William v Lloyd

IN THE FEDERAL COURT OF AUSTRALIA ) BANKRUPTCY DISTRICT OF THE STATE) No WB 2194 of 1991 OF WESTERN AUSTRALIA ) Re: WILLIAM IRVINE ROBINSON Bankrupt Ex Parte: CELIA CREWS BRAY Applicant And: CHARLES PHILIPPE LOUIS NILANT First Respondent JOHN FRANCIS SHERWOOD Second Respondent Ex Parte: CHARLES PHILIPPE LOUIS NILANT Applicant And: CELIA CREWS BRAY Respondent MINUTE OF ORDERS 1. Application of Mrs Bray to set aside notice under section 139ZQ dismissed 2. Application of the trustee to enforce the notice allowed 3. Mrs Bray to pay the trustee's costs of both applications Note: Settlement and entry of orders are dealt with in accordance with Rule 124 of the Bankruptcy Rules. EINFELD J SYDNEY (heard in Perth) 8 FEBRUARY 1995

IN THE FEDERAL COURT OF AUSTRALIA ) BANKRUPTCY DISTRICT OF THE STATE) No WB 2194 of 1991 OF WESTERN AUSTRALIA ) Re: WILLIAM IRVINE ROBINSON Bankrupt Ex Parte: CELIA CREWS BRAY Applicant And: CHARLES PHILIPPE LOUIS NILANT First Respondent JOHN FRANCIS SHERWOOD Second Respondent Ex Parte: CHARLES PHILIPPE LOUIS NILANT Applicant And: CELIA CREWS BRAY Respondent REASONS FOR JUDGMENT EINFELD J SYDNEY 8 FEBRUARY 1995 (heard in Perth) Introduction By notice dated 7 December 1993 issued under section 139ZQ of the Bankruptcy Act (the Act) the Official Receiver (the second respondent) required Celia Bray (the applicant) to pay to Charles Nilant, the trustee of William Robinson's estate in bankruptcy (the trustee), the sum of $35,200, said to be the value of property received as a result of transactions void against the trustee. The applicant applied to set this notice aside by application filed 16 March 1994, and on 5 July 1994 the trustee filed what might be referred to as a cross application under section 120 of the Act to enforce the orders sought by the notice. This most unsatisfactory and wasteful form of pleading is said to have been made necessary by the language of the division of the Act in which 139ZQ is found: see Re Pearson; ex parte Wansley [1993] 46 FCR 55 at 60, Re Fiorino; ex parte Woodgate Gummow J unreported 14 April 1994 at page 23, and my comments in Re McInnes; ex parte McInnes v The Official Receiver unreported 18 November 1994 at page 42. The second respondent filed a notice agreeing to abide the decision of the court but did not otherwise appear. The transactions in question are said to be void by reason of the operation of section 120(1) of the Act, which provides: A settlement of property, whether made before or after the commencement of the Act, not being -- (a) a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or (b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor, is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 2 years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy.

The transactions alleged to attract the operation of this subsection are the transfers on 21 September 1990 from the bankrupt to the applicant of two properties at Mt Barker, Western Australia, to which I shall refer as lot 6 and lot 53 respectively, formerly owned by the bankrupt (the transfers). On 19 November 1991 the bankrupt presented his own petition, and was declared bankrupt. The applicant is the bankrupt's mother. The case The trustee alleged that the transfers were made for no consideration and that they were therefore settlements under section 120(1). The applicant contended that the transfers were made pursuant to an agreement reached around July 1988 according to which Mrs Bray would pay $10,200 for the properties, comprising $3,800 for lot 53 and $6,400 for lot 6. These amounts appear on the respective executed transfer documents. According to the applicant it was agreed that the money would be payable by instalments as and when she was able to make payments. To support her allegation of such an agreement, she pointed to a series of withdrawals from her bank account, alleged to have been payments to the bankrupt between July 1988 and November 1991, totalling $10,200. Despite repeated requests by her son's trustee, Mrs Bray did not provide any evidence of payments made in consideration of the transfers. On 31 August 1993 a notice was issued under section 139ZQ of the Act claiming $22,500, the assessed value of the properties a month prior to the date of their transfer. At a later date it was discovered that the properties had been sold for $35,200 and on 7 December 1993 the amended notice was issued claiming that amount. Proceedings for failure to comply with the amended notice, and seeking its enforcement, were commenced in the District Court by the trustee. In the absence of a defence the trustee applied for summary judgment. Before a decision was given in that matter, Mrs Bray's application to set aside the notice was filed in this Court. I am not aware of the current status of the District Court proceedings. The issue in Mrs Bray's application The issue facing the Court is whether an agreement for sale such as is alleged by the applicant actually existed. The principal evidence supporting her case was her own affidavit and oral testimony. Mrs Bray is 79 years old and it became clear during the hearing that she had a very limited memory of the events described in her affidavit. Indeed she could barely remember being examined on these matters in detail by the trustee some nine months before the hearing. As a result she frequently contradicted herself, and at one stage explained inconsistencies between her oral and affidavit evidence by saying that she had probably not read the affidavit before swearing it (T33). The bankrupt did not give evidence, so that Mrs Bray's was the only direct evidence concerning the existence of an agreement. The transactions There were many aspects of the evidence that mitigated against the version of the facts presented by Mrs Bray. ASSERTED RATIONALE FOR THE TRANSACTIONS Mrs Bray said that the bankrupt had wanted to sell the properties to raise money for his resort business. It seems extraordinary in that case that he would have been prepared to accept payment in randomly timed instalments of indeterminate size spread over three years. After the first payment of $500 there is a fifteen month delay before the next asserted instalment of $30. In an earlier version, Mrs Bray said that she bought the land so she could live near her son and his family. When it was pointed out to her that the bankrupt was living in Perth at the time, about 500 kilometres from Mt Barker, she changed her testimony to the effect that she wanted the properties as an investment. She had not recently seen the properties when the agreement was allegedly made and said she had no idea how valuable they were. As she said under cross examination (T14): I left those things more or less up to him [the bankrupt] because after all, I wasn't dealing with a stranger; I was dealing with my son.

The idea that the properties were acquired as an investment is, under these circumstances, improbable. CONTRACT PRICE There was no evidence to explain how the sale price was arrived at, and therefore no evidence to rebut the suggestion that the amounts were retrospectively invented to give credibility to the transfers. The probability that such a price was agreed in 1988 is, in any event, inherently unlikely. There was evidence that lot 6 was transferred to the bankrupt in March 1988 for $10,750 (exhibit N1). Yet according to Mrs Bray the agreement to sell that lot for only $6,400 was reached in July 1988, four months later. THE INSTALMENTS There was little evidence in the documents to back up the applicant's assertion of instalment payments. The alleged payments were set out in a schedule as follows (Mrs Bray's affidavit p 3): 26/07/88 $ 500.00 13/11/89 $ 30.00 20/11/89 $ 200.00 23/03/90 $ 175.00 20/06/90 $ 500.00 25/07/90 $ 150.00 18/09/90 $ 800.00 26/09/90 $ 400.00 15/10/90 $ 800.00 28/12/90 $ 625.00 03/01/91 $ 500.00 05/02/92 $ 450.00 14/02/91 $ 400.00 19/03/91 $ 280.00 17/04/91 $ 120.00 23/05/91 $ 1,500.00 18/06/91 $ 100.00 06/08/91 $ 240.00 09/09/91 $ 300.00

03/10/91 $ 250.00 05/11/91 $ 130.00 19/11/91 $ 1,750.00 Total $10,200.00 The only evidence that the purchase price was paid was this schedule. Under cross examination it became clear that Mrs Bray had no memory at all of the individual payments, and indeed she said on more than one occasion that she had compiled the schedule with reference to her bank statements. However, except for the first two entries in the schedule which are only made relevant by Mrs Bray's entirely self serving notations alongside them, these payments gain little support from the bank records. On 26 July 1988 there was a withdrawal recorded as "Miscellaneous Debit" of $500. The bank statement has a handwritten notation next to that figure which reads: Lots 53 & 6 Payments to Robby for Purchase of Land, CB There was evidence that the applicant, whose initials are CB, referred to the bankrupt as 'Robby'. On 13 November 1989 a cheque was presented for $30. On the applicant's bank statement recording that transaction the following notation appears in her handwriting: $10,200 Land Purchase agreed. Next to the number and amount of the cheque the words 'Cash' and '(Papers)' appear. On 20 November 1989 a cheque for $200 was presented. Mrs Bray has written next to that entry on her statement the following:

W.I.R. Land Start On 23 March 1990 the presentation of a cheque for $175 was recorded with the following handwritten annotation: Cash - Personal to WIR. There is no record of a payment on 20 June 1980 of $500 or any comparable amount. On 25 July 1990 there is a record of a $50 cheque with a notation "W.I.R." on the bank statement, although the cheque itself was payable to the Fremantle Sailing Club and expressed to be for "dues only". No amount of $150 appears at or about that time. On 18 September 1990 there was a cheque for $800 payable to ANZ Card Services, but no indication as to what the payment was for, or whether, as the applicant suggested in the witness box, it was a payment covering a cash withdrawal on her credit card that had been paid to her son. The corresponding credit card debit was not produced. On 26 September 1990 there was a cheque presented for $100, and the next day another cheque for $300. The applicant's notes on the statement recorded that they were payable to "cash" and "Visa" respectively. On 15 October 1990 there was a cheque for $780.62 payable to bankcard. Mrs Bray stated under cross examination that these amounts were paid to her son, although she could not explain how cheques to credit card accounts were cashed by him or why she would have noted them as she did. Extraordinarily she somehow recalled, four years later, that she also paid him another $19.38 in cash to give a total of $800, as recorded in the schedule of payments. On 28 December 1990 there was a cheque for $75 made out to cash, with another cheque presented on 31 December 1990 of $350. No explanation was provided for the discrepancy between the sum of these cheques and the $625 claimed to have been paid at that time. On 3 January 1991 there appears in the bank statements a cheque for $110.95 with the handwritten notation "Bankcard + Cash". There is no record of a payment of $500. On 4 February 1991, with the notation "extra cash WR", there is recorded a cheque for $40 but no indication of the other $410 alleged to have been paid around this date. There was a cheque for $117.87 for "petty cash" presented on 14 February 1991 with an added notation "+$300.00 WIR", yet $400 is the figure in the schedule. On 19 March 1991 the record of a cheque for $170 carries the mark "Cash WIR" but there is no reference to the other $110 claimed in the schedule. The next alleged payment corresponds with a cheque presented on 17 April 1991 for $120. The $1,500 alleged to have been paid on 23 May 1991 does not appear, although on 13 May 1991 there is one cheque with the notation "WIR" for $200 and another cheque for $1,320.29 with the annotation "Amber". Evidently "Amber" refers to art materials purchased from time to time by the applicant. The 18 June 1991 payment is apparently recorded by a cheque presented on that date for the correct amount with the notation "Cash WIR".

There is nothing in the bank statements to correspond with the alleged payments in August and September 1991, but on 3 October 1991 there was a cheque noted "Cash Robby" for $144 although the actual cheque was made payable to the Shire of Plantagenet. The applicant explained this discrepancy by saying that she had paid her son's taxes for him (T39) but she could not explain the missing $106. There is another cheque presented on 16 October 1991 noted "W I Robinson" for $70. On 4 November 1991 there was a cheque for $60 marked "WIR cash" but nothing on 5 November for $130 or $70. The final $1,750 payment is supported by a cheque on the relevant date noted "Cash WIR". Mrs Bray attempted to explain the discrepancies between the amounts she said she paid her son, and the records of cheques presented by saying that sometimes she paid partly in cash and partly by cheque. She explicitly stated that she did not keep a running tally of payments (T41) and said that the only way she knew how much more she needed to pay was by informal discussions every now and then between her and the bankrupt. In my opinion the applicant can gain little assistance from the bank statements. They do not corroborate the schedule in any but the most sketchy and incomplete manner. Some payments were definitely made to the bankrupt but there is no credible evidence that they were instalments of the transfers or that they totalled the $10,200 that the respondent says she paid for the properties. There was also evidence that the applicant had a $5,000 term deposit which matured with interest on 5 December 1990. Despite this sudden availability of capital, and her expressed desire to help her son raise capital, she did not pay him any of this money, but re-invested it, and continued, on her version, to pay for the properties by irregular instalment. TIMING Another inference adverse to Mrs Bray can also be drawn from the timing of the transfers. On 6 June 1989 a notice of demand was issued to the bankrupt by the Commonwealth Bank requiring payment of $455,080.82 and interest (annexure H to the trustee's affidavit) of $214.61 per day. The transfers were signed on 21 September 1990. In the following months the bank foreclosed the bankrupt's business and auctioned it on 7 December 1990. Mr Robinson became a bankrupt on 19 November 1991. It is difficult to avoid the conclusion that the transfers were directly related to the collapse of the bankrupt's business so as to avoid the properties becoming available to creditors. CONCLUSION In my opinion there was no agreement between the applicant and the bankrupt for the transfers of the properties. There can be little doubt that at various times Mrs Bray gave her son money, but there is no evidence at all of a series of payments totalling $10,200, nor is there any other credible evidence of an agreement. The only inference I am prepared to draw on the evidence is that the transfers of the properties were made for no consideration, and that they were therefore a settlement on the applicant.

Amount claimed under the notice Section 120 provides that a settlement is "void as against the trustee in the bankruptcy". Section 139ZQ provides that a notice issued subject to its provisions should "require the person ... to pay to the trustee an amount equal to the money or the value of the property received". The amount of $35,200 claimed as "the value of the property received" was arrived at because it was the purchase price received by the applicant when she eventually sold the properties in October 1991 and December 1992. Other possible valuations for the properties compete with those claimed in the amended notice. The original claimed amount of $22,500 was the value of the properties as assessed by the Valuer General on 6 December 1990, a month before the transfers were registered. There was also a valuation of the properties in January 1991 which put their combined worth at $32,500. In my view the amount of $35,200 claimed by the amended notice is the correct amount. Section 139ZQ says that the notice shall claim "the value of the property received". This section should be read together with 139ZQ(7) which provides: If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee.

The effect of that subsection is that the trustee is clearly intended to take the benefit of any increase, or the burden of any decrease, in the value of the property concerned. The trustee's application The same result is reached by the trustee's application under section 120. In Re Fiorino; ex parte Woodgate unreported 14 April 1994 Justice Gummow commented at page 21 on the position of the recipient of property under a voidable transaction who, after the sequestration of the bankrupt, sells the property: ... at the time of the sale by Mrs Fiorino to the third parties, s. 120 had operated to make ineffectual every step taken by Mr Fiorino which otherwise would cause the beneficial interest in the property to pass to Mrs Fiorino, with the result that at the time of this sale by her she was a trustee of the property for the Trustee; see the form of declaration made in William v Lloyd [(1934) 50 CLR 341] at 374-375, 378. The trust was brought about by the interaction of s. 120 and the general law; cf Fouche v The Superannuation Fund Board (1952) 88 CLR 609 at 640, Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 at 274, Registrar, Accident Compensation Tribunal v Commissioner of Taxation (1993) 67 A.L.J.R. 922 at 927-931, 938-940. It follows that Mrs Fiorino came under a personal liability to the Trustee to account for, as money had and received, the proceeds of the sale of the property by her, on the footing that she was selling something to which she had no title and the Trustee stood in the shoes of the trust owner to maintain money had and received; see Brady v Stapleton [(1952) 88 CLR 322] at 334 , Re Hermann; ex parte The Official Assignee (1916) 16 SR (NSW) 264 at 273, Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 at 572.

When Mrs Bray sold the properties, she did so as trustee of the estate of her son, and is therefore accountable to the trustee for the value she received from the sale. Conclusion I dismiss Mrs Bray's application to set aside the notice, and allow the application of the trustee. Mrs Bray will pay the trustee's costs.

For the applicant Mr D. Bruns of counsel instructed by Ms S. Subramaniam of McKinlay & Co

For the first respondent Mr M. Hotchkin of Hotchkin & Hanley The second respondent did not appear Date of Hearing 15 August 1994 Written submissions 7 September 1994 completed Date of Judgment 8 February 1995