REASONS FOR JUDGMENT
WHITLAM & JACOBSON JJ:
Introduction
6 This is an appeal from a judgment of Moore J given on 19 July 2002 in which his Honour set aside a notice under s 139ZQ of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act"). The notice claimed the sum of $81,387 from the respondent, Mrs Margaret Grace Lopatinsky or, in the alternative, the transfer to the appellant ("the Trustee") of a 30.71% interest in a property at Padstow Heights owned by Mrs Lopatinsky.
7 The amount which the Trustee claimed in the notice was an amount which the Trustee contended that Mrs Lopatinsky's former husband, Mr Wladimir Lopatinsky was entitled to receive as part of his share of the proceeds of sale of the former matrimonial home at 15 Peake Parade, Peakhurst.
8 Settlement of the sale of the Peakhurst property took place in October 1999. The property was registered in the name of Mr and Mrs Lopatinsky as joint tenants. The sale took place approximately 18 months before the date of Mr Lopatinsky's bankruptcy. By an informal agreement made between Mr and Mrs Lopatinsky, on settlement Mrs Lopatinsky received $81,387 more than she would have been paid out of the net proceeds if the funds were divided equally between the joint proprietors.
9 The Trustee claimed that Mrs Lopatinsky gave no consideration for the "transfer" to her of the sum of $81,387 or alternatively that she gave consideration which was less than the market value of the sum "transferred" to her. Accordingly, the Trustee claimed that the payment of that sum to Mrs Lopatinsky was a void transfer under s 120 of the Bankruptcy Act. The notice under s 139ZQ also referred to s 121 of the Bankruptcy Act but the Trustee did not rely on that section on appeal.
10 Mrs Lopatinsky received approximately 81% of the net proceeds of sale of the Peakhurst property. Thus, she received approximately 31% more than she would have been paid if the sale proceeds were divided equally. Mrs Lopatinsky used the amount of her sale proceeds to purchase a town house in her own name at Padstow Heights. The Trustee's claim in the alternative, for a 31.7% interest in that property was, in effect, a claim to trace the "void" disposition under s 120 to the replacement property.
11 There were two issues before the primary judge. The first issue was whether by reason of the principles laid down in cases such as Baumgartner v Baumgartner (1987) 164 CLR 137 ("Baumgartner") and Calverley v Green (1984) 155 CLR 242 ("Calverley v Green") Mrs Lopatinsky held an equitable interest in the Peakhurst property equal to at least an 81% share such that there was no "transfer" to her on which s 120 of the Bankruptcy Act could operate.
12 The second issue was whether, assuming there had been a transfer, Mrs Lopatinsky had given no consideration or had given consideration of less than the market value of the property.
13 The primary judge proceeded upon the basis that it was appropriate to consider the second issue first. His Honour found at [42] that Mrs Lopatinsky gave consideration for the transfer in the form of a forbearance to sue under s 79 of the Family Law Act 1975 (Cth) ("the Family Law Act") for an adjustment of property rights to reflect her contribution to the acquisition of the property and to the welfare of the marriage.
14 His Honour also found, at [41] and [49] that the value of the consideration was not less than the market value of the additional amount that Mrs Lopatinsky received from the sale proceeds in October 1999, that is to say the sum of $81,387.
15 Accordingly, the primary judge found that the claim under s 120 of the Bankruptcy Act failed and he set aside the s 139ZQ notice; at [49] and [50].
16 His Honour considered that the decision which he reached was supported by one aspect of the decision of Tamberlin J in Mateo v Official Trustee in Bankruptcy (2002) 117 FCR 179. In that case, Tamberlin J held that a wife's contribution to the "joint enterprise" of the marriage provided consideration of not less than the market value of the property which was transferred to her by her husband pursuant to consent orders made by the Family Court.
17 Tamberlin J's decision has recently been upheld by a Full Court; see Official Trustee in Bankruptcy v Mateo [2003] FCAFC 26 ("Mateo") per Wilcox, Branson and Merkel JJ. However, the grounds upon which the decision at first instance were upheld were quite different from those which were given by Tamberlin J. The remarks of the Full Court on the appeal are of significance to the questions which have been raised before us.
18 The Trustee appeals against the primary judge's judgment on two main grounds. First, the Trustee contends that it was not open to the primary judge to find on the evidence that Mrs Lopatinsky had agreed to compromise her claims under the Family Law Act. Secondly, the Trustee submits that even if there was an implied forbearance to sue by Mrs Lopatinsky, any such promise was worthless because there were no consent orders entered under s 79 of the Family Law Act and her agreement was not approved under s 87 of the Family Law Act.
19 In view of the finding made by the primary judge as to the value of the consideration given by Mrs Lopatinsky, his Honour did not consider it necessary to determine the question of whether Mr Lopatinsky held an equitable interest in the property on trust for his wife such that there was no transfer of the property in accordance with s 120 of the Bankruptcy Act. However, counsel for Mrs Lopatinsky filed a notice of contention in order to agitate this issue on appeal.
The Legislation
20 The relevant subsections of section 120 of the Bankruptcy Act provides as follows:-
"(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if:
(a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b) the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
…
(3) Despite subsection (1), a transfer is not void against the trustee if:
(a) the transfer took place more than 2 years before the commencement of the bankruptcy; and
(b) the transferee proves that, at the time of the transfer, the transferor was solvent.
(4) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
(5) For the purposes of subsections (1) and (4), the following have no value as consideration:
(a) the fact that the transferee is related to the transferor;
(b) if the transferee is the spouse or de facto spouse of the transferor - the transferee making a deed in favour of the transferor;
(c) the transferee's promise to marry, or to become the de facto spouse of, the transferor;
(d) the transferee's love or affection for the transferor.
…
(7) For the purposes of this section:
(a) transfer of property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer."
21 Section 139ZQ of the Bankruptcy Act permits the Official Trustee in Bankruptcy to issue a notice to a person who has received money or property as a result of a transaction that is void against the Official Trustee under s 120 (or the other provisions of Division 3) requiring that person to pay to the Official Trustee an amount equal to the money or the value of the property received.
22 Section 139ZS (1) of the Bankruptcy Act confers power on the Court to set aside a notice under s 139ZQ if the Court is satisfied that the transfer was not void.
23 The principal sections of the Family Law Act which need to be considered are ss 79 and 87. However, a number of other sections also bear upon the issue of whether there was an effective forbearance.
24 Section 72 of the Family Law Act provides that a party to a marriage is liable to maintain the other party to the extent that the other party is unable to do so having regard to the factors referred to in s 75(2). It is unnecessary for the purposes of this matter to set out those factors.
25 Section 74 of the Family Law Act confers power on the Family Court to make such order as it considers proper for the provision of maintenance by one party to a marriage to the other.
26 Section 79(1) of the Family Law Act provides that the Family Court may make such order as it considers appropriate altering the interests of the parties in their property including an order for a settlement of property in substitution for any existing interest.
27 The Family Court's power to make an order under s 79(1) arises only where it is just and equitable to do so; see s 79(2) of the Family Law Act.
28 Section 79(4) of the Family Law Act provides as follows:-
"In considering what order (if any) should be made under this section in proceedings with respect to any property of the parties to a marriage or either of them, the court shall take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them;
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them;
(c) the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent;
…"
29 There are other factors referred to in s 79(4)(d) to (g) but they are not relevant to these proceedings.
30 Section 79A of the Family Law Act provides that the court may vary or set aside an order made under s 79 where, on an application made by a person affected by the order, the court is satisfied that, inter alia, there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence, the giving of false evidence or other circumstances in relation to the making of the order. The court may also vary or set aside the order under this section in a number of other specified circumstances including circumstances of an exceptional nature arising since the making of the order and which relate to the welfare of a child of the marriage.
31 Section 87(1) of the Family Law Act provides that the parties to a marriage may make provision in a maintenance agreement in relation to "financial matters" in substitution for any rights they may have under that Act for maintenance or adjustment of property rights. As at October 1999, s 87(2) of the Family Law Act provided that any such agreement had no effect and was not enforceable unless it had been approved by the Family Court. Since December 2000 any such agreement is required to be certified under Part VIIIA of the Family Law Act.
The Facts
32 Mrs Lopatinsky met her future husband in 1979 on a Soviet cruise ship. It appears that he was at the time a citizen of the Soviet Union. Mrs Lopatinsky sponsored Mr Lopatinsky's migration to Australia and they were married in September 1979.
33 The effect of Mrs Lopatinsky's evidence, which the primary judge accepted, was that throughout the marriage Mr Lopatinsky had considerable difficulty holding employment. He had numerous different jobs but remained in each of them for relatively short periods of time. He was unemployed for substantial periods.
34 By contrast, Mrs Lopatinsky was in paid employment for most of the time during which the couple were married. There were three children of the marriage who were born in 1982, 1984 and 1989. Mrs Lopatinsky was out of the paid workforce from about the time of the birth of the first child in late 1982 until about 1985. Otherwise she was employed in a secretarial capacity.
35 Moreover, Mrs Lopatinsky made a very substantial financial contribution toward the acquisition of the couple's first matrimonial home which was purchased in 1981 and which was then sold in 1988 with the proceeds being used to acquire the Peakhurst property.
36 The first home was situated at Warialda Street, Kogarah. The purchase price was $62,000. Mr and Mrs Lopatinsky took title as joint tenants. $45,000 of the purchase price was supplied by a loan from a building society which of course advanced the funds on the security of a mortgage on which Mr and Mrs Lopatinsky were jointly and severally liable. Mrs Lopatinsky had intended to purchase the property as sole proprietor but the mortgagee required further security for its advance, namely, a personal covenant by Mr Lopatinsky to repay the sum borrowed. Accordingly, the property was conveyed to Mr and Mrs Lopatinsky as joint tenants.
37 The balance of the purchase price of the Kogarah home, namely $17,000, was supplied solely by Mrs Lopatinsky. That sum was comprised of $12,000 which was given to Mrs Lopatinsky by her parents and $5,000 which she obtained from the sale of her car.
38 Mrs Lopatinsky made other financial and non-financial contributions toward the improvement of the Kogarah property. Her parents lent her $3,500 to help pay for the renovations to the property. The renovations took place during the period when Mrs Lopatinsky was out of the work force in about 1982 to 1984 and she supervised the renovations which were extensive.
39 The Kogarah property was sold in 1988 for $123,000. Mr and Mrs Lopatinsky received approximately $82,000 net from the sale proceeds which they applied toward the purchase of their new home at Peake Parade, Peakhurst. They took title to the Peakhurst property as joint tenants. The purchase price was $127,000. The balance of the purchase price was obtained by way of a loan of $45,000 secured on a mortgage in the usual way.
40 Shortly after October 1993, the loan of $45,000 was refinanced. As part of the refinancing Mr and Mrs Lopatinsky borrowed an additional $20,000 taking the total sum secured on mortgage to approximately $65,000 (without allowing for any reduction of principal which had taken place since 1988). The further borrowing was applied to the construction of another bedroom at the Peakhurst property.
41 The primary judge made the following finding at [27] about Mrs Lopatinsky's contribution to the mortgage payments:
"While the evidence adduced by the Trustee casts some doubt on the evidence of the applicant about her contribution to the mortgage repayments, I am not affirmatively satisfied that she did not make such payments. A basis for not accepting her evidence has not been made out."
42 The effect of Mrs Lopatinsky's evidence as to her contribution to the acquisition of the matrimonial property and the welfare of the family was summarised in the following finding made by the primary judge at [41]:-
"The applicant's evidence, which was largely uncontested, indicates that she provided the initial funds for the couple's first home, supported the couple financially in the early years, continued to keep the couple afloat financially with her social security payments, financial assistance from her parents and salary from part-time work and provided much of the equipment and secretarial work for the bankrupt's failed import-export business. She also raised the couple's children, completed or oversaw extensive renovations on the couple's first home and attended to other household duties. Meanwhile the bankrupt had difficulty holding down employment and had a propensity to squander funds for his sole benefit."
43 In September 1998 Mrs Lopatinsky decided to separate from her husband. The mortgage on the Peakhurst property was then many months in arrears. Mrs Lopatinsky's wages were at that time sufficient only to cover household expenses. She decided that they needed to sell the property and persuaded Mr Lopatinsky to agree.
44 In December 1998 Mrs Lopatinsky instructed a firm of solicitors to prepare contracts for the proposed sale of the property. It seems likely that her decision to separate from Mr Lopatinsky had not then been finalised because her letter was written on joint letterhead and stated "we will be purchasing another property and would be pleased if you could act on this purchase .. ."
45 Contracts for sale of the Peakhurst property were not exchanged until the following year. On 14 August 1999 contracts were exchanged for a sale price of $330,000.
46 At about the time of the exchange of contracts a conversation took place between Mr and Mrs Lopatinsky about the division of the sale proceeds. His Honour referred to this at [22]. The full conversation was deposed to by Mrs Lopatinsky as follows:-
"I said to Wladimir words to the following effect:
'We have to decide how to divide the proceeds of sale. The mortgage is six months in arrears and there are legal fees and real estate agent's commission to be paid.'
He said to me words to the effect:
'Take whatever money is necessary to purchase something for the children to live in. I know that you will be fair. I just need enough to pay out the lease agreement on the commercial van and my debts. Remember, too, that I am still in partnership with my father. Agency Services remains on the title of four properties in Le Havre. Eventually they will form part of my father's estate and they will be worth a lot of money.'"
47 This was the only direct evidence of any conversation between Mr and Mrs Lopatinsky as to how the proceeds of sale would be divided. Indeed, it was the only direct evidence of their agreement and the terms of it.
48 On 2 September 1999, Mr and Mrs Lopatinsky wrote to their solicitor about the sale. The letter was written in the first person but it was signed by both of them. It was as follows:-
"Re: Sale property 15 Peake Parade Peakhurst
Further to our telephone conversation today I wish to confirm the final arrangements for settlement proceeds on the above sale.
Sale Price $330,000.00
Less monies payable to Wladimir Lopatinsky $ 50,000.00
$280,000.00
Less Final discharge of mortgage to Westpac $ 57,000.00
(approximate)
Less agents Commission on sale $ 9,500.00
Less legal fees and disbursements $ to be advised
The balance of monies to be paid to Margaret Lopatinsky on settlement.
Thank you for acting on this sale."
49 Settlement of the sale of the Peakhurst property took place on 1 October 1999. The net proceeds of sale after discharge of the mortgage and other expenses amounted to $262,774. Pursuant to their oral agreement as confirmed in the letter of 2 September 1999, Mr Lopatinsky received $50,000 and the balance of approximately $212,000 was paid to Mrs Lopatinsky.
50 If the proceeds of sale had been divided equally, according to the prima facie position between them at law, Mr and Mrs Lopatinsky would each have received $131,387, see Fodare Pty Limited v Official Trustee in Bankruptcy [2000] FCA 1388 at [20] - [21] per Lehane, Hely and Conti JJ. On that basis, without consideration of the position in equity, Mr Lopatinsky received $81,387 less than his legal interest and Mrs Lopatinsky received that sum in excess of an equal division.
51 Mr Lopatinsky signed an acknowledgment for receipt of his cheque for $50,000 on a file memo prepared by an employee of the solicitors for Mr and Mrs Lopatinsky. The memo included the following:-
"After settlement could you please give Mr Lopatinsky a call on [mobile number as supplied] as he will want his cheque coming from the settlement. This is a matrimonial split and we are acting for the wife."
52 As his Honour observed, at [24] it was not suggested by the Trustee that when the sale proceeds were divided, Mr Lopatinsky was insolvent or that the unequal division of the money was designed to avoid Mr Lopatinsky's present or foreseeable obligations to creditors.
53 At about the same time, other property of the marriage was divided between Mr and Mrs Lopatinsky. It is unnecessary to record the details.
54 Earlier, on 1 September 1999, Mrs Lopatinsky entered into a contract to purchase, as sole purchaser, a property at Villiers Road, Padstow Heights. The purchase price of the property was $265,000. Settlement took place in October 1999. Mrs Lopatinsky applied the whole of the sum of $212,000 received from the sale of the Peakhurst property to the purchase of the Padstow Heights town house. The balance, including stamp duty and incidentals, was supplied by a bank loan of $21,000 and a $40,000 gift from Mrs Lopatinsky's parents.
55 On 3 April 2001, Mr Lopatinsky was made bankrupt on his own petition. The debts listed in the list of unsecured creditors in his statement of affairs were all incurred after October 1999.
56 On 30 April 2001, Mrs Lopatinsky applied to the Family Court for an order of dissolution of her marriage. The order was made on or about 31 July 2001. Mrs Lopatinsky did not apply for an adjustment of property rights under s 79 of the Family Law Act.
57 Shortly before the marriage was dissolved, on 8 June 2001, the Trustee gave the notice to Mrs Lopatinsky under s 139ZQ of the Bankruptcy Act to which we have already referred.
58 On 26 September 2001, Mrs Lopatinsky applied to the Court under s 139ZS of the Bankruptcy Act to set the notice aside.
The decision of the primary judge
59 It was common ground before his Honour that the Trustee had the onus of proving that there was no consideration given by Mrs Lopatinsky or that the value of the consideration which she gave was worth less than $81,387; see at [34] of the primary judge's decision.
60 His Honour considered that Mrs Lopatinsky's claim was covered by one aspect of the decision of Tamberlin J in Mateo v Official Trustee in Bankruptcy (2002) 117 FCR 179 at [30] to [33]. That was not a case of an express or implied forbearance to sue. Instead, there were consent orders made and entered under s 79 of the Family Law Act which provided for, inter alia, the transfer of the matrimonial home. The orders provided that upon the husband executing the transfer, the wife was to pay the husband a sum which appears to have been well below the market value of the husband's interest.
61 The Official Trustee in Bankruptcy issued a notice to Mrs Mateo under s 139ZQ of the Bankruptcy Act upon the ground that the transfer was void under ss 120 and 121.
62 The primary judge set out the following paragraphs from Tamberlin J's judgment in cf [2002] FCA 344:-
"[30] Evidence has been given by Ms Mateo in relation to extensive unremunerated work carried out by her in the home for the material benefit of herself and her husband during the approximate 27 years that she and her husband lived together and the raising of the children. She has also given evidence as to mortgage payments having been met by her and rates having been paid by her over a period of 19 months, which together amount to $11,037. I accept that these payments were made by her.
…
[32] On the evidence, I am not persuaded that, taking into account the wife's contribution and work in the joint enterprise, comprised by the marriage and bringing up of a family, that the consideration for the transfer of the husband's interest in the property, was of less value than the market value of the interest transferred to her: cf Re Sabri; Ex parte Brien v Sabri (1996) 137 FLR 165 at 181-182. If account is taken of the duration of the marriage and the number of hours which she said she worked in caring for the children and in and around the home over the 27 years of marriage for approximately 35 hours per week, I am not satisfied that the consideration given by her was of less value than the market value of the property. Indeed, even allowing a minimal amount per hour for the amount of work carried out by her, the value of the work would far exceed the fair net market value of the interest she received after taking into account the outstanding debts and charges."
63 Re Sabri, to which Tamberlin J referred, was a decision of Chisholm J. Consent orders were made by the Family Court for the transfer to the wife of the husband's interest in a home. His Honour held that the transfer was not void against the trustee in bankruptcy under the predecessor of the current s 120. His Honour found that the transfer was part of an overall adjustment of the property of the parties which was accepted by the Court when the consent orders were made as a just and equitable resolution of their financial affairs.
64 The primary judge rejected the Trustee's submission that Mateo was distinguishable; see at [40]. He found, at [41], that the payment was made "to settle matters" between the parties and that there was implied in the settlement a forbearance to make a claim against Mr Lopatinsky under the Family Law Act.
65 His Honour made the following important finding at [41]:-
"Although no attempt has been made to quantify with precision the value of the applicant's contribution to the marriage and the matrimonial property, I am satisfied that its value is not less than (and may well have exceeded) the market value of the amount she received in October 1999. At the very least, the Trustee has been unable to demonstrate that it was not."
66 His Honour also made findings as follows:-
"The transfer was effected as part of a settlement of the rights of the applicant and the bankrupt on the failure of their marriage. In that sense, the amount received by the applicant was consideration for the agreement struck between the applicant and the bankrupt concerning their respective rights and interests in the property they jointly owned and in satisfaction of a claim she might otherwise have against the bankrupt. (at [42])
…
They had separated and it was not suggested to the applicant in cross examination that the separation was not a bona fide reflection of the state of their relationship and that it had come to an end. I infer that the bankrupt made the offer because he was settling, in a general sense, with his wife following the failure of their marriage in relation to all the matrimonial property. It is to be recalled that the bankrupt told the applicant she could take whatever money was necessary to purchase something for her and the children to live in and that he believed she would be fair. I also infer from these remarks of the bankrupt, having regard to the context in which they were made, that his offer was in recognition of the applicant's contribution to the family and the property they jointly owned as well as her future needs in raising their children, and an acceptance that a fair distribution of that property would result in her receiving a disproportionately large sum of the proceeds of the sale. The bankrupt was not called to give evidence to suggest the arrangement they reached was for any other purpose or on any other basis. Nor was evidence led to show that there was property in existence in October 1999 in which the bankrupt had an interest which was excluded from the arrangement arrived at between the bankrupt and his wife." (at [43])
67 In coming to the view that there was a forbearance to sue which provided consideration for the payment to Mrs Lopatinsky, the primary judge referred to English and Australian authority that the settlement of a matrimonial cause which carries with it an implied forbearance to sue constitutes good consideration. The authorities included Wigan v English & Scottish Law Life Assurance Association [1909] 1 Ch 291; In Re Pope; Ex parte Dicksee [1908] 2 KB 169 ("In Re Pope"); and Re Abbott (a bankrupt); Ex parte the trustee of the Property of the bankrupt v Abbott [1983] Ch 45 ("Re Abbott").
68 His Honour concluded with the following remarks in the penultimate paragraph, at [49]:-
"On the approach adopted by Tamberlin J in Mateo, the applicant's rights had a value equal to or exceeding the amount she received, or at the very least, the Trustee has not demonstrated they did not. They are rights she has refrained from asserting in the legal proceedings. By not pursuing the matter under the Family Law Act 1975 (Cth) the applicant has provided consideration supporting the transaction in October 1999, which the Trustee now challenges. On this basis the claim made under s 120 fails."
The Decision of the Full Court in Mateo
69 The decision of the Full Court was handed down on 28 February 2003. Although Tamberlin J decided the matter under ss 120 and 121 of the Bankruptcy Act, the Official Trustee did not pursue s 120 on the appeal.
70 Section 121(1) of the Bankruptcy Act provides that a transfer of property by a person who later becomes bankrupt is void against the Trustee in Bankruptcy if the transferor's main purpose was to prevent or to hinder or delay the process of making property available for division amongst the transferor's creditors.
71 Section 121(2) states that the transferor is taken to have the proscribed purpose if it can reasonably be inferred from all the circumstances that at the time of transfer the transferor was insolvent.
72 However, there is an exception to this in s 121(4) which provides in s 121(4)(a) that the transfer is not void if "the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property." It will be observed that this language is similar to the second limb of s 120(1)(b) of the Bankruptcy Act.
73 There are other similarities to s 120. First, s 121(5) corresponds to s 120(4) and requires the Trustee to pay to the transferee an amount equal to the value of the consideration that the transferee gave for the transfer.
74 Second, s 121(6) corresponds with s 120(5). It provides that, for the purpose of ss 121(4) and 121(5), the matters set forth in s 121(6)(a) to (d) have no value as consideration. Those matters are identical to s 120(5)(a) to (d).
75 Third, s 121(9), which, inter alia, contains an inclusive definition of "transfer of property" and a partial definition of "market value", corresponds with s 120(7).
76 All of the members of the Full Court were of the view that where a consent order is made under s 79 of the Family Law Act, the transfer of property takes place pursuant to the order of the Court; see per Wilcox J at [64], per Branson J at [104] and per Merkel J at [133]. Thus, as a matter of construction of s 121, there can be no "transfer of property by a person who later becomes a bankrupt."
77 Nevertheless, it is to be noted that Wilcox J made a number of observations about the decision of Tamberlin J which have a bearing on the appeal in the present case. First, as Wilcox J observed at [64], if an order under s 79 of the Family Law Act was a transfer of property by a person who later became bankrupt, it would be difficult to determine under s 121(4) whether the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property. This is because the criteria for an order under s 79 of the Family Law Act are not dependent upon "value" or "market value" since the criteria for the making of an order include non-financial contributions to the acquisition, conservation and improvement of the property and the welfare of the family.
78 As Wilcox J said at [65]:-
"The problems inherent in such an assessment are illustrated by Tamberlin J's reasons in this case. First, it is not really possible to relate the value of non-financial contributions to the market value of a property interest. Recognising this, Tamberlin J did not attempt to assign a money value to Mrs Mateo's contributions. He simply made a value judgment that the benefits taken by Mrs Mateo under the consent orders were not disproportionate to the contribution she had made to the parties' fortune and family welfare. That may well have been so; but the question under s 121(4)(a) was whether the "consideration" given by Mrs Mateo "for the transfer" (that is, in exchange for the transfer) was as "valuable" (worth as much money) as the property."
79 The second difficulty is, as Wilcox J observed at [66], that the issue of the value of contributions is to be determined at a time when the marriage has come to an end and any contributions to the marriage were made in the past. His Honour pointed out that past consideration is, generally speaking, no consideration. Although there are exceptions to this, the exceptions depend upon there being an express or implied promise to pay which could not be found in the facts of the case.
80 An answer to this conundrum could not be found, for the purposes of s 121(4)(a), in the proposition that there was present consideration in Mrs Mateo's consent to the making of the orders. Wilcox J noted at [67] that there may have been consideration in terms of contract law but the issue under s 121(4)(a) was not whether there was consideration given by the transferee but whether the consideration was at least as valuable as the market value of the property.
81 Wilcox J at [68] went on to make the following remarks about the approach taken by Tamberlin J in a passage which Moore J relied upon in coming to his views in the present proceedings:-
"Tamberlin J's reasoning in relation to the s 121(4)(a) issue (although stated in reference to s 120) was set out in para 32 of his reasons. The paragraph reads like reasons for judgment in a disputed application for an order under s 79 of the Family Law Act; except, importantly, that it did not commence with a determination as to the value of the net assets of Mr Mateo, after deducting his liabilities. As I have said, his Honour made a value judgment that the benefits taken by Mrs Mateo under the consent orders were not disproportionate to the contribution she had made to the parties' fortune and family welfare. That exercise involved his Honour second-guessing the Family Court's judgment about the same matter. Although the orders were made with the consent of both Mr and Mrs Mateo, the Family Court, itself, had to address the issue of their fairness. As already noted, s 79(2) of the Family Law Act instructs the Family Court "not to make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make an order". For the reasons explained [in earlier decisions of this Court], it was inappropriate for this Court to put itself in the position of second-guessing the Family Court's assessment of what was just and equitable, as between Mr and Mrs Mateo; or even of seeming to do this."
82 Branson J expressed similar views. Her Honour said at [108]:-
"The complexity of the factors to which the Family Court must have regard before making an order, even a consent order, under s 79(1) of the Family Law Act renders the notion of the identification of the value of the 'consideration' given by a party to a marriage for any aspect of that order unrealistic. Moreover, as Wilcox J has pointed out, it is likely that the term 'consideration' is used in s 121(5) of the Bankruptcy Act in the common law contractual sense with the result that any 'past consideration' is to be disregarded."
83 It is plain that Wilcox J and Branson J disagreed with the approach taken by Tamberlin J to the question of what constituted the consideration for the transfer and the way in which it was to be valued. Merkel J did not deal with this issue.
84 What underlies the judgments of all the members of the Full Court is that, in future cases, where the Official Receiver wishes to recover any benefits taken by the non-bankrupt spouse under s 79 orders, the appropriate course will be for the Official Receiver to make an application under s 79A of the Family Law Act to vary or set aside the consent orders upon the ground that there has been, inter alia, failure to disclose relevant material to the Family Court; see at [70] per Wilcox J; at [104] per Branson J and [146] per Merkel J.
85 The significance of the decision of the Full Court for the purpose of the present appeal is that an informal agreement which does not even include a provision for the entry of consent orders cannot on any view provide consideration which the Court can value. We will deal with this further in our consideration of the appeal below.
Decision on s 120 of the Bankruptcy Act
86 The current form of this section was enacted by amendments passed in 1996. The predecessor of the current provision dealt with void "settlements" of property. A settlement, not being one which was made "before and in consideration of marriage" or in favour of a "purchaser … for valuable consideration", was void if the settlor became bankrupt and the settlement came into operation after or within two years before the commencement of the bankruptcy.
87 The 1996 amendments replaced the concept of a "settlement" with the term "transfer". There was no exception for a purchaser for valuable consideration. Indeed, the term "valuable consideration" did not appear in the amendments. Instead, the new section focuses in s 120(1)(b) on whether the transferee gave "no consideration" or, if "consideration" was given for the transfer, whether it was less than the market value.
88 The Explanatory Memorandum to the Bankruptcy Legislation Amendment Bill 1996 stated, at [84.13] that the requirement that the consideration given by a transferee be at least equal to the market value was intended to overcome the decision of the High Court in Barton v Official Receiver (1986) 161 CLR 75 ("Barton"). A reference to that case is of assistance in construing the current provision.
89 The Court in Barton (Gibbs CJ, Mason, Wilson and Dawson JJ) held that a purchaser for valuable consideration under the then existing provisions of s 120(1)(a) of the Bankruptcy Act was a person who had given consideration for the purchase which was of real and substantial value and not consideration which was merely nominal, trivial or colourable.
90 In coming to this view the Court reviewed a body of English authority dealing with the construction of a similar provision which had appeared in English bankruptcy legislation dating back to 1869. The effect of those authorities was that the consideration given need not equal the value of the assets acquired but that a "quid pro quo" must be provided; see for example, In Re Pope and Re Abbott, both of which were cited and considered by the Court at 82-85.
91 The authorities to which their Honours referred stated that the purpose of the provision was to prevent properties from being put into the hands of relatives to the disadvantage of creditors; see for example, Ex parte Hillman; In re Pumfrey (1879) 10 Ch D 622; In re a Debtor; Ex parte Official Receiver v Morrison [1965] 1 WLR 1498; In re Windle [1975] 1 WLR 1628. Those authorities also stand for the proposition that the words of the section were to be construed in the sense that commercial people would understand them.
92 The purpose of the existing s 120 is no different from its predecessors here and in the United Kingdom. Relevantly, it is to prevent properties, including the matrimonial home, from being transferred to related parties to the disadvantage of the bankrupt's creditors. Disadvantage will occur if the property is transferred for no consideration or for less than market value. Thus, unlike its predecessor, the existing section requires the Court to determine the value of the consideration given; see Victorian Producers' Co-operative Co Ltd v Kenneth [1999] FCA 1488at [11] per Merkel J.
93 In carrying out this task, the Court is to treat as having "no value as consideration" the matters referred to in s 120(5)(a) to (d). Some of them, such as a promise to marry, would have been recognised as "valuable consideration" under the previous enactment; see Official Trustee in Bankruptcy v Mitchell (1992) 38 FCR 364.
94 There is nothing in s 120(5) to suggest that the Parliament intended that the term "consideration" in s 120(1)(b) is to be read in anything other than its legal sense. Plainer words would have been required; see Official Trustee in Bankruptcy v Mitchell at 368. Moreover, it would be inconsistent with the observations of Wilcox J and Branson J in Mateo to proceed upon the basis that "consideration" could be something less than the ordinary legal and commercial understanding of that term. Indeed, it would be inconsistent with the statutory purpose of the section which is designed to protect creditors to hold that the Parliament intended to enable a transferee to provide something less than the well-established legal definition of "consideration".
95 Section 120(5) makes that very assumption. The intention of the legislation in s 120(5) must have been to ensure that matters which might otherwise be thought to have constituted good consideration at common law would have no value for the purposes of determining whether there was any disadvantage to creditors in the impugned transaction.
96 In our view, it is clear from the above analysis that the Parliament in enacting the 1996 amendments proceeded on the basis reflected in the history of this section that it was to be understood as commercial people would construe it. Thus, in applying s 120(1)(b) the first step is to identify the consideration which was actually given. The second step if consideration was given, is to determine whether its value was less than the market value of the property transferred; see Sutherland v Brien (1999) 149 FLR 321 at [20] per Austin J.
97 The primary judge at [39] proceeded upon the correct basis that Mrs Lopatinsky's contribution to the marriage could not be regarded as consideration for the transfer because it would have constituted past consideration; see McVeigh v Zanella [2000] FCA 1890 per Weinberg J.
98 The primary judge acknowledged at [43] that there was no express agreement between Mr and Mrs Lopatinsky that she would not maintain proceedings for an adjustment of her property rights under the Family Law Act.
99 The Trustee, in his submission to us, accepted that an implied forbearance to sue can constitute good consideration. His submission was that the brief and imprecise conversation set out above at [40] did not support the inference drawn by the primary judge at [43] that Mr Lopatinsky made the offer "because he was settling, in a general sense, with his wife following the failure of their marriage in relation to all the matrimonial property."
100 We agree that, standing on its own, the evidence of the conversation provides, at best, a slender basis for the inference drawn by his Honour. However, it seems to us to be unnecessary to decide whether his Honour was correct in drawing this inference because, in our opinion, the approach which the primary judge took was based upon a view of what constituted consideration and the value of it which a majority of the Full Court in Mateo held to be incorrect.
101 This is clear from the findings made by the primary judge which we have set out at [59] and [60] above. Those passages indicate that his Honour endeavoured to value the "consideration" provided by Mrs Lopatinsky upon the basis of her financial and non-financial contributions to the marriage in accordance with the criteria referred to in s 79 of the Family Law Act.
102 The short answer to this appeal is therefore that the primary judge's view of the value of the consideration given by Mrs Lopatinsky depended upon factors which cannot provide a basis for assessing the value of the consideration which was given.
103 There are two further answers. First, although his Honour found at [44] that Mrs Lopatinsky had in fact forborne from lodging a claim under the Family Law Act, actual forbearance to sue does not constitute consideration unless it is evidence of an implied promise to forbear or unless it is given at the express or implied request of the other party; see Alliance Bank v Broom (Limited) (1864) 2 Dr & Sm 289; see also Treitel, The Law of Contract, 10th edn, Sweet and Maxwell, 1999 at 85-86.
104 There was no evidence to support a finding that Mrs Lopatinsky promised to give up a claim under s 79 of the Family Law Act. There were no proceedings on foot in the Family Court. There was no mention by either party of the possibility of such a claim. The words "matrimonial split" in the solicitor's file note do not contain any suggestion of a possible compromise of a claim under the Family Law Act. Nor was there any evidence tendered from the solicitor's file to establish the threat of such proceedings.
105 The second difficulty is that it is well-established by authority of the Full Court of the Family Court that a wife cannot, by entering into an agreement with her husband, preclude herself from applying to the Court for an order for maintenance or property adjustment; see In Marriage of Woodcock (1997) 137 FLR 14 per Murray, Baker and Kay JJ.
106 After a full review of the earlier authorities the Court concluded as follows:-
"In our view the cases referred to above clearly indicate that the Court's jurisdiction to grant relief under s 74 or s 79 can only be ousted by court order or by an agreement approved pursuant to the provisions of s 87. … (I)t is the dominant and unwavering thread of all of the cases that the parties cannot by their conduct or agreement oust the jurisdiction of the Court."
107 Moreover, the Court went on to observe at 34-35, that the doctrine of equitable estoppel does not prevent it from exercising jurisdiction to make an order under s 74 or s 79, although the facts relied upon to establish circumstances which would otherwise give rise to the operation of an estoppel may well be relevant to the question of whether the Court should exercise its discretion to make an order under one or other of those provisions.
108 In our view, it follows that even if the informal agreement between Mr and Mrs Lopatinsky was supported by consideration in the form of an implied promise not to sue, it could not amount to a legally binding agreement for a compromise of Mrs Lopatinsky's entitlement to make a claim for a further property adjustment. It remained open to her, within the period limited by the Family Law Act, to apply to the Court for an adjustment in a larger sum than the $81,387 she received on the sale of the Peakhurst property.
109 It follows in our view that any forbearance given by Mrs Lopatinsky was of no commercial value because it did not prevent her from approaching the Family Court for an order under s 79 of the Family Law Act.
The Trust Issue
110 In her notice of contention Mrs Lopatinsky contends that she was entitled to an interest under a resulting or constructive trust over the proceeds of sale of the Peakhurst property which was at least as large as the sum she received. It would follow that there was no "transfer" of property to her and that s 120 of the Bankruptcy Act would not be enlivened.
111 To make good that proposition it would be necessary for Mrs Lopatinsky to demonstrate that the evidence established that she had an equitable interest in the Peakhurst property of at least 81% arising from a resulting or constructive trust.
112 It is well established that when two or more persons contribute unequally to the purchase of a property and title is taken by them as joint tenants, there is an equitable presumption that they hold the title on a resulting trust for themselves as tenants in common in shares proportionate to their contributions; see Calverley v Green per Mason and Brennan JJ at 258-259.
113 The Peakhurst property was purchased with contributions from the parties of the net proceeds of sale of the Kogarah home. The balance of the purchase price was obtained from moneys advanced on the security of a mortgage on which both Mr and Mrs Lopatinsky were liable.
114 In order to determine what, in equity, was Mrs Lopatinsky's contribution to the purchase of the Peakhurst property, it is necessary to ascertain the extent of her equitable interest in the net proceeds of sale of the Kogarah property.
115 Although Mrs Lopatinsky provided the whole of the cash component of the purchase price of the Kogarah property, the balance was also secured on a mortgage on which the husband and wife were liable. The payments made by Mrs Lopatinsky toward the mortgage instalments on the Kogarah home could not have brought about any alteration in the equitable interests of the parties in that property which they would have had as a consequence of the implication of a resulting trust; see Calverley v Green per Mason and Brennan JJ at 262.
116 However, if Mrs Lopatinsky made disproportionate contributions to the payment of mortgage instalments without intending Mr Lopatinsky to have the benefit of those payments, she may have been entitled to contribution in equity for her share of the payments and a charge to secure her equitable entitlement; see Calverley v Green per Mason and Brennan JJ at 263.
117 There was nothing in the evidence which was capable of giving rise to any suggestion that Mrs Lopatinsky intended to make a gift to Mr Lopatinsky of her payment of $17,000 in cash. Clearly enough, there was no presumption of advancement in favour of her husband.
118 Thus, the extent of Mrs Lopatinsky's equitable interest in the Kogarah home at the time of purchase was the proportion calculated by adding her cash contribution of $17,000 to the contribution obtained from her share of the joint borrowing on Kogarah, ie $22,500 and applying that to the purchase price of $62,000. Accordingly, her interest was in the order of 64%.
119 The position in equity therefore was that Mrs Lopatinsky contributed 64% of the net proceeds of sale of the Kogarah property (ie 64% of $82,000 = approximately $52,500) to the purchase of the Peakhurst property. To this must be added her share of the sum raised on mortgage when the Peakhurst property was purchased, ie $22,500. Her contribution to the purchase price of Peakhurst was therefore $75,000. Applying the principle stated at [107], the title to the Peakhurst property was held on a resulting trust for Mr and Mrs Lopatinsky as tenants in common as to approximately 60% for Mrs Lopatinsky and 40% for her husband.
120 It is possible that Mrs Lopatinsky had an additional equitable interest in the Peakhurst property to reflect an equitable entitlement to contribution, supported by a charge, for her payment of $3,500 toward the cost of renovation of the Kogarah home. This would depend upon whether she made the payment intending Mr Lopatinsky to take the benefit of it. It seems unlikely that she intended to confer such a benefit on him.
121 The precise quantification of Mrs Lopatinsky's equitable interest in the Peakhurst property arising from the implication of a resulting trust and the application of an equitable charge is not easy to calculate. This is because the renovations would no doubt have been responsible for some part of the accretion in value of the Kogarah property which was then applied toward the acquisition of the Peakhurst property. Double counting would have to be avoided. It is unnecessary to try to do the mathematics. On any view, the doctrine of resulting trust and the additional equity flowing from the contribution of $3,500 did not give rise to an equitable interest on Mrs Lopatinsky's part of 81% of the Peakhurst property. Her interest on this basis was in the order of 60% to 65%.
122 We do not accept the Trustee's submission that the equitable presumption was rebutted by certain concessions made by Mrs Lopatinsky in cross-examination as to her understanding of the nature of the joint tenancy and her intention that the Peakhurst property was to pass by survivorship. In our view, this evidence established, at most, that Mrs Lopatinsky intended the legal interest in the property to be held by the parties as joint tenants.
123 The question which then arises is whether Mrs Lopatinsky's 60% to 65% equitable interest in the Peakhurst property is to be increased to an amount of at least 81%. This could occur in two ways. First, as we said at [111], she may have been entitled to contribution in equity for her share of the additional mortgage payments. Second, it may be possible to approach the matter upon the basis that a share of the property in excess of her prima facie legal entitlement of 50% was held on trust for her under a constructive trust.
124 On either of these two alternatives, it would be necessary to determine the proportion of the mortgage payments made by Mrs Lopatinsky. That was not a matter which was pursued at the trial.
125 It is clear on the findings made by his Honour that Mrs Lopatinsky supplied the majority of the household funding. It is true that His Honour's finding which we have set out at [59] as to the value of Mrs Lopatinsky's contribution "to the marriage and the matrimonial property" was directed at the criteria for a property adjustment order under s 79 of the Family Law Act. It is also true, as his Honour said, that no attempt was made to quantify with precision the value of Mrs Lopatinsky's contributions whether to the matrimonial property (which would by implication include her contributions to the mortgage payments) or the marriage.
126 Nevertheless, it seems to us to follow from his Honour's findings that it would be open to us to conclude that Mrs Lopatinsky made substantially in excess of 50% of the mortgage payments. She did so as a matter of necessity because Mrs Lopatinsky was in paid employment for most of the marriage whereas Mr Lopatinsky was not. She also had a good deal of financial assistance from her parents. Mr Lopatinsky does not appear to have had any such assistance, and on his Honour's findings, he had a propensity to squander funds for his sole benefit.
127 However, the difficulty in considering this issue on appeal is that neither his Honour's findings nor the evidence on this issue is sufficiently clear for us to be able to determine with any degree of precision the percentage of the mortgage payments which Mrs Lopatinsky made.
128 All that we can say is that she made a disproportionate share of the payments and that there is nothing to suggest that she carried that burden intending Mr Lopatinsky to have the benefit of it. Thus, in our opinion, Mrs Lopatinsky had an entitlement in equity to contribution for her share of the mortgage payments in excess of her 50% liability and an equitable charge to secure it.
129 In our view, unless we can be satisfied that Mrs Lopatinsky had an 81% interest in the Peakhurst property by virtue of the imposition of a constructive trust, the appropriate course is to remit the matter to the primary judge for him to determine the question of the precise quantification of Mrs Lopatinsky's equitable interest.
130 The principles which underlie the imposition of a constructive trust in equity provide a more flexible approach than the resulting trust in two important respects. First, as Deane J said in Muschinski v Dodds (1985) 160 CLR 583 at 614 ("Muschinski"), the constructive trust is a remedial institution which is imposed by equity without regard to the actual or presumed intentions of the parties. Second, the relevant events which lead to the finding of an interest may occur after acquisition and beneficial interests may change in the course of the relationship; see Green v Green (1989) 17 NSWLR 343 per Gleeson CJ at 355-356.
131 The unifying principle under which equity will intervene to declare the existence of a constructive trust over a former matrimonial home is that a constructive trust will be imposed where it would be unconscionable on the part of one of the parties to refuse to recognise the existence of an equitable interest in the other; see Baumgartner at 147; see also Green v Green at 353 per Gleeson CJ.
132 Here, Mrs Lopatinsky had a legal interest in 50% of the proceeds of sale of the Peakhurst property. Can it then be said that a constructive trust ought to be imposed to increase her beneficial interest in the property to 81%?
133 The principle which underlies the decision of the High Court in Baumgartner is that a party is to have restored to him or to her the contributions which he or she has made to a joint endeavour which has failed where the contributions have been made in circumstances in which it was not intended that the other party should enjoy those benefits. Upon the failure of the joint endeavour it would be unconscionable for the other party to retain them; see Baumgartner at 148 per Mason CJ, Wilson and Deane JJ; see also Muschinski at 620 per Deane J.
134 The decision in Baumgartner is well known. The parties lived together in a de facto family relationship. They pooled their earnings which were used to pay living expenses and fixed commitments including mortgage instalments. They lived initially in a home unit owned by the man and subsequently in a home at Leumeah which was purchased in the sole name of the man.
135 The parties pooled their income in proportions of approximately 55% for the man and 45% for the woman. When they separated, the man asserted that the Leumeah property was owned solely by him. The Court held that this assertion amounted to unconscionable conduct and imposed a constructive trust. The terms of the trust were that the parties owned the property beneficially in the proportions which they had contributed, namely 55% for the man and 45% for the woman but subject to a charge in the man's favour for the proceeds of sale of the unit which were contributed toward the acquisition of the Leumeah property.
136 Mason CJ, Wilson and Deane JJ said (at 149-150) that equity favours equality and where possible the Court should strive to give effect to the notion of practical equality rather than pursue complicated factual enquiries which result in insignificant differences in contributions and consequent beneficial interests. In the present case the differences are not insignificant.
137 Here, there was a form of "pooling". It was done out of necessity rather than by way of agreement as in Baumgartner. There was pooling of the earnings of Mr and Mrs Lopatinsky for the purpose of meeting the mortgage instalments, firstly on the Kogarah property and later on the Peakhurst property. However, as we have said, we cannot determine the precise percentage borne by Mrs Lopatinsky in excess of her 50% liability.
138 We do not see why the payments made as a matter of necessity should leave Mrs Lopatinsky in a different position from a wife or partner who made the payments under an express agreement as in Baumgartner. In our view, it would be inconsistent with the principle to which we referred at [129], ie the restoration of contributions to a failed joint enterprise, to hold otherwise.
139 It seems to us to follow that Mrs Lopatinsky had an equitable interest of more than 50% under a constructive trust over the net proceeds of sale of the Kogarah property. The amount which represented her equitable interest in the proceeds of Kogarah was then applied to the purchase of the Peakhurst property. The effect of the decision in Baumgartner is that she also had an equitable interest under a constructive trust for the same percentage (ie more than 50%) of the amount by which the net proceeds of sale of Peakhurst exceeded the net proceeds of sale of Kogarah.
140 In determining Mrs Lopatinsky's equitable interest in the proceeds of sale of the Kogarah property, it would be necessary to allow, firstly, for the recoupment of the sum of $17,000 contributed by her in cash. This would have been recouped out of the sum of $82,000 which comprised the net proceeds of sale of the Kogarah property. Thus, Mrs Lopatinsky would have been entitled to $17,000 plus a percentage in excess of 50% of the balance of the net proceeds of $65,000.
141 If Mrs Lopatinsky's equitable interest under a constructive trust over the proceeds of Kogarah was as high as 75% (and we express no view as to this), her total equitable share would have been $65,750 (ie 75% x 65,000 = $48,750 + $17,000).
142 The net proceeds of sale of the Peakhurst property were approximately $262,000. This represented an accretion of approximately $180,000 over the amount contributed to the purchase of that property from the proceeds of sale of the Kogarah home (ie $262,000 - $82,000). If Mrs Lopatinsky was entitled in equity to as much as 75% of this, she would have been entitled to a payment of a further $135,000 out of the proceeds of sale.
143 Applying the 75% figure, Mrs Lopatinsky would have had a total equitable interest in the proceeds of sale of the Peakhurst property of $200,750 (ie $65,750 + $135,000). Although this is slightly less than the $212,000 she received, she may well have had additional claims which would have entitled her to more than that sum.
144 Those additional claims would be, first for interest in equity on the $17,000 which she contributed in cash to the purchase of the Kogarah home; see Hagan v Waterhouse (1992) 34 NSWLR 308 at 391-393 and, second, for recovery of her $3,500 contribution to the renovations.
145 The above analysis shows that, depending on the percentage of Mrs Lopatinsky's entitlement under a constructive trust, her equitable interest may have been equal to the 81% figure necessary for the Court to determine that there was no transfer to her of any property under s 120 of the Bankruptcy Act.
146 Although we cannot say that it was, the analysis which we have set out above shows that Mrs Lopatinsky's interest under a resulting trust was 60 - 65%. It would be surprising if it were any less under a constructive trust. For reasons stated above, it may well be that her equitable interest was greater than the 65% figure.
147 The finding that Mrs Lopatinsky had an equitable interest of at least 60 - 65% is sufficient to lead to a conclusion that the facts and circumstances set out in the notice under s 139ZQ were not correct. This is because the notice stated that Mr Lopatinsky "should have received one half of the net proceeds of sale being $131,387". The statement that Mr Lopatinsky "was entitled to a further sum of $81,387" on the sale of the Peakhurst property was also incorrect.
148 The question which then arises is whether the Court should be satisfied, under s 139ZS(1) that subdivision J of the Bankruptcy Act does not apply because the facts stated in the notice were inaccurate.
149 A person who receives a notice under s 139ZQ may challenge the statement of facts and circumstances set out in the notice; see Re Lucera; Ex parte Official Trustee in Bankruptcy v Lucera (1994) 53 FCR 329 at 336 (per Olney J). As his Honour observed, if this were not the case, the recipient of a notice would have no defence to a claim under s 139ZQ(8) which provides that an amount payable under the section is recoverable as a debt.
150 Perhaps even more significantly, as Olney J noted at 336, a person who fails to comply with a notice under s 139ZQ is guilty of a criminal offence under s 139ZT. If no challenge could be made, a notice based on a wholly erroneous statement of facts would nevertheless give rise to a criminal offence. This would be so even if the amount of the "debt" was overstated and the bankrupt failed to pay the overstated amount.
151 Nevertheless, it does not seem to us that the inaccuracies in the present notice to which we have referred are without more, sufficient to result in an order under s 139ZS setting aside the notice. This is because the Court must be satisfied under s 139ZS(1) that subdivision J does not apply. That is to say, the Court must be satisfied that the transaction was not void under s 120; see Halse v Norton (1997) 76 FCR 389 at 398 (per Lee and R D Nicholson JJ); see also Re Pearson; Ex parte Wansley v Pearson (1993) 46 FCR 55 at 60 (per Wilcox J).
152 The Official Receiver bears the onus of satisfying the Court that s 120 does apply; see Halse v Norton at 398, 399. But it seems to us that the Official Receiver does not have to show that all of the facts and circumstances are made out. It is sufficient if a part of the alleged facts and circumstances satisfy the Court that s 120 is applicable. Here, s 120 would be applicable if Mrs Lopatinsky's equitable interest is more than 65% but less than 81% because there would have been a transfer to her of so much of the proceeds of sale of Peakhurst as was less than the 81% proportion which she received; see Re Bond; Ex parte Bond v Caddy (No 1) ("Ex parte Bond")(1994) 11 WAR 330 at 336.
153 Ex parte Bond was not a decision under s 139ZS. It was concerned with the construction of ss 139ZL and 139ZM of the Bankruptcy Act.
154 Section 139ZL enables the Official Receiver to give a notice to a person who holds money for or on account of a bankrupt who is liable to pay contributions under s 139P. As Seaman J said in Ex parte Bond (at 335), the section confers exceptional powers on the Official Receiver to facilitate the collection of contributions in cases where a bankrupt might otherwise escape payment.
155 Section 139ZL(2) requires the notice to set out the facts and circumstances and, in particular, it must specify the money or property because of which the Official Receiver considers that subdivision I of the Bankruptcy Act applies.
156 Seaman J was of the view (at 336) that it was sufficient if the notice under s 139ZL(2) stated facts and circumstances, any part of which satisfied the Court that the Division applied.
157 It seems to us that the same approach is applicable under s 139ZQ(2). Thus, even if, as we find, the notice overstated Mr Lopatinsky's entitlement of his share of the net proceeds, the notice will not be set aside if he had an entitlement to some part of the proceeds which were paid to Mrs Lopatinsky.
Severance of the joint tenancy
158 Mrs Lopatinsky's notice of contention states in paragraph 2 that she was entitled upon severance of the joint tenancy, by its sale, to a share in the proceeds in the proportions agreed between Mr and Mrs Lopatinsky.
159 A joint tenancy may be severed by an agreement between the owners which evidences an intention that the parties no longer hold the property as joint tenants; see Abela v Public Trustee [1983] 1 NSWLR 308 ("Abela"). However, an agreement to sell the property does not of itself, in the absence of evidence of intention to sever, operate as a severance; see Abela at 314.
160 The evidence does not enable us to determine precisely when the parties intended to sever the joint tenancy of the Peakhurst property. The only evidence which points to an intention to sever is the evidence of the conversation which we have set out at [40].
161 It may well be that as a matter of contract law Mrs Lopatinsky provided consideration for the severance when she agreed to terminate her rights in the joint tenancy by taking an amount of approximately 81% of the proceeds of sale of the Peakhurst property.
162 However, this does not provide an answer to the question which arises under s 120(1)(b) of the Bankruptcy Act because as we have already said it is necessary to value that consideration and the approach taken by the primary judge did not provide a proper basis for that assessment.
Orders
163 Thus, in our view, the appropriate course is to remit the matter to the primary judge to determine the question of Mrs Lopatinsky's equitable interest in the Peakhurst property and any consequences which flow under s 139ZQ from that determination.
164 Although we express no view about this question which is one entirely for the primary judge, it is possible that fresh evidence may be able to be adduced on the issue of the amount of the mortgage instalments borne by Mrs Lopatinsky; see eg Marks v GIO Australia Holdings Ltd [1999] FCA 1010 per Einfeld J.
165 We propose that the appeal be allowed in part and that the matter be remitted to the primary judge as we have stated.
166 Although the Official Receiver has succeeded on the grounds stated in the notice of appeal, we have held that the notice under s 139ZQ contained an incorrect statement of the facts and circumstances which gave rise to the claim. It may yet be that the notice will be set aside under s 139ZS.
167 Having regard to the draconian nature of the powers conferred on the Official Receiver under s 139ZQ, we do not think it would be an appropriate exercise of our discretion for the Official Receiver to have his costs of this appeal where the notice upon which he relies is flawed by an overstatement of material facts. We propose to order that there be no order as to the costs of the appeal.
168 We note that counsel for the appellant submitted that an error in the s 139ZQ notice has no consequence on the appeal. It was submitted that this was because the parties had resorted to what Wilcox J in Re Pearson (at 60) called "the old fashioned way of determining the matter" by filing a cross-claim seeking a declaration that the transfer was void under the provisions of s 120 of the Bankruptcy Act.
169 However, that submission is not borne out by an examination of the cross-claim. An examination of that document reveals that it merely seeks a declaration that the notice under
s 139ZQ is valid and other declarations and orders consequent upon the alleged validity of the notice.