LIMITED DISTRIBUTION 6 CATCHWORDS BANKRUPTCY - Application by trustee for surplus funds upon sale of land by mortgagee - Claim made by former de facto wife of bankrupt - Whether land held by bankrupt in trust for former de facto wife - Inconsistent evidence of former de facto wife - Significance of Deed of Settlement in relation to trust property. Bankruptcy Act 1966 W.685 of 1983 Re DAVID HENRY; arte BRIAN R SILVIA v_ ANNE EL ENGLISH Wilcox J Sydney 5 June 1986 LIMITED DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF No. W.685 of 1983 THE STATE OF SOUTH ES AND THE AUSTRALTAN CAPITAL TERRITORY eer eee ee eee ee RE: DAVID HENRY Bankrupt EX PARTE: IAN R SILVIA Applicant Trustee AND: ANNE ELIZABETH ENGLISH Respondent CORAM: WILCOX J PLACE: SYDNEY DATE: 5 JUNE 1986 MINUTES OF ORDER LIMIT DISTRIBUTION INTHE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND No. W.685 of 1983 Sd THE AU 'OR RE: VID HENRY a Bankrupt EX PARTE: BRIAN R SILVIA Applicant Trustee AND: ANNE ELIZARETH ENGLISH Respondent CORAM: WILCOX J PLACE: SYDNEY DATE: 5 JUNE 1986 is) SONS FOR There is before the Court an application made by Brian Raymond Sylvia, the trustee of the bankrupt estate of David Henry. Mr Henry was made bankrupt on 25 July 1983. The rk ee ee | application concerns the beneficial ownership of a sum of $9,712.17 which represents a surplus following the sale as mortgagee by the National Australia Bank of a property at Port Douglas in North Queensland which is identified as lot 63 on registered plan 26859 being situate in Whelk Street, Port Douglas. That parcel of land was purchased for the sum of $20,000.00 pursuant to a contract entered into by the bankrupt some time in August 1982, which contract was apparently settled in about November 1982. The National Bank made a loan of $15,000.00, the borrower being named as the bankrupt, David Henry. Apparently the amount realised on sale exceeded the purchase price of $20,000.00, hence the surplus in relation to which the application arises. The relief sought in the original Application dated 19 March 1986 was for an order that the National Australia Bank be ordered to make available to the trustee the funds held in an account styled B R Sylvia, trustee for the bankrupt estate of David Henry, in which account the relevant sum of money is held. Subsequently leave was given to the applicant to amend his Application so as to seek certain declaratory relief. THE COURT DECLARES THAT: (a) The respondent, Anne Elizabeth English, has no interest in the funds realised from the sale of land at Port Douglas comprised in Certificate of Title Volume N939 Folio 46. (b) The applicant, Brian Raymond Silvia, as Trustee for the Bankrupt, David Henry, is entitled to the funds realised from the sale of the said land. AND THE COURT ORDERS THAT: ee 1. The respondent, Anne Elizabeth English, pay to the applicant, Brian Raymond Silvia, his costs of this application. NOTE Settlement and entry of orders is dealt with by Bankruptcy Rule 124. A claim is made to the subject sum by Anne Elizabeth English, the former de facto wife of the bankrupt. It appears that Miss English lived with the bankrupt for a period of about eight years from 1976 to early 1984. During that time a business was commenced under the name of Oriental Pacific. Trading Company. This business was apparently concerned with the wholesaling of fashion accessories and perhaps other articles of accoutrement. The business name was registered under that name on 15 May 1980. The application for registration which was lodged by Miss English stated that she was the proprietor of the business and that it had commenced on 28 March 1980. The records of the Corporate Affairs Commission indicate that on 28 April 1981 a statement of change in persons in relation to whom the business name was registered was filed. This document stated that Miss English had ceased to carry on the business under the business name and that David Henry was carrying on the business. There was no subsequent document in relation to the business so that at the period with which this matter was concerned the business continued to be carried on under a name in respect of which Mr Henry was the registered owner. According to Miss English she and Mr Henry visited North Queensland about July 1982, perhaps shortly before the beginning of July. They returned in late July or early August. During their first visit Misa English had become ; attracted to the notion of buying a block of land in the Port \ \ Douglas area and had inspected the land in Whelk Street which was subsequently purchased. However, as I understand her evidence, she had not then made any firm decision to purchase that allotment. Upon the return visit she pursued the matter of purchasing a biock of land and in early August a decision was made that the land would be acquired. As I have said, the contract was signed in August but the contract does not include a date. The loan funds were supplied by the National Bank Pursuant to an application which was dated 4 August 1982 and —— _7 which was signed by both Mr Henry and Miss English, she using for that purpose the surname of Henry. The application sets out particulars of the financial position of the applicants, those particulars being intended to be read as referring to Mr Henry rather than to Miss English. The employer is stated as - being Oriental Pacific and the position held is stated as wa being Sales Manager. Against the inquiry for name and titie . of superior is inserted the words, "A. English - proprietor of firm". Against the inquiry, is wife or husband employed, the answer, "No" is supplied. The document seta out two statements as to earnings which are mutually inconsistent. Against a figure for salary/wages per annum is inserted the figures $45,000.00 but the net take-home pay per month is stated as $2,700.00. On a following page the name of the "prime income earner" is shown as David Henry. The clear impression to be gained by anybody reading this application i: that Mr Henry is the primary income earner in the family and D that he did so pursuant to employment as Sales Manager of a firm known as Oriental Pacific conducted by Miss English. The evidence given in this case is inconsistent with any such picture. Miss English has said that in fact Mr Henry had lost interest in the business of Oriental Pacific by early 1982 and had decided to commence a scuba diving business. The scuba diving business not only returned no income to the family during the period early 1982 to late 1982 but in fact required the injection of capital from Miss English's earnings in the business formerly conducted by Oriental Pacific. I use the word "formerly" because Miss English denies that the party carrying on the business as of August 1982 was still Oriental Pacific. She said that she carried on the business under her own name, aithough payments were normally made either in cash or by cheques in favour of D Henry. Mr Henry had a bank account, namely an account at the National Bank, Spit Junction Branch, but Miss English had no account herself. According to her evidence, her earnings from the business were of the order of $2,500.00 to $3,000.00 per month and she was the support of the family, there being two young children as well as Mr Henry and herself. Miss English claims that she paid the initial deposit of $2,000.00 by moneys raised from a Bankcard account which she was permitted to open by the manager of the National Bank, Spit Junction. She says -- and this clearly appears to be accurate -- that she was able to borrow $2,000.00 on Bankcard and that that amount was paid into the bank on 12 October 1982. There has been tendered in evidence a receipt issued by the bank of that date acknowledging a receipt on account of David Henry of $2,000.00 for, "Deposit for land, Port Douglas. Settlement impending. Held in trust until settlement". I have some difficulty in reconciling the details of that receipt with the evidence of Miss English that she paid the $200.00 holding Geposit in August and subsequently she paid a separate sum of $1,800.00. The $2,000.00 suggests that nothing had been paid until a point very close to settlement. However, this may not be a matter of particular moment. There has also been produced a receipt dated 8 October 1982 issued by the bank, acknowledging the receipt on account of David Henry of $4,000.00, the details of which are described as follows: "Part deposit on land. Settlement due 11.10.82. Held in trust until then". It seens to be clear that the bank did in fact advance $15,000.00 pursuant to the application of 4 August 1982. Of this advance, §14,000.00 approximately was required in order to complete the purchase. No doubt there were some incidental expenses borne out of the remainder of the loan. The source of the $6,000.00 contributed in the name of Mr Henry is therefore a matter of some importance. As I have said, the evidence indicates that Miss English did in fact raise $2,000.00 by Bankcard advance and that this was the amount paid into the bank on 12 October. However, it appears that on 29 November 1982 Mr Henry paid out of his account to Miss English's Bankcard account the sum of $2,022.00. The only inference I can draw is that this was intended to repay the debit in the Bankcard which had been incurred in order to provide $2,000.00 needed for the deposit. Consequently, nothing much turns on the fact that the $Z,000.00 was originally contributed by a loan arranged in her own name by Miss English. —— —_— en ; As to the other $4,000.00, the explanation given by — Miss English was-that this came from cash that she was holding at home. She claimed that her custom was to keep large sums of money at home for use as required. Her claim is uncorroborated. No evidence has been adduced from her former de facto husband or from any officer of the bank, or indeed, from anybody else who can confirm that she was the source of the $4,000.00. The critical question in the case is whether I accept Miss English's evidence that she was the main breadwinner in the family and that the moneys used for the $4,000.00 payment and for the repayment of her Bankcard loan were her own earnings or the earnings of her husband. I have already referred to the fact that the evidence she has given in these proceedings is totally inconsistent with the information put before the bank at the time. It seems to me somewhat unlikely that the bank would have been given such misleading ® information. The manager of the bank must have had a substantial knowledge of the financial affairs of the couple. I think it is unlikely that Mr Henry and Miss English would have set out to mislead him in such a blatent manner as would be required for the information given to the Court to be accepted as correct. Secondly, it is of some significance that in a letter written by the solicitors for Miss English to the solicitors for the trustee on 22 May 1985 the statement was made in regard to Oriental Pacific Company: "Our client had very little knowledge of the company's operations and did not achieve any financial gain in her position as director." The reference to "director" is inappropriate for a registered business name but I think that the import of the statement is that Miss English disclaimed any active participation in the affairs of that business. By contrast, her evidence in this case is that, although Mr Henry had taken over the proprietorship of the business in April 1981, she had been the person responsible for the conduct of the business at least throughout 1982. According to her evidence, it was her efforts which had earned the not inconsiderable return achieved by the business during that period. I cannot reconcile that evidence with the statement made by her solicitors, as she acknowledges, on her instructions. The picture that was given, both to the bank and through the solicitors before these proceedings commenced, was of 2a trading operation conducted entirely by Mr Henry and in relation to which she had no function, or certainly no active business function. The picture she has given here is of herself running the business, earning the income and actually subsidising Mr Henry. I think that the more reliable picture is that given by the earlier documents, and I do not accept the evidence that she has given. By way of an alternative, the solicitor for Miss English relies upon a document called a Deed of Settlement to the Anne English Trust. This document was tendered in evidence. It is a lengthy deed of settlement, following a familiar form used for family trusts. The document shows the date of making the deed as being 1 July 1982. The settior is John Alexander Coddrington who, according to Miss English, is an accountant. The trustee is Mr Henry and the named beneficiary is Miss English. The original settlement sum was $10.00. The schedule includes a reference to the land at Port Douglas, against the line "trust property". However, the deed does not itself deal in any direct way with this property. The only provision in the deed which would seem to have anything to do with this land is contained in cl.21(d) which is a clause conferring upon the trustee an additional power, inter alia, to purchase real estate. It is remarkable that a ee we pete ne, ay mee we 10. property which was sufficiently significant to be included in the trust property is not the subject of some specific provision in the deed. One other remarkable characteristic of the deed is the date on which it is alleged to have been executed. I have already indicated that the contract to purchase this parcel of land was not entered into until August and that, according to Miss English's evidence, she did not settle upon the purchase of this land until either late July or early August. Under those circumstances, it seems to me highly unlikely that on 1 July the parties executed a deed of settlement referring to this particular parcel of land. If there was some concern to —_" protect Miss English, I should have thought that the normal course would be for the parcel of land to be secured by a contract and a deed of trust then executed. To reverse the order of these events seems to go to unnecessary trouble if, as would have been quite possible, the vendor in the meantime sold the property to someone else. The deed was stamped; but only with a nominal 30 cent stamp duty and the stamp bears no date. Mr Coddrington has not given any evidence as to the making or date of the deed, although he executed the deed as settior. The explanation given for entering into the deed is that Miss English had no credit rating and consequently that she and Mr Henry had been advised that the land should be taken in Mr \ Henry's name. If the purpose was so limited, I would have thought that a document specific to this parcel of land would have been more appropriate, but it is possible that Mr Coddrington chose to use a general form of the deed and nothing turns upon that. However, I am not satisfied that the deed was executed at any relevant time. Nor am I satisfied that, in making the payments for the property which he did in fact make, Mr Henry purported to do so as trustee of the settlement as distinct from on his own account. iS I have some sympathy for the position in which Miss English finds herself. Her relationship with Mr Henry has broken up. The parcel of land which she wished to acquire has had to be sold and she finds herself without any claim to the surplus which was made. However, an entitlement to recover the sum must depend upon her satisfying the Court that Mr - Henry was a trustee of that property on her behalf. I do not think that such a claim has been made out. Accordingly [f propose to accede to the application for the trustee. I make the following declarations: 1. That the respondent, Anne Elizabeth English, has no interest in the funds realised from the sale of the land at Port Douglas comprised in Certificate of Title Volume N939 Folio 46; and 12. 2. That the applicant, Brian Raymond Silvia, as Trustee for the Bankrupt, David Henry, is entitled to the funds realised from the sale of the said iand. I order that the respondent, Anne Elizabeth English pay to the applicant, Brian Raymond Silvia, his costs of this application. I certify that this and the eleven (11) preceding pages are a true copy of the Reasons for Judgment of his Honour Mr Justice Wilcox. Associate: "VO-AZ. A. Ha-Lt0r . Date: 25 June 1986 Counsel for the Applicant Trustee: Mr J E Thomson Solicitors for the Applicant Trustee: Messrs Cotter Roberson & Webb Appearance for the Respondent: Mr M Saunders, Solicitor Solicitors for the Respondent: Messrs Forsters Date(s) of hearing: 5 June 1986