Griffiths v Falck

Bankruptcy Act 1966 (Cth) ss 58, 116, 120, 121 LEGISLATION CITED : Conveyancing Act 1919, s 37A Supreme Court Act 1970, s 75A

Asian Investments Corporation Ltd v Symons (Young J, 10.4.1996, unreported) Australian Broadcasting Tribunal v Saatchi & Saatchi Compton (Vic) Pty Ltd (1985) 60 ALR 756 Brady v Stapleton (1952) 88 CLR 322 British and Beningtons Ltd v NW Cachar Tea Co [1923] AC 48 Cowan v Milbourn (1867) LR 2 Ex 230 Daemar v Industrial Commission of NSW (No 2) (1990) 22 NSWLR 178 Doe d Daniell v Woodroffe (1842) 10 M & W 608; 152 ER 614 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Georgalis v Andonaras (1993) 113 FLR 196 Harrods Ltd v Stanton [1923] 1 KB 516 Industrial Equity Ltd v Blackburn (1977) 2 ACLR 421 CASES CITED : J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 Lockwood v Commonwealth (1954) 90 CLR 177 Martin v Abbott Australasia Pty Ltd [1981] 2 NSWLR 430 Morewood v South Yorkshire Railway & River Dun Co (1858) 3 H & N 798; 157 ER 690 Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372 Re Fiorino [1994] FCA 181 Re Hitchcock (1900) 17 WN (NSW) 62 Shears v Rogers (1832) 3 B & Ad 362; 110 ER 137 Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 Spotswood v Barrow (1850) 5 Ex 110; 155 ER 48 Sutherland v Vale [2008] NSWSC 759 Union Bank v Downes (1896) 12 WN (NSW) 131 Zaravinos v Houvardas (2004) 32 Fam LR 490

Stephen Griffiths (Appellant) Inger Moreno Falck (First Respondent) PARTIES : Torsten Arthur Gunnar Falck (Second Repondent) Josefine Elsie Gunvor Falck (Third Respondent) Matti Antero Fernonano Koskinen (Fourth Respondent)

COUNSEL : M Aldridge SC and M W Sneddon (A) J B Simpkins SC and T Thawley (R)

SOLICITORS : Worthington Williams Lawyers (A) Nescis Lawyers (R)

LOWER COURT JURISDICTION : Supreme Court (Associate Judge)

LOWER COURT JUDICIAL OFFICER : Associate Justice Macready

LOWER COURT DATE OF DECISION : 28 November 2007

LOWER COURT MEDIUM NEUTRAL CITATION : Stephen Griffiths v Inger Moreno Falck & ors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4825/06 - GRIFFITHS v FALCK JUDGMENT 1 HIS HONOUR: This is an appeal from a decision of Associate Justice Macready. For reasons given on 28 November 2007, his Honour granted the respondents'/defendants' motion for summary dismissal and ordered the appellant/plaintiff to pay the respondents' costs of the proceedings and of the motion. 2 The basic facts are that on 3 November 1992, there was an altercation where a Mervyn Chitty ("Mr Chitty") assaulted the appellant. 3 At that stage, Mr Chitty was the registered proprietor as a joint tenant with his de facto wife Inger Moreno Falck ("Mrs Falck"), the first respondent, of real property at Como. 4 On 3 December 1993, Mr Chitty transferred a moiety of his interest in the Como property to the fourth respondent, his stepson. In 1998 the stepson transferred that quarter interest in the property to the second and third respondents, the son and daughter of Mrs Falck and Mr Chitty in equal shares. 5 On 30 August 1999, Mr Chitty transferred his remaining one-quarter interest in the property to his wife. 6 On 7 August 2002, the appellant received a judgment in the District Court in respect of the assault in the sum of $1,731,131.80. 7 On 10 March 2003, Mr Chitty was made bankrupt on the appellant's petition. He was discharged from bankruptcy on 11 April 2006. 8 Thus, at all times during the bankruptcy, the title of the one-half of the property that used to belong to Mr Chitty was vested in the first three respondents as tenants-in-common, one-quarter to the wife, one-eighth to the son and one-eighth to the daughter. 9 The present proceedings were commenced by the appellant issuing a summons on 13 September 2006, that is, after the discharge from bankruptcy. Pleadings were ordered and a statement of claim was filed on 21 December 2006. 10 The statement of claim pleaded the facts I have set out above and said that the appellant was entitled on those facts and other facts pleaded to a declaration that both the transfer of the quarter interest share to the stepson and the quarter interest share to the wife were transfers within the meaning of s 37A of the Conveyancing Act 1919 and are voidable under that section. It further seeks an order that those interests in the Como property be transferred to Mr Chitty's Trustee in Bankruptcy to be divided amongst his creditors. 11 The first respondent put on a defence which claimed that she gave value. She also put on some technical defences. Similar defences were pleaded by others affected. 12 Section 37A of the Conveyancing Act 1919 in its present form, is as follows: "(1) Save as provided in this section, every alienation of property … with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced. (2) This section does not affect the law of bankruptcy for the time being in force. (3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors." 13 The respondents submitted that the appellant was not a person prejudiced within the meaning of the section. 14 The learned Associate Judge upheld this contention. 15 The judge noted that high authority, particularly Brady v Stapleton (1952) 88 CLR 322 at 333, made it clear that even when the word "void" was used in the section as it originally was framed, it did not mean utterly and absolutely void, but void sub modo. 16 The High Court followed Morewood v South Yorkshire Railway & River Dun Co (1858) 3 H & N 798 at 801; 157 ER 690 at 691, that "in the case of a deed void as against creditors, there must be an election to avoid the deed … ". Thus, the title of the purchaser was defeasible, but before a step was taken to avoid under the section, the property was properly vested in the conveyee. 17 Applying that, the learned Associate Judge said in para [39] of his judgment: "In the present case, at the date the transfer is avoided, the property does not fall within s 58 [of the Bankruptcy Act 1966] and is not property divisible between the creditors. In these circumstances there will be no benefit to the plaintiff by the increase of the property available for the benefit of creditors. This means that the plaintiff is not a person prejudiced within the meaning of s 37A. A successful avoidance will not confer any benefit upon him." 18 There is a great dearth of material in the pleadings and evidence as to whether the present appellant ever did elect to avoid the transactions. However, assuming that at least the issue of these proceedings worked that avoidance, that meant that up until after the discharge from bankruptcy, the transactions had not been avoided and remained in full force. 19 On this basis, during the whole of the time of the bankruptcy, the title to the Como property remained in the wife and children of Mr Chitty. 20 Section 58(1) of the Bankruptcy Act 1966 (Cth) provides as follows: "(1) Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after-acquired property, vests forthwith in the … registered trustee; and (b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt … in that registered trustee." 21 Section 116 of the Bankruptcy Act, so far as is relevant, is in the following terms: "(1) Subject to this Act: (a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge … "

is property which vests in the bankrupt's Trustee in Bankruptcy and is then divisible amongst the bankrupt's creditors. 22 Counsel for the appellant cited the decision of the Court of Appeal in Daemar v Industrial Commission of NSW (No 2) (1990) 22 NSWLR 178, for the proposition that it did not matter that at the present time Mr Chitty was discharged from bankruptcy because the bankrupt estate continues for the benefit of creditors. This is so, but it does not, in my view, make any difference to the determination of this appeal. 23 In the instant case, at all material times, at the commencement of the bankruptcy and during the bankruptcy, the property belonged to, or was vested in, a person other than the bankrupt. When the election was made, if it was made, then, if the election was in order, the effect of s 37A would be to vest the title back in Mr Chitty's name. The property would not be after-acquired property. 24 Accordingly, the vesting could not at that date benefit the appellant and accordingly the appellant is not a person prejudiced by the alienation. 25 It seems to me that this must be correct and for the reasons which the learned Associate Judge gave. 26 I heard the appeal from the learned Associate Judge on 21 August 2008. On that occasion, Mr M Aldridge SC and Mr M W Sneddon appeared for the appellant, and Mr J Simpkins SC and Mr T Thawley appeared for the respondents. 27 Although the argument before me was fairly wide ranging, I should note that the notice of appeal was in narrow terms. It focused on an allegation that the Associate Judge had held that the invalidity under s 37A of the Conveyancing Act had prospective effect from the date the court declares that a fraudulent transaction has occurred. 28 In fact, the learned judge never said what is ascribed to him. He said on two occasions that the avoidance is prospective from the date of avoidance. It is clear that the avoidance operates prospectively from the date of the person prejudiced taking action to avoid it and no one has argued to the contrary. 29 However, no one took any point as to the way the notice of appeal was framed. 30 There was argument before me, as there was before the learned Associate Judge, that the present case did not fall within the stringent requirements laid down by the High Court in striking out applications in General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125. There must be some doubt as to whether those principles have been modified by the subsequent introduction of ss 56 to 60 of the Civil Procedure Act 2005. However, assuming the test in General Steel remains in force, for the reasons given by the learned Associate Judge, this is an application which is so clear that it can be well disposed of summarily. 31 The appellant sought to place additional factual material before me. 32 In accordance with previous directions, the parties prepared a two volume appeal book. The appeal book contained an affidavit of the appellant, Stephen Griffiths, of 13 September 2006 and some transcripts of examination of Mr Chitty before the Federal Court of Australia. This latter material I rejected. However, I reserved consideration on the application for leave to rely on Mr Griffiths' affidavit which contained the following material: "19. On or about 29 September 2003 Mr Gregory Turner, the Bankrupt's Official Trustee in Bankruptcy, lodged a caveat on the title of the Property. Annexed hereto and marked 'D' is a copy of the caveat." 33 The caveat reads as follows: "SCHEDULE 1 Estate or interest claimed

TRANSFER BY THE BANKRUPT, MERVYN CHITTY OF HIS INTEREST IN THE LAND TO MATTI ANTERO FERNINANO KOSKINEN AND INGER MORENO FALCK FOR NO CONSIDERATION WHICH TRANSFER IS VOID UNDER SECTION 120 AND SECTION 121 OF THE BANKRUPTCY ACT

SEQUESTRATION ORDER 10.03.03 MERVYN CHITTY

GEOFFREY TURNER IS THE TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF MERVYN CHITTY AND IS ENTITLED TO HIS INTEREST IN THIS LAND PURSUANT TO SECTION 58 AND SECTION 116 OF THE BANKRUPTCY ACT. THE TRUSTEE IN BANKRUPTCY CLAIMS THAT THE TRANSFER BY MERVYN CHITTY OF HIS ONE QUARTER INTEREST IN THE LAND TO INGER MORENO FALCK IS VOID UNDER SECTION 120 AND 121 OF THE BANKRUPTCY ACT. GEOFFREY TURNER IS TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF MERVYN CHITTY, THAT THE BANKRUPT TRANSFERRED HIS ONE QUARTER INTEREST TO MATTI ANTERO FERNINANO KOSKINEN WHO HELD HIS TRANSFERRED SHARE ON TRUST FOR TORSTEN ARTHUR GUNNAR FALCK, JOSEFINE GUNVOR FALCK, WHICH TRANSFER WAS FOR NO CONSIDERATION AND IS VOID UNDER SECTION 121 OF THE BANKRUPTCY ACT." 34 The affidavit then went on to say that on 28 August 2006, that is, after the discharge from bankruptcy, the registered proprietors caused a lapsing notice to be issued and in due course the appellant considered that the cost of fighting the notice was too great and instead the present proceedings were launched. 35 The purpose of putting before me this extra material was to ground an argument that that caveat was an election under s 37A of the Conveyancing Act by a person prejudiced, namely, Mr Chitty's Trustee in Bankruptcy, and that the caveat triggered the voidness specified in the section. 36 As the learned Associate Judge pointed out in another connection, even if the property did fall into the property of the bankrupt, because of s 58 of the Bankruptcy Act, the appellant would have to obtain the consent of the courts ordinarily administering bankruptcy law before commencing these proceedings. However, his Honour ruled that as such leave could still be obtained, he would not have struck out the proceedings on that ground. 37 Under s 75A(7) of the Supreme Court Act 1970, the Court when hearing an appeal may receive further evidence. However, if the appeal is from a decision on the merits, special grounds must be shown. There is debate as to whether an appeal from a decision which summarily disposes of proceedings is a decision on the merits. See Ritchie's Uniform Civil Procedure NSW at SCA s 75A.50. 38 That note suggests that the present appeal is from a decision on the merits so that special grounds need to be discovered. 39 The transcript before the Associate Judge shows that, although a later affidavit of Mr Griffiths was read and admitted in part, there was no attempt to read his affidavit of 13 September 2006. 40 There has been no satisfactory explanation as to why the 13 September 2006 affidavit was not read before the Associate Judge. 41 Mr Simpkins has reminded me that it is the firm policy of this Court that people must put their best foot forward before the Associate Judge and must not hold anything back. Thus normally, the Court should be very slow to admit further material because, if it does so, it weakens the policy to which I have just referred. There is abundant authority for this proposition commencing at least with Martin v Abbott Australasia Pty Ltd [1981] 2 NSWLR 430. I examined the authorities, including Martin's case and Georgalis v Andonaras (1993) 113 FLR 196 (ACTSC) in Asian Investments Corporation Ltd v Symons (10 April 1996, unreported) and it is unnecessary to examine them again. 42 However, it must be said that the material in the affidavit of Mr Griffiths was available to the other side almost from the beginning of these proceedings, that it was clear for many months before the hearing that the material was sought to be considered and that only questions of law arose. 43 Further, if I exclude the matter, it may be possible (subject to Anshun arguments) for the appellant to start again. 44 My view is that insufficient material has been shown as to why the affidavit was not used below and why it should be used now and that I should not admit it. I take this view whether or not special grounds are required. This view is reinforced by my finding that, although it raises awkward considerations, even if it had been admitted, it would make no difference to the result of the appeal. 45 I will now explain why I consider that further evidence would not affect the result. 46 The question that arises is whether the caveat whose claims I have set out above is a sufficient election under s 37A. 47 It should be noted that in Brady v Stapleton at 333, Dixon CJ and Fullagar J said, after noting that void meant voidable: "The courts have always treated a fraudulent assignment as effective unless and until a creditor or creditors intervene by levying execution or taking legal proceedings." 48 Now in the instant case, the Trustee in Bankruptcy did not take legal proceedings nor levy execution. Generally speaking, the effect of a caveat is merely a statutory injunction which holds the status quo and gives a person claiming an unregistered interest time to bring his or her proceedings to assert that unregistered interest: see J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 at 552, though there are previous decisions saying the same thing going back to the decision of W Owen J in this Court in Re Hitchcock (1900) 17 WN (NSW) 62 at 63. 49 As can be seen by what in fact happened in this case when a lapsing notice was lodged, there is a very big difference between a person giving notice that they claim to have an unregistered interest, and a person taking action to enforce that unregistered interest. 50 However, it is necessary to examine the authorities to see what sort of action is required by a person to trigger the revesting of property under sections such as s 37A of the Conveyancing Act. 51 The High Court referred to the decision of the King's Bench in Shears v Rogers (1832) 3 B & Ad 362; 110 ER 137. However, apart from a clear statement by Littledale J that the assignment was void as soon as the creditors claimed to treat it as such though not until then, there is no close analysis of what the creditors must do in order to trigger the invalidity. 52 The High Court also quoted Harrods Ltd v Stanton [1923] 1 KB 516. That case involved a deed of gift and the Court held that until the deed of gift was set aside, the transaction was not void. Again, it does not give any further guidance. 53 Although one must be very careful to keep cases under ss 120 and 121 of the Bankruptcy Act separate from cases under s 37A of the Conveyancing Act because they do raise different issues, I have found the decision of the Full Federal Court in Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372 of some assistance. In that case, with reference to Brady v Stapleton and the Harrods case, Wilcox and Cooper JJ said at 426: "Although s 121 states that a disposition to which it applies is void, the courts will treat the disposition as effective until impugned in proceedings brought by the trustee in bankruptcy … Until the title is defeased by the trustee in bankruptcy calling for delivery up or revesting of the property to the trustee or by instituting proceedings to establish the trustee's entitlement to the property, the donee may deal with the property as owner and is not required to account for any profit made." 54 Again, the emphasis seems to be on enforcement and action rather than mere assertion of a right. 55 Gummow J, when a Federal Court judge, considered the problem in Re Fiorino [1994] FCA 181. He said: "The title to the asset taken by the disponee … was defeasible. But it was effective unless and until a creditor or creditors intervened by levying execution or legal proceedings were taken by them or by the trustee. If before any such proceeding was taken to set aside a disposition, the disponee sold the asset to a bona fide purchaser for value … the disponee would not be liable for money had and received … ." 56 In Zaravinos v Houvardas (2004) 32 Fam LR 490, a decision of the NSW Court of Appeal, Sheller JA said at 506 [44]: "[i]f the trustee in bankruptcy had taken steps pursuant to s 121 to avoid the three transfers any creditor would become powerless to interfere under s 37A of the Conveyancing Act . But the trustee in bankruptcy has taken no steps under s 121 and, accordingly, no question of the consequences if he had done so arises." 57 The Court held in Zaravinos that s 121 of the Bankruptcy Act did not cover the field and accordingly s 37A was available. The Court upheld the decision of Bergin J to set aside a transfer to a bankrupt's wife under s 37A. 58 A similar question was considered by Brereton J in Sutherland v Vale [2008] NSWSC 759. In that case the bankrupt transferred property to her husband about two years before her bankruptcy. The Trustee in Bankruptcy put a caveat on the title stating that he was the Trustee in the bankrupt's estate and the transfer is void against the caveator pursuant to ss 120 and 121 of the Bankruptcy Act. Later, the Trustee served on the husband a notice under s 139ZQ of the Bankruptcy Act claiming payment of the asserted value of the bankrupt's half interest in the property. The husband ignored the notice and the Trustee in Bankruptcy issued a certificate under s 139ZR(4) of the Bankruptcy Act which was registered in the Land Titles Office recording a charge in favour of the Trustee pursuant to the Bankruptcy Act. 59 It was only on 19 April 2006, four years later, that the Trustee commenced proceedings in the Federal Magistrates Court claiming possession of the property. 60 The Federal Magistrate set aside the notice under s 139ZQ and dismissed the claim for possession. The Trustee then applied to the Supreme Court to extend the operation of the caveat. 61 On that application, Brereton J said at [15]: "If, as seems likely - because when the caveat was lodged, no s 139ZQ notice had been issued - the claim were intended to be one to the effect that the Trustee was beneficially entitled to a half interest (being the bankrupt's former interest as joint tenant), then it suffers from the defect that the provisions of ss 120 and 121 of the Bankruptcy Act, to the effect that a relevant disposition is 'void against the trustee', have been held to mean that the disposition is only voidable, and that the Trustee has no equitable interest (and therefore no caveatable interest) in the subject property unless and until the relevant court makes an order pursuant to the Bankruptcy Act setting aside the disposition and revesting the property in the Trustee ( Martin v Official Trustee in Bankruptcy [1990] Tas R 65). Accordingly, the mere assertion of a claim under s 120 and/or s 121 is not sufficient to give the Trustee a caveatable interest." 62 The caveat was removed though his Honour noticed that the Trustee did in fact have some substitute security. 63 I consider that all these authorities, whilst not directly on the point, make me come to the conclusion that a mere claim in a caveat that a transaction is void under s 120 or s 121 of the Bankruptcy Act is insufficient election either under s 120 or s 121 of the Bankruptcy Act on the one hand, or s 37A of the Conveyancing Act on the other hand. 64 I have also considered the argument that was faintly put that if a person in fact has a right to do something because of factor A but says that he or she relies on factor B as the basis for the act, he or she can still justify the act by factor A. 65 The argument is that the Trustee in Bankruptcy relied on ss 120 and 121 of the Bankruptcy Act when he could have equally well relied on s 37A of the Conveyancing Act. 66 The argument seems to fail at its inception as the sections appear to be true alternatives as held in Zaravinos. 67 However, the alleged principle itself would need very close examination before one could give a definitive judgment. Indeed the highest one can put it is as Hutley JA put it in Industrial Equity Ltd v Blackburn (1977) 2 ACLR 421 at 422: "In many cases what has been done can be upheld by reference to powers available to the actors but not in fact within their contemplation." 68 The principle has application in private law in cases of wrongful dismissal (Spotswood v Barrow (1850) 5 Ex 110; 155 ER 48; Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359, 377), termination of contracts (Cowan v Milbourn (1867) LR 2 Ex 230; British and Beningtons Ltd v NW Cachar Tea Co [1923] AC 48, 71) and appointments of receivers pursuant to contract (Union Bank v Downes (1896) 12 WN (NSW) 131). 69 The majority in Australian Broadcasting Tribunal v Saatchi & Saatchi Compton (Vic) Pty Ltd (1985) 60 ALR 756 at 764, held that the principle cannot apply: (a) where rights other than those inter partes are affected; and (b) where the other party has not relied on the reason given for justifying the action, save that the rule does apply to the Executive government: Lockwood v Commonwealth (1954) 90 CLR 177, 184. 70 Although Bowen CJ in Saatchi suggests that in private law the rule may be justified on the basis that it avoids forcing the actor to commence new proceedings, it would seem from Doe d Daniell v Woodroffe (1842) 10 M & W 608 at 632; 152 ER 614 at 623 that the rule may derive from Littleton's 695th section (published in 1481). 71 Here more than the parties are affected by any election. Rights in rem for the benefit of creditors generally are at stake. The principle thus does not apply. 72 It follows that the additional material sought now to be relied upon does not affect the conclusion to which the learned Associate Judge came. 73 Accordingly, the appeal must be dismissed with costs.

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