Official Receiver v Barton [1996] FCA 483 | Case summary

Federal Court of Australia|1990-08-16|Before: Northrop J, Moore JJ, Heerey J

For the reasons stated in relation to Tynte Street, the Official Trustee is not entitled to relief in respect of this property. Crown Terrace For the reasons expressed in relation to Tynte Street, the Official Trustee is not entitled to relief in relation to Crown Terrace. SHAM (i) The Judgment of Heerey J In Official Trustee v Paul Alvaro Heerey J cited authorities on sham, including Sharrment Pty Ltd v Official Trustee (1988) 18 FCR 448 (FC), before concluding (at 46) :- "In the circumstances of the present case, once an intent to defraud creditors is negated, a conclusion of sham is impossible to draw. The acquisitions in question were, I find, intended to take effect and be governed in accordance with the rights and duties created by the establishment of the Company and the Trust. There were no underlying real' transactions which the Company and the Trust were designed to conceal or disguise." Similarly in Official Trustee v Giuseppe Alvaro Heerey J rejected the argument of sham in relation to those properties for which it had been put forward (Itala Avenue, George Street and Crown Terrace) on the basis that he was not satisfied that there had been an intention to defraud. (ii) Submissions on the Appeals In written submissions filed in Official Trustee v Paul Alvaro, the Official Trustee said under a heading "sham" :- "If the intent of the persons who control the trust is to use the trust as a vehicle to perpetrate their fraud, then the trust is a sham. The intent of the bankrupts at the time of each of the targeted dispositions to the trust was to conceal their income and their unexplainable and illegitimate escalation in their wealth. They admitted so. The trust was a manifestation of the bankrupts who were the sole shareholders and controlling trustees. The trust was used by the bankrupts to advance their fraudulent scheme of concealment and ignored for most other purposes. The trust was used as the apparent owner of the subject properties in order to create an illusion that someone other than the bankrupts owned the properties. The act of transfer did not intend to create the rights and obligations that goes with a transfer as the true beneficial owners of the properties were the bankrupts. The Learned Judge did not err in his statement of legal principle, but did in the application of those principles to the evidence. He acted upon his conclusion that the intent to defraud had been negated, and so concluded that a sham was impossible to draw. He found the acquisitions were intended to take effect and be governed in accordance with the rights and duties created by the establishment of the Company and the Trust. There were no underlying real' transactions which the Company and the Trust were designed to conceal or disguise. The findings lack evidentiary support, for none of the respondents gave evidence that this was so. To the contrary, by their admissions the bankrupts said they had purchased the properties and provided the money, and by their conduct described earlier, acted as if the properties were their own." (Original emphasis) In Official Trustee v Giuseppe Alvaro, the Official Trustee submitted, to similar effect, that the trusts were established only to conceal the assets of Giuseppe Alvaro and as such, were shams. The respondents in each appeal relied upon the findings and reasons of Heerey J. (iii) Conclusion on the Appeals

In Sharrment Lockhart J, after a review of the authorities on the meaning of "sham", concluded (at 454) :- "A sham' is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive." Lockhart J, correctly in our view, treated the question of whether a transaction is a sham as a question of fact. His Honour noted that a transaction will not necessarily take on the character of a sham merely by the presence of certain elements of sham, eg artificiality. Of relevance to the present appeals are his Honour's further observations on two of the elements he discussed (at 455) :- "Fourthly, a purported disposal of property, and by analogy a purported creation of a debt, may be a sham where donor and donee (or lender and debtor) do not intend to give effect to the transaction, it being agreed between them that there will be no change in the legal and beneficial ownership of the property. The fact that Mr Wynyard continued to act as thought The Chase was in his control may give rise to an inference that the transactions which led to its being purchased in the name of Seyta with funds apparently the funds of Seyta were a sham. Fifthly, the fact that the transactions of 1979 may have been intended by Mr Wynyard to present a shield against creditors does not, absent the transactions being set aside under the relevant provisions of the Bankruptcy Act, characterise them as a sham. The transactions may in themselves be legally effective although intended to achieve an inacceptable purpose. In Miles v Bull (supra) Megarry J said (at 264): A transaction is no sham merely because it is carried out with a particular purpose or object. If what is done is genuinely done, it does not remain undone merely because there was an ulterior purpose in doing it.' Megarry J went on to observe (at 264) that in the context of determining whether a sale of property was a sham so as to allow a defence to an action for possession that:

mere circumstances of suspicion do not by themselves establish a transaction as a sham; it must be shown that the outward and visible form does not coincide with the inward and substantial truth'. The characterisation of a sham adopted by Megarry J in Miles v Bull is consistent with that adopted by Windeyer J in Scott's case at 279, in the passage which I cited above. Following a thorough review of the earlier authorities, Windeyer J there defined the issue as whether the parties who entered the ostensible transaction ... mean it to be in truth their transaction, or did they mean it to be, - all these words have been metaphorically used - concealing their real transaction ...'" A similar approach was taken by Beaumont J (at 18 FCR 449 at 468 - 469) and by Foster J (at 473 - 474). There is nothing in the evidence to indicate that any party to any transaction intended that no effect be given to it and that there be no change in the legal or beneficial ownership of the property the subject of the transaction. Rather, on the whole of the evidence the contrary inference is to be drawn. It was the intention of the relevant bankrupt that each of the transactions to which the bankrupt was a party be real and effective to pass the property from the bankrupt as donee and to place it in the hands of others. In certain of the transactions an intended effect of each transaction was to place the property beyond the reach of the Commissioner as a creditor in the event of the undisclosed income being discovered and the bankrupt being assessed to income tax upon it. In others, the intended effect of the transaction was to advance a family member as part of an ordinary family provision unconnected with its effect on any creditor or future creditor. The appellant has not shown that Heerey J erred in holding that the transactions in issue were not shams. RESULTING TRUST (i) The Judgment of Heerey J In Official Trustee v Paul Alvaro, Heerey J said (at pp 46 - 47) :- "This doctrine has no application because, first, the purchase price of the properties was provided by way of loan and in any event there was an intention on the part of Mr and Mrs Alvaro that the Company should hold the three properties subject to the express terms of the Trust: see Sharrment at 471 - 473 per Beaumont J." Similarly, in Official Trustee v Giuseppe Alvaro Heerey J did not think that the doctrine applied to any of the transactions in relation to which it had been said to have application. (ii) Submissions on the Appeals In Official Trustee v Paul Alvaro, it was submitted by the Official Trustee that :- "The application was further based on the application of the principles of resulting trust, the properties being acquired with bankrupts' monies on their own admission. The relevant principle is that where a person provides the money to purchase the property, there is a presumption (rebuttable) that it was not intended the other person take beneficially. The Learned Judge found the principle had no application because money was borrowed from the Commonwealth Bank to finance in part the acquisition of some of the lands. That was not significant. Where the Appellant takes properties by reason of a resulting trust, he does so subject to the loans from banks and financiers employed in purchase of the properties. The banks and financiers acquire no proprietorial interest in the properties, and confer none on the lender merely by reason of advancing the monies. In any event, where the loan has been serviced and ultimately discharged out of monies supplied by the bankrupts, the use of bank facilities is immaterial.

The presumption of resulting trust is rebuttable, that being by a contrary intent of the bankrupt being proved. The `contrary intent' that must be established is that the bankrupts did not intend to retain a beneficial interest in the monies, or in the lands acquired by use of those monies. The Learned Judge found the contrary intent was established, though he heard no evidence from the bankrupts to that effect and regarded Paul Alvaro as a person who would lie to further his ends." In Official Trustee v Giuseppe Alvaro the argument on resulting trust was pursued only in respect of Itala Avenue and Sierra Avenue. In relation to Itala Avenue, the Official Trustee said :- "... The property was conveyed, as the transfer said, for no consideration. It was a gift, in favour of the bankrupt should he so desire (for there could be no doubt the trustee Paul Alvaro would have done whatever the bankrupt asked of him)." Of Sierra Avenue, the Official Trustee said :- "The Learned Judge rejected a resulting trust on the ground that it did not arise where the money was provided as a gift, and then applied in purchase. He applied the principles of advancement. The finding of gift begged the question. Every case of resulting trust may be characterised as a gift, and often is by those who seek to retain the property. The law implies a resulting trust not absolutely, but as a presumption which may be rebutted. If the money was a gift, no resulting trust arises whether the money follows a route through the beneficiary or goes directly to the vendor. The issue was whether it was a gift. The principle of advancement is no more than a presumption of gift where the money is advanced by a father to a son, daughter, or wife. It is rebuttable. The two principles work together. Their result is that in a case such as this, it is presumed the bankrupt advanced the money/land to Carmine unless the evidence rebuts it. The evidence will rebut it where it establishes a different motive for the payment, that being the intention to conceal assets belonging to the father/bankrupt under the son'[s name. Such is the case here. If established by cogent evidence, the presumption of advancement fails. There is cogent evidence where the father/bankrupt admits the property was acquired in the son's name pursuant to a scheme to defraud the Commissioner of Taxation by concealment of assets, or where other evidence establishes on the probabilities that it was done to defraud the Department of Social Security." (ii) Conclusion on the Appeals In Napier v Public Trustee (Western Australia) (1980) 32 ALR 153 Aickin J, in a judgment agreed in by Gibbs ACJ, Mason, Murphy and Wilson JJ, said (at 158) :- "The law with respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the casey may be. This proposition is subject to the exception that in the case of transfers to a wife or a child (including someone with respect to whom the transferor or purchaser stands in loco parentis) there is a presumption of advancement so that the beneficial as well as the legal interest will pass." (See also Calverley v Green at 246 - 247; Muschinski v Dodds (1985) 160 CLR 583 at 590, 598 - 599, 604, 612). The analysis of each of the transactions set out in these reasons denies the factual basis for the operation of the presumption of the creation of a resulting trust in favour of the relevant bankrupt. This is the view to which Heerey J came in his reasons for judgment set out above. In our opinion his Honour was correct. COSTS The arguments presented by the appellant to Heerey J were different to those presented on the appeals. They were substantially misconceived. Except in relation to the disposition of the right, title and interest in Itala Avenue by Giuseppe Alvaro the appellant is not entitled to a transfer of any of the properties themselves. Moreover, the appellant has achieved only limited success in relation to both applications. Bearing these matters in mind it seems to us that it would be unfair to order the respondents to pay the whole of the Official Trustee's costs. We think that, in Official Trustee v Giuseppe Alvaro the bankrupt and the trustee of the trust should be ordered to pay one-half of the Official Trustee's costs, both at first instance and on appeal. The Official Trustee should pay the costs incurred by respondents to that case who were successful in resisting the applications and were represented separately from the bankrupt; that is, Girolama Alvaro and Carmine Alvaro at first instance and Carmine Alvaro and Rita Alvaro on appeal. However, as Carmine Alvaro and Rita Alvaro are husband and wife and appeared to defend the same interest, their costs should be assessed on the basis of their being jointly represented. In the case of Official Trustee v Paul Alvaro, the Official Trustee obtains some relief by our orders. The it is a different form of relief than that sought before Heerey J and is limited in extent. In the circumstances, we think that there should be no order for costs at firs instance, as between the Official Trustee, the bankrupts and the trustee, but that the bankrupts and the trustee should pay thirty percent of the Official Trustee's costs of the appeal. Paul Alvaro Jnr, Elena Alvaro and Maria Concetta Alvaro have succeeded in resisting any orders in connection with the share allotment. It is not apparent to us that they incurred any costs, either at first instance or on appeal, that were not incurred in any event in connection with the representation of others. If they did, they should recover those costs from the Official Trustee. We will order accordingly. IN SG 85 OF 1994 THE COURT ORDERS THAT:

The appeal be allowed.

The orders made by Heerey J on 31 October 1994 be set aside and, in lieu thereof, it be ordered that: (a) a declaration be made that the transfer by Giuseppe Alvaro on 5 June 1981 of his right, title and interest in the house property at 18 Itala Avenue, Croydon Park, South Australia to Paul Alvaro as trustee of the Giuseppe Alvaro Family Trust is void as against the Official Trustee in Bankruptcy; (b) Paul Alvaro (as trustee of the Giuseppe Alvaro Family Trust) take all necessary steps and do all necessary things to enable title in the house property at 18 Itala Avenue, Croydon Park, South Australia to be transferred to the official Trustee in Bankruptcy as trustee of the bankrupt estate of Giuseppe Alvaro; (c) Giuseppe Alvaro and Paul Alvaro (as trustee of the Giuseppe Alvaro Family Trust) pay to the Official Trustee in Bankruptcy one half of the costs incurred by him in relation to the proceeding; and (d) the Official Trustee in Bankruptcy pay to Girolama Alvaro and Carmine Alvaro the costs incurred by each of them in relation to the proceeding.
Giuseppe Alvaro and Paul Alvaro (as trustee of the Giuseppe Alvaro Family Trust) pay to the Official Trustee in Bankruptcy one half of the costs incurred by him in relation to the appeal.
The Official Trustee in Bankruptcy pay to Carmine Alvaro and Rita Alvaro the costs incurred by them in relation to the appeal, such costs being assessed as if those two people were jointly represented on the appeal.
The parties have liberty to apply for any further orders or directions as may be required to give effect to these declarations and orders.

IN SG 86 OF 1994 THE COURT ORDERS THAT:

The appeal be allowed.
The orders made by Heerey J on 31 October 1994 be set aside and, in lieu thereof: (a) a declaration be made that: (i) the disposition of $35,750 made by Paul Alvaro on 30 November 1981 to P & R Alvaro Enterprises Pty Ltd is void as against the Official Trustee in Bankruptcy; (ii) the house property 14-16 Lombard Street, North Adelaide, South Australia, is charged with the payment to the Official Trustee in Bankruptcy of $35,750 plus interest at ten percent per annum from 2 December 1992; (iii) the disposition of $9,389 made by Paul Alvaro on 14 December 1983 is void as against the Official Trustee in Bankruptcy; and (iv) the house property at 630 Seaview Road, Grant, South Australia is charged with the payment to the Official Trustee in Bankruptcy of $9,389 plus interest at ten percent per annum from 2 December 1992; and (b) The Official Trustee in Bankruptcy pay to Paul Alvaro Jnr, Elena Alvaro and Maria Concetta Alvaro any costs incurred by them in the proceeding that are not costs that were incurred in connection with the representation of any other party.
Paul Alvaro, Rosina Alvaro and P & R Alvaro Enterprises Pty Ltd (as trustee of the Paul Alvaro Family Trust) pay to the Official Trustee in Bankruptcy thirty percent of the costs incurred by him in relation to the appeal.
The Official Trustee in Bankruptcy pay to Paul Alvaro Jnr, Elena Alvaro and Maria Concetta Alvaro any costs incurred by them in the appeal that are not costs that were incurred in connection with the representation of any other party.
The parties have liberty to apply for any further orders or directions as may be required to give effect to these declarations and orders.

I certify that this and the preceding One hundred and one (101) pages are a true copy of the reasons for judgment herein of their Honours Justices Wilcox and Cooper. Date: 22 May 1996 Associate

IN THE FEDERAL COURT OF AUSTRALIA) ) QUEENSLAND DISTRICT REGISTRY ) No. SG 85 of 1994 ) GENERAL DIVISION ) ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: THE OFFICIAL TRUSTEE IN BANKRUPTCY Appellant AND: GIUSEPPE ALVARO, GIROLAMA ALVARO, PAUL ALVARO, CARMINE ALVARO, COMBRAN PTY LTD, RITA ALVARO and MARIA CONCETTA ALVARO Respondents No. SG 86 of 1994 BETWEEN: THE OFFICIAL TRUSTEE IN BANKRUPTCY Appellant AND: PAUL ALVARO, ROSINA ALVARO, P & R ALVARO ENTERPRISES PTY LTD, PAUL ALVARO JNR, ELENA ALVARO and MARIA CONCETTA ALVARO Respondents JUDGES MAKING ORDER: Wilcox, Cooper and Moore JJ WHERE MADE: Sydney (Heard in Adelaide) DATE OF ORDER: 22 May 1996 REASONS FOR JUDGMENT MOORE J: I have read the comprehensive reasons for judgment of Wilcox and Cooper JJ and, save in relation to one matter, I agree with them. I agree with the orders they propose.

The point on which I am not in entire agreement is the use that could be made of the admissions of the bankrupts in the criminal proceedings. In issue is whether they can properly be treated as evidence against all parties or only the bankrupts. The admissions may be viewed in one of two ways. First as statements potentially probative in the proceeding generally of the intention of the bankrupts in relation to their acts though made some years after the acts themselves. The second is as admissions, in the sense of an out of court statement made by a party adduced to prove, as against that party, the truth of what was stated. As admissions in this sense the admissions in the criminal proceedings would be probative of the bankrupts' intention in relation to their earlier acts but as evidence against them only. If so, it would otherwise be inadmissible hearsay evidence in relation to other parties. However in R v Walton (1989) 166 CLR 283, which I discuss in detail shortly, there is to be found support for the view that in appropriate circumstances, a statement by a person about their state of mind is primary evidence of the person's state of mind if that is an issue in the proceedings. It is not hearsay. If the admissions are intended to be proof generally of the intention of the bankrupts, on one view of the present state of the authorities, the statements in the admissions evidencing intention are not admissible. That is because only statements of intention made at the time the act in question occurred, are admissible. Support for that approach is found in Phipson on Evidence, 14th Edition in para 16-02: "Whenever the physical condition, emotions, opinions and state of mind of a person are material to be proved, his statements indicative thereof made also or about the time in question may be given in evidence." However the compendious expression "physical condition, emotions, opinions and state of mind" comprehends a range of matters that might each warrant a different approach. Unaided by authority, it may be accepted that a statement made by a person about his or her state of mind at the time the statement is made is more likely to provide a useful and reliable means of proving the state of mind than any statement made some time later. A clear example would be a person's statement that, at the time the statement was made, they were angry. A statement made a month later that they were, at a point a month earlier, angry might be viewed as of little, if any, probative value. However can the same be said of a statement, and especially one against interest, made some years after the event concerning the purpose for which conduct of some moment was undertaken by a person. There is no reason readily apparent why the statement of a person, made months or even years after they entered a financial arrangement, that they intended to defraud the Commissioner of Taxation by the arrangement is, in character, any different to one made at the time the arrangement was entered. While it may be accepted that facts peculiar to a particular case might indicate otherwise, generally a person could be expected to retain a reliable recollection of the reason why they entered such a financial arrangement for some time, and probably some considerable time, after having done so. There is, of course, the possibility of concoction or fabrication if the statement is made some time after the event though that is improbable if the statement is against interest. Even if not, the possibility of concoction or fabrication might be viewed as a matter going to the weight of the evidence having regard to the subject matter of the statement and the circumstances in which it was made. In R v Walton (supra), The High Court had to consider the issue of both the proper characterisation of evidence of an out of court statement by a person about their state of mind and intention and the purpose for which such evidence might be admitted. That case concerned events quite different from the present. It concerned, relevantly, evidence in a murder trial of a statement by the deceased that a person, the accused, was on the phone and a statement made shortly before she was killed that she intended to meet the accused. The majority consisted of Wilson, Dawson and Toohey JJ, who gave a joint judgment, and Mason CJ. Though dissenting Deane J indicated he agreed with Wilson, Dawson and Toohey JJ in relation to one proposition relevant to this appeal. Mason CJ made plain his view at 288 and 289 that statements by a person about his or her intentions or state of mind may be admitted as original evidence to prove the intentions of the maker of the statement. The Chief Justice goes on to consider authorities concerning the probative effect of statements of immediate intention and the admissibility of express or implied assertions of fact in an out of court statement. That latter matter involved consideration of whether admissibility depended upon the statement having been made contemporaneously with the intended conduct or having been made spontaneously. Spontaneity and contemporaneity bear upon whether the hearsay element of an out of court statement might be admitted as proof of the truth of the fact asserted in the statement. These are issues somewhat removed from the issue in this appeal. It must be accepted however, that at 288.5 the Chief Justice appears to suggest that admissible is dependent upon contemporaneity even if intention is itself a fact in issue. However Wilson, Dawson and Toohey JJ deal directly with the issue relevant to this appeal. Their Honours said at 302: "Whilst it may be well established that statements will found an inference concerning a state of mind, there are relatively few reported cases on the subject and its limits have not been fully explored: see generally Cross on Evidence, 6th ed. (Cross and Tapper, 1985), pp. 465-475. It may be true in some cases to say that statements made by a person indicating his state of mind involve no element of hearsay. For example, in Hughes v. National Trustees, Executors and Agency Co. of Australasia Ltd. (53) evidence of statements by a testatrix about her sons misconduct was held to be admissible to prove her state of mind when making her will, but not to prove that the misconduct actually occurred because: "Such statements are not evidence of the facts they assert: they provide evidence only of the subjective attitude or beliefs of the testator or testatrix." (per Barwick C.J. (54))" Such is the case in this appeal. The fact in issue is the intention of the bankrupts. The admissions in the criminal proceedings are relevant to prove what motivated them to do what is otherwise proved by the evidence. That is, why they dealt in property in the way they did. I should add that Deane J says at 307: "In particular, I agree that evidence of a relevant out-of-court statement is admissible to prove the maker's knowledge or state of mind in a case where that knowledge or state of mind is itself a fact in issue..." In the above extract from their judgment Wilson, Dawson and Toohey JJ referred to Hughes v National Trustees Executors and Agency Company of Australasia Ltd (1979) 143 CLR 134. That case concerned the application of the Victorian testators family maintenance legislation, the Administration and Probate Act 1958 (Vic). A testatrix did not provide for her son in her will and he sought an order from the Supreme Court of Victoria that provision be made for him out of his mother's estate. The testatrix had made her will on 14 November 1973. She had, for a period ending in September 1973, lived with her son on a farm owned by her. Evidence was led at the trial of statements made by the testatrix in October 1973, sometime after October 1974 and in February 1975 about the circumstances in which she left the farm which involved the treatment of her by her son and his de facto wife. The evidence concerning the conversation sometime after October 1974 included evidence of a statement by the testatrix of the reason why she did not want her son to benefit from her estate. That plainly related to the reason why she had made the will in the terms she did in November 1973. A question arose as to whether the evidence of the statements of the testatrix could constitute proof of the events preceding and resulting in her leaving the farm. Gibbs J gave the leading judgment of the majority. Mason and Aickin JJ agreed with his reasons. Gibbs J said at 149: "To enable that question to be considered, it is necessary to decide what effect should be given to the evidence of the statements made by the testatrix as to the conduct of the appellant, and as to the reasons why she deprived him of any benefit under her will. It is clear that under the rules of the common law a statement by a testatrix that her son has been guilty of misconduct, and that for that reason she has excluded him from any benefit under her will, is not admissible to prove that the son was in fact guilty of misconduct. What the testatrix said about the son's conduct is hearsay, and no exception to the rule against hearsay which is recognised by the common law allows the statement to be given in evidence to prove the facts stated. Such a statement is admissible as original evidence to prove the knowledge, motive or other state of mind of the testatrix should that be relevant." His Honour later said at 152: "In my opinion consistently with principle it is impossible to treat a statement of this kind as evidence of the truth of the matters said. Unless the statement is admissible to prove that what was said was true, it cannot shift the onus of proof. It is admissible only to prove the reasons which actuated the testatrix in making her will." The High Court was not called upon to consider directly the relevance of the time which elapsed between when the will was made and when two of the testatrix's statements were made months later. Nonetheless the reasons of Gibbs J provide support for the view that had it been relevant, the evidence of the statements by the testatrix would have provided proof of the reasons why she made the will in the terms she did even though the statements were made up to fifteen months after the will was made. Indeed Gibbs J referred with apparent approval to the judgment of Taylor J in Pontifical Society for the Propagation of the Faith v Scales (1962) 107 CLR 9 at 24 in which Taylor J said: "The signed statement, itself, is no evidence of the truth of its contents (Re Richard Edward Jones (1); Re G Hall (dec'd) (2); and In the Will of Jolliffe (3)) though statements made by a testator in his lifetime may provide some evidence of the reason why he has disposed of his state in a particular way." (emphasis added) The principle that a statement by a testator of the reasons why a will was in particular terms is admissible evidence of intention, was not expressed to be dependant on the obvious fact that a testator is not in a position to give evidence of their state of mind. There is no binding authority to which we were referred which makes plain that statements of the type made by the bankrupts about the purpose of their conduct, should not be treated as primary evidence proving or tending to prove what they intended by that conduct. There are cogent reasons why they should which, in my opinion, should prevail in proceedings of this type where the bankrupts intentions are a critical issue and they may or may not be parties in the proceedings: see Noakes v J Harvey Holmes & Son (1979) 37 FCR 5, Re Manella; Ex parte Official Trustee in Bankruptcy (1989) 21 FCR 50, Northern Credits Pty Ltd v Peterson (1970) Tas SR 261. The admissions should, in my opinion, be treated as evidence against all parties. They constitute evidence of what the bankrupts intended when dealing with their income in the way referred to in the admissions including the purchase and improvement of the properties to which these proceedings relate. The weight to be given to that evidence is another matter. However, as Wilcox and Cooper JJ discuss, the admissions fall short of establishing the appellant's case and it is thus ultimately not material whether they fail to do so in relation to all or only some of the parties to the proceedings. I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Moore. Associate: ...................... Dated: 22 May 1996 APPEARANCES SG 85 of 1994: Counsel for the Applicant: D Meagher QC S Maharaj Solicitor for the Applicant: Australian Government Solicitor Counsel for Guisseppe Alvaro M L Abbott QC and Girolama Alvaro: H Patsouris Solicitor for Guisseppe Alvaro and Girolama Alvaro: Patsouris & Associates Counsel for Rita Alvaro L Powell QC and Maria Concetta Licari: V Condello Solicitor for Rita Alvaro: W A G Morris Pearce & Associates Solicitor for Maria Concetta Licari: Condello & Co Counsel for Carmine Alvaro: P N Waye Solicitor for Carmine Alvaro: P N Waye & Associates SG 86 of 1994: Counsel for Applicant: D Meagher QC S Maharaj Solicitor for Applicant: Australian Government Solicitor Counsel for Paul Alvaro, Rosina M L Abbott QC Alvaro, Paul Alvaro Jnr, Elena H Patsouris Alvaro & Maria Concetta Licari: Solicitor for Paul Alvaro, RosinaPatsouris & Associates Alvaro, Paul Alvaro Jnr, Elena Alvaro & Maria Concetta Licari: Counsel for Maria Concetta Licari: L Powell QC V Condello Solicitor for Maria Concetta Licari: Condello & Co Date of Hearing: 10 May 1995 Date of Judgment: 22 May 1996

Bankruptcy Act 1966(Cth)s 121, ss 5, 6, 121

Crimes Act 1914(Cth)s 86(1)(e)

Bankruptcy Act 1898(NSW)

Bankruptcy Act 1966 (Cth) ss 5, 6, 121 13 Eliz, c5 Conveyancing Act 1919 (NSW) s 37A Crimes Act 1914 (Cth) s 86(1)(e) Official Receiver v Barton (1983) 52 ALR 95 SS Hontestroom v SS Sagaporack (1927) AC 37 Abalos v Australian Postal Commission (1990) 171 CLR 167 Devries v Australian National Railways Commission (1993) 177 CLR 472 Warren v Coombes (1979) 142 CLR 531 Barton v Official Receiver (1984) 4 FCR 380 (FC); (1986) 161 CLR 75 (HC) Williams v Lloyd (1934) 50 CLR 341 Norgard v Rocom Pty Ltd (unreported, Federal Court of Australia (FC), 16 August 1990) Trautwein v Richardson [1946] ALR 129 In re Eichholz, decd [1959] 1 Ch 708 Barton v Vantrey Thuysen (1867) 11 Hare 126; 68 ER 1215 Jack v Smail (1905) 2 CLR 684 Union Trustee Co of Australia v Webb (1915) 19 CLR 669 Commissioner of Stamp Duties v Gale (1958) 101 CLR 91 Shaw v Forster (1872) LR 5 HL 321 In re Thackwray and Young's Contract (1888) 40 Ch D 34 Knight Sugar Co Ltd v Alberta Railway and Irrigation Co [1938] All ER 266 Svanosio v McNamara (1953) 96 CLR 186 Calverley v Green (1984) 155 CLR 242 Bloch v Bloch (1981) 55 ALJR 701; 37 ALR 55 Croton v The Queen (1967) 117 CLR 326 Catlin v Cyprus Finance Corporation (London) Ltd [1983] 1 QB 759 Re Marchiori (1983) FLR 290 Re Edelstein; Ex parte Donnelly (unreported, Federal Court of Australia, 9 June 1992, Northrop J) Morton v Morton [1937] P 151 Walton v The Queen (1989) 166 CLR 283 Dobson v Morris (1986) 4 NSWLR 681 Concrete Constructions Pty Ltd v Plumbers and Gasfitters Employees' Union (1987) 15 FCR 64 Shoshana Pty Ltd v 10th Cantanae Pty Ltd (1987) 18 FCR 285 Italiano v Barbaro (1993) 40 FCR 303

VALUABLE CONSIDERATION AND GOOD FAITH This element of s 121 of the Act was but faintly argued on the appeals. However it was addressed by Heerey J. In Official Trustee v Paul Alvaro, his Honour said (at p 44) :- "... I find that there was valuable consideration in the form of the loans. As to good faith, the relevant persons must be Mr and Mrs Alvaro in their capacity as directors of the Company. In the circumstances of this case, negating an intent to defraud creditors must lead to a finding of good faith. The question is whether the disponee is `privy to or party to the fraud of the debtor': Garuda at 528." Heerey J did not deal with the issue of valuable consideration and good faith in Official Trustee v Giuseppe Alvaro and it was not argued on the appeal in relation to Giuseppe Alvaro. The "loans" to which Heerey J referred are presumably the amounts credited to Paul Alvaro's loan account with the PAF Trust. It is unnecessary to determine whether these loans were real. At all relevant times Paul and Rosina Alvaro were the directors of the company and for present purposes its controlling mind. The transactions in issue were carried into effect by them. We have found that they made dispositions of property with an intent to defraud creditors. These factors lead to the conclusion that the company was fixed with notice of that fraudulent intent. The basis for such a conclusion appears in Re Rossfield Group Operations and Morton Holdings (ACT) Pty Limited [1981] QdR 372 where Connolly J said (at 377) :- "The next question is whether the information in question was within the knowledge of the respondent. I have already said that it is clear that the respondent was incorporated by the directors of A.M.H. for the purpose of countering the applicants' take-over by making the take-over offer which has given rise to these proceedings. The Part A statement which is here under attack describes the principal activity of the respondent as being to acquire and hold stock units in A.M.H. The plan was carried through by the directors as a body. To use the graphic phrase of Denning LJ in H L Bolton (Engineer) Co Ltd v T J Graham and Sons Ltd [1957] 1 QB 159 it was carried through by the brain and nerve centre of A.M.H., its directing mind and will. The knowledge which this directing mind had of the affairs of A.M.H. was essential to the only business for which the respondent was incorporated. Upon its incorporation they likewise became the brain and nerve centre, the directing mind and will of the respondent. There may well be situations in which it would not be right to impute to one company the knowledge which one or more of its directors happen to have by reason of his or their dealings with or position on the board of another company. That is not this case. Whether the theory to be applied be the organic theory or that of principal and agent, the result must in my judgment be the same. Both A.M.H. and the respondent have identical boards and knowledge of the affairs of A.M.H. is an essential function of board. I hold therefore that the information was within the knowledge of the respondent offeror. Cf. Universal Telecasters (Qld) Ltd v Guthrie [1978] 18 ALR 531 at p 535 per Bowen CJ; Tesco Supermarkets Ltd v Nattrass [1972] AC 153." (See also El Ajou v Dollar Land Holdings PLC [1994] 2 All ER 685 at 695 - 696, 705 - 706). The dispositions to the company cannot therefore be said to have occurred in good faith. It is not necessary to consider whether there was valuable consideration. To avoid the operation of s 121, the disposition must be for valuable consideration and in favour of someone, in this case the company, who acted in good faith (Official Receiver v Barton 52 ALR at 121). The dispositions by the bankrupts to the company are to be distinguished from the dispositions made to third parties. In particular, the solicitors to whom Paul and Rosina Alvaro paid the costs of acquisition (Tynte Street and Seaview Road) cannot be said to have taken those funds other than in good faith, it not being suggested otherwise. Those dispositions were dispositions of money to the solicitors in exchange for work of equal value. That is, they were made for valuable consideration. As such, they were not dispositions to which s 121 of the Act has any application. Dispositions of money made by Paul and Rosina Alvaro to the person or persons who undertook the improvements to Tynte Street are to be treated in like fashion. FORM OF RELIEF The form of relief to which the Official Trustee claimed to be entitled if successful on the appeals was a matter of much contention. The Official Trustee submitted that he was, assuming success, entitled to orders for the re-conveyance of the relevant properties to him to hold subject to any claim by any other person claiming an interest therein. This submission is misconceived having regard to the facts in relation to each of the properties. The submission depends upon findings that the relevant dispositions were of estates or interests in the properties. Except in relation to Itala Avenue, the dispositions made with the requisite intent were all of money. Section 121 operates upon the impugned dispositions so as to set them aside as against the Official Trustee. The property to which the Official Trustee is entitled, except in relation to Itala Avenue, is the money disposed of. 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. Thus, where there is a disposition of property to which s 121 of the Act applies, the title which the donee receives is a defeasible one (see Brady v Stapleton (1952) 88 CLR 332 at 332 - 335 per Dixon CJ and Fullagar J; Harrods Limited v Stanton [1923] 1 KB 516 at 520 - 521 per Bailache J; 521 per McCardie J). 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. If the property is sold and the proceeds of sale dissipated by the donee prior to defeasance the donee is not personally liable for the value of the property (Brady v Stapleton at 332 - 335). Upon defeasance, if the property remains in its original form or in some derivative form in the hands of the donee, title to the property revests in the trustee in bankruptcy and the donee thereafter continues to hold the property as trustee for the trustee in bankruptcy and will be ordered to do all necessary acts to revest the property in the trustee in bankruptcy. Once the property has revested, the donee thereafter becomes personally liable to account for the property and any profits made by or from the use of that property since the time of revesting of the property. Thus, if the property comprises a money sum on deposit in a bank account earning interest the donee would not be liable for or be required to pay over interest earned prior to defeasance. On defeasance the beneficial interest in the chose in action being the debt owed by the bank to the donee equivalent to the amount of the money on deposit (Croton v The Queen at 330 - 331) would vest in the trustee in bankruptcy and the donee would be required to pay over or would be liable to the trustee for any interest earned from the date of defeasance. Where there has been a disposition of property and that property has not been retained but has been transformed into other identifiable property or mixed with the property of a third party, the court will allow a remedy against the identified specific property in order to give the trustee in bankruptcy an effective remedy upon the avoidance of the original disposition of property (In re Mouat; Kingston Cotton Mills Company v Mouat [1899] 1 Ch 831 at 834 - 835; Trautwein v Richardson at 130, 132, 133). The decision in In re Mouat demonstrates that although the avoidance of the disposition brought about by s 121 of the Act and its predecessors is a legal remedy, the courts will grant equitable relief to make good the remedy. (See May on Fraudulent and Voluntary Dispositions of Property, 3rd ed, (1908) at 306 - 307). Where the property has altered in form, but remains in the hands of the donee, equity will allow the trustee in bankruptcy to claim the property in its altered form as property to which it is entitled, the original disposition by the bankrupt being void as against the trustee. Where the property has been mixed with property of another person so as to constitute a mixed asset or a mixed fund it becomes necessary to look to equity in order to determine how the interest of the persons whose property has come into the mixed fund are to be ascertained and provided for.

Official Receiver v Barton

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