Rimar Pty Ltd v Pappas [1986] HCA 9;

Rimar Pty Ltd v Pappas [1986] HCA 9; - HCA 1986 case summary — Zoe

[7]

2. There was a conflict of testimony at the trial, but the facts as found by the learned trial judge are as follows. The respondent, Pappas, speculated in land on the Gold Coast, which, in 1981, was in the midst of a land boom. He was associated with one Stanley Moore, an undischarged bankrupt, who acted as his "spotter", and for some purposes as his agent. In about March 1981, Pappas and Moore became aware that some land near Currumbin, known as Boonaroo Park, was available for sale and might profitably be sub-divided and resold. The sum of $300,000 was needed to enable the project to be financed. Pappas could not raise that sum and he brought two other persons, Turner and Coon, into the project. It was agreed that Turner and Coon would provide $150,000 between them, and that Pappas and Moore would provide the remaining $150,000, but the learned trial judge made no findings as to the arrangements made between Pappas and Moore regarding the provision of this sum. It was further agreed that a company, Wuringal Pty. Ltd. should purchase the land and that Turner and Coon would each take a 25 per cent interest in the company, that Pappas would have a 30 per cent interest and Moore a 20 per cent interest. Shares in that company were issued to the four men accordingly, and, in accordance with the agreement, Turner and Coon each contributed $75,000 and Pappas and Moore between them contributed $150,000, of which $100,000 was credited to Pappas and $50,000 to Moore. Part of the $150,000 so contributed, viz. $50,000, was paid to Wuringal Pty. Ltd. by a cheque drawn by the appellant, Rimar Pty. Ltd. ("Rimar") on 15 April 1981. The learned trial judge found that this $50,000 was advanced by Rimar pursuant to an oral agreement negotiated by Moore on behalf of Pappas on 14 April 1981 and that the advance was made on terms that $100,000 would be paid by Pappas to Rimar in six or seven months, i.e. by October or November 1981. Wuringal Pty. Ltd. had in March 1981 entered into a contract to buy the land, and in July 1981 resold it to a related company, Kerrawa Pty. Ltd., at a profit.

[32]

9. The assumption that must be made to enable these grounds to be considered is that, if Moore had not been bankrupt, the acceptance by Rimar of the promise of payment by Moore in place of its cause of action against Pappas would have amounted to an accord and satisfaction and would have discharged the liability of Pappas to Rimar. The question then arises whether the fact that Moore was bankrupt makes any difference. In other words, did the fact that Moore was bankrupt make his promise to pay Rimar $91,500 out of his share of moneys to be received from Wuringal Pty. Ltd. illegal or illusory? The recital that Moore was beneficially entitled to shares in that company was incorrect. The shares, which had come into existence after Moore's bankruptcy, vested in Moore's trustee in bankruptcy as soon as Moore acquired them (Bankruptcy Act, s.58(1)(b)) and constituted part of the property divisible amongst Moore's creditors (Bankruptcy Act, s.116(1)). The description "monies to be come due to Moore from the sale of the companies land" must have been intended to refer to moneys distributed either by way of dividend or on a liquidation of Wuringal Pty. Ltd. It was submitted on behalf of Pappas that dividends paid on the shares would be "income" of which the bankrupt was in receipt within s.131 of the Bankruptcy Act, so that Moore would be entitled to retain them for his own benefit unless the Court made an order for payment to the trustee under s.131(2). Notwithstanding some general remarks in Falstein v. Official Receiver [1962] HCA 65; (1962) 108 CLR 523, at p 527, which may appear to support such a submission but which are not directed to this particular question, I am, as at present advised, not disposed to accept that a bankrupt is entitled to retain for his own benefit dividends paid on shares which have vested in the trustee. I need not decide that question, but may assume in favour of Rimar that the trustee, in whom the shares became vested, would be entitled to the income produced by the shares and bound to apply it for the benefit of the creditors. However, the fact that a transaction entered into by a bankrupt after his bankruptcy obliges him to make a payment out of after acquired property which vests in the trustee, or operates as an assignment of that property, does not necessarily mean that the transaction is invalid or ineffective. Section 126(1) of the Bankruptcy Act provides:

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11. The critical question then becomes whether in this transaction Rimar dealt for valuable consideration. The submission on behalf of Rimar is that the only consideration given by Rimar for Moore's promise to pay the $91,500, namely Rimar's discharge of Pappas, did not constitute "valuable consideration" within s.126(1) because it in no way resulted in any benefit to Moore's bankrupt estate. On behalf of Pappas it was submitted that it could be inferred that Moore had borrowed from Pappas the $50,000 which had been credited to him when the payment of the $150,000 was made to Wuringal Pty. Ltd. and that the result of the tripartite agreement of October 1981 was to release Moore from his liability to repay that sum to Pappas and that in consequence there was a benefit to Moore's estate. No findings were made by the learned trial judge to support that submission and in the present case, where very much depended on credibility, it would be quite impossible for the Court to infer from the skimpy and conflicting evidence that the effect of the transaction was to discharge Moore from an existing liability to Pappas. I therefore need not consider what the legal consequences of such a finding might be. The case must be considered on the footing that the consideration given to Moore did not benefit his estate. According to In re Behrend's Trust. Surman v. Biddell that circumstance is immaterial. In that case Swinfen Eady J. dismissed very shortly an argument that the transaction was not for value within the meaning of the rule in Cohen v. Mitchell because there was no resulting pecuniary benefit to the bankrupt which would result to his trustee, simply saying, at p.696, "there is no such limitation of the rule in Cohen v. Mitchell itself". Although we are not referred to any other case on this point decided on s.126 or the equivalent provisions of other bankruptcy legislation, the conclusion reached in In re Behrend's Trust. Surman v. Biddell is supported by the decisions on the avoidance of settlements. In In re Pope. Ex parte Dicksee (1908) 2 KB 169 a post-nuptial settlement was executed by a bankrupt in favour of his wife and children in consideration of the wife refraining from taking proceedings against him in the divorce court. It was held by the English Court of Appeal that the settlement was supported by valuable consideration and was valid against the trustee in bankruptcy. Cozens-Hardy M.R. said, at p.173: "I am unable to adopt the view that there must be either money or physical property given by the purchaser in order to bring the case within the exception. In my opinion the release of a right or the compromise of a claim, not being a merely colourable right or claim, may suffice to constitute a person a 'purchaser' within the meaning of s.47 (of the Bankruptcy Act 1883 (U.K.))." As Goff J. pointed out in In re Densham (A Bankrupt) (1975) 1 WLR 1519, at p 1527, in In re Pope. Ex parte Dicksee it was impossible to evaluate the benefit of the consideration and therefore impossible to see whether it was equal to the property given up or not. In that case, and again in In re Windle (1975) 1 WLR 1628, Goff J. expressly rejected the view that consideration has to replace something in the debtor's estate. He said in the latter case, at p.1637:

At a glance

Court

Decision date

Before

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Judgment (45 paragraphs)

Rimar Pty Ltd v Pappas [1986] HCA 9; (1986) 160 CLR 133 (11 March 1986)

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Legislation Cited (1)

Cases Cited (5)