" ges Bankruptcy - prererence - caravan used by bankrupt and husband trading in partnership - arrangement whereby bankrupt agreed to return to the respondents caravan being purchased by instalments from the respondents in lieu of payment of arrears and site fees owing - application by trustee to set aside arrangement as preference - whether property in caravan had passed to partnership under agreement to purchase - effect of earlier decision by court that bankrupt had no property in the caravan - whether bankrupt's interest in caravan as partner divisible property vesting in trustee - consideration of effect of bankruptcy of one partner Bankruptcy Act 1966 s.110, para.116(1)(a) and s.122 The Sale of Goods Act, 1895 (W.A.) ss.17, 18 The Partnership Act, 1895 (W.A.) sub-s.44(1), 5.57 RE: JANINE MAREE TARRANT - Bankrupt EX PARTE: BERNARD PUTNIN ~ Applicant CECIL WALTER JEFF'S and MARJORIE ELAINE JEFF'S - Respondents TOOHEY J. PERTH 26 JUNE 1985 IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA JUDGE MAKING ORDER DATE OF ORDER WHERE MADE ~ewrr No. 189 of 1984 BETWEEN: RE: JANINE MAREE TARRANT Bankrupt EX PARTE: BERNARD PUTNIN Applicant and CECIL WALTER JEFF'S and MARJORIE ELAINE JEFF'S Respondents MINUTE OF ORDER Toohey J. 26 June 1985 Perth THE COURT ORDERS THAT: The transaction entered into between the bankrupt and the respondents on or about 14 March 1984, in relation to a Capricorn 27 caravan situated at site 32, Kalgoorlie Caravan Park, Lower Hannan Street, Kalgoorlie, is void against the applicant pursuant to s.122 of the Bankruptcy Act 1966. There be liberty to the parties to apply for any further orders that may be appropriate by reason of the order made in paragraph 1 hereof. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA No. 189 of 1984 BETWEEN: RE: JANINE MAREE TARRANT Bankrupt EX PARTE: BERNARD PUTNIN Applicant and CECIL WALTER JEFFS and MARJORIE ELAINE JEFF'S Respondents CORAM: TOOHEY J. 26 JUNE 1985 REASONS FOR JUDGMENT This is an application under s.122 of the Bankruptcy Act 1966. The trustee of the bankrupt Janine Maree Tarrant seeks an order avoiding a transaction between Mrs. Tarrant and the respondents, Mr. and Mrs. Jeffs, as a preference within the terms of s.122. The facts lie within a narrow compass. The only evidence was inthe form of affidavits by the trustee, Mrs. Tarrant and Mr. and Mrs. Jeffs. Before Mrs. Tarrant's bankruptcy, which was the result of her own petition on 2 April 1984, she and her husband John Henry Tarrant carried on business in partnership as J. & J. Tarrant Constructions, J.H. & J.M. Tarrant ana Tarrant Constructions. Mr. and Mrs. Jetfs owned a Capricorn 27 caravan situated at the Kalgoorlie Caravan Park. Mr. and Mrs. Jeffs were the managers of that park. There 1s in evidence an unsigned document dated 16 August 1983 which 1s entitled "Bill of Sale". Though unsigned, ait was accepted by the parties as evidencing an agreement made between Mr. and Mrs. Tarrant and Mr. and Mrs. Jeffs on or about that date. The document refers to the "purchase" of the caravan and contains a promise to pay the sum of $4,000 plus interest, payable over a period of 4 months commencing on 1 September 1983. Interest 12s expressed to be payable with the final instalment. The document contains this provision: "Vacant possession to be effected on the 26th August, 1983". In my view the agreement made between the Tarrants and the Jeffs was a contract for the sale of specific or ascertained goods within the meaning of s.17 of the The Sale of Goods Act 1895 (W.A.). No different intention appearing, property in the goods passed in accordance with Rule 1 of s.18 of the Act which reads: "Rule 1. Where there is an unconditional contract for the sale of specific goods, ina deliverable state, the property in the goods passes to the buyer when the contract 1s made, and it 1s immaterial whether the time of payment or the time of delivery, or both, be postponed". Counsel ror Mr. and Mrs. Jetfs submitted that. because his clients paid certain site tees and electricity charges due in respect of the caravan, the Court should ainter that property remained with them. But it 1s apparent from the affidavit of Mr. and Mrs. Jeffs tiled in these proceedings that they paid those site tees and electricity charges from the initial payment of $2,000 because they were concerned that non-payment might affect their position as managers of the caravan park. The payments are entirely neutral so far as the transfer of property is concerned. Mr. and Mrs. Tarrant paid §2,000 on account of the purchase price of the caravan but made no further payments. In early March 1984 Mr. Tarrant left Kalqoorlie and his whereabouts are unknown to his wife. Because there was money owing to Mr. and Mrs. Jeffs and to the Kalgoorlie Caravan Park, the Jeffs suqgested to Mrs. Tarrant that they refund the §2,000 and retake possession of the caravan. Mrs. Tarrant said that the Jeffs should retain the $2,000 because there was an amount in excess of $1400 owing for site fees and electricity charges and other moneys were due for wear and tear, gas and cleaning. On 14 March 1984 Mr. and Mrs. Jeffs signed a document reciting the failure to pay the purchase price of the caravan and concluding: "let at be known that we Cecil Walter & Marjorie Elaine Jeffs as owners of same have been repossessed from the above date". Although counsel for Mr. and Mrs. Jeffs arqued that there was merely a retaking of possession by his clients, I am of the opinion that on 14 March 1984 or thereabouts there was a 4. retransrer of tha property in the caravan tc Mr. and Mrs. Jeffs, No reference was made by counsel for the parties to any implications the Bills of Sale Act 1899 (W.A.) might have for this transaction. Nor was anv point made of the fact that Mr. Tarrant apparently was not a party to what took place in March 1984. It seems to have been assumed by the parties that the caravan was an asset of the partnership (an assumption which was probably qustified by Mrs. Tarrant's reference to the caravan "being used by our firm ta accommodate our workers in Kalqgoorlie"), and further assumed that Mrs. Tarrant had her husband's authority, express or implied, to effect a retransfer. The parties were before the Supreme Court of Western Australia in its bankruptcy jurisdiction late last year onan application by the present applicant as trustee in bankruptcy of Mrs. Tarrant for a declaration that the caravan was the property of Mr. and Mrs. Tarrant as tenants in common in equal shares. The Supreme Court dismissed the application on the ground that Mrs. Tarrant had no property in the caravan, either because there was no transfer in the first place or because, if there was a transfer, there was a retransfer to Mr. and Mrs. Jeffs. The decision of the Supreme Court does, I think. create an issue estoppel between the trustee and Mr. and Mrs. Jeffs, at least in terms that property in the caravan 1s presently in Mr. and Mrs. Jeffs. However I have not reached my conclusion regarding the retransfer on that consideration alone. The transfer of the caravan to Mr. and Mrs. Jeffs occurred within 6 months before the presentation of a debtor's petition by Mrs. Tarrant which was presented on 2 April 1984. 5. There 15 no doust that at the time ot tne transfer Mrs. Tarrant was unable to pav her debts as thev became due from her own money. The transfer was a transter in favour of a creditor, having the effect of qiving that creditor a preference or advantage over other creditors; hence the transaction fell within the terms of sub-s.122(1) ot the Bankruptcy Act. Nevertheless counsel for Mr. and Mrs. Jeffs submitted that s.122 had no application. The basis of this submission was in these terms. Sub-section 122(1A) applies sub-s.(1l) to a transaction by a debtor in tavour of a creditor whether or not the property transferred is his own property or 1s the property of the debtor and of another person or other persons (para. 122(1A)(b)(i)). But, counsel said, the caravan was the property of the partnership in which Mr. and Mrs. Tarrant were engaged. Counsel submitted that a firm cannot be insolvent unless all its constituent members are insolvent, relying upon Re Myerfield & Co. (1899) 20 LR (NSW) 28. In the present case only Mrs.Tarrant was bankrupt. The argument was that the property available for division among creditors is all the property that belonged to or was vested in the bankrupt at the commencement of her bankruptcy or which has devolved since the commencement of bankruptcy and before discharge - para. 116(1)(a) of the Bankruptcy Act. Section 110 provides that in the case of Joint debtors, whether partners or not, the joint estate shall be applied in the first instance in the payment of their joint debts and the separate estate of each joint debtor shall be applied in the first instance in payment of his separate debrs. Iv there 1s a surplus in the case ot anv of the separate estates, it is dealt with as part of the toint estate. If there 1s a surplus in the case of the joint estate, it 1s dealt with as part of the respective separate estates in proportion to the interest of each io0int debtor inthe 1oint estate. Yhe argument proceeded in this way. Where one partner becomes bankrupt and the other does not, and where the partnership has not been dassolved, a partner's bankruptcy operates as an assignment of all his share and interest in the partnership property to his trustee. The trustee does not become a partner and all that can be dealt with is the bankrupt partner's interest. See Lane v. Taylor (1886) 5 SCR (NSW) 84. The point of the submission was to arque that no partner has an exclusive interest in partnership property or any part of it during continuance of the partnership and that it was for the trustee to aindicate to the Court the character in which he made his claim and to identify precisely the interest he claimed. It was not enough to contend that the caravan belonged to Mr. and Mrs. Tarrant 1n equal shares. I accept much of the respondent's submission but do not think that it provides an answer to the applicant's claim. There was no evidence as to the terms of any partnership agreement, written or oral. In those circumstances, by reason of the operation of sub-s.44(1) of the The Partnership Act 1895 (W.A.), the partnership between Mr. and Mrs. Tarrant was dissolved on her bankruptcy. Ordinarily, where a partnership is dissolved by reason of the bankruptcy of one of the partners, the solvent Partner or partners are the appropriate persons to conduct the winding up which must be conducted in accordance with the procedure laid down in s.57 of the The Partnership Act. However in Re Parker (1950) 15 ABC 177 Clyne J. held at 179: "In exceptional circumstances, however, theg trustee is, I think, entitled to wind up the partnership". In that case the exceptional circumstance was that the solvent partner could not be found, a circumstance which exists in the case now before the Court. The trustee has sought, in this application, to avoid the transaction of 14 March 1984 and in this he has succeeded. For the reasons already given, he is not entitled to a declaration that the caravan is the property of Mr. and Mrs. Tarrant in equal shares. It is the property of the partnership and must be dealt with accordingly. I shall hear from counsel as to the orders that are appropriate in the circumstances. However there have been already two applications to the Court and the expense incurred may soon be disproportionate to the amount involved if indeed that is not already the case. I certify that this and the six preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Toohey Dated: 26 June 1985