Issitch v Worrell

Issitch v Worrell - [2000] FCA 477 - FCA 2000 case summary — Zoe

[10]

REASONS FOR JUDGMENT DRUMMOND J: 2 The first respondent, as trustee of the estate of a bankrupt, Mr Tantner, who is now deceased, brought proceedings against the appellant claiming relief in respect of the withdrawal by the appellant of two sums totalling $111,667 from the bankrupt's bank account. It was common ground at the trial that the trustee had no claim to $1,500 of this amount. The appellant cross-claimed in these proceedings for an order annulling the bankruptcy pursuant to s 153B the Bankruptcy Act 1966 (Cth). The learned primary judge dealt with the cross-claim separately from the trustee's claim. On 24 September 1999, he made orders dismissing the cross-claim and refusing the application for annulment of the bankruptcy. A little later, he heard the trustee's application and, on 25 October 1999, disposed of it by making orders in favour of the trustee. 3 The appellant has brought separate appeals against the learned primary judge's orders of 24 September and 25 October 1999. It is convenient to deal with both appeals in these reasons and to follow the course adopted by the learned primary judge and deal first with the appeal against his Honour's refusal to annul the bankruptcy. 4 The facts as found by his Honour are not now challenged. The bankrupt was 84 years old in 1989. He owned a house at Heather Street, Wilston, Queensland. On 21 December 1989 he entered into a deed with the second respondents. They undertook to provide him with 24 hour care, including meals, at his home in Heather Street, as from 11 November 1989 (cl 2). The bankrupt agreed to pay them $200 per week each in return (cl 3). These moneys were not to become payable until the Heather Street house was sold or the bankrupt died (cl 4). If the second respondents were still providing this home care to the bankrupt at the date of his death, they were then entitled to the house property "in full satisfaction of all moneys owing by" the bankrupt to them as at that date (cl 5). If they ceased to provide this care to the bankrupt, they were entitled to be paid $200 each per week from 11 November 1989 to the date of cesser of care (cl 7) and were obliged to vacate the Heather Street property within seven days of that last mentioned date (cl 9). This clause also provided that, if the bankrupt was not satisfied with the standard of care he was receiving, he could notify them that their services were no longer required, in which case it was agreed that "on his death they will be paid the sum of $200 per week each from 11 November 1989 up to the date he gives them notice that they are to cease caring for him". 5 From November 1989 to late 1992 the bankrupt and the second respondents lived in the Heather Street home. In late 1992, the bankrupt entered a nursing home and remained in such accommodation until he died in October 1996. In February 1993, he gave them notice requiring them to vacate the premises. They refused to do so. On 15 July 1993 the bankrupt commenced proceedings in the District Court held at Brisbane, Queensland claiming recovery of possession of the Heather Street property, delivery up of certain chattels which he alleged were held by the second respondents and damages. In his pleading, he referred to the deed and alleged that it was void and of no effect, firstly, because he was entitled to plead non est factum; secondly, because he was induced to enter into it by the false representations of the second respondents; thirdly, that their actions in causing him to enter into the deed were unconscionable and, finally, that they used undue influence to cause him to enter into it. In the alternative, the bankrupt pleaded that, if the deed was valid and binding on him, the second respondents were in unlawful occupation of the premises because, upon his admission to the nursing home, they ceased to provide him with full-time care and were required by cl 9 to vacate within seven days; secondly, following service of his notice of February 1993, they were required to vacate within two weeks and, thirdly, that, in breach of their obligations, they failed to provide the promised care. 6 On 28 July 1993, the bankrupt obtained judgment by consent against the second respondents for possession of the Heather Street premises. Subsequently, on 12 August 1993, they filed a defence to the bankrupt's other claims and a counter-claim. In their defence, they denied the allegations of improper conduct and pleaded that the bankrupt had the benefit of independent legal advice before entering into the deed; by their counter-claim, they claimed for payment of their services to the bankrupt only on a quantum meruit. In view of the attack made by the appellant on the judgment refusing annulment of the bankruptcy, it is necessary to set out the counter-claim:

[22]

7 The reference in par 10 of the counter-claim to the deed being declared void or unenforceable is explained by the claim made by the bankrupt in his plaint: the second respondents, in their pleading, sought no such relief. Nor did they claim any relief for themselves in reliance on rights conferred on them by the deed. 8 On 24 May 1994, in default of appearance by the bankrupt at the trial, the second respondents obtained judgment on their counter-claim for the sum of $68,000 plus interest totalling $5,300. It is apparent from the pleading that $68,000 was claimed as representing payment to each of the second respondents at the rate of $200 per week for the 170 weeks between 11 November 1989 and expiry on 8 March 1993 of the bankrupt's notice to vacate of February of that year. 9 On 18 July 1994, the second respondents served a bankruptcy notice on the bankrupt demanding payment of this judgment debt; it was not paid. The sequestration order was made on their petition on 29 September 1994. On 8 February 1995, the Public Trustee assumed control of the bankrupt's affairs on the ground of his incapacity. 10 On 11 April 1993, about five months after he entered the nursing home, the bankrupt married the appellant there. The appellant said she first met the bankrupt in 1988 and had intermittent contact with him until his admission to the nursing home where she visited him frequently. The trial judge accepted that may well have been the position. Within days of the marriage, the bankrupt gave her authority to sell the Heather Street house and to use the proceeds of the sale to build another house on land the appellant owned at Wishart. He also gave her a general power of attorney. 11 Although the trustee alleged that the bankrupt had authorised the appellant to apply the proceeds of the sale of the Heather Street property to the construction of a home at Wishart in which he and the appellant would live "and have a joint interest", the learned primary judge found that:

[24]

12 The appellant arranged for the sale of the bankrupt's Heather Street home in October 1993. He received net proceeds of about $109,000. In December 1993, the appellant and her son had entered into a contract for the construction of a house on her Wishart property for $124,837. She borrowed $35,000 from a credit union to part-fund construction. It is not clear whether this was a joint borrowing with her son. 13 The major issues in that part of the trial concerned with the trustee's claims against the appellant were whether she funded the entirety of the cost of constructing the Wishart house from her own funds (as she claimed) or whether, in large part, those moneys came from the bankrupt (as the trustee claimed) and whether she did pay substantial amounts for the bankrupt's care in the nursing home from her own moneys (as she claimed) or from the bankrupt's pension (as the trustee claimed). 14 No challenge was made to the learned primary judge's conclusions against the appellant on these issues. His Honour found that, on 10 November 1993, the appellant withdrew from the bankrupt's account $20,000 in cash and a further $90,167 by cheque which she deposited to her own account. He rejected her claim that, save only for $4,242 derived from the bankrupt's account and paid by her to the builder, she funded the whole of the cost of constructing her house at Wishart from her own moneys. Instead, he found that the appellant spent the $20,000 on herself in breach of the bankrupt's instructions to apply it to the construction of the new house on her land and that she had applied the $90,167 to construction of the house. His Honour also accepted that, apart from the $90,167 of the bankrupt's moneys, the appellant found the rest of the moneys needed to fund construction of the house at Wishart for herself. This she did initially by borrowing $35,000 from the credit union in late 1993 and then by repaying that loan, after mid 1996, with moneys which she obtained from sources other than the bankrupt. The annulment application 15 The sequestration order obtained at the behest of the second respondents was based on the bankrupt's failure to comply with the bankruptcy notice calling on him to pay the District Court judgment for $68,000 plus interest. The learned primary judge accepted that the Bankruptcy Court has jurisdiction, when asked to annul a bankruptcy, to go behind such a judgment debt. It was appropriate to do that in this case: the second respondents' judgment was obtained in default of the bankrupt's appearance at the trial in circumstances in which, shortly before the hearing in the District Court, the solicitors who had been acting for the bankrupt withdrew and in which there was some uncertainty as to whether the bankrupt understood, from information orally given him by a District Court registry clerk the day before, that his action was to come to trial when it did. 16 The main argument advanced on appeal against his Honour's refusal to annul the bankruptcy was that there was, in truth, no debt sufficient to support the judgment in respect of which the bankruptcy notice was issued. It was said that the judgment was given on a quantum meruit, but the second respondents did not have any such cause of action available to them unless and until the deed was terminated, something that never occurred; reference was made to par 10 of the second respondents' counter-claim in which they expressly claimed on a quantum meruit only in the event that the deed was declared to be void or unenforceable. 17 No such argument was put to the learned primary judge. However, he did comment on the basis upon which the second respondents had obtained judgment, saying:

[30]

20 As the learned primary judge recognised, the second respondents were not entitled to claim on a quantum meruit so long as the deed remained in force (see Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256), but could so claim once it was out of the way (see Lodder v Slowey [1904] AC 442 and Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 276 - 277). As his Honour's comments in emphasis in par [10] of his reasons set out above show, he accepted that this was how the second respondents had proceeded in obtaining judgment on the quantum meruit. 21 Counsel for the appellant conceded that the bankrupt's conduct in challenging the enforceability of the deed as he did in his pleading in the District Court was capable of amounting to a repudiation by him of the deed. The second respondents were thus in the position of then being able to elect to accept that repudiation as terminating the deed. Service of the counter-claim would, in the circumstances, operate as an effective election by the second respondents to treat the deed as at an end: International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 440. By counter-claiming as they did on a quantum meruit for the payment of a reasonable sum for services rendered to the bankrupt at his request, rather than by claiming on the deed as the learned primary judge indicated they could have done, the second respondents must be taken to have accepted the bankrupt's repudiation and so brought the deed to an end. 22 The second respondents departed from the strict case they had pleaded in seeking the judgment in that they did not wait for the bankrupt to obtain a determination that the deed was not enforceable. But by reason of the bankrupt's conduct in contending that the deed was not binding upon him and upon the second respondents serving their counter-claim, there came into existence a good cause of action for payment on a quantum meruit. It was on just that basis that they sought and obtained the judgment in question. It matters not, for the reason given in Re Skaff, that their pleading, in terms, asserted the right to payment on a quantum meruit only in the event of the deed being declared void or unenforceable, and that no such order was ever made prior to judgment in the District Court. 23 The appellant sought to make a point about evidence given by one of the second respondents in relation to the carers' pensions they received while looking after the bankrupt as fixing the amount of any entitlement they had outside the deed to payment for their services to the bankrupt. The appellant overstated the evidence when she asserted that one of the second respondents said he accepted payment of the carer's pension as a reasonable rate for the services they both rendered. The District Court judge was entitled to quantify the second respondents' claim on the quantum meruit by reference to the rates provided for by the deed: see Way v Latilla [1937] 3 All ER 759, applied in MR Hornibrook (Pty) Ltd v Eric Newham (Wallerawang) Pty Ltd (1971) 45 ALJR 523 at 524. The learned trial judge was right in treating this evidence about the carers' pensions as irrelevant to what was a reasonable rate for their services. 24 Once it is recognised that the bankrupt truly did owe the second respondents a debt on the same basis upon which the latter obtained judgment against him, there can be no good discretionary reason for annulling the bankruptcy: the bankrupt's estate was insolvent on 29 September 1994 when the sequestration order was made. He then owed the judgment debt and his only substantial asset, the Heather Street property, had long since been sold and the proceeds of sale taken by the appellant. As the learned primary judge said, speaking of the position at the time of the annulment application, the only possible asset of the estate was the claim available to the trustee against the appellant in respect of the $110,000 which she had withdrawn from his account in November 1993. 25 It appears from par [35] of his reasons set out above that the learned primary judge did satisfy himself that there was a good debt behind the judgment. But even if, as the appellant contended, the learned primary judge was in error in not going behind the judgment, but disposed of the annulment application on discretionary grounds because it would be more effective for the dispute between the parties to be worked out in the administration of the estate in bankruptcy, the learned primary judge was still right for the reasons I have given in refusing to annul the bankruptcy. 26 I would dismiss the appeal against the refusal to annul the bankruptcy with costs. The orders against the appellant 27 In giving judgment on the trustee's claim against the appellant, the learned primary judge made the following orders:

[35]

28 The appellant contended that it was not open to the learned primary judge, in reliance on s 120 the Bankruptcy Act 1966 (Cth) in the form it took at the material time, to make orders 2, 3 and 4 against the appellant in respect of the sum of $90,167 which he found she withdrew from the bankrupt's account and applied to the construction of her own home at Wishart. 29 It was said that the trustee bore the onus of pleading and proving that this disbursement, even if it was a settlement within the meaning of s 120, was not made to the appellant in good faith and for valuable consideration, something which the trustee failed to do. By his amended statement of claim, the trustee pleaded that the moneys withdrawn from the bankrupt's account by the appellant, which included the $90,167, "constituted a settlement within the meaning of s 120 of the Bankruptcy Act 1966 and that that withdrawal was void as against the applicant". The appellant responded by objecting in point of law to these paragraphs of the trustee's claim alleging, among other things, that the claim did not disclose any cause of action under s 120. It was on these pleadings that the trial was conducted. 30 The appellant's point now is that the failure of the trustee to expressly plead and to prove absence of consideration for the disbursement to her was fatal to the trustee's claim in respect of the $90,167. This too was a point not relied on at trial. It was said by counsel that if absence of consideration had been pleaded, the appellant might have led evidence to show that she had given consideration for the moneys, eg, by incorporating modifications in her house beneficial to the bankrupt. 31 Even if it be the case that the trustee did bear the onus of proving absence of both good faith and valuable consideration in order to make out a claim under s 120, in the form in which it stood at material times, there was never any occasion for the learned primary judge to consider either of those issues. The appellant's case at trial was that, far from using the bankrupt's moneys (which she admittedly withdrew from his account) for the construction of her own home, she spent $20,000 of the $110,167 on herself, a further sum on a holiday in New Zealand, some on the bankrupt himself and the balance, about $57,000, she said she gave back to him in cash at his request. The appellant thus ran a case factually inconsistent in a radical way with her having applied the moneys in question to the construction of her house. The appellant's argument involves the propositions that if, in addition to expressly relying in his pleadings on s 120, the trustee had expressly pleaded want of consideration for the disbursement of the bankrupt's money to her in November 1993, the appellant would have pleaded in reply, firstly, that she did not receive most of the money, nor did she apply any of it to construction of her house but expended part on the bankrupt and handed a large part of it back to him and, secondly, in the alternative, that if she did receive the money and apply it to construction of her house, she gave particular benefits to the bankrupt that constitute good consideration for that money. 32 But once the appellant decided to answer the claim made on her in respect of the $110,167 in the way she did, she was not entitled thereafter to set up in the alternative the inconsistent answer she now suggests she would also have relied on, if only absence of consideration had been specifically pleaded by the trustee. A party can as a general rule plead inconsistent sets of facts in the alternative (cf O 11 r 8(2); In re Morgan (1887) 35 Ch D 492 and Delfino v Trevis (No 1) [1963] NSWR 191 at 196), but not where one of those sets must be known to the party to be false. It has long been recognised that such a pleading is embarrassing and will be struck out. In Brailsford v Tobie (1888) 10 ALT 194 at 195, the defendant pleaded two factually inconsistent accounts in justification for not having paid the moneys claimed by the plaintiff. Holroyd J ordered that the defendant elect which one of these two cases she would maintain, saying:

[37]

33 Whether or not the gloss on the general rule referred to in Brailsford has its foundation in the old requirement for sworn pleadings, it is in accord with modern practice in not permitting parties to litigate whatever issues they choose, only the crucial issues. See, eg, Ashmore v Corporation of Lloyd's [1992] 1 WLR 446 at 448 and, more generally, UTSA Pty Ltd v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 at 459. 34 The appellant cannot therefore say that the trustee failed to put in issue whether she gave consideration for the disbursement: once the learned primary judge found that she had received and applied $90,167 of the bankrupt's moneys in constructing her house, there was nothing more for him to determine before he was entitled to hold that the trustee's claim as pleaded and as pursued at trial was made out and to conclude that that disbursement was void by force of s 120 the Bankruptcy Act. 35 Having found that the disbursement of the sum of $90,167 of the bankrupt's moneys with his authority to the appellant was void as against the trustee by force of s 120(1) of the Act, the learned primary judge was entitled to make the order charging the appellant's Wishart property with payment to the trustee of that sum (with interest). At the time of judgment, these moneys did not of course continue to exist in the appellant's hands as an identifiable fund. But they had been applied by the appellant to the construction of the house on her Wishart property and so could be traced into that property. Accordingly, the trustee was entitled to have handed over to him so much of this asset of the appellant's as represented those moneys (and interest thereon). See Brady v Stapleton (1952) 88 CLR 322 at 332 and Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372 at 426 - 427. 36 Contrary to the appellant's submission, this tracing remedy is available to the trustee even though the disbursement was held void under s 120 and not under s 121. A person to whom property is transferred thereby acquires a good title to the property from the transferor, though it is a defeasible title, because the transfer may later be held void as against the transferor's trustee in bankruptcy under any of the provisions of ss 120, 121 or 122 the Bankruptcy Act should the transferor later be made bankrupt. Where the property transferred or other property into which it has been transmuted remains in the hands of the transferee when the declaration of voidness is made in favour of the trustee, that declaration is effective to destroy the transferee's previously good title to the property (or at least to so much of the property as is necessary to meet the demands on the bankrupt's estate) and to give the trustee the right to the property (or the necessary portion of it). See Brady v Stapleton at 333 - 334; Official Trustee in Bankruptcy v Alvaro at 426 - 427 and Ebner v Official Trustee in Bankruptcy (1999) 161 ALR 557 at 574 - 575 (appealed to High Court on other points). This is so where the declaration is made under any one of these sections of the Act. It is the fact that the previously effective transfer is declared void that produces this result, not the ground upon which the declaration of voidness is made. 37 No reason was shown for thinking that the trial judge was in error in awarding interest on the $90,167 or that the amount awarded by way of interest was excessive. 38 By his statement of claim, the trustee claimed in the alternative to the claim under s 120 judgment for the sum of $111,667 withdrawn by the appellant from the bankrupt's account as moneys wrongly applied to her own use. The trial judge found that the appellant did apply $90,167 of these moneys in accordance with the directions of the bankrupt and so refused to give the trustee a money judgment for that sum (though, as I have said, he gave the trustee other relief in respect of that particular sum). However, he gave the trustee judgment for the balance of $20,000 on the basis that the appellant had applied that sum for her own purposes and contrary to the purposes authorised by the bankrupt. 39 The appellant challenges this money judgment. Counsel submitted, in reliance on David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 390, that the justification for a claim for moneys had and received by the defendant to the use of the plaintiff is that the defendant is thereby unjustly enriched and that the appellant was not so enriched here. It was said that, notwithstanding the finding that she misapplied the $20,000, she was still authorised to spend that sum on her Wishart property for the purpose of building a home which she would own in her own name, but in which both she and the bankrupt could live together while he was alive. Counsel says that she was able to provide the bankrupt with the benefit he sought when he gave her the proceeds of sale of his own home, by applying only $90,167 of his moneys to that purpose: she met the rest of the construction costs from her own credit union borrowings of $35,000, which she repaid some years later from moneys she received from third parties. It was said that the appellant was not unjustly enriched at the bankrupt's expense even though she misapplied the $20,000 of his moneys, because she provided him with the benefit he sought and because she applied an equivalent sum of her own moneys to the same end as that to which she should have applied his $20,000. 40 Trustee's counsel did not object to this argument being advanced for the first time on appeal. Nor did the trustee dispute the appellant's proposition that the judgment for $20,000 could only be supported as a restitutionary remedy based on principles of unjust enrichment. His answer to the contention that there was no proper basis for the money judgment was that the appellant would be unjustly enriched at the expense of the bankrupt's creditors if allowed to retain the $20,000. But that cannot be right. All that relevantly vests in the trustee for the benefit of the creditors is the cause of action of the bankrupt. The learned primary judge found that the bankrupt authorised the disbursement of his moneys, including the $20,000, to the appellant in circumstances in which the bankrupt was to obtain in return only the right to live in the Wishart house, a right that died with him in October 1996: the bankrupt and thus the trustee are unable to say that disbursement of the $20,000 to the appellant was for the purpose of procuring an enduring benefit to the bankrupt (and his estate) in the form of an interest in her house property of which the bankrupt was, in part, deprived by the appellant's misuse of the $20,000. 41 Neither counsel considered it necessary to draw the Court's attention to any of the cases which deal with the essential elements of a restitutionary claim based on the principles of unjust enrichment. Those principles can be taken to be those stated in Restitution Law in Australia, Mason and Carter, 1995 Butterworths at par [203]. Firstly, the appellant must have received a benefit (as she did in the form of the $20,000 she spent on herself); secondly, receipt of the benefit must have been at the bankrupt's expense (as it was, since it was his money) and, thirdly, the circumstances of the case must be such as to show that it would be unfair, unconscionable or inequitable for the appellant to retain the benefit. 42 In view of the findings of fact made by the trial judge, not challenged on appeal, but sought to be circumvented by this new argument, there is, in my opinion, no justification for setting this judgment aside. 43 At trial, the appellant's case with respect to the $20,000 was that she had the bankrupt's oral authority to spend it on herself. The learned primary judge expressly rejected her claim here: "because of my views of the [appellant] as a witness and because such authorisation would be inconsistent with the bankrupt's wish to see the money applied in building the house at Wishart". The appellant also relied on the fact that she held the bankrupt's general power of attorney and the presumption of advancement to show that she was entitled to deal with the money as she had. The learned primary judge rejected these arguments too. See par [52] of the reasons. The presumption of advancement is applicable in a wider class of case than that in which a husband purchases property in the name of his wife with his own moneys. It was applied in favour of a wife, to a voluntary transfer of property made to her by her husband prior to, but in contemplation of, their marriage in Wirth v Wirth (1956) 98 CLR 228. But the learned primary judge made findings that the bankrupt authorised her to apply the moneys he gave her to the building of the house at Wishart and rejected her claim that she had his express authority to spend the $20,000 of his moneys on herself. These findings leave no room for any operation of the presumption of advancement: see Wirth at 237 and Calverley v Green (1984) 155 CLR 242 at 249, 251, 255 - 256. 44 His Honour expressed his conclusion in par [54]:

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