Williams v Lloyd [1934] HCA 1

Williams v Lloyd [1934] HCA 1 - HCA 1934 case summary — Zoe

[66]

a position to satisfy his then creditors in full without needing to have recourse to the properties the subject of the settlements. The document of 6th January states a fact, that is, that certain shares registered in the name of the bankrupt were the property of his wife and one of his daughters. His retention of control was so that owing to his greater experience a greater measure of benefit would accrue to the members of his family. One of the essentials of a gift is that the actual property should pass, whereas in a trust all that is required is the expression of intention that the settlor will hold the property in the future for the benefit of somebody other than the owner of the property. During the hearing an admission was made that the settlements were voluntary. The bankrupt disclosed his intention to constitute himself a trustee for his wife and daughter. All the requisites of a trust are defined in the document of 6th January 1926. The nature of the document, e.g., the reservation of a number of shares sufficient to qualify the bankrupt to hold office as a director, shows that it was intended to operate immediately. The company was notified of the trust before the official receiver's title accrued. The statement of account made by the bankrupt in February 1930 was, doubtless, intended to show the true position as to the capacity in which he held the various assets, whether he held them as owner, or as trustee. No suggestion as to the ante-dating of documents was made until after the voluntary nature of the settlements had been admitted. A person charged with fraud is entitled to be informed as to the fraud alleged, and if that fraud is not established the person charged is entitled to a decision. The acts of the bankrupt were those ordinarily done by a solvent person. Payments made by him were made during solvency and in discharge of the duties of his trust. Each settlement should be judged by the circumstances attending its execution. The onus is upon the respondent to establish a dishonest intention. The respondent is not entitled to relief in respect of a matter substantially different from that charged (Bell v. Lever Brothers Ltd. (1) ). Here what was relied upon for relief was a fraud as to antedated documents. In this respect there is a difference between

[77]

have occurred in 1926 instead of in 1929. Upon that basis subsequent happenings have no significance. A wrongful intent on the part of the bankrupt must be actually proved by the official receiver (Ex parte Mercer ; In re Wise (1) ). The statute 13 Eliz. c. 5 was not in force at any relevant period so far as this case is concerned. That statute was repealed by sec. 2 of the Conveyancing (Amendment) Act 1930 (N.S.W.). The right to set aside these settlements is not protected by sec. 4 of the Conveyancing Act 1919-1930 (N.S.W.). Sec. 37a of that Act does not operate in these transactions. The law of bankruptcy which is now being exercised by the Court is not affected by the section. This Court's jurisdiction as to bankruptcy is purely statutory. In administering bankruptcy law the provisions of 13 Eliz. c. 5, and the Conveyancing Act of New South Wales, particularly sec. 37a, cannot be availed of. At the date the statute 13 Eliz. c. 5 was repealed there was no title in the official receiver. His title does not date back further than six months from the date of sequestration. Consequently there was no right capable of being protected ; also, assuming it was a right that came within the class which might be protected, it was not a right which accrued (W. Morris y. A. Morris (2) ). The Federal Bankruptcy Act did not follow the State Act. The repeal of the State Act is a complete answer to these proceedings. Sec. 94 (1) of the Bankruptcy Act 1924-1932 contains the only provisions which are material in this suit. So far as Olsson's mortgage is concerned, it was not a case of antedating an instrument. The bankrupt merely took advantage of Olsson's application to have the true position, as from the date of the original advance, correctly recorded by the appropriate documents. For a transaction to be a settlement within the meaning of the Bankruptcy Act there must be involved the idea that it was intended to be a gift. A bankrupt is entitled to make gifts of sums of money (In re Player; Ex parte Harvey (3); In re Vansittart; Ex parte Brown (4); In re Tankard; Ex parte Official Receiver (5); In re Plummer (6) ). The money referred to in the fourth motion was not a settlement but was a gift. It is significant that it was paid

[123]

upon the son's objecting to undertake the control of the property on the ground that he had no time to look after it, his father said that it could be left to him to manage it. A layman's document was prepared and, on 27th November 1926, executed by the bankrupt, his wife, his son and a daughter named Rosina. It contained a schedule or catalogue of many items of property consisting of realty, including the family home, of mortgages and of shares in companies, It expressed an agreement and declaration by the parties that these assets were the joint property of the bankrupt's wife, his son and his daughter Rosina, that he held them in trust, and that all interest accruing therefrom then or in the future was for their sole support and to be used at their discretion. At the same time the donees executed an authority giving the bankrupt full powers of managing the property on their behalf. This transaction constitutes the most important of the dispositions which have been avoided by the orders under appeal. But some months previously, before his retirement, the bankrupt had made an attempt to make over to his wife and his daughter Rosina the shares which he held in a company called the Kurri Kurri & South Maitland Amusement Company Ltd., reserving to himself thereout a number sufficient to qualify himself as a director. This transaction, which was embodied in a document dated 6th January 1926, has also been set aside. It should, perhaps, _ be taken on the evidence to be the bankrupt's first response to his wife's persuasion to make over property to his family; but no definite account was given of its genesis. No change in his financial condition had occurred between these two transactions, except that he took up shares in five companies which were not fully paid. So far as appears, there was no reason to think that the liability upon these shares exposed the bankrupt to any real danger. After these purported dispositions the bankrupt continued in control of the assets which they affected, and until late in 1929 behaved as if they remained his property. He did not account for income to the donees. They did not include any of the income in their returns for income tax; and, although perhaps upon the issues with which this appeal is concerned the admissibility of the evidence is open to doubt, it was proved that the bankrupt did include the income in his returns. Further, his son borrowed money from him, not a very

[153]

Upon the terms of the document of 6th January 1926 a question immediately arises whether it was effectual to impart any interest to the intended donees. The shares to which it related were not transferred out of the bankrupt's name and, therefore, there was no gift of the legal property. There was no valuable consideration ; and, unless the document operated as a declaration of trust, it conferred no proprietary interest (Anning v. Anning (1) ). The terms of the document are as follows : - "* Memorandum of Agree- ment. - It is hereby mutually agreed and declared by the parties signing this document that all shares in the Capital of Kuri Kuri and South Maitland Amusement Company Limited registered in the name of Henry Morgan Williams are the joint property of Jane Williams the wife of the said Henry Morgan Williams and - Rosina Williams, spinster, both of Kurri Kurri and all interest accruing therefrom now and in the future is for their sole benefit and to be used at their discretion, excepting that two hundred and fifty (250) of the said shares are held by Henry Morgan Williams, the husband, for the benefit of himself so as to assure his qualification of directorship under the articles of association of the Kurri Kuri and South Maitland Amusement Company Limited And the power of attorney executed by Jane Williams, the wife, is to be exercised accordingly." Unless this document discloses an intention on the - part of the bankrupt to constitute himself a trustee of the shares, it cannot operate to give the intended donees any beneficial property. "Tt is not necessary that the precise words ' trust ' or ' confidence" should be used, in order to create a trust, and . . , any expres sions will suffice, from which it is clear that the party using them considers himself a trustee, and adopts that character " (per Page Wood V.C., Dipple v. Corles (2) ). " Down to the time of Milroy v. Lord (3) a view was taken by some Judges that where a voluntary assignment of something which an intended settlor intended to give _

[162]

subject to a suspensory condition to the effect that they should operate only upon the happening of an event exposing the property to liability for the bankrupt's debts and that consequently, being, as no doubt they are, settlements within sec. 94 of the Bankruptey Act 1924-1932, they did not pass the settlor's interest in the property comprised in the settlements to the donees thereunder upon their execution, and so, notwithstanding that they bore dates more than two years before bankruptcy, could not satisfy an essential condition of validity under par. ii of sub-sec. 1 of sec. 94. These findings I understand to be alternatives. The primary case made by the official receiver before the Court of Bankruptcy was that the docu- ments had in fact been brought into existence not earlier than November 1929 and that they had been fraudulently antedated by the bankrupt to a period when he considered that he was entirely free from pecuniary embarrassment. The learned Judge found against the official receiver upon this issue. But the fact that it was the chief issue at the trial is of importance. It explains why so little attention appears to have been given to ascertaining what exactly the bankrupt was doing and proposing to do in January and November 1926. For, upon the primary issue, the official receiver's case would not be aided by proof that at the dates which the documents bore, chosen, as he said, for their safety by the bankrupt, circumstances in fact existed casting doubt upon any dealing with his property by the bankrupt. Further, upon this issue much evidence was admitted which would be inadmissible upon the question of the intent with which the documents were in fact made at the earlier date. Hz post facto statements of a narrative order are not admissible upon the state of mind at a past date of the person who makes them. But, because some of such statements telated to ownership, they were relevant to the chief issue, and, because they were declarations against interest, they were admissible as media of proof of the facts stated. But even putting these considerations upon one side, I am of opinion that the findings of the learned Judge were not warranted by the circumstances proved. Once it is acknowledged, as upon the evidence I think it must be,

[163]

that in 1926 the bankrupt was in a perfectly sound financial position and had nothing to fear, subsequent conduct and events form an insufficient basis for a finding that the documents were shams, or that he had an intent to defraud his creditors, or that they were made subject to a suspensory condition allowing them to take effect only in case of attack by creditors. The persuasions of his wife to make over the property appear to have been directed not to protecting it against future creditors but to withdrawing the capital from the danger of what she thought improvident or at least hazardous investment. At any rate, the evidence is quite consistent with this view. The conduct of the bankrupt in failing to pay over the income of the property, and in dealing with it as his own, does not, to my mind, establish that there was any dishonesty in the making of the dispositions. The source of the dispositions was the wifely and motherly view that assets which she regarded as family property should be conserved and not put to hazard by her husband. Neither the son nor the daughter nor she herself were likely to concern themselves about separate enjoyment of the income so long, at any rate, as the family establishment was maintained. Reliance upon family relationship rather than proprietary right and performance of parental rather than fiduciary duties very often are found to be the result following upon a formal disposition of the corpus. A real intent to defeat or delay creditors must exist, and the question always is whether, upon all the circumstances of the transaction, the transfer or other disposition was in fact made with that intent. The burden of proof is upon those alleging that it was so made (Ex parte Mercer ; Inve Wise (1); Inve Lane-Fox ; Ex parte Gimblett (2); In re Holland ; Gregg v. Holland (3) ). 1 think the existence of no such intent has been proved. In my opinion the order to set aside the disposition of 27th November 1926 should be discharged. The next question for determination is whether the official receiver is entitled to the proceeds of the mortgage which in November 1929 was given at the request of the bankrupt to secure payment to Rosina of the sum of £300, which the mortgagor had borrowed from the bankrupt on or after 1st August 1928, a time to which the mortgage

[166]

1932 provides that any settlement of property, not falling within either of the exceptions, shall, if the settlor becomes bankrupt within two years after the date of the settlement, be void against the trustee in bankruptcy. Sub-sec, 5 defines " settlement " to include any conveyance or transfer of property. Sec. 4 defines " property " to include money, things in action and every description of property and obligations arising out of property. If the borrower had given a mortgage in the first instance to the bankrupt and he had trans- ferred it to his daughter, I should have thought it clear that the transfer would constitute a "settlement" within these provisions (In re Player ; Ex parte Harvey (1): Inve Tankard (2) y. But in the present case the result was produced by a novation with the borrower, who at the request of the bankrupt gave the mortgage in the first instance to Rosina. There is a difficulty in saying that the mortgage so given is void. The mortgagor is not the settlor and the giving by him of a mortgage is not a "settlement" in itself. These considerations are, perhaps, at the root of the objection which was taken that the borrower was a necessary party to the motion, but this objection rather obscures than elucidates the question. It is obyious that the transaction between the mortgagor and the mort- gagee cannot be set aside under the section, and it follows that no telief affecting the rights of the mortgagor or borrower can be given. But what the section hits at is the divesting of beneficial ownership from the bankrupt and the investing of some other person with it, When the bankrupt seeks to accomplish this result by means which constitute the other person legal owner in a way which cannot be undone, as, for instance, when at his direction a stranger deals with the intended donee either by transferring land or securities to him or by contracting with him, or by some other means, it appears to me that it is possible to distinguish between the legal title and the beneficial ownership, between the acts of the stranger, which constitute the intended donee the holder of the legal estate or interest, and the consequence aimed at by the bankrupt in procuring those acts, viz., that beneficial ownership shall pass to the donee and not result to the bankrupt. The bankrupt, in effect, took in

[168]

In equity this does not itself have the effect. of conferring upon Rosina the beneficial interest. On the contrary, if no more appeared, she would hold upon a resulting trust in favour of the bankrupt. What operates to confer the beneficial interest is the accompanying intention of the bankrupt to give, an intention which is presumed prima facie when it appears that the relationship of father and child existed. Sec. 94 (1) does not avoid the entire transaction for all purposes. It makes the " settlement" void against the trustee in the bankruptcy. Such a provision means voidable at the instance of the trustee as from the time as at which his title accrues (In re Brall; Ex parte Norton (1); In re Carter and Kenderdine's Contract (2)). It invalidates the " settlement " only " against the trustee," which means for the purpose of letting in his claim ; in order that his demand may be given effect to (Ex parte Blaiberg; In re Toomer (3) ; Sanguinetti v. Stuckey's Banking Co. (4)). Tn all other respects and after the demands of the trustee have been satisfied the settlement stands (compare Curtis v. Price (5), per Sir W. Grant MLR. ; In re Sims; Ex parte Sheffield (6) ). To bring about this result it is enough if the provision includes and nullifies the transmutation of the beneficial interest, or in other words makes ineffectual every step taken by the bankrupt which would otherwise cause the beneficial interest to pass. In the present case I think that it avoids the attempt to confer upon Rosina beneficial ownership in the security and that, upon the intervention of the trustee in the bankruptcy, the official receiver, she became a trustee of the mortgage for the official receiver. It was suggested that, in putting the mort- gage in Rosina's name, the bankrupt was doing no more than giving her the legal title to an investment of moneys to which, under the disposition of 27th November 1926, she was entitled. But the moneys lent to the borrower are not traceable to any fund to which she was entitled and the transaction did not take the form of @ discharge by the bankrupt of any liability to his daughter. In my opinion, the order affecting this transaction is correct in substance.

At a glance

Court

Decision date

Before

Source

Judgment (189 paragraphs)