Gosling v McCombie

Gosling v McCombie - [1972] HCA 40 - HCA 1972 case summary — Zoe

[15]

The section, in any case, has a number of difficulties in its application in bankruptcy. It enables an owner of property to be deprived of it or of some interest in it and at the same time defers the right to a dividend in respect of that property. Presumably the wife is to be treated as a creditor in the bankrupt estate of her husband for money lent or the value of the property of which she is deprived under the section. It is difficult to conceive of money lent becoming an asset of the husband's estate - which can only be effected, it seems to me, by denying the wife a right to its repayment; yet, at the same time, the section treats her as a creditor for the money lent and defers her right to a dividend in respect of her debt. Further, whether it be money or property lent or made available, the section seems to contemplate that, at the date of sequestration of the husband's estate, the money or property is still in the possession of or otherwise available to the husband, that is to say, that he remains able at the date of the sequestration order whether or not he has any title to or interest thereto or therein to employ or use or otherwise take advantage of it for his own benefit. The section then contemplates that by its own operation the money or property so lent or so available will be "treated" as assets of the bankrupt's estate and the money or the property will be shorn of any right of the wife in that money or property. No transfer or conveyance by the wife is contemplated; nor is any power granted by the section to order transfer or conveyance. The Court's declaration merely ascertains the fact that the section has operated so that the money or property is an asset in the bankrupt estate. The operation of the section will give title to the Inspector-General in Bankruptcy to sell or dispose of what money or property remains lent or available to the bankrupt at the date of the sequestration of his estate. So regarded the section will operate in the same manner as an order or disposition clause would have done.

[23]

In my opinion, the proper conclusion from this state of facts is not that the appellant made any interest in the mortgaged properties available to her husband but that she used her beneficial interest in these properties, which remained exclusively in her throughout, to provide funds which could be placed at her husband's disposal. So far as appears, the appellant was free to withdraw the whole of the amounts paid into the joint account from the proceeds of the mortgages. The fact that the husband joined in the memoranda of mortgage - which presumably contain personal covenants - itself gave the husband no command of the proceeds: he remained her trustee, as much of the proceeds as of the undivided interest in the land. Whatever the husband received from the mortgagees he received as trustee for the appellant. Nothing in the case establishes to my mind that the husband had sole beneficial control of the proceeds of the mortgages at any time. His capacity to gain access to them depended upon his right to withdraw money from the joint account. Any act of the appellant making anything "available" to her husband was subsequent, in my opinion, to the receipt of the mortgage moneys. Undoubtedly, if her statements are accepted as the fact, by paying or allowing the proceeds of the mortgage to be paid into the joint account the appellant made it possible for so much as her husband withdrew from that account to be relevantly available to him. Whilst the appellant's husband could have withdrawn the whole of the moneys capable of withdrawal from the joint account, in my opinion, the better view is that she did not make the whole of the mortgage moneys available to her husband by placing them in the account; she retained the right to withdraw them wholly or in part for her own purposes. The intention which should be inferred was that he should be free to withdraw so much as he needed for his purposes. Consequently, in practical terms, only so much as the husband drew from the joint account and had not repaid by the time of the sequestration order should be regarded as relevantly made available to him or placed at his disposal. In so far as such moneys constituted loans by the appellant to her husband, the section will operate to postpone her right to dividend in respect of such moneys. Of course, if the right view is that such moneys were given by the appellant to her husband, no question under the section will arise.

[27]

But, in my opinion, the correct interpretation is that by that deposit no interest in the land was made available by the appellant to, or placed at the disposal of, her husband. The appellant charged her beneficial fee simple so that the joint account could be overdrawn, intending that her husband should at best participate in that overdrawing. But that is very different from making her beneficial fee simple available to her husband to use for his own purposes. Further, in my opinion, in any case, no beneficial interest in the land was available to the husband at the date of the sequestration order. He then held the legal estate in an undivided moiety as trustee for the appellant. He was not then, and, in my opinion, never had been in a position to use that legal estate for his own purposes. The certificates of title to the fee simple remained at the date of sequestration in the possession of the bank as security for the overdraft and, subject thereto, the beneficial ownership of the fee simple remained with the appellant. If a person guarantees a loan, it can be said, I suppose, in a layman's imprecise language that the guarantor makes his name and credit "available" to the borrower. By the same token, if the guarantor backs his guarantee by a registered bill of sale over chattels which remain in his possession, it could be said with equal imprecision that he made his chattels "available" to the borrower. If the guarantor happened to be the wife of the borrower, it must then be said that the ownership in the chattels automatically passed to the assignee in bankruptcy on the making of the sequestration order, subject of course to the rights of the holder of the bill of sale. But I am quite unable to give such a vague and imprecise meaning and operation to this statutory expression having legal significance and effect. In my opinion, in the case I have supposed, the guarantor does not make anything available to the borrower, according to what I conceive to be the legal meaning of the expression "made available" in a section such as the present. Nothing more can relevantly be said, as a proposition of law, in the hypothetical case than the guarantor used her property to assist the borrower. It could make no difference in law if the arrangements for the guarantee and the effecting of the bill of sale were entrusted to the borrower, even if he was allowed to execute the bill of sale under a power of attorney from his guarantor. The legal analysis, in my opinion, would be the same: nothing was relevantly available to the borrower except, of course, the money he received. That, in my opinion, is all that can be said, in the instant case, in relation to the security given for the overdraft of the joint account. There was, in my opinion, no warrant under the section for treating any beneficial estate in the husband as security for the overdraft as an asset in his bankruptcy. The husband remained throughout a trustee of the legal estate. The equitable estate had always been in and remained in the appellant. Neither estate, nor any ability to deal with or dispose of either estate, was in the possession of the husband at the date of the sequestration order. The section does no more than itself treat something which is still available to the bankrupt as an asset in his estate.

[47]

In its application to money or other property of a wife whose husband has been made bankrupt, s. 111 replaces s. 85 (1) of the Bankruptcy Act 1924. In that provision the words "lent or intrusted" were used. They were replaced by the words "lent or made available". These provisions had their origin in the Married Women's Property Act enacted in England in 1882 and copied afterwards in many other places, including the Australian States. But in the Bankruptcy Act 1924 and in the Act now in force, the provision has not been confined, as it was in the married women's property legislation and in the English Bankruptcy Act, 1914, to money lent or property intrusted by a wife to her husband for the purpose of his trade or business. It has been said that when a married woman became entitled to own separate property which previously would have gone to her husband, it was considered proper that if she claimed that new right in respect of money which she lent to her husband for the purpose of his trade or business she "should be identified with him to such an extent that she should not be able to claim a dividend" in his bankrupt estate until other creditors had been paid in full: see In re Tuff; Ex parte Nottingham [1] . In Haw v. Official Assignee of Haw [2] , Herdman J. regarded the purpose of the provision as being to protect persons trading with the husband in ignorance of his being assisted by his wife who might be prejudiced by a large claim subsequently made by her. Such explanations are not applicable directly to a provision which makes no reference to the trade or business of the husband. But it may well be that that provision is intended to perform a similar function, in protecting persons who when giving credit are misled by an appearance of affluence which a man is enabled to present because of his wife's resources. But attempts to discover the purpose of the original legislation or the purpose of the changes subsequently made are not, in my opinion, of much assistance in interpreting and applying the provision in its present form. It postpones a wife's claim in debt for money lent to her husband to the claims of other creditors. But in an attempt to combine in one provision the carrying out of that purpose and the effecting also of the purpose of bringing into the estate of the bankrupt assets in addition to those which, being property belonging to him or over which he has a disposing power, constitute in accordance with s. 116 the "property divisible amongst his creditors", the provision has been enacted in a rather curious form. It requires money lent to the bankrupt to be treated as assets, although it is probable that at the date of the bankruptcy there will be no asset or fund which can be identified with the money lent. In respect of property other than money it is provided that the spouse is not entitled to any dividend as a creditor until all claims of other creditors have been satisfied. But the provision does not define the basis upon which a dividend as a creditor in respect of the property is to be claimed or is to be allowed. We are not concerned, however, in the present appeal with any problem of that kind.

[50]

With respect I am unable to agree that the taking of title in the joint names was an act which of itself brought s. 111 into operation. I agree with his Honour's view that the provision in s. 116 (2) (a), by which property held by a bankrupt in trust for another person is excluded from property divisible amongst the creditors of the bankrupt, does not necessarily prevent the operation of s. 111 upon property held by a bankrupt upon trust for his or her spouse. I think that it is possible for a spouse who is the beneficiary under such a trust to make the trust property "available" to the trustee spouse within the meaning of s. 111. But, in my opinion, that section does not apply in every case in which a spouse of the beneficiary is the trustee or one of the trustees by whom property is held in trust. The legal estate vested in a husband as trustee for his wife does not enable him lawfully to make any use of the property for his own benefit. It is true that a dealing by him in breach of trust could confer rights upon a third person not having notice of the trust, which would affect the rights of the wife. But that does not mean that the property is "available" to him. In the provision in its earlier form the use of the word "entrusted" or "intrusted" did suggest perhaps that it would apply if a wife made her husband trustee of her property. In Davis v. Mackerras [1] , Rich J. said that the word "intrusted" was used of "property impressed with a kind of trust". Nevertheless the view that because of the word "intrusted" the earlier provision would have applied whenever a husband was made trustee of a wife's property does not accord, in my opinion, with the statements in the principal judgment in that case, in which [2] their Honours said that the word "implies that some legal power or some authority has been conferred upon the bankrupt enabling him to use or dispose of the property as if it were his own, whether he is under any obligation or not to account for it or its proceeds to his wife". They added, "Rigby L.J. in In re Cronmire; Ex parte Cronmire [1] , expressed that view, as we understand him, when he said intrusting property to a husband meant "handing it over to him to deal with it as he might think fit"." In my opinion, the difference in the language of the present provision is important and I shall refer again to that difference. But, in my opinion, the provision either in its earlier or in its present form would not be satisfied unless a spouse who subsequently became bankrupt had been enabled to make use of the property in some way for his own benefit or advantage. This would not be effected, in my opinion, merely by allowing a spouse to have an estate in land held upon the terms of a trust, under which no personal benefit accrued to him.

[52]

What must next be considered is whether upon the evidence relating to the mortgage transactions and the overdraft, it should have been found that the properties over which security was taken were "made available" to the appellant's husband. I have found this a difficult question to answer. Unless the contrary intention appears the word "property" in the Act means, as s. 5 provides, "real or personal property of every description". I do not think that a contrary intention appears and I am of opinion that real property is not to be treated as excluded from the operation of s. 111. But there are difficulties in applying the section to real property. A disposition of property owned by a wife, by which the property or some interest in it passes from her to her husband, cannot fall within the section, which can operate only in relation to property or an interest in property which continues to belong to her. But I think that transactions are less likely to occur in relation to real property than in relation to goods, by which an owner of property makes it "available" to another without transferring any beneficial interest in it. In the present case the appellant did not put an end to the trust in her favour upon which the properties were held. Nor did she diminish her beneficial interest by conferring part of it upon her husband. But she allowed her husband to join with her in dealing with the properties in a manner which did affect her beneficial interest, in that rights in the property were obtained by the mortgagee, to which her own rights as beneficial owner were made subject. I have come to the conclusion that in allowing her husband to obtain money for his use by means of these transactions the appellant did make the properties available to him. Upon a strict view it may be said perhaps that it was the whole legal and equitable ownership of the properties that was made available to him to be used, with her concurrence, to provide security for the loans and the overdraft. But since no greater claim is made by the respondent than a claim that an undivided moiety in each property should be treated as assets in the bankrupt's estate, it is not necessary to consider whether upon the facts of the case, including the fact that she as well as her husband joined in the mortgages and that the money obtained went to a joint account, a larger claim would be justified.

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Before

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Judgment (63 paragraphs)

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