care s Bankruptcy - property transferred to son of bankrupt - whether bt settlement within =.120/1) Bankruptcy Act 1966 - whether promise to discharge future outgoings in respect of the property and to manage property constituted "valuable consideration" for purpcse of s.220(1)(a) - contract for sale - whether a sham transaction. " Bankruptcy Act 5.120. \ Barton v. Official Receiver (1985) 58 A.L.R. 328. Rimar Ptv. Ltd. v. Pappas (1985) 64 A.L.R. 9. Bovdeli v. James (1936) 36 S.R. (N.S.W.) 620. Mullens Investments Pty. Ltd. v. Federal Commissioner of Taxation (1976) 1355 C.L.R. 290. —r—- =n iter ROBERT TRIMBOLE (Bankrupt), EX PARTE MAX CHRISTOPHER DONNELLY, Trustee of the Estate of the Bankrupt (Applicant), CRAIG GRAINGER - | TRIMBOLE (First Respondent), WATER RESOURCES COMMISSION (Second ~ | Respondent). ce ee No. NSW W1171 of 1986 -— er we ee n Beaumont, J. Sydney we he / 11 July 1986 SS ete et ee eae te wet ee -dmee sae IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION No. NSW 1171 of 19286 eww He we EANKRUPTCY DISTRICT OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY) RE: ROBERT TRIMBOLE ' Bankrupt EX PARTE: MAX CHRISTOPHER DONNELLY Trustee - of the Estate of the Bankrupt Applicant CRAIG GRAINGER TRIMBOLE First Respondent ; "sp WATER RESOURCES—COMMISSISN - - Second Respondent - MINUTES OF ORDER ° ere weeee ete wees 'Judge making order: Beaumont, J. Date order made: 11 July 1986 i permet Where made: Sydney THE COURT ORDERS THAT: 1. Declare that the disposition by the bankrupt to the first respondent of the property being Irrigation a ears Oe Farm Lease Number 1961 in the Mirrool No. 1 Irrigation Area in the Parish of Naunton County of. eaee were eee te ee eee ee - tame oe soo TY (LES Note: to Cooper Land District of Mirrool in the State of New south Wales, together with the improvements erected thereon ("the property") is void as against the applicant. The first respondent transfer the property to the applicant as the trustee of the estate of the bankrupt. The first respondent pay the applicant's costs. Reserve liberty to the applicant to apply for further relief in the event that the property is not transferred to him in accordance with the previcus order. Settlement and- entry of orders is dealt with in Order 36 of the Federal Court Rules. . IN_THE FED AL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF NEW SOUTH WALES No. NSW W1171 of 1986 were ever AND THE AUSTRALIAN CAPITAL TERRITORY) ' RE: ROBERT. TRIMBOLE Bankrupt ' EX PARTE: MAX CHRISTOPHER DONNELLY Trustee of the Estate of the Bankrupt Applicant a CRAIG GRAINGER TRIMBOLE — First Respondent WATER RESOURCES COMMISSION Second Respondent "Sth ay ty Te CORAM: Beaumont, J. Sewer ra DATED: 11 July 1986 : "REASONS FOR JUDGMENT _ The applicant seeks a declaration that the disposition 4 by the bankrupt to the first respondent, a son-of the bankrupt, of an Irrigation Farm Lease is void as against the applicant, as me , trustee of the estate of the bankrupt, by reason of the provisions of 3.12011) of the Bankruptev:Act 1966 (the Act). By | 3.120 - | "(1) A settlement of property...not being - (a) a settlement made before or in / B egy wee ee ee er eree Lf etgnernenmeqerneere eo, " Po t eoren +a Te, a te PU Abe 2 i Le od feu i a against the ta consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or (6) a settlement mace 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...within 2 years before, the commencement of the bankruptcy, void as against the trustee in bankruptcy. eee (3) In this section, "settlement of property includes any disposition of property". On 3 December 1985, a sequestration order was made estate of the bankrupt. The petitioning creditor, the Deputy Commissioner of Taxation, in his..petition presented on 24 August 1984, alleged that the bankrupt was indebted to him in "the sum of 31,956,038. 67, being -the amount — due 'under 2- judgment... obtained in the Supreme Court of New South Wales on 28 December 1983 together with interest on the judgment. The petitioning. creditor relied from bankrupt, with intent to defeat or delay his creditors, remained out of Australia. 25 February 1984 and continuing thereafter on an act of bankruptcy alleged to be committed that the The disposition of property now challenged is - a transfer of property-.dated 26 August 1982 and registered on 24 November 1982 ("the transfer"). The applicant contends that since the bankruptcy commenced on 25 February 1984, the transfer constituted a disposition of property within the two year period provided by s.120({1). ee nn cr ene > er mee at nn ee ere eeee peel There 153 no real dispute about the facts. The bankrupt was the proprietor of a holding under the Crown Lande : Consolidation Act 19135 (N.S.W.) situated an the Land District af Mirrool being Irrigation Farm Lease No. 1961 Mirrool No. 1 Irrigation Area, having an area of 178 ha. Since at least 1976, the bankrupt farmed and grazed the property, usually under a sharefarming arrangement. The bankrupt and his family, including the first respondent, carried out improvements to the property from time to time. In 1979. in discussions with members of his family, the bankrupt proposed that he make a gift of the property eee ae ee ' to his sons, including the first respondent. However, | nothing was done to carry the proposal into effect. In March 1380, the bankrupt told the first respondent: 2 ee Providing you work this farm, I want you to have _ _._ id "it." -- - - --. 7 The first respondent replied: ? "Yes, I'll take full responsibility for the whole ; farm, I'll work it and I'11l pay off all the debts and bills." 7 It appears that the reference to the "debts and bills" was intended to refer to future outgoings only: it is commcn ground that the property was not mortgaged and as at the time of " the transfer, current outgoings, including irrigation fees,-had - been paid as they fell due. It further appears that the reference to "working" the farm was not intended to suagest that a the first respondent should personally be involved in the management of the farm operations. What was apparently intended ae ee Teta tee Pa] ie? ee he) CoeS Or i was that the property should be managed by the first reepondent under a sharefarming arrangement with another party, as had previously been the case. This has, in fact, happened. On 7 May 1981, the bankrupt departed Australia. Shortly before his departure he executed a aqeneral power of attorney, bearing date 16 May 1981, in favour of the first respondent. On 10 August 1981, the Commissioner of Taxation issued amended assessments in respect of the taxable income of the bankrupt requiring payment by 11 September 1981 of income tax in the sum of $1.3 million approximately. Payment was not made. It appears that the debt owed to the Commissioner was the subject of the Supreme Court judgment. It further appears that in 1982, the first respondent gave instructions to Mr. Simon Mackenzie, a Griffith solicitor, to transfer the property to himself. Neither the bankrupt nor Mr. Mackenzie was called to give evidence. However, the applicant called Mr. R.A. Vardanega, another Griffith solicitor and a partner of Mr. Mackenzie. According to Mr. Vardanega, Mr. Mackenzie asked him to act on the transfer of the property fron the bankrupt to the first respondent. No details of these instructions emerged from the evidence. - Mr. Vardanega assumed that the transfer should be implemented by the execution of a contract for sale ata price equal to the Valuer-General's valuation of the property. ~ Mr. Vardanega obtained that ae — Wet ee ee -- te ee valuation. He then drew up a contract (the contract) for the sale of the property by the bankrupt to the first respondent. The contract. dated 6 May 1982, was executed by the first respondent, as attorney for the bankrupt, as vendor and by the first respondent as purchaser. It provided for a purchase price of $330.000.00 which was the Valuer General's valuation. A a@eposit of 51,000.00 was to be paid upon the signing of the contract. It was provided that, until the deposit was paid, the vendor was not bound by the contract. The balance of the purchase price was payable in cash on completion. Mr. Vardanega said that the transaction took the form of a contract for sale rather than a transfer by way of gift in order that an appropriate amount of stamp duty might be paid in respect of the po transaction. However, it is common ground that neithér the parties nor solicitors ever intended that the purchase price of 2230,000.00 be paid. - Despite the facts that neither the deposit nor the balance purchase price was paid, steps were taken to transfer the property to the first respondent. A transfer inthe form provided by the regulations made under the Crown Lands (Consolidation) Act was drawn up by Mr. Vardanega. It described the transfer as by way of sale. It was dated 26 August 1982 and was executed by the first respondent, as attorney for the bankrupt, as transferor and by the first respondent as transferee. Stamp duty was paid on the contract and on the transfer. The transfer was registered on 24 November 1982, -. . or ws . weet — we rr re tn re en | at ee re ew meen = ten = eee ere - fh ame re - OF Sete Pee TP ee en Se Se ert presumably after the second respondent had consented to the transfer pursuant to 5.145A of the Crown. Lands (Consclidation? Sct. It was not disputed by the first respondent that the transfer was capable of constituting a "settlement" for the purposes of s.120(1) and (8) (see Barton v. Official Receiver (1985) 58 A.L.R. 328 per Fisher J. at p.336; per Lockhart J. at pp. 342-3). The argument put on behalf of the first respondent was that the "undertaking" given by him to the bankrupt in March 1980 that. upon the vesting of the property in the first respondent. he would discharge the future outgoings incurred in respect of the farn, should be regarded as "valuable consideration" for the purposes of s.120(1)(a). It was implicit, if not explicit, ain the way the case was conducted on behaif of the first respondent that inthe events which happened, the contract itself did not in fact provide any valuable consideration. In my opinion, for reasons which I will elaborate later. but in essence because' the contract was a sham transaction, this concession was correctly made on behalf of the first respondent. Before turning to the question whether the first respondent's "undertaking" provided "valuable consideration" within the meaning of 5.120(1)(a), it is convenient to mention an argument advanced on behalf of the applicant. It was submitted on behalf of the applicant that the contract was discharged upon the failure of the first retpondent to pay the deposit. It was submitted that this provision constituted a condition precedent to the operation of the contract and that failure to perform the promise to pay the deposit avoided the contract. The difficulty in accepting this submission is that the subsequent conduct of the parties indicated an intention on the part of the vendor to waive any obligation to pay the deposit: the transfer, expressed to be by way of sale, was consistent only with such a waiver, or at least an election to affirm the contract notwithstanding non-payment of the deposit (see Sargent-v. A.S.L. Developments Pty. Lid. (1974) -_ a 121 C.L.R. 634; cf. Goodwin v. Temple (1957) 9.5.R. 376 (H.C.)). _— On the other hand, it may be that the contract could have been avoided as a transaction made by the first respondent in breach of his fiduciary obligations as attorney for the bankrupt (see Finn, Fiduciary Obligations Ch. 20); Halsbury's Laws of England, 4th ed., Vol. 1 at p.461 para.771; pp.470-1 para.7B7. However, it is not necessary to pursue these questions. In my view, the contract was a sham transaction in the sense that it was never intended by either party to have any legal effect. It was set up as @ mere pretence to cloak a different transaction, namely, that of a gift. The parties never intended that the transaction be one of sale - it was never intended that - Jeu. ee re tote en "a we eT I eR oe ce ep foros cron ' ' ~ emer a ir ala The i? b ace ee 8 te rita) - A a ' mt Ae se me ety eee we ee te ee we. the firet respondent pay $330,000.90 or any other sum of money for the property. The intention of the parties was that the transaction be one of gift. It follows, I think, that the contract document is wholly inoperative and that the only subsisting transaction is that of the transfer which was intended by both parties to be cperative (see Boydell v. James (1936) 36 S.R. (N.S.W.) 620 per Jordan C.J. at p.627; Mullens Investments Pty. Ltd. v. Federal Commissioner of Taxation (1976) 135 C.L.R. 290 per Stephen J. at pp.314-316). The question, however, remains whether, as the applicant contends, the transfer was by way of gift or, as the first respondent contends, the transfer was supported by the alleged collateral consideration consisting of the "committment" on his part. to meet future outgoings. The answer to this question depends upon the meaning of the term "valuable consideration" where used in s.120(1)(a) and its application to the facts of the case. . —_ The authorities dealing with the meaning of "valuable consideration" for the purposes of $.120(1)(a) were reviewed by Gibbs C.J. in Rimar Pty. Ltd. v. Pappas (1985) 64 A.L.R. 9 at p.15. As Gibbs C.J. there observed, such consideration need neither move to the bankrupt nor be equal to what has been taken from the estate of the bankrupt in the transaction. At the same time, however, the consideration mentioned in s.120(1)(a) must have a "real and substantial value and must not be merely wet eee ee =: we eye ere ee ee iene "ak ~~ Se elie ide ne te ie nominal, trivial or colourable." -In my opinion, the "undertaking" given by the farst respondent to the bankrupt that he would discharge future outgoings incurred in respect of. the property did not constitute "valuable consideration" within the meaning Ge s.120(1l)(a), According to the valuation of the Valuer-General, the property was worth $330,000.00. In return for this, the first respondent did no more, in substance, than indicate to the bankrupt that it was his intention to meet his future commitments in respect of the property. These commitments were not, of course, something for which the bankrupt could in any sense be said to be liable: __-Once the_ property was transferred beneficially to the first respondent, those liabilities were his alone. There was thus no benefit to the bankrupt in the transaction. On the contrary, he parted with property of the value of $330,000.00. Nor was there any detriment to the first respondent. He received the benefit of the gift of the property in return for an indication to the . bankrupt that he would meet future commitments in respect of the property. The giving of that indication or "undertaking" could involve no detriment to the first respondent. He was already bound to the parties concerned to honour those commitments. Independently of these considerations, it is possible that the "undertaking" given by the first respondent was, in any event, unenforceable because it was not intended to effect legal relations between the parties (see Balfour v. Balfour [1919] 2 <a en Ae tha et a ee 10. K.B. £71; Cohen v. Cohen (1929) 42 C.L.R. 91). However, in the light of the conclusion I have reached that any such consideration was illusory, it is unnecessary to pursue the It follows, in my view, that the "undertaking" given to the bankrupt should be regarded as no consideration or, at best, from the first respondent's standpoint, an illusory consideration for the transfer of the property to the first respondent beneficially. On either view, there was no "valuable considération" for the purposes of s.120(1)(a). Accordingly, I propose to grant the relief sought. I make the declaration asked in para. 1.B of the application. I make order 2 as asked. I crder that the first respondent pay the applicant's costs. Since the second reéspondent did not appear, no order for its costs should be made. I reserve liberty to the applicant to apply for further relief in the event that the property is not transferred to him in accordance with the- previous order. Counsel and Solicitors Mr. C. Darvall Q.C. and for Applicant: Mr. FP. Urquhart instructed by the Australian Government Solicitcr. Counsel and Selicitors Dr. G. Woods 9.C. and for Respondent: Mr. J. Foley instructed by Messrs 0O'Connor Bellamy. Dates of hearing: 2 July 1986 \ Date Judgment Delivered: 11 July 1986 a