Daniel v Daniel, in the matter of Daniel

REASONS FOR JUDGMENT 1 This proceeding arises out of a dispute between Michael Gregory Jones, the trustee in bankruptcy ('the Trustee'), of Tony Daniel ('the Bankrupt'), and Tina Daniel ('Ms Daniel'), the former wife of the Bankrupt. As at 23 October 2001, the Bankrupt and Ms Daniel were registered as proprietors of an estate in fee simple as joint tenants in respect of two parcels of land, being Lot 41 in community plan DP 270218 situated at 3 Hunterford Crescent, Oatlands ('the Oatlands Property'), and Lot 72 in deposited plan 258502 situated at 24 Tennyson Street, Wetherill Park ('the Wetherill Park Property'). 2 On 8 October 2003 a creditor's petition was presented, seeking a sequestration order in respect of the estate of the Bankrupt. On 15 December 2003 the Family Court of Australia, sitting at Parramatta, made orders, following a contested hearing between the Bankrupt and Ms Daniel. On that day, the Family Court ordered that the Bankrupt transfer to Ms Daniel, on or before 1 February 2004, the whole of the right, title and interest of the Bankrupt in the Wetherill Park Property and the Oatlands Property. 3 On 16 December 2003 the Bankrupt presented a debtor's petition pursuant to s 55 of the Bankruptcy Act 1966 (Cth) ('the Act'). Section 55(1) provides that, subject to that section, a debtor may present to the Official Receiver a petition against himself. Section 55(4A) of the Act then provides that, where the Official Receiver accepts a petition presented under s 55, the Official Receiver shall endorse the petition accordingly and, upon endorsing the petition, the debtor who presented the petition becomes a bankrupt by force of s 55 and by virtue of presentation of the petition. The Official Receiver did endorse the petition presented by the Bankrupt and, accordingly, by the operation of s 55(4A), he became a bankrupt on that day. Under s 58(1)(a), therefore, the property of the Bankrupt vested forthwith in the Trustee. 4 The question that arises in the proceeding is whether the property of the Bankrupt included any interest in the Wetherill Park Property or the Oatlands Property. On 27 January 2004, the Trustee became registered with Ms Daniel as proprietor of the Wetherill Park Property and the Oatlands Property. From that date, Ms Daniel and the Trustee were registered as proprietors of an estate in fee simple as tenants in common in equal shares. 5 On 2 February 2004, being the first business day after 1 February 2004, which was a Sunday, the Bankrupt executed a deed whereby he purported to transfer to Ms Daniel the whole of his right, title and interest, as at 1 February 2004, in the Wetherill Park Property and the Oatlands Property. In addition, he executed a transfer in the form approved under the Real Property Act 1900 in respect of each of the Wetherill Park Property and the Oatlands Property. The transfers name Ms Daniel as transferee. 6 In this proceeding, Ms Daniel seeks orders that recognise her claim to be entitled to a beneficial interest in the Wetherill Park Property and the Oatlands Property and orders for transfer to her of the legal estate insofar as it is not already vested in her. Ms Daniel asserts that the Court has power to make such orders by virtue of s 178 of the Act. Section 178 provides that, if any person is affected by any act, omission or decision of a trustee in bankruptcy, that person may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable. Ms Daniel complains, in effect, of the omission or failure of the Trustee to transfer to her the undivided one-half interest in the Wetherill Park Property and the Oatlands Property in respect of which the Trustee is registered. 7 The matter came before me as duty judge, having been transferred from the Registrar's list. The parties agreed that the matter was of some urgency and, accordingly, I agreed to hear the matter urgently, on the basis that the question raised is one of law, since there is no dispute as to the facts. Ms Daniel relies on the decision of the Full Court in Official Trustee in Bankruptcy v Mateo [2003] FCAFC 26. Ms Daniel contends that, sitting at first instance, I am bound by that decision. The Trustee, on the other hand, says that, having regard to the difference between the issues raised in Mateo and the issues raised in this case, I am not bound by that decision of the Full Court and that, if I am not persuaded that the reasoning is correct, I should reach a different decision in this case, even though it is inconsistent with the reasoning on the Full Court. 8 It is necessary to say something about the decision in Mateo. In that case the Official Trustee was the moving party. The Official Receiver had given notice pursuant to s 139ZQ of the Act, which relevantly provides that, where a person has received property as a result of a transaction that is void against the trustee of a bankrupt, the Official Receiver may require the person, by written notice, to pay to the trustee an amount equal to the value of the property received. 9 The circumstances that gave rise to the dispute in Mateo were similar, but not identical, to the circumstances that have arisen in this case. In both cases, orders were made by the Family Court of Australia pursuant to s 79 of the Family Law Act 1975 (Cth) ("the Family Law Act"). Section 79(1) relevantly provides that, in proceedings with respect to the property of the parties to a marriage, the court may make such order as it considers appropriate altering the interests of the parties in the property, including an order requiring either of the parties to make, for the benefit of either of the parties, such transfer of property as the court determines. 10 In Mateo the Family Court made the following orders: '1. Order that within twenty eight (28) days from the date of these orders the husband [the bankrupt] shall transfer to the wife all his rights, titles and interests in the matrimonial home … 2. Order that the husband shall not do any act matter or deed whereby a caveat charge or other encumbrance is or may be registered on the said matrimonial home from the date hereof. 3. Order that upon the transfer to the wife of the husband's rights title and interests in the abovenamed matrimonial home the wife shall be responsible for all outgoings on the matrimonial home … … 14. In the event that the husband or the wife refuses and/or neglects to execute any documents or do anything required of them in relation to these orders then, pursuant to section 84 of the Family Law Act;- The Registrar of the Family Court of Australia at Sydney is hereby appointed to execute all deeds and documents in the name of the party in default and to do all acts and things necessary to give validity and operation to the said order… …' Pursuant to those orders, the husband transferred the matrimonial home to his wife, who became registered in respect of a fee simple in the matrimonial home. 11 The husband was subsequently made a bankrupt and the basis of the Official Receiver's notice pursuant to s 139ZQ was that the transfer that was effected from the husband to his wife was void by the operation of ss 120 or 121 of the Act. Section 120(1) relevantly provides that a transfer of property by a person who later becomes a bankrupt to another person is void against the trustee in the transferor's bankruptcy if the transferee gave no consideration for the transfer, or gave consideration of less value than the market value of the property. Section 121(1) relevantly provides that a transfer of property by a person who later becomes a bankrupt to another person is void against the trustee in the transferor's bankruptcy if the transferor's main purpose in making the transfer was to prevent the transferred property from becoming part of the transferor's estate and available to the transferor's creditors, or to hinder or delay the process of making property available for division among the transferor's creditors'. 12 The Full Court in the Mateo proceeding, therefore, was required to consider whether there was, within the meaning of ss 120 or 121, a transfer of property by a person who later became a bankrupt. Clearly, there was a transfer of property involved, insofar as there was a transfer of the legal estate from the husband to his wife. The question was whether that transfer of property fell within ss 120 or 121. The Official Trustee contended, in effect, that there was no consideration for the transfer. The primary judge adopted the approach that, looking at the overall effect of the arrangements between the husband and his wife, there was no transfer within ss 120 or 121. 13 The Full Court reached the same conclusion, but for different reasons. Wilcox J referred to several decisions of the Supreme Court of New South Wales dealing with similar circumstances, including Harris v Walker (1969) 14 FLR 167 and the unreported judgment of Needham AJ, in the Supreme Court of New South Wales, Craven v The Official Trustee in Bankruptcy (26 July 1991). Wilcox J considered that Craven provided support for the view that the effect of a transfer under s 79 of the Family Law Act is to vest an equitable estate in the property interest that is the subject of the order in the beneficiary of the order. His Honour considered (at[57]) that if that were so, after the order, what remained in the hands of the person who was bound to effect the transfer was a bare legal interest 14 Wilcox J then undertook (at par [62]) an analysis of the consequences of an order under s 79 and compliance with it. His Honour was of the view that there were two vesting events involved. The first took place when the Family Court made orders requiring the husband to transfer to his wife all his right, title and interest in the matrimonial home. On that analysis, his Honour considered that the effect of the order was to vest in the wife an equitable interest in the one-half legal estate that continued to be held by the husband. The second event, according to his Honour's analysis, was the transfer of the legal estate that was effected by the registration of a transfer executed by the husband pursuant to the order of the Family Court. 15 That analysis, his Honour considered, has the advantage of pointing out the critical importance of the Family Court order; it was that order that transferred the value of the husband's interest in the matrimonial home to his wife (at par [64]). Any useful application under s 121 would need to assert that the Family Court order was void against the trustee of the husband's estate. However, his Honour did not see how it was possible to conclude that a court order constituted a 'transfer of property by a person who later becomes a bankrupt'. Thus, his Honour clearly concluded, in reaching the decision that he reached, that the effect of the Family Court orders was to transfer to the wife the value of the husband's right, title and interest in the matrimonial home without effecting a legal transfer of the property itself. 16 Branson J, in her Honour's reasons in the Mateo proceeding, observed (at pars [85] and [86]) that s 79 is not concerned with giving the Family Court power to declare the title or rights that a party to a marriage might have in respect of property, but to empower the Family Court to alter the interests of parties to a marriage, in relation to property; the power to alter the interests of the parties, however, extends to the making of orders requiring a party to make such transfer of property as the Court determines. 17 Branson J then observed that s 79 is concerned to empower the Family Court directly to alter the property interests of the parties to a marriage and not merely to make an order requiring the parties, or one of them, to take steps that will result in their property interests being altered. Her Honour then said: 'It is probably implicit in the terms of an order that the interests of the parties to a marriage and their matrimonial home were altered by operation of the order.' Her Honour (at par [102]) then went on to say that, by that, she meant that the order itself vested in the wife all of the bankrupt's beneficial interest in the matrimonial home, and that, on that view of the order, the transfer that order 1 of the Family Court order (see par [10] above) required the bankrupt to effect, was necessary only to perfect the wife's interests by the transfer to her of the husband's legal interest in the matrimonial home. Of course, that is not what the order in Mateo's case said, nor is it what the order in the present case said, and I shall return to that directly. 18 Branson J then went on, however, to suggest a possible different analysis. Her Honour observed (at par [103]) that, even if the Family Court order was not construed in this way, the order necessarily destroyed the value of the husband's interest in the matrimonial home; the order gave the wife an entitlement to have the whole of the husband's interest in the matrimonial home transferred to her within 28 days and, if necessary, the right to call on the Registrar of the Family Court to execute all necessary documents. Her Honour characterised the husband's remaining interest as 'merely formal'. 19 Her Honour considered that the order of the Family Court vested in the wife an interest in the matrimonial home sufficient to support the registration of a caveat on the title and that, in those circumstances, at no time after the making of the order could it be said that any interest in the matrimonial home would have become part of the husband's bankrupt estate within the meaning of s 121(1) of the Bankruptcy Act (per Branson J at [103]). 20 Merkel J took a similar approach in Mateo. After referring to the decision of McLelland CJ in Equity, in Harris v Walker (1968) 14 FLR 167, his Honour observed that, when the Family Court makes an order by consent under s 79 altering the property interests of the parties to a marriage, the alteration and the consequential vesting of the equitable estate or interest in the property in the transferee, take effect by reason of the Court order, and not by reason of the consent of the parties, even if that consent amounts to a contract between them. 21 His Honour considered (at par [133]) that the consent orders made by the Family Court in Mateo altered the interests in the matrimonial home of the husband and his wife by transferring the equitable estate and interest of the husband in the matrimonial home to his wife. His Honour considered (at [134]) that the transfer of that estate and interest was brought about by the order of the Court, rather than by a transfer of the estate or interest by the husband. 22 It is clear from the reasoning that I have summarised that all three of the members of the Court in Mateo were of the view that the order of the Family Court had a dispositive effect. That is the issue that is before me. On the other hand, the ultimate issue in Mateo was whether or not s 120 or s 121 was attracted. It seems to me that the reasoning that I have summarised involves, as an essential step or premise, a conclusion as to the effect of the Family Court order. However, the Trustee has drawn attention to factors that might be regarded as distinguishing factors in relation to the two proceedings. 23 Thus, in Mateo, the orders pursuant to s 79 had been fully complied with prior to the bankruptcy. The result was that the Official Receiver was the moving party, whereas in the present case the Trustee has perfected a legal estate pursuant to s 58 and Ms Daniel is the moving party. An essential issue in Mateo was whether or not whatever transfer had occurred was void as against the trustee in bankruptcy. That issue simply does not arise in the present case. 24 Nevertheless, I am satisfied that the reasoning in Mateo is such that I should treat it as deciding in favour of Ms Daniel, the issue that arises before me. I should observe that the same result would follow from the decisions of the Supreme Court of New South Wales to which reference is made in the judgments in Mateo, although those cases were decided under legislation that preceded the Family Law Act. 25 Nevertheless, I have some reservations about the result. There does not appear to have been a detailed analysis or consideration of the question that specifically arises in the present case. As I have already observed, the order of the Family Court of 15 December 2003 is not, in its terms, dispositive. Rather, it is simply an order that the Bankrupt transfer the Wetherill Park Property and the Oatlands Property to Ms Daniel. 26 If, before his bankruptcy, a bankrupt has contracted to sell property, the trustee in bankruptcy takes the property subject to the obligation to fulfil the contract; that is on the footing that the estate in the property vests in the trustee, subject to the equitable right of the purchaser to have the estate conveyed to him on payment of the purchase price. Whether or not that right be described as that of a beneficiary under a trust, the protection given by equity to the purchaser under a contract for the sale of property of a kind that ordinarily attracts the remedy of specific performance is so well established that one can treat the purchaser has having rights of a proprietary character. Those rights stand outside the estate which vests in the trustee in bankruptcy upon the bankruptcy of the vendor (see Sonenco (No 77) Pty Ltd v Silvia (1989) 89 ALR 437 per Ryan and Gummow JJ at 457 par[15-25]). 27 It may be that, on proper analysis, an analogy should be drawn between the position of a purchaser under a binding contract for sale, on the one hand, and the beneficiary of an order made under s 79. Indeed, if an order purportedly made under s 79 does not have some dispositive effect, then, on one view, it would be beyond the power of the court. 28 The language of s 79 is curious in some respects. In general terms, it authorises the Court to make such orders as it considers appropriate altering the interests of the parties in property. However, it then goes on to say that such orders might include an order requiring either of the parties to make such transfer of property, for the benefit of either of the parties, as the Court determines. Thus, the language of s 79 appears to assume that an order requiring a party to make a transfer of property for the benefit of another party is itself an order altering the interests of the parties. Section 79 only authorises orders which work an alteration of the legal or equitable interests in the property of the parties: see Mullane v Mullane (1983) 158 CLR 436 at 445. 29 Whether or not an order pursuant to s 79 should be treated as having the same effect as an unconditional binding contract for sale may raise the sorts of difficulties that have sometimes been considered in the context of the doctrine of Walsh v Lonsdale. Reference is sometimes made to an equitable doctrine that equity regards as done that which ought to be done. However, the fallacy of too great a reliance on such a general principle has been well established: see Meagher, Gummow and Lehane, Equity Doctrines & Remedies, 4th ed, pp 64 to 69 at paragraphs [2-180] to [2-225]. 30 There is something to be said for treating the effect of an order under s 79 as analogous to a binding contract for sale. Section 79(2) specifically provides that the Family Court must not make an order under s 79 unless it is satisfied that, in all the circumstances, it is just and equitable to make the order. Thus, it is to be assumed that, in some sense, value is given by the beneficiary of an order under s 79. Be that as it may, however, the decision in Mateo does not necessarily examine, in detail, the doctrinal issues that may be considered to arise in this area. 31 In the present case, to the extent that there is a justifiable complaint by the Trustee on behalf of unsecured creditors, there is a remedy available. The orders were made by the Family Court following a contested hearing. Nevertheless, if the effect of the orders, notwithstanding that contested hearing between husband and wife, is to prejudice third party interests, namely unsecured creditors, that is a matter that should have been brought to the attention of the Family Court. To the extent that the Family Court made orders per incuriam, so to speak, by reason of the failure to draw its attention to the possible consequences of the orders that were made, s 79A of the Family Law Act may have some application. 32 Section 79A(1) relevantly provides that where, on an application by a person affected by an order made by a Court under s 79, the Court is satisfied that there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence, the giving of false evidence or any other circumstance, the Court may, in its discretion, vary the order or set the order aside, and if it considers appropriate, make another order under s 79 in substitution of the original order. Section 92 of the Family Law Act provides that, in proceedings other than a proceeding for principal relief, any person may apply for leave to intervene in the proceedings and the Court may make an order entitling that person to intervene in the proceedings. 33 If it be the fact that, in a situation such as this, an order is made by the Family Court that results in a miscarriage of justice so far as concerns unsecured creditors of a party, it may well be open for those unsecured creditors, or the trustee in bankruptcy representing them, to make an application. That, of course, is not a matter before me. Nevertheless, the existence of such a regime gives some comfort to the conclusion that I have reached that the effect of an order made by the Family Court under s 79 is to vest a beneficial interest in one party or, at least, an interest of a proprietary nature such that it may still be enforced by that party, notwithstanding the intervening bankruptcy of the other party. 34 I consider that I should grant relief of the nature sought in the amended application. However, before doing so, I will hear the parties as to the form of the order and on the question of costs. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.