Florance, J.L. & Anor v. Andrew, W.E. [1985] FCA 49

Federal Court of Australia|1985-02-27|Before: Sweeney J, Jenkinson JJ, Lockhart J, Fisher J

Bankruptcy - sequestration order - options to purchase the bankrupt's interests in real estate granted to the bankrupt's wife - whether dispositions were made with intent to defraud creditors within s. 121 of Bankruptcy Act 1966 - whether the wife was a purchaser for value within para. 120(1)(a) - application by trustee during hearing of appeal to adduce fresh evidence - principles governing such an application - meaning of the expression "becomes a bankrupt" within

Bankruptcy Act 1966, ss. 120, 121. Federal Court of Australia Act 1976, s. 27.

JAMES LOUIS FLORANCE AND JEAN MARGARET F'LORANCE v. WILLIAM EDWARD

THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G. 14 of 1984

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

JUDGES MAKING ORDER: FISHER, LOCKHART & JENKINSON JJ.

WHERE ORDER MADE: SYDNEY DATE OF ORDER: 27 FEBRUARY 1985

The proceeding be remitted to Sweeney J. for further hearing and determination, including the taking of further evidence,

if any, on matters relevant to sub-section 120(2) of the

The order for costs made by Sweeney J. be confirmed. Otherwise the appeal be allowed.

The cross appeal be dismissed. There be no order as to the costs of the appeal or cross

T have had the advantage of reading in draft form the

NEW SOUTH WALES DISTRICT REGISTRY ) No. G. 14 of 1984 GENERAL DIVISION ) N.S.W. 95 of 1980

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALTA

BETWEEN : JAMES LOUIS FLORANCE First Appellant JEAN MARGARET FLORANCE Second Appellant

On 18 February 1980 a sequestration order was made against the estate of James Louis Florance ("the bankrupt"). William Edward Andrew, the trustee of the bankrupt's estate ("the trustee"), applied to this Court to declare void five options to purchase the bankrupt's interest in certain real estate granted by him to his wife, Jean Margaret Florance (""Mrs. Florance") on 28 March 1977. The trustee relied on two 'grounds: first, that each of the options was a disposition of property made with intent to defraud creditors which is void as against the trustee pursuant to s. 121 of the Bankruptcy Act 1966 ("the Act"); and second, that each of the options was a

settlement of property which is void as against the trustee pursuant

to s. 120 of the Act. The learned trial Judge found against the trustee on s. 121 of the Act and in his favour on s. 120 and accordingly declared each of the options void as against the trustee and made consequential orders to ensure that the interest of the bankrupt-in the properties the subject of the options was not dealt

The bankrupt and Mrs. Florance appealed to a Full Court of this Court from his Honour's judgment in relation to s. 120 and the trustee cross appealed, albeit otherwise than in accordance with the terms of the leave granted to him by this Court, from his Honour's

It is necessary to mention the relevant facts and I draw largely upon the trial Judge's findings of fact for this purpose. The bankrupt executed five options in total. Two were granted in respect of the bankrupt''s interest as a tenant in common in equal shares with Mrs. Florance in two properties near Orange known as "Greenwood" and

"Boronia". One option was granted by the bankrupt in respect

interest in each of the following properties: the bankruet's interest with Mrs. Florance in a property known as "Aroona Road, Oxford Falls": his interest as sole registered proprietor of their matrimonial home

in Beacon Hill and his interest as sole registered proprietor ina

property known as "Eighth Avenue. Liandilo" near Penrith. One of the options in respect of the Orange properties contained a term thac it miaght be exercised by Mrs. Florance at any time before 15 March iy8@l. Each of the other options contained a term that it might be exercised by Mrs. Florance at any time within five vears from its date. he

consideration for the grant of the options was as follows:-

Greenwood and Boronia: $10 for each option Aroona Road, Oxford Falls: $1 The matrimonial home: $10

The purchase price specified in the option over the matrimonial home was $57,000. Notice of the exercise of that option was served on 14 March 1982. The purchase price specified in the option over the Llandilo property was s18,000° and notice of its exercise was also served on 14 March 1982. In late 1977 the bankrupt had contracted to sell the Llandilo property to a company Dalliam Pty. Limited for $21,000. On 14 December 1978 the Supreme Court of New South Wales, Equity Division, ordered specific performance of the contract by Dalliam. Dalliam was wound up on 11 December 1979 but before then it contracted to sell the Llandilo property for $25,000. The bankrupt is still presently the sole registered proprietor of the

The purchase price specified in the option over the Oxford

Falls property was $32,500 and notice of its exercise was served on 14

The purchase price specified in each of the opticns over the

The option exerciseable prior to 15 March 1981 was not exercised. Notice of the exercise of the other option in respect of

the Orange properties was served on 12 March 1982. The trial Judge found that:

"the purchase prices specified in the options broadly accorded with the valuations put into evidence on behalf of the respondents. No evidence

Later in his reasons for judgment the trial Judge found:

before me, and there was no provision in any of the

Each of the properties the subject of the options was encumbered by mortgages in favour of the Bank of New South Wales ("the Bank") at the time of the grant of the option. In 1982 the Bank brought proceedings in the Supreme Court of New South Wales against the bankrupt and Mrs. Florance for possession of the properties.

Those proceedings were settled and terms of settlement were signed on

On 18 February 1980 the sequestration order was made against the estate of the bankrupt on the petition of Turimetta Properties Pty. Limited ("the petitioning creditor") which had on 15 February 1978 obtained judgment against the bankrupt and a Mr. Knight in the

Supreme Court of New South Wales in respect of their liability under a

guarantee of the obligations of a company Louis John Holdings Pty. Limited under a mortgage between it and the petitioning creditor. The amount of the judgment was $432,545.50. The act of bankruptcy upon which the sequestration order was based was the failure of the bankrupt on or before 21 February 1979 to comply with the requirements of the bankruptcy notice founded upon that judgment. Accordingly, the

commencement of the bankrupt's bankruptcy was 21 February 1979.

The bankrupt and Mrs. Florance gave evidence before -the trial - _

Judge and were cross examined at length. His Honour said:

"I accept them as witnesses of truth whose account of the circumstances surrounding the giving of the options may be safely accepted. Mr. Florance said that he wished to retire from the practice of law, sell the properties and move to the country to take up farming, but that Mrs. Florance opposed this strenuously. It was Mrs. Florance who had suggested and insisted upon the options, and he eventually granted them to her in the interests of domestic harmony. Mrs. Florance gave evidence by affidavit that her reasons for insisting on 'an arrangement in general', and options in particular, ~ were as follows:

(a) my husband's state of health; {b) the pressure of work on my husband; (c) I was uneasy about my husband's partners; _(d) I did not want the properties sold (one was the matrimonial home and che other three

(e) I did not want our children taken away from their schools and their friends;

(f) I did not want to get out of touch with my friends;

(g) options would enable me to select the time best suited to me to enter into contract (sic) for the purchase of my husband's shares of the various properties and I would need time in arder to arrange finance, and until such time as I exercised my right under the options, the present situation would be unaltered.'"

Mrs. Florance gave evidence before his Honour that she was anxious for her husband to remain in his legal practice and that she had always hoped that her son and daughter, who are both presently

studying law, would eventually also go into the practice.

His Honour said the bankrupt conceded in the course of cross-examination that at the time of the grant of the options he had considerable actual or contingent liabilities, but his Honour accepted his evidence that he believed he was financially sound and solvent. The bankrupt and his partners in the legal practice had used a company named Wegrow Products Pty. Limited to conduct various business activities which were financed by monies raised from clients of the practice. The company owned commercial land in Bungan Street and Parklands Road, Mona Vale which was to be developed. In September 1977, at a meeting of the partners, the bankrupt proposed that the properties be realised. The bankrupt gave evidence that had this been done there would have been no shortfall, but rather a very substantial profit. To support his proposal Mrs. Florance had requested the bankrupt to arrange the transfer of her interest in certain property in Darley Road worth approximately $200,000 to a company Civic Ice Rinks Pty. Limited upon trust for Wegrow Products Pty. Limited to cover the bankrupt's proportion of any shortfall which might occur if

his proposal were carried out. His Honour held that the bankrupt

would have been unlikely to request or accept such a contribution from Mrs. Florance if, at that time, he was seriously concerned about the state of his financial affairs. His Honour found that Mrs. Florance was awoman versed in business affairs who would have been most unlikely to provide such a substantial sum had she regarded the

bankrupt as being in serious financial difficulties.

In the result his Honour was satisfied that the bankrupt, in granting - the - optioens - to-- his wife, was motivated solely by domestic considerations and that in the circumstances any intention to defraud the creditors could not be inferred. His Honour was satisfied that

Mrs. FPlorance acted in good faith. Accordingly, the application

failed in so far it was based upon s. 121 of the Act.

In relation to the claim under para. 120(1)(a) of the Act his Honour held that it should be construed as requiring a purchaser to provide a quid pro quo in the commercial sense. He relied on various

English authorities in support of that approach, in particular Re A

Debtor Ex Parte: The Official Receiver v. Morrison (1965) 3 All E.R.

453 per Stamp J. at p. 457; Re Windle (1975) 3 All E.R. 987 per Goff dg. at p. 995; Re Densham (1975) 3 All E.R. 726 per Goff J. at pp. 735

and 736; Trustee of C.R. Spinks (In Bankruptcy) v. Vicker noted at 122

Sol. Jo. 971; and Re Abbott (1982) 3 All E.R. 181 per Peter Gibson J.

at p. 184 and Sir Robert Megarry V.C. at p. 187; and Re Marchiori Ex

Parte: The Official Trustee, Fisher J. unreported 11 March 1983. His

Honour held that the consideration provided by Mrs. Florance in each

case in return for the options granted by the bankrupt was trivial and

could not be regarded as a quid pro quo in the commercial sense. His Honour concluded that Mrs. Florance was not a purchaser for valuable consideration within the meaning of para. 120(1)(a) of the Act and

that the application, in so far as it relied upon s. 120, should

During the course of argument before us counsel for the trustee applied for leave to call further evidence pursuant to s. 27

of the Federal Court of Australia Act (1976) and Order 52 Rule 36 of

this Court's Rules. Order 52 Rule 36(4) requires the party who seeks to adduce further evidence to state the grounds of the application in an affidavit. The evidence which the party wishes the court to receive must be given by affidavit (Order 52 Rule 36(5)) and the party must file any affidavit not later than 21 days before the hearing of the appeal (Rule 36(6)). Two affidavits were relied on by the trustee as stating the grounds of the application to receive further evidence and as giving the evidence which the trustee wished the Court to receive. The deponents are Mr. B.H.J. Levy, a Sydney solicitor, and Mr. B.D. Bridges, a former solicitor and former partner of the bankrupt in the legal firm Messrs. J.E.A. Florance and Florance. Both affidavits were filed within the time prescribed by Order 52 Rule 36(6). Counsel for the trustee accepted that before the further evidence could be received by the Court, it was necessary for the trustee to establish that it must be reasonably clear that if the evidence had been available at the trial and had been adduced an opposite result would have been produced or, if it is not reasonably

clear that such a result would have been produced, it must have been

so highly likely as to make it. unreasonable to suppose the contrary. Also reasonable diligence must have been exercised to procure the evidence which the defeated party failed to adduce at the trial. Fresh evidence will not be received unless it produces such a2 different complexion on the case that a reversal of the former result

ought certainly to ensue: Orr v. Holmes (1948) 76 C.L.R. 632; The

Commissioner for Government Tram and Omnibus Services v. Vickery

(1952) 85 C.L.R. 635; McCann v. Parsons (1954) 93 C.L.R. 418; Council of the City of Greater Wollongong v. Cowan (1955) 93 C.L.R. 435. All applications relating to fresh evidence were opposed by counsel for

When this application was made to receive further evidence on Tuesday, 23 October 1984 the Court (Fisher and Lockhart JJ., Jenkinson J. dissenting) refused the application. We said that we would give our reasons later; these are my reasons. Mr. Levy is the solicitor for the trustee in these proceedings and he acted for him in the proceedings before the trial Judge. He swore that the evidence contained in his affidavit and that of Mr. Bridges was not available to the trustee at the hearing before the trial Judge and that it became known to him when, on behalf of the trustee, inquiries were made by him of Mr. Bridges concerning the bankrupt's activities whilst a partner in the legal practice relating to a bank account of a client of the firm. He swore that as a result of those inquiries Mr. Bridges made available to him certain documents and papers relating to proceedings between himself (Mr. Bridges) and the Law Society of New

South Wales touching upon the bank account. With Mr. Bridges' consent

he perused the papers Whereupon the matters referred to in his affidavit and the affidavit of Mr. Bridges became known to him. He swore that he believed that those documents and papers would not otherwise have been previously available to him. The evidence of Mr. Levy and Mr. Bridges was directed to establishing that the property in Darley Road was worth in September 1977 not about $200,000, but a much lower figure. Hence it was submitted that this would have been material evidence likely to have led the trial Judge to draw different conclusions as to the motivation of the bankrupt in granting the options to Mrs. Florance and as to the bankrupt's financial position

Nothing emerges from the affidavits and nothing was advanced in argument which satisfied me that reasonable diligence would not have discovered the evidence so that it could have been adduced before the trial Judge. Further, the probative value of the evidence sought to be adduced falls far short of the tests laid down in the cases to which I have referred. Indeed, the admissibility of much of the material contained in those affidavits is open to serious question and even if admitted, its probative value is slight. Certainly I am far from persuaded that it would have produced any different conclusion at

Counsel for the trustee finally sought to have his application to call fresh evidence adjourned in order to obtain

further affidavits stating the grounds of the application and the

evidence to be adduced if the application were to succeed.

It was apparent that at the time this application was made to us (23 October) the appeal would not finish that day and that it would be necessary for the further hearing "of the appeal to be adjourned to a date somewhat later. It was submitted by counsel for the trustee that no prejudice therefore would be sustained by the appellants if the trustee was given another chance to put his case in order as far as the application to receive further evidence was concerned. I was not persuaded that prejudice would not be sustained by the appellants. Further, if the trustee was given this second opportunity I took the view that when the hearing of the appeal resumed before us it would be likely that a further adjournment would be required so that, if the fresh evidence were admitted by us, the appellants could be given an opportunity to adduce further evidence themselves. I did not, and still do not, hold the view that it would be fair to require the appellants to place their evidence on affidavit replying to matters that would be the subject of further affidavits to be filed by the trustee without the appellants first knowing whether the evidence would be admitted or not. It is plain from what we were told by counsel for the appellants that there would be a serious issue of fact over material of the kind that is already referred to in the affidavits of Mr. Levy and Mr. Bridges. Also, counsel for the trustee told us that the further evidence which the trustee wished to adduce would be along the lines of the evidence in the two affidavits of Mr.

Levy and Mr. Bridges already filed; but would be fuller and in proper

Litigation should not proceed this way. The parties must know where they stand. There has to be some end to the extent to which courts will extend leniency to parties who have not complied with rules of court, especially when a matter such as the reception of

fresh evidence on the hearing of an appeal is 'concerned. Hence I

joined in the refusal of the application of the trustee.

Even if the tests referred to in the decisions of the High

Court to which I have referred are not apposite for s. 27 of the

' Federal Court of Australia Act and 0. 52 yr. 36 of this Court's Rules

and the Court's discretion is more at large I would have reached the

The trustee challenged, although only faintly, the trial Judge's findings which led him to dismiss the application in so far as it was based on s. 121 of the Act. Nothing was said in argument which leads me to disturb his Honour's findings that the bankrupt, in granting the options to Mrs. Florance, was motivated solely by domestic considerations; that in the circumstances any attempt to defraud creditors could not be properly inferred; and that Mrs.

I turn to sub-s. 120(1). At the commencement of the hearing of this appeal the Bench drew counsel's attention to the fact that the case evidently had been conducted before the trial Judge on the

assumption that sub-s. 120(1) was in its present form at all times

relevant to this case. Counsel agreed that this was the basis on

which the case had been conducted. However, the subsection was not in

that form at the relevant times. Section 120 was amended to its

present form by the Bankruptcy Amendment Act (1980) (Act No. 12 of

1980): section 56 of that Act which amended s. 120 came into operation

on 8 April 1980. Sub-section 120(1) was in the following terms up to

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

(a) a settlement made before and in consideration of marriage, or made in

favour of a purchaser or encumbrancer in good faith and for valuable consideration; or

(b) a settlement made on or for the spouse or children or the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor,

years after the date of the settlement, void as against the trustee in the bankruptcy."

Section 56 of the Bankruptcy Amendment Act (1980) omitted from sub-s. 120(1) the words "within two years after the date of settlement" and substituted the words "and the settlement came into operation after or within two years before the commencement of the

"(2) Notwithstanding the amendments of section 120 of the Principal Act made by sub-section (1) of this section, the provisions of that section of the Principal Act continue to apply, after the commencement of this section, in relation to a

settlor who became a bankrupt before the commencement of this section as if those amendments had not been made."

It was not disputed that this case must be determined by yeference to the previous form of sub-s. 120(1). The sequestration order against the estate of the bankrupt was made on 18 February 1980 and the date of the settlement was 28 March 1977 so that, assuming the bankrupt "becomes a bankrupt" within the meaning of s. 120(1) upon the

making of the sequestration order, sub-s. 120(1) could not operate to

It was argued by counsel for the trustee that the expression "becomes a bankrupt" in sub-s. 120(1) means "commits an available act of bankruptcy" and reliance for this construction was based upon

earlier English decisions of In Re Reis, Ex Parte Clough (1904) 1 K.B.

451 per Wright J. at p. 455 and on appeal to the Court of Appeal (1904) 2 K.B. 769. The Court of Appeal reversed the judgment of Wright J., but all three members of the Court appear to have concurred in what his Lordship said about the meaning of the expression

"becoming bankrupt" in sub-s. 47(2) of the Bankruptcy Act 1883 of

In In Re Hart, Ex Parte: Green (1912) 3 K.B. 6 Kennedy L.J.

"By the course of s. 43 the bankruptcy had relation to and commenced at the date of the commission of

this act of bankruptcy, and the words 'becoming bankrupt' ins. 47 have been held by Wright J. (though not without doubt) in In Re Reis to refer

to the date specified in s. 43 as the commencement of the bankruptcy. His decision on this point is unaffected by the reversal of his judgment on other grounds by the Court of Appeal. Moreover the same opinion as to the interpretation of the words 'to become bankrupt' in 5s. 47 was expressed both by A.L. Smith L.J. and by Rigby L.d. in the course of their judgments in In Re Carter and Kenderdine's Contract (1897) 1 Ch 776..."

See also Fawcett v. Fearne (1844) 6 Q.B. 20 or 115 E.R. 8.

I share the reservation expressed by Kennedy L.dJ. about the correctness of those decisions on this question, but I do not find it necessary to decide the matter. Those cases involved consideration of sections of the English bankruptcy legislation comparable to s. 120

where the relevant expression was "becoming bankrupt".

Whatever the position may have been under the English legislation and, indeed, under the Australian Bankruptcy Act 1924, since the coming into operation of the Act in 1968 it is plain that

the draftsman chose materially different language. The relevant

expression in sub-s. 120(1) is not "becomes bankrupt" but "becomes a bankrupt" (the emphasis is mine). The same expression appears in

other sections of the Act including ss. 123 and 124.

It is plain therefore that, when passing the Act, Parliament deliberately chose an expression to make it plain that the words "becomes a bankrupt" mean, at least in sub-s. 120(1), when a person is made bankrupt either by the making of a sequestration order against

his estate or following the presentation of his own petition: see the

definition of "bankrupt" in sub-s. 5(1). It follows that the appeal

must be allowed so far as it concerns sub-s. 120(1).

That leaves sub-s. 120(2). It too was amended by the Bankruptcy Amendment Act 1980, but not materially. There were no pleadings in the case but the issues emerged from the application dated 25 March 1983 filed by the trustee and the amended notice of opposition dated 10 June 1983 filed by the appellants. The application itself is cast in sufficiently wide language_to raise. sub-s. 120(2) which involves, of course, different considerations from sub-s. 120(1) including the question of the solvency of the bankrupt. The notice of opposition is directed, so far as s. 120 is concerned, solely to sub-s. 120(1). I am satisfied from my reading of the appeal book and from the argument before us that the case was conducted before the trial Judge on the basis that the questions for determination by his Honour centred round sub-s. 120(1) and s. 121 and not sub-s. 120(2). We were referred to a cryptic passage in the transcript which records discussion between counsel for the appellants and the trial Judge (p. 166); but that does not convince me that sub-s. 120(2) was the subject of evidence or submissions before his Honour. However, I think the appropriate course to take in all the circumstances is to accede to the application made by counsel for the trustee that the matter should be referred back to the trial Judge for further hearing and determination including the reception of further

evidence, if necessary, on matters relevant to sub-s. 120(2).

I would refer this matter back. to the trial Judge in so far as it remains to be determined under sub-s. 120(2), allow the appeal

in relation to sub-s. 120(1) and dismiss it in relation to s. 121.

On the question of costs, the trial Judge said that the trustee had failed as to s. 121 and succeeded as to sub-s. 120(1). He said that the ground of s. 121 was strongly pressed and was based on an allegation of fraud. It gave rise to a lengthy cross examination of the bankrupt and Mrs. Florance and accounted for a substantial part of the hearing and of the submissions of counsel. In the circumstances his Honour thought that the appropriate order for ccests was that the appellants should pay one-third of the taxed costs of the trustee including reserved costs. As no party realised before his Honour that the case as to sub-s. 120(1) fell to be determined on the footing of the form of that sub-section as it stood before the Bankruptcy Amendment Act 1980 came into operation the order for costs

As to the costs of the appeal, in my opinion the appropriate order is that there be no order as to costs. The appellants won on the issue of sub-s. 120(1) but ona point which was raised at the commencement of the argument on 23 October 1984. The meaning of the expression "purchaser ... for valuable consideration" in sub-s. 120(1) was argued before us at some length. After 23 October a Full Court of this Court (Sweeney, Fisher and Lockhart dd.) considered that expression and concluded that it means consideration in a commercial

sense: Re Barton, Ex Parte: The Official Receiver, 12 November 1984.

The meaning which the Court attributed to that expression in the Barton Case involves the rejection of the argument by counsel for the appellants in this case. The trustee failed in his cross appeal based ons. 121. In all the circumstances the appropriate result is that

each party should bear his or her own costs. Hence no order as to

preceding pages are a true copy of the Reasons for Judgment herein of his Honour

NEW SOUTH WALES DISTRICT REGISTRY ) No. G14 of 1984 GENERAL DIVISION )

On Appeal from His Honour Mr. Justice Sweeney sitting in the General Division of the Federal Court of Australia (in the Bankruptcy District of the State of New South Wales and the

BETWEEN: JAMES LOUIS FLORANCE First Appellant JEAN MARGARET FLORANCE Second Appellant

Respondent CORAM: Fisher, Lockhart and Jenkinson JJ. PLACE: Sydney DATE: 27 February 1985

Appeals against declarations by Sweeney J. that several

transactions between the appellant bankrupt and his wife. the

other appellant, are void as against the bankrupt's trustee, the

A sequestration order was made against the estate or the

appellant James Louis Florance on 18 February 1980. On 28 March 1377 he had granted to his wife what were taken by the parties to

the appeals to be options to purchase his freehold estates in five

parcels of land. The trustee sought and was granted by Sweeney J. declarations that each of the options "purported to be granted

constituted a settlement of property by the bankrupt on" his

wife "within the meaning of s.120 of" the Bankruptcy Act 1966 "and

as such was and remains void as against .... the .... trustee of

When the documents which the parties treated as options (and to wnich I will- refer as "options") were executed in 1977

s.120 of the Bankruptcy Act 1966 was in these terms:-

"(1) A settlement of property, whether made before or after the commencement of this Act,

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

(b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor,

is, if the settlor becomes a bankrupt within two years after the date of the settlement, void as against the trustee in the hankruptcy.

(2) A settlement of property, whether made before or after the commencement of this Act, not being a settlement referred to in paragraph (a) or (Bb) of the last preceding sub-section or a settlement that is void as against the trustee by reason of the operation of that sub-section, is, if the settlor becomes a bankrupt within five years after the date of the settlement, void as against the trustee in the bankruptcy, unless the parties claiming under the settlement prove -

(a) that the settlor was, at the time of making the settlement, able to

pay all his debts without the aid of the property comprised in the

(b) that the settlor's interest in the property passed to the trustee of the settlement or to the donee

under the settlement on its execution. (3) A covenant or contract made, whether

before or after the commencement of this Act, in consideration of marriage either -

(a) for the future payment of money to the settlor's spouse or children; or

(b) for the future settlement of property on or for the settior's

being money or property in which the settlor did not, at the date of the marriage, have any estate or interest, whether vested or contingent, in possession or remainder, and not being money or property of, or in right of, the settlor's spouse, is, if the settior becomes a bankrupt before the covenant or contract has been executed, void as against the trustee in the bankruptcy.

(4) The persons entitled under the covenant or contract may claim for dividend in the settior's bankruptcy under the covenant or contract, but such a claim shall be postpond until ali claims of the other creditors for valuable consideration in money or money's worth (including claims under section 111 of this Act and claims for interest on interest-bearing debts in respect of a period after the date of the bankruptcy) have been satisfied.

(5) A payment of money or transfer of property made by the settlor in pursuance of such a covenant or contract, whether before or after the commencement of this Act, is void as against the trustee in the settlor's bankruptcy, unless the persons to whom the payment or transfer was made prove -

(a) that the payment or transfer was Made more than two years before the

{b) that at the date of the payment or transfer the settlor was able to pay all his debts without the aid of the money so paid or the

(c) that the payment or transfer was made in pursuance of a covenant or contract to pay or transfer money or property expected to come to the settlor from, or on the death of, a particular person named in the covenant or contract and was made within three months after the money or property came into the possession or under the control of the settlor.

(6) Where any such payment of money or transfer of property is void as against the trustee in the settlor's bankruptcy by virtue of the last preceding sub-section, the persons to whom the payment was made or the property was transferred are entitled to claim for dividend under the covenant or contract as if

it had not been executed at the commencement of the bankruptcy.

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

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

The reasons of Sweeney J. for his judgment contain no reference to any but the first sub-section of s.120. His declaratory orders must be understood as intended to refer to that sub-section. Nor do those reasons contain any reference to 5.120 as enacted in 1966 and in force until 8 April 1980. On that date 5.56 of the Bankruptcy Amendment Act 1980 came into operation. That section

In consequence of that amendment 5.120 has been, since 8 April

{a) by omitting from sub-section (1) 'within two years after the date of the settlement' and substituting 'and the settlement came into operation after, or within 2 years before, the commencement of the bankruptcy';

(b) by omitting from sub-section (2) 'within five years after the date of the settlement' and substituting 'and the settlement came into operation after, or within 5 years before, the commencement of the bankruptcy' ;

(c) by omitting from sub-section (3) 'before the covenant or contract has been executed' and substituting 'and the covenant or contract was executed after the commencement of the bankruptcy' ;

(d) by omitting from sub-section (4) 'for valuable consideration in money or money's worth'; and

(e) by inserting in sub-section (4) ',claims in respect of excess interest under section 112' hefore 'and claims for interest'. :

(2) Notwithstanding the amendments of section 120 of the Principal Act made by sub-section (1) of this section, the

provisions of that section of the Principal Act continue to apply, after the commencement of this section, in relation to a settlor who- became a bankrupt before the commencement of this section as if those amendments had not been made."

"C1) A settlement of property, whether made before or after the commencement of this Act, not being -

(a) a settlement made before and in consideration of marriage, or

made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or

(b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor,

is, if the settior becomes a bankrupt and the settlement came into operation after, or within 2 years before, the commencement of the bankruptcy, void as against the trustee in the

(2) A settlement of property, whether made before or after the commencement of this Act, not being a settlement referred to in paragraph (1)(a) or (b) or a settlement that is void as against the trustee by reason of the operation of that sub-section, is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 5 years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy, unless the parties claiming under the settlement prove -

(a) that the settlor was, as the time of making the settlement, able to pay all his debts without the aid of the property comprised in the settlement; and

(b) that the settlor's interest in the property passed to the trustee of the settlement or to the donee under the settlement on its execution.

(3) A covenant cr contract made, whether before or after the commencement of this Act, in consideration of marriage either -

(a) for the future payment of money to the settlor''s spouse or

property on or for the settlor's spouse or children,

did not, at the date of the marriage, have any estate or interest, whether vested °or contingent, in possession or remainder, and not being money or property of, or in right of, the settlor's spouse, is, if the settlor becomes a bankrupt and the covenant or contract was executed after the commencement of the bankruptcy, void as against the trustee

At a glance

Court

Decision date

Before

Source

Judgment (285 paragraphs)

Cited By (1)