CATCHWORODS settlement on children of settlor - BANKRUPTCY - voluntary whether void as against trustee - whether property accrued to settlor "in right of the spouse of the settlor"". Bankruptcy Act 1966, s.120(1)(b) RICHARD TAYLOR RE PAULINE ISABEL BROWN; EX PARTE ALAN QLD. £810/1984 ' a cc URT OF SPENDER J. X BRISBANE hs. 27 MAY, 1987. A IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD E810 of 1984 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: PAULINE ISABEL BROWN EX PARTE: ALLAN RICHARD TAYLOR MINUTE OF ORDER JUDGE MAKING ORDER: SPENDER J. DATE OF ORDEP : 27 MAY 1987. WHERE MADE: BRISBANE THE COURT DECLARES THAT: a property described as vacant land comprised in Certificate of Title Volume N1127 Folio 222 County of Carlisle Parish of Hector containing an area of 4080 square metres being Lot 125 on Registered Plan No.35290 of which the bankrupt 1s registered proprietor of an estate in fee simple as trustee belongs absolutely to the applicant as trustee of the property of the bankrupt. THE COURT ORDERS THAT: the respondent pay half the taxed costs of the applicant, including reserved costs, to a limit of $1,500.00. NOTE: Settlement and Entry of Orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD E810 of 1984 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: PAULINE ISABEL BROWN EX PARTE: ALLAN RICHARD TAYLOR DATE JUDGMENT DELIVERED: 27 MAY 1987. COUNSEL: for the applicant Mr. Morris instructed by Cooper Grace & Ward for the respondent Mr Galloway instructed by C.W. Hooper & Hooper. T. MACDERMOTT ASSOCIATE TO SPENDER J. IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD E810 of 1984 BANKRUPTCY DISTRICT OF THE SOUTHERN )} DISTRICT OF THE STATE OF QUEENSLAND ) RE: PAULINE ISABEL BROWN EX PARTE: ALLAN RICHARD TAYLOR SPENDER J. BRISBANE 27 MAY 1987. REASONS FOR JUDGMENT oO This application involves an archaic provision of th Bankruptcy Act 1966, s.120(1)(bD) which provides:- "A settlement of property, whether made before or after the commencement of this Act, not being - (b) a settlement made 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, 1f the settlor becomes a bankrupt and the settlement came into operation after, or within 2 years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy." It is an application by the trustee of the estate of Pauline Isabel Brown, bankrupt, for a declaration that the payment by Mrs. Brown of $24,129.58 from a savings account held in her name at a branch of Westpac Banking Corporation Ltd., in Mackay, to a savings account in the name of Pauline Isabel Brown as trustee for Amanda Kay Brown, Angie Louise Brown and Melanie Fay Brown constituted a settlement of that property by her and was and remains void as against the trustee by force of 3.120 of the Bankruptcy Act 1966. Alternatively, the trustee claims a declaration that it was a fraudulent disposition of property and void as against the trustee by virtue of s.121 of the Bankruptcy Act 1966. The application seeks a declaration that a piece of vacant land in Mackay, being Lot 125 on Registered Plan No.35290, of which the bankrupt is registered proprietor of an estate in fee simple as trustee, belongs absolutely to the applicant as trustee of her estate onthe ground that that property was purchased by the application of the proceeds of the payment from the savings account of Mrs. Brown to the savings account in her name as trustee for the three children. In opposition to the making of those orders, Mrs. Brown gays that the sum of $24,129.58 came to her by way of a matrimonial property settlement with her husband, Robert William Brown, and that the payment made by her from her savings account to the account in her name as trustee for her children was made in good faith for the benefit of those children. She asserts that the trust by which she holds certain vacant land as trustee for her children was established bona fide in the interests and for the benefit of the said children and that all the transactions in which she was concerned were carried out by her in good faith and without intent to defraud her creditors. Mrs. Brown married her husband in 1974. In that year, an acre of land in Gatton, Queensland, was acquired by Mrs. Brown and her husband from his mother and in the following year a dwelling was built on that block of land. Mrs. Brown, during the course of her marriage was concerned with the rearing of three daughters; Amanda, born on 24 August 1975, and twins, Angie and Melanie, born on 5 June 1981. Mrs. Brown was a partner with her husband in a_ trucking business. She performed the banking and kept records of the business. She separated from her husband in 1983 and, on legal advice, she and her husband executed a deed on 16 November 1983, whereby the parties agreed that the husband would transfer to the wife his interest in the former matrimonial home. The wife would relinquish all her interest in respect of a 1978 International prime mover and in a Hallmark trailer. The deed recites that it was entered into by the parties in substitution for and in extinguishment of any rights which each may have against the other in respect of maintenance and settlement of property. A Mr. Luscombe, a stipendiary magistrate, on 20 December 1983, approved the deed pursuant to s.87 of the Family Law Act 1975. Subsequent to that agreement and the approval of the deed, Mrs. Brown sold the former matrimonial home and she banked the proceeds of sale received, $24,129.58, into her savings account at the Victoria Street, Mackay branch of the Westpac Banking Corporation. Her bank book shows that on 2 February 1984, $18,100.00 was withdrawn from that account. That money was placed in equal shares in three separate savings accounts which Mrs. Brown held as trustee for each of her three daughters. While Mrs. Brown concedes that "the bulk" of the nett proceeds from the sale of the matrimonial home was placed in accounts in trust for her children, the evidence, including her own savings account passbook, does not permit a finding of the amount settled on her children at any higher figure than $18,100.00. Mrs. Brown purchased a block of vacant land at Windsor Drive, Timberlands, Alligator Creek, just outside Mackay, and used for the purchase price the three funds that she held in trust for her children. She holds the land as trustee for her three daughters. The purchase price was $17,500.00. The Memorandum of Transfer of the Mackay land is dated 16 March 1984. On 10 December 1984, a sequestration order was made against the estate of Mrs. Brown, on the petition of Mercantile Credits Limited. Mrs. Brown was cross-examined on this application and, in cross-examination, she conceded that, subsequent to the property settlement, she regarded the former matrimonial property as hers: she did not regard her husband as having any interest in it. From the gale she received something of the order of $24,000.00, which she put into her own bank account. That money she regarded again as her own. It was not her husband's money; he had no claim on it at all as far as she was concerned. She then decided to make some provision for her daughters out of that money in her bank account, to put something away for them, "to make sure there was something that they could fall back on, some nest egg for their education in later life." The land to which the money had been converted was to be for the benefit of her daughters. While her husband had pressed her to pay his bills, her attitude to the money was revealed by this question and answer:- "Whilst he was making these claims, it was quite clear in your mind that it was not his money, and that you were entitled originally to spend it as you wanted to and then to hold it on behalf of your daughters." A. Yes." Mrs. Brown says that she first became aware of a claim being made against her and her husband by Mercantile Credits Limited 1n May 1984, when she received the first summons. This was after all the transactions to which reference has been made. Of a number of letters of demand, she said that she can recall seeing one, but was unable to identify which one it was. She said that her husband had returned the truck to Mercantile Credits Limited, and that, subsequent to that return, she had had no further contact with the finance company. At the time of the payments made into the daughters' trust accounts, she had not heard anything from Mercantile Credits Limited, and did not believe that she owed anything to it. Counsel for the trustee indicated that, in the light of the evidence given by Mrs. Brown, the alternative basis of the application that it was a fraudulent disposition, could not be pursued, and that the principal basis then of the application was s.120(1) of the Bankruptcy Act 1966, which I set out in full:- "A settlement of property, whether made before or after the commencement of this Act, not being - (a) a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or (b) a settlement made 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 after, or within 2 years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy." On the material, there can be no question but that the disposition of the money, and the property into which it was converted by Mrs. Brown in favour of her daughters, was a settlement of property not for valuable consideration, and made within two years before the commencement of the bankruptcy. The settlement is therefore void as against the trustee in Mrs. Brown's bankruptcy, unless the settlement comes within s.120(1)(b). The single question in these proceedings, therefore, is whether the settlement made on the children of the settior, of property that had accrued to the settlor after marriage is property that accrued to Mrs. Brown after her marriage in right of Mr. Brown. In my opinion, the settlement does not satisfy that description. The property did not accrue to Mrs. Brown in right of Mr. Brown. In the events that occurred, the $24,129.58 accrued to Mrs. Brown by virtue of the sale of the property of which she was the sole owner. That property did not, in my opinion, accrue to her in right of her husband. Counsel for Mrs. Brown was driven to submitting that the words "in right of" and "the spouse of the settlor" mean no more than "from the spouse of the settlor", and that one could then consider questions of the contribution of each spouse to the former matrimonial home to determine whether in fact it could properly be characterised as coming from Mr. Brown, notwithstanding the earlier existence of a joint tenancy between husband and wife, and the s.87 deed. Even on that argument, on the material outlined, in my opinion the nett proceeds of the former matrimonial home did not accrue to Mrs. Brown "from Mr. Brown". In order to understand the sub-section, 1t 1s necessary to have regard to the Australian and English predecessors of the Act, and to the law as it stood in the early nineteenth century when a woman was unable to own property in her own right. Prior to the passing of the Married Women's Property Act 1882 in England and similar legislation in this country, a married woman was unable to be the legal owner of property. She could own property prior to her marriage if she had been an adult prior to her marriage but, on marriage, the property would become the property of her husband. Such property, that is, property which had been the wife's property but became the husband's property on marriage, became property which was dealt with on the husband's bankruptcy as part of his estate. The legal position of the wife's unsettled property at that time is discussed in Montagu and Ayrton's Law and Practice in Bankruptcy, 2nd ed. (1845), at p.878. Even property settled by the husband on his wife after Marriage which had been her property before marriage, was a settlement voidable under the law as it then stood. So much was decided in 1857 in Warden v. Jones 2 De G. & J. 76, 44 E.R. 916, a decision of the Lord Chancellor, Lord Cranworth, and Spirett v. Willows 3 De G.J. & S. 293; 46 E.R. 649, a decision in 1865 of the Lord Chncellor, Lord Westbury. Those decisions, 1t appears led to the enactment of the predecessor of sub-paragraph 120(1)(b). In the third Edition of May on The Law of Fraudulent and Voluntary Conveyances (1908), the learned author sets out s.47 of the Bankruptcy Act 1883. Subsection (1) of that section includes settlements "made on or for the wife or children of the settlor of property which has accrued to the settlor after marriage in right of his wife." In a footnote, the learned author notes:- " A settlement of property accrued to the settlor in right of his wife would, subject to the wife's equity to a settlement, be equally within the 13 Eliz. c. 5 as a settlement of property belonging to the settlor in his own right would be; Warden v. Jones, 2 De G. & J. 76; Spirett v. Willows, 3 D.J. & S. 293." It is to be noted that the present legislation uses "spouse" where the earlier legislation referred to "wife". The High Court, in Lorimer v. Smail (1911) 12 C.L.R. 504, held that 3.100 of the Insolvency Act 1897 (Vic.), which referred to the settlement of property which had accrued to the settlor "in right of his wife", did not apply to settlements made by women. In England, the word "spouse" has not been substituted for "wife". Two of the leading English texts suggest the equivalent section is obsolescent since the passing of the Married Women's Property Act 1882, and similar provisions. In Williams and Muir Hunter , The Law and Practice in Bankruptcy, 19th Ed., the learned authors say at p.331:- "There would not seem to be any longer any property which accrues to the husband 'in right cf his wife'." In the Sixth Edition of Sales' The Law relating to Bankruptcy, Liquidations and Receiverships, the learned author says at p.lll:- "There are not many occasions upon which a husband acquires property 'in right of his wife', but he might do s0 under her will, or upon her death intestate." It seems the section or its equivalent has been considered in only one case. In In_ re Bower Williams [1927] 1 Ch. 441, the husband became entitled to property on the death of his wife intestate. The husband took out Letters of 10. Administration and he then settled the property on trusts partly for himself and partiy for his daughter. It was held by Astbury J. at first instance, and by the Court of Appeal, that the settlement was voidable only in respect of the portion in which the husband was interested. The property devolving on a husband on his wife's intestacy was held to "accrue in right of his wife", as the property accrued to the husband solely by virtue of his position as husband. The learned authors of Williams and Muir Hunter, The Law and Practice ain Bankruptcy, 19th Ed., note this case in a footnote at p.331, but draw attention to the Administration of Estates Act 1925, 58.33, 46; and the Administration of Justice Act 1977, s.28. In this case, the money Mrs. Brown settled on her children was her own, and was not property which accrued to her in right of anyone. That money came from the sale of land, an interest in which had been acquired by Mrs. Brown from Mr. Brown. It follows that s.120(1)(b) does not save the settlement, as against the trustee. Having heard the parties as to the form of the orders I should make:- ll. I declare that: a property described as vacant land comprised in Certificate of Title Volume N1127 Folio 222 County of Carlisle Parish of Hector containing an area of 4080 square metres being Lot 125 on Registered Plan No.35290 of which the bankrupt 1s registered proprietor of an estate in fee simple as trustee belongs absolutely to the applicant as trustee of the property of the bankrupt. I order that: the respondent pay half the taxed costs of the applicant, including reserved costs, to a limit of $1,500.90. | certify that tnis end tte '@ preceding Pages are a true copy of the reasons for judgment herein of His Honour aia Mr. Justice Spender ain DorSd} 2015/7 oT" Bsocate Dated