CATCHWORODS BANKRUPICY - settlement within 2 years of bankruptcy of bankrupt's interest in property on wife - good faith conceded - settlement pursuant to agreement requiring approval of Family Court - lack of approval deprives agreement of effect - whether "valuable consideration" - whether Family Court approval after trustee's election to avoid could destroy effect of election. FAMILY LAW - maintenance agreement requiring approval of Family Court - whether effect of approval retrospective - interrelationship of trustee's election to avoid and effect of approval. Bankruptcy Act s.120(1), 123(6) Family Law Act s.87(1), (2) Re: Allan Ross Tapp Ex parte: Official Trustee in Bankruptcy Qld E152 of 1984 PINCUS J. BRISBANE 17 JUNE 1987 new SDN ee pa gree ee an . ass toy ore Foot ten! rae on IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD H1i52 of 1984 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: ALLAN ROSS TAPP A Bankrupt EX PARTE: OFFICIAL TRUSTEE IN BANKRUPTCY Applicant ALLAN ROSS TAPP First Respondent MARILYN PATRICIA TAPP Second Respondent PINCUS J. 17 JUNE 1987 REASONS FOR JUDGMENT This is an application on behalf of the trustee of the estate of Allan Ross Tapp, in respect of whose estate a sequestration order was made on 5 March 1984. The applicant seeks a declaration that a maintenance agreement dated 20 January 1983 whereby the bankrupt agreed to transfer his interest in certain property is void, a declaration that the transfer in question is void, and other relief. The only active opponent, the transferee, will be called simply "the respondent". Less than two years before the commencement of bankruptcy there was a matrimonial dispute between the bankrupt and his wife, in consequence of which he agreed to, and did, transfer his half interest in the matrimonial home to her. The applicant concedes that was done in good faith but denies that there was "valuable consideration" within the meaning of s.120(1)(a) of the Bankruptcy Act, which is set out below. Questions of the effect of the Family Law Act 1975 are also raised. The date on which the parties separated is not quite certain, but it is common ground that the separation occurred shortly prior to the execution of the maintenance agreement which is in issue; that document is dated 20 January 1983. The agreement is expressed to be "intended to be approved by the Family Court of Australia at Brisbane under the provisions of section 87 of the Family Law Act 1975 ..." Under clause 6 the husband and wife agree to do all things necessary to obtain that approval. The agreement recites, among other things, that the husband and wife are the registered proprietors of the "former Matrimonial Home", that the wife and the four children presently reside and intend to reside in it, and that the husband and wife have a joint cheque account and joint savings account. Under clause 1 the husband promises to execute ail relevant transfer documents "... to enable the Wife to become the registered proprietor of the matrimonial home". Under clause 2 he toed . i. weap peer ene eee "3 ary ne A Lara accepts responsibility to meet payments under mortgages on the property. Clause 3 provides that he "shall retain all his tools of trade as a boiler maker". Clause 4 is as follows: "The Husband and Wife have divided their personal assets and the Husband has agreed that the Wife shall take all of the furniture, electrical appliances and accessaries Csic] in the matrimonial home." Clause 5 reads as follows: "This Agreement shall operate in relation to matters of maintenance and alteration of property interest in substitution for any rights of the Husband or the Wife under Part VIII of the Family Law _ Act 1975." The agreement was never approved by the Family Court, nor submitted for approval. As required by the agreement, the bankrupt executed a transfer of his interest in the matrimoniral home and it was registered on 12 April 1983. The petition was presented eight ¥ months later and, as mentioned above, bankruptcy supervened and (as also mentioned above) good faith is not disputed despite the closeness of the agreement to bankruptcy. The application is brought under s.120(1) which, so far as relevant, reads as follows: "A settlement of property, whether made before or after commencement of this Act, not being - "ee en oy oF nee em Trot pet ge {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 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." It was conceded on behalf of the respondent that there was a settlement of property but the exception in para.(a) was relied on. Counsel for the applicants said that there was no valuable consideration because the agreement was deprived of effect by the combined operation of the then sub-ss.(1) and (2) of s.87 of the Family Law Act 1975: "(1) Subject to this section, a maintenance agreement may make provision to the effect that the agreement shall operate, in relation to the financial matters dealt with in the agreement, in substitution for any rights of the parties to the agreement under this Part. (2) A maintenance agreement that makes provision as mentioned in sub-section (1) does not have any effect unless it has been approved by the court." By s.44(1) of the Family Law Amendment Act 1983, s.87 was repealed and replaced, the new provision operating from 25 November 1983. It is not immediately clear whether the ineffectiveness of the agreement with which I am concerned presently derives from the former provision or from the 1983 replacement. However, the newer provision is not more favourably expressed, from the respondent's leon ae ere ame eee pense oe oye cee ae aves yee eee ene yn ae wore ff eee See eee ee aitas tay woe cee point of view. It says "has no effect, and is not enforceable in any way" instead of "does not have any effect". It will be noted that clause 5 of the maintenance agreement does not include the precise words set out in s.87(1). Nevertheless, it was common ground, and I hold, that the agreement was one that "makes provision as mentioned in" sub-s.87(1). The purpose of s.87(2) of the Family Law Act was no doubt to ensure that agreements giving away rights which might otherwise have been sought under the Act came under scrutiny. See Shaw v. Shaw (1965) 113 C.L.R. 545 and Perlman v. Periman (1984) 51 A.L.R. 317 at 331. Sub-s.(2) does not, however, say merely that the agreement is deprived of effect insofar as it purports to take away rights; it makes the whole agreement ineffective, as I read it, unless approval been given. Nor does there appear to be any reason to read down the words "does not have any effect" so as to make the agreement effective to the extent of providing some consideration. I can see no escape from the conclusion that' the agreement, being deprived of effect by a statute, cannot constitute sufficient consideration for the purpose of s.120(1) (a). Counsel for the wife argued, however, that that is not the end of the case. He argued that before the written agreement was made, the parties had reached an agreement, according to the evidence, sufficient to supply the necessary consideration. = - a wee soe meee we oe ae aed are' (Ot Torment we em ee oa The memorandum of transfer of the interest in question is expressed to be executed "in consideration of a deed of agreement dated 20 January 1983 between the parties pursuant to s.87 of the Family Law Act 1975"; that is, it is expressed to he in consideration of the agreement which the Family Law Act deprives of effect. The consideration clause in the transfer cannot create an estoppel except as between the parties and their privies; but the trustee is in the latter category. There is some doubt as to the extent to which a consideration clause creates an estoppel: Greer v. Kettle (1938) A.C. 156 at p.171, Mackay v. Brice (1979) 25 A.L.R. 597 at p.603. Without determining the estoppel point, I shall proceed on the assumption that there 1s no estoppel and that it is open to the respondent to show a consideration other than that set out in the transfer. The respondent said during her public examination under the Bankruptcy Act that the purpose of the transfer of the interest in the house was as follows: "He just said, you know, that he would keep the business and I would have the house. I already owned half the house anyway, and the other half was for the children." The respondent also explained on that occasion that' she had nothing to do with the business. She gave evidence that her husband said he would pay her maintenance each week and that she wanted him, notwithstanding the agreement, to continue to pay maintenance "until such time as I could work myself and get a job". won wey epee ere In her evidence in this case, the respondent said (on affidavit) that she had no financial interest in the business and that shortly before the agreement was made, her husband said "he was quite happy to have the business and for me to have the house". She said that: "I was of the view that the agreement provided that he signed the house to me as maintenance and property settlement. ... I was of the opinion that the bankrupt was still required to pay maintenance for the children." On that evidence it would not seem possible to hold that there was any consideration, express or implicit, in the oral agreement which preceded the writing. It may be derived from the evidence that it was part of the agreement that the husband would have his interest in his business; but he already owned that. There is no suggestion in the oral evidence that the respondent undertook not to claim anything further from him, and she emphasised that she still expected to receive maintenance. The expression "purchaser wee for valuable consideration" within the meaning of s.120(1) means a purchaser who has given consideration "which has a real and substantial value, and not one which is merely nominal or trivial or colourable": Barton v. Official Receiver (1986) 66 A.L.R. 355 at p.362. In that case, a finding that no valuable consideration had been provided for a long term loan at low interest was upheld. Here, the bankrupt received nothing which he did not already own in consideration for the transfer of his interest in the house, nor was any promise made to hin. Assuming in favour of the > a0 evens sori Poe ee pee se whe respondent that one is entitled to look behind the writing for consideration, it does not seem possible rationally to hold that the test in s.120(1) is satisfied. Mr. P. Allen, counsel for the respondent, also advanced other arguments on the question of consideration. He said, in effect, that if the oral agreement did not itself include any valuable promise, mevertheless there was an actual forbearance which could constitute good consideration. Some evidence was led on this subject, but it is enough to say that it could not possibly constitute consideration of the kind s.120(1) requires; there was nothing to suggest that the bankrupt obtained any significant advantage by way of forbearance as a result of any oral agreement mentioned in the respondent's evidence. There could not have been any problem for the respondent, had the approval of the Family Court been obtained. Mr. Allen drew attention to the fact that during the pendency of these proceedings the respondent has been restrained by injunction from applying for approval. A guestion arises as to whether, in view of the conclusions expressed above, the applicant should he given relief now, or whether, on the other hand, the respondent should be allowed an opportunity to consider these reasons and to apply, if so advised, to the Family Court for approval. The relevant dates are as follows. The petition was issued on 8 December 1983. The sequestration order was made on 20 March 1984. The application to have the maintenance agreement mary ae eee wena ge - we ere ee me declared void was made on 2 June 1986, and the order (of Spender J.) restraining application to the Family Court was made on 6 June 1986 and continued from time to time thereafter. At first sight there is something to be said for the view that if not restrained, the respondent may have been able to obtain approval taking effect at the date of the agreement - i.e. before commencement of the bankruptcy. Although I have found no authority directly in point, I proceed on the assumption, which appears to me likely to be correct, that once approval is given, the agreement is deemed to have been effective as from its date; a similar view seems to have been taken of a comparable provision in previous divorce legislation: Shaw v. Shaw (1965) 113 C.L.R. 545 at 549.4. But it is my opinion that by the time the respondent was restrained from approaching the Family Court it was already too late to do so. That was so because the avoidance under s.120 had already occurred. The trustee had an election to avoid and exercised it, plainly enough, by filing the application: Re Carter and Kenderdine's Contract £18973 1 Ch. 776; N.A. Kratzmann Pty. Ltd. (In Liquidation) v. Tucker (No. 1) 123 C.L.R. 257 at 277. It is true that in the latter case the application for a declaration of voidness had been heard, and not merely commenced, at the relevant time. But inwmy view, the filing of the application itself was sufficient election if (as I have held to be the case) that election was good. Once it was made, the trustee was entitled to treat the maintenance agreement as void ab initio: Kratzmann's case (ibid.) (above). In Re Carter and Kenderdine's Contract (above) at pp.781 and 782, it appears to have been held under the then English equivalent of s.120 of the ' canK~ a Ow en 2g pee, wee gee 10. Bankruptcy Act 1966 that the avoidance dates back only to the accrual of the trustee's title, but that conclusion was based upon the absence in the then English legislation of any provision, protecting the rights of bona fide purchasers, such as s.120(7) of the Bankruptcy Act 1966. Whether or not an election to avoid, once it occurs, makes the transaction in question void ab initio, it is my view that on filing the application the trustee's right accrued and it became impossible to displace it by a grant of approval under s.87 of the Family Law Act. It should be added that s.123(6), which saves transactions effected under maintenance agreements from invalidity, cannot assist the respondent, because "maintenance agreement" is defined in s.5 to mean one registered or approved. Counsel for the applicant argued that no maintenance agreement not saved by s.123(6) can be valid for the purpose of the Bankruptcy Act. I do not decide the case on that view, which seems to me incorrect; the respondent fails because she cannot show there was valuable consideration since " the written agreement primarily relied on was at the date of accrual of the trustee's right, and still is, of no effect. The trustee is entitled to succeed, but not, I think, to have all the relief claimed; I shall ask for submissions on the 4, waeatrnet wee s oD (DRI ey te pe sre ne a eee ee ey rear) Losers tee latter question. Counsel for the Applicant: Solicitors for the Applicant: Counsel for the Respondent: Solicitors for the Respondent: Date of Hearing: 11. { certify that this andthe /? preceding ages are a true copy of the reasons for judgment herein of His toncur Mr. Justice Pincus eee) Associate Dated {7 June 19¢7 Mr. T.F. Carmody Nicol Robinson & Kidd Mr. P. Allen Eastman & Co. 26 May 1987 2 te ,, -te gor en oe ea . RI wewn wwy wn ey we To. le te