation of interest is:
1 July 2014 – 30 June 2015 $ 6,600
1 July 2015 – 30 June 2016 $ 6,600
1 July 2016 –12 May 2017 $ 5,714
Total $18,914
The award of interest must be included in the sum for which judgment is given; that is to say, there must be a single judgment: FCC Act¸ sub-s.76(3). However, to avoid confusion, the form of judgment identifies the sums separately and so substantially mirrors the approach taken in Fodare Pty Ltd v Official Trustee in Bankruptcy [2000] FCA 1721.
Conclusion
For the reasons given above, I have concluded that neither the property, nor any part of the proceeds of sale, was held on trust by the bankrupt for the respondent or her husband or either of them.
Each of the payments that are relied upon by the trustees in this application was made to the respondent at the bankrupt’s direction. Those payments were so made on 4-5 March 2010; that is, at or immediately upon settlement of the sale of the property. The payments made on those dates were made within the period beginning five years before the commencement of the bankruptcy and ending on the date of the bankruptcy. The transfers of property represented by those payments are not exempted from the application of s.120(1).
The applicants are entitled to a declaration that the transfers of property represented by those payments are void as against them as trustees of the bankrupt’s estate. The applicants have proved the elements necessary to support a conclusion that the bankrupt’s transfers of the net proceeds of sale were and are void as against them by operation of s.120. There is no evidence as to the ultimate destination or dissipation of the net proceeds of sale after the transfers took effect.
The applicants are entitled to an order for payment of a sum equal to the net proceeds of sale. Upon the holding that the applicants are entitled to an order that the respondent pay the applicants $110,003.64 and in the exercise of discretion to allow interest on that sum from 1 July 2014 to the date of judgment, being, $18,914 judgment should be entered in favour of the applicants for the sum of $128,917.64. The applicants applied for costs and they should follow the event.
I certify that the preceding two hundred and eighty six (286) paragraphs are a true copy of the reasons for judgment of Judge A Kelly.
Date: 12 May 2017
- AGLC
- Woods and Lombe as Trustees of the Bankrupt Estate of Ulusoylu v Ulusoylu [2017] FCCA 935
- Case
- [2017] FCCA 935
- Decision Date
CaseChat Overview and Summary
The primary legal issue before the Court was to determine whether the sum of $100,000, which Mr Ulusoylu claimed was held on trust for his mother, was in fact held on a valid and enforceable trust, or if it formed part of his divisible property available to his creditors. This required the Court to consider the elements necessary for the creation of a valid express trust, particularly in the context of a bankrupt individual.
Judge A Kelly found that Mr Ulusoylu had failed to establish the existence of a valid express trust over the $100,000. The Court applied the principles governing the creation of trusts, which require certainty of intention, certainty of subject matter, and certainty of object. In this instance, the Court determined that there was insufficient evidence to demonstrate a clear intention by Mr Ulusoylu to create a trust, nor was the subject matter sufficiently certain. Consequently, the $100,000 was deemed to be property divisible among the creditors of Mr Ulusoylu's bankrupt estate.
Orders
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Background
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Evidence
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Decision
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Ratio Decidendi
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