FEDERAL COURT OF AUSTRALIA Jones v Daniel, in the matter of Daniel [2004] FCAFC 278 BANKRUPTCY – Whether an order under s 79 of Family Law Act 1975 (Cth), properly construed, vested an equitable interest in matrimonial property in the wife when order made – whether property the subject of the order available to trustee in bankruptcy of estate of husband where sequestration order made after order under s 79 but before transfer of any legal interest – whether issue already determined by Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217 – whether Full Court should follow earlier authority Bankruptcy Act 1966 (Cth), s 116, 178 Family Law Act 1975 (Cth), s 79 Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217 applied Wu v Minister for Immigration & Multicultural Affairs (2000) 105 FCR 39 referred to Transurban City Link v Allan (1999) 95 FCR 553 referred to MICHAEL GREGORY JONES (AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF TONY DANIEL) v TINA DANIEL N 677 of 2004 HILL, MOORE & ALLSOP JJ 28 OCTOBER 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 677 of 2004 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA IN THE MATTER OF TINA DANIEL: BETWEEN: MICHAEL GREGORY JONES (AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF TONY DANIEL) APPELLANT AND: TINA DANIEL RESPONDENT JUDGES: HILL, MOORE AND ALLSOP JJ DATE OF ORDER: 28 OCTOBER 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant pay the costs of the respondent. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 677 of 2004 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA IN THE MATTER OF TINA DANIEL: BETWEEN: MICHAEL GREGORY JONES (AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF TONY DANIEL) APPELLANT AND: TINA DANIEL RESPONDENT JUDGES: HILL, MOORE AND ALLSOP JJ DATE: 28 OCTOBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT HILL j : 1 I have had the benefit of reading, in draft, the reasons of Moore J and Allsop J. I agree with their Honours' reasons and with the orders proposed by Moore J. I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Hill. Associate: Dated: 28 October 2004 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 677 of 2004 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA IN THE MATTER OF TINA DANIEL: BETWEEN: MICHAEL GREGORY JONES (AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF TONY DANIEL) APPELLANT AND: TINA DANIEL RESPONDENT JUDGES: HILL, MOORE AND ALLSOP JJ DATE: 28 OCTOBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT moore j : 2 This is an appeal from a judgment of Emmett J of 16 April 2004 when orders were made giving effect to reasons for judgment published on 18 March 2004. His Honour made orders declaring that Michael Gregory Jones, a trustee in bankruptcy ("the Trustee") held two half shares in two properties in trust for the respondent in this appeal, Ms Tina Daniel. His Honour noted the Trustee had executed and delivered registrable transfers for the properties. The orders were made in proceedings brought by Ms Daniel under s 178 of the Bankruptcy Act 1966 (Cth) ("the Act"). 3 The facts were not in issue. It is convenient to repeat Emmett J's account of them. The proceeding arose out of a dispute between the Trustee who was the trustee of the estate of Tony Daniel ("the Bankrupt") and Ms Daniel, the former wife of the Bankrupt. As at 23 October 2001, the Bankrupt and Ms Daniel were registered as proprietors of an estate in fee simple as joint tenants in respect of two parcels of land, being Lot 41 in community plan DP 270218 situated at 3 Hunterford Crescent, Oatlands ("the Oatlands Property"), and Lot 72 in deposited plan 258502 situated at 24 Tennyson Street, Wetherill Park ("the Wetherill Park Property"). 4 On 8 October 2003 a creditor's petition was presented, seeking a sequestration order in respect of the estate of the Bankrupt. On 15 December 2003 Coleman J of the Family Court of Australia, sitting at Parramatta, made orders following a contested hearing between the Bankrupt and Ms Daniel. The Family Court ordered that the Bankrupt transfer to Ms Daniel, on or before 1 February 2004, the whole of the right, title and interest of the Bankrupt in the Wetherill Park Property and the Oatlands Property. The relevant operative order was: IT IS ORDERED: 1. That the husband transfer to the wife, on or before 1 February 2004, the whole of his right, title and interest in the property know (sic) as and situate at 24 Tennyson Street, Wetherhill (sic) Park, the property known as and situate at 3 Hunterford Crescent, Oatlands, and in the Daniel Family Trust, and any credit loan account balance or other entitlement he may have in the said Trust. 5 On 16 December 2003, the Bankrupt presented a debtor's petition under s 55 of the Act. Section 55(1) provides that, subject to that section, a debtor may present to the Official Receiver a petition. Section 55(4A) of the Act provides that, where the Official Receiver accepts a petition presented under s 55, the Official Receiver shall endorse the petition accordingly and, upon endorsing the petition, the debtor who presented the petition becomes a bankrupt by force of s 55 and by virtue of presentation of the petition. The Official Receiver did endorse the petition presented by the Bankrupt and, accordingly, by the operation of s 55(4A), he became a bankrupt on that day. Under s 58(1)(a) the property of the Bankrupt vested forthwith in the Trustee. 6 On 27 January 2004, the Trustee became registered with Ms Daniel as proprietor of the Wetherill Park Property and the Oatlands Property. From that date, Ms Daniel and the Trustee were registered as proprietors of an estate in fee simple as tenants in common in equal shares. On 2 February 2004, being the first business day after 1 February 2004, which was a Sunday, the Bankrupt executed a deed purporting to transfer to Ms Daniel the whole of his right, title and interest, as at 1 February 2004, in the Wetherill Park Property and the Oatlands Property. He also executed a transfer in the form approved under the Real Property Act 1900 (NSW) in respect of each of the Wetherill Park Property and the Oatlands Property. The transfers name Ms Daniel as transferee. 7 Emmett J identified the issue raised in the application and the contention of Ms Daniel as follows (at [4] and [6]): The question that arises in the proceeding is whether the property of the Bankrupt [vested in the Trustee for distribution amongst creditors] included any interest in the Wetherill Park Property or the Oatlands Property. (…) …Ms Daniel seeks orders that recognise her claim to be entitled to a beneficial interest in the Wetherill Park Property and the Oatlands Property and orders for transfer to her of the legal estate insofar as it is not already vested in her. Ms Daniel asserts that the Court has power to make such orders by virtue of s 178 of the Act. Section 178 provides that, if any person is affected by any act, omission or decision of a trustee in bankruptcy, that person may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable. Ms Daniel complains, in effect, of the omission or failure of the Trustee to transfer to her the undivided one-half interest in the Wetherill Park Property and the Oatlands Property in respect of which the Trustee is registered. His Honour accepted the contention of Ms Daniel. 8 Central to his Honour's reasoning was the judgment of the Full Court in Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217. His Honour's summary of that judgment was not, in this appeal, controversial though its application to the present facts is. His Honour's summary bears repeating. Before doing so, it is convenient to set out the terms of s 79(1) of the Family Law Act 1975 (Cth): (1) In proceedings with respect to the property of the parties to a marriage or either of them, the court may make such order as it considers appropriate altering the interests of the parties in the property, including an order for a settlement of property in substitution for any interest in the property and including an order requiring either or both of the parties to make, for the benefit of either or both of the parties or a child of the marriage, such settlement or transfer of property as the court determines. It can be seen that the sub-section speaks of orders "altering the interests of the parties in the property" and, as Allsop J points out, the High Court made clear in Mullane v Mullane (1983) 158 CLR 436 that orders under s 79 work an alteration of legal or equitable interests. 9 Emmett J's summary of Mateo was as follows (at [8] and following): …The Official Receiver had given notice pursuant to s 139ZQ of the Act, which relevantly provides that, where a person has received property as a result of a transaction that is void against the trustee of a bankrupt, the Official Receiver may require the person, by written notice, to pay to the trustee an amount equal to the value of the property received. The circumstances that gave rise to the dispute in Mateo were similar, but not identical, to the circumstances [in this appeal]. In both cases, orders were made by the Family Court of Australia pursuant to s 79 of the Family Law Act 1975 (Cth) ("the Family Law Act"). Section 79(1) relevantly provides that, in proceedings with respect to the property of the parties to a marriage, the court may make such order as it considers appropriate altering the interests of the parties in the property, including an order requiring either of the parties to make, for the benefit of either of the parties, such transfer of property as the court determines. In Mateothe Family Court made the following orders: '1.Order that within twenty eight (28) days from the date of these orders the husband [the bankrupt] shall transfer to the wife all his rights, titles and interests in the matrimonial home … 2. Order that the husband shall not do any act matter or deed whereby a caveat charge or other encumbrance is or may be registered on the said matrimonial home from the date hereof. 3. Order that upon the transfer to the wife of the husband's rights title and interests in the abovenamed matrimonial home the wife shall be responsible for all outgoings on the matrimonial home … … 14. In the event that the husband or the wife refuses and/or neglects to execute any documents or do anything required of them in relation to these orders then, pursuant to section 84 of the Family Law Act;- The Registrar of the Family Court of Australia at Sydney is hereby appointed to execute all deeds and documents in the name of the party in default and to do all acts and things necessary to give validity and operation to the said order… …' Pursuant to those orders, the husband transferred the matrimonial home to his wife, who became registered in respect of a fee simple in the matrimonial home. The husband was subsequently made a bankrupt and the basis of the Official Receiver's notice pursuant to s 139ZQ was that the transfer that was effected from the husband to his wife was void by the operation of ss 120 or 121 of the Act. Section 120(1) relevantly provides that a transfer of property by a person who later becomes a bankrupt to another person is void against the trustee in the transferor's bankruptcy if the transferee gave no consideration for the transfer, or gave consideration of less value than the market value of the property. Section 121(1) relevantly provides that a transfer of property by a person who later becomes a bankrupt to another person is void against the trustee in the transferor's bankruptcy if the transferor's main purpose in making the transfer was to prevent the transferred property from becoming part of the transferor's estate and available to the transferor's creditors, or to hinder or delay the process of making property available for division among the transferor's creditors'. The Full Court in the Mateo proceeding, therefore, was required to consider whether there was, within the meaning of ss 120 or 121, a transfer of property by a person who later became a bankrupt. Clearly, there was a transfer of property involved, insofar as there was a transfer of the legal estate from the husband to his wife. The question was whether that transfer of property fell within ss 120 or 121. The Official Trustee contended, in effect, that there was no consideration for the transfer. The primary judge adopted the approach that, looking at the overall effect of the arrangements between the husband and his wife, there was no transfer within ss 120 or 121. The Full Court reached the same conclusion, but for different reasons. Wilcox J referred to several decisions of the Supreme Court of New South Wales dealing with similar circumstances, including Harris v Walker(1969) 14 FLR 167 and the unreported judgment of Needham AJ, in the Supreme Court of New South Wales, Craven v The Official Trustee in Bankruptcy (26 July 1991). Wilcox J considered that Cravenprovided support for the view that the effect of a transfer under s 79 of the Family Law Act is to vest an equitable estate in the property interest that is the subject of the order in the beneficiary of the order. His Honour considered (at[57]) that if that were so, after the order, what remained in the hands of the person who was bound to effect the transfer was a bare legal interest Wilcox J then undertook (at par [62]) an analysis of the consequences of an order under s 79 and compliance with it. His Honour was of the view that there were two vesting events involved. The first took place when the Family Court made orders requiring the husband to transfer to his wife all his right, title and interest in the matrimonial home. On that analysis, his Honour considered that the effect of the order was to vest in the wife an equitable interest in the one-half legal estate that continued to be held by the husband. The second event, according to his Honour's analysis, was the transfer of the legal estate that was effected by the registration of a transfer executed by the husband pursuant to the order of the Family Court. That analysis, his Honour considered, has the advantage of pointing out the critical importance of the Family Court order; it was that order that transferred the value of the husband's interest in the matrimonial home to his wife (at par [64]). Any useful application under s 121 would need to assert that the Family Court order was void against the trustee of the husband's estate. However, his Honour did not see how it was possible to conclude that a court order constituted a 'transfer of property by a person who later becomes a bankrupt'. Thus, his Honour clearly concluded, in reaching the decision that he reached, that the effect of the Family Court orders was to transfer to the wife the value of the husband's right, title and interest in the matrimonial home without effecting a legal transfer of the property itself. Branson J, in her Honour's reasons in the Mateo proceeding, observed (at pars [85] and [86]) that s 79 is not concerned with giving the Family Court power to declare the title or rights that a party to a marriage might have in respect of property, but to empower the Family Court to alter the interests of parties to a marriage, in relation to property; the power to alter the interests of the parties, however, extends to the making of orders requiring a party to make such transfer of property as the Court determines. Branson J then observed that s 79 is concerned to empower the Family Court directly to alter the property interests of the parties to a marriage and not merely to make an order requiring the parties, or one of them, to take steps that will result in their property interests being altered. Her Honour then said: 'It is probably implicit in the terms of an order that the interests of the parties to a marriage and their matrimonial home were altered by operation of the order.' Her Honour (at par [102]) then went on to say that, by that, she meant that the order itself vested in the wife all of the bankrupt's beneficial interest in the matrimonial home, and that, on that view of the order, the transfer that order 1 of the Family Court order (see par [10] above) required the bankrupt to effect, was necessary only to perfect the wife's interests by the transfer to her of the husband's legal interest in the matrimonial home. Of course, that is not what the order in Mateo's case said, nor is it what the order in the present case said, and I shall return to that directly. Branson J then went on, however, to suggest a possible different analysis. Her Honour observed (at par [103]) that, even if the Family Court order was not construed in this way, the order necessarily destroyed the value of the husband's interest in the matrimonial home; the order gave the wife an entitlement to have the whole of the husband's interest in the matrimonial home transferred to her within 28 days and, if necessary, the right to call on the Registrar of the Family Court to execute all necessary documents. Her Honour characterised the husband's remaining interest as 'merely formal'. Her Honour considered that the order of the Family Court vested in the wife an interest in the matrimonial home sufficient to support the registration of a caveat on the title and that, in those circumstances, at no time after the making of the order could it be said that any interest in the matrimonial home would have become part of the husband's bankrupt estate within the meaning of s 121(1) of the Bankruptcy Act (per Branson J at [103]). Merkel J took a similar approach in Mateo. After referring to the decision of McLelland CJ in Equity, in Harris v Walker (1968) 14 FLR 167, his Honour observed that, when the Family Court makes an order by consent under s 79 altering the property interests of the parties to a marriage, the alteration and the consequential vesting of the equitable estate or interest in the property in the transferee, take effect by reason of the Court order, and not by reason of the consent of the parties, even if that consent amounts to a contract between them. His Honour considered (at par [133]) that the consent orders made by the Family Court in Mateoaltered the interests in the matrimonial home of the husband and his wife by transferring the equitable estate and interest of the husband in the matrimonial home to his wife. His Honour considered (at [134]) that the transfer of that estate and interest was brought about by the order of the Court, rather than by a transfer of the estate or interest by the husband. 10 In the present matter, Ms Daniel submitted to Emmett J that he was bound by the decision of the Full Court in Mateo. However, the Trustee submitted that having regard to the differences between the issues raised in Mateo and the present matter, his Honour was not bound by that judgment and, if he disagreed with the reasoning, a different conclusion could be reached. 11 The differences between the present matter and Mateo identified by the Trustee before Emmett J were first, that in Mateo the orders made pursuant to s 79 had been fully complied with prior to the bankruptcy. Secondly, an essential issue in Mateo was whether or not whatever transfer had occurred was void as against the trustee in bankruptcy. The ultimate issue in Mateo was whether or not s 120 or s 121 was attracted. 12 Notwithstanding these differences, Emmett J concluded that the reasoning he had summarised involved, as an essential step or premise, a conclusion as to the effect of the Family Court order. His Honour treated the reasoning in Mateo as deciding the issue before him in favour of Ms Daniel. Nonetheless, Emmett J did express some reservations about the result in Mateo. It is unnecessary to repeat that discussion. 13 In this appeal it is necessary to determine, for present purposes, the effect of the judgment of the Full Court in Mateo. That turns on two things. First, whether a majority of the members of the Full Court in Mateo concluded that an order of the type made in the present proceedings under s 79 results in a transfer of a beneficial interest in the property the subject of the order. Secondly, if they did, whether that conclusion was an essential part of the reasoning process and formed part of the ratio. What constitutes the ratio in a case was discussed by a full court in Wu v Minister for Immigration & Multicultural Affairs (2000) 105 FCR 39. The question of whether an earlier authority was a binding precedent has also been considered by another full court though in relation to the effect in this Court of a decision of the High Court: see Foster v Northern Territory of Australia [1999] FCA 1235. See also Woodward v Repatriation Commission (2003) 200 ALR 332. 14 The members of the Full Court in Mateo did concludethat when an order (of the type presently under consideration) is made under s 79 ordering that a person presently holding a legal interest in the property transfer that interest to another person, a beneficial interest is thereby vested in the other person. Wilcox J described the order as vesting an equitable interest (at [62]) and Merkel J as transferring an equitable estate or interest (at [136]). Branson J expressed her conclusion in qualified terms (at [102]) when she spoke of it being "probably implicit in the terms of the order that the interest of the parties to the marriage in the [property] were altered by operation of the order" (emphasis added) vesting in the wife all the husband's beneficial interest in the property. It appears Branson J viewed that as the preferable construction of the order and its affect. In any event the views of a majority were clear and an equitable interest was, by the order, transferred. A trust was created for the benefit of the other person. 15 Moreover, the conclusions of Wilcox J and Merkel J were an essential step in the reasoning leading to the ultimate conclusion in that matter. Accordingly, the conclusion concerning the transfer of an equitable interest and the creation of a trust forms part of the ratio of the Full Court in Mateo. There is a comparatively settled approach in this Court that on questions of statutory construction, a full court should follow a construction adopted by an earlier full court unless it considers the earlier construction is clearly wrong: Transurban City Link v Allan (1999) 95 FCR 553 at 560-561, Minister for Immigration and Multicultural Affairs v Singh and Ors (2000) 98 FCR 469 at 475, Wu v Minister for Immigration and Multicultural Affairs (2000) 105 FCR 39 at 49-51, Joyce v Grimshaw (2001) 105 FCR 232 at [45]-[47], Repatriation Commission v Gorton (2001) 110 FCR 321 at 327-329 and 334, Thayananthan and Ors v Minister for Immigration and Multicultural Affairs (2001) 113 FCR 297 at 303-304, Algama v Minister for Immigration and Multicultural Affairs (2001) 115 FCR 253 at 263-264, Peacock v Human Rights & Equal Opportunity Commission [2002] FCA 984 at [27], BC v Minister for Immigration and Multicultural Affairs [2002] FCAFC 221 at [39]-[41], Sit v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCAFC 40 at [10]-[11], Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd and Another (2003) 203 ALR 51 at 58 and 99. 16 I refer to statutory construction because ultimately this appeal involves reconciling the operation of two Commonwealth laws. The Act vests in a trustee in bankruptcy the property of the bankrupt for distribution amongst creditors. However, s 116(2)(a) provides that property held by the bankrupt in trust for another person is not property available for distribution. Under the Family Law Act 1975 (Cth), the Court is empowered by Part VIII, and specifically s 79, to order the alteration of property rights. In issue in this appeal is whether s 116(2)(a) comprehends property in respect of which an order has been made under s 79 for the benefit of a party to proceedings under Part VIII. In Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71 Lindgren J observed at [41]: ….the effect of ss 58(1), 116(1) and (2)(a) and the definition of 'the property of the bankrupt' in s 5(1) is that the property which vests in the trustee in bankruptcy is to be identified as at the commencement of the bankruptcy…, and that there is excluded property which the bankrupt held in trust for another person as at that date. The matter was discussed more comprehensively, though with different emphasis, by Beaumont J in Sonenco (No 77) Pty Ltd v Silvia (1989) 24 FCR 105 at 112. 17 In my opinion, there are no compelling reasons for this Full Court to adopt an approach to the interaction of these legislative provisions different to that adopted by the Full Court in Mateo. It is true that the members of the Full Court approached the matter by considering whether an equitable interest vested when an order was made under s 79 altering the interests, of the parties to a marriage, in property. It is not necessary to determine whether the transfer of an equitable interest creates a trust enforceable in equity or an interest of some other character deriving from statute: see, for example, The Registrar of the Accident Compensation Tribunal v Commissioner of Taxation of the Commonwealth of Australia (1993) 178 CLR 145 at 181 and The Wik Peoples v Queensland (1996) 187 CLR 1 at 187 per Gummow J. It is sufficient that the Full Court concluded in Mateo that it was an interest which defeated the rights of a trustee in bankruptcy to the property for distribution amongst creditors. 18 I would dismiss the appeal with costs. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore. Associate: Dated: 28 October 2004 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 677 of 2004 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA IN THE MATTER OF TINA DANIEL: BETWEEN: MICHAEL GREGORY JONES (AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF TONY DANIEL) APPELLANT AND: TINA DANIEL RESPONDENT JUDGES: HILL, MOORE AND ALLSOP JJ DATE: 28 OCTOBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT Allsop j : 19 I have had the advantage of reading in draft the reasons and proposed orders of Moore J. I agree with his Honour's reasons and proposed orders. I wish only to add the following comments. 20 Section 79 of the Family Law Act 1975 (Cth) deals, as the High Court said in Mullane v Mullane (1983) 158 CLR 436, 445, with orders which work an alteration of the legal or equitable interests in parties or either of them. Thus, an express and immediate vesting order could be made. There was nothing to suggest in the reasons for judgment of Coleman J in the Family Court (or of the Family Court in Mateo, as far as can be gleaned from the judgment of the Full Court in Mateo) that any suspension of effect of the orders made was intended. It would perhaps have been clearer if the immediately dispositive effect of the orders here had been identified expressly. Nevertheless, the orders here, though not expressly dispositive, made as they were against the background of s 79 and in light of the reasoning in Mateo, should be taken to have the effect found by the primary judge. I certify that the preceding two (2) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop. Associate: Dated: 28 October 2004 Counsel for the Appellant: M Aldridge SC with T Hall Solicitor for the Appellant: Turner Freeman Solicitors Counsel for the Respondent: S Y Reuben with D Dura Solicitor for the Respondent: Browns the Family Lawyers Date of Hearing: 19 August 2004 Date of Judgment: 28 October 2004