JUDGMENT No. o22/81 CATCHWORODS BANKRUPTCY - s.120(1) Bankruptcy Act - whether mortgage a "settlement of property" - forbearance to sue on Iloan repayable at will - whether valuable consideration. BILLS OF SALE - security document with no express power to seize on default - whether bill of sale - existence of implied power sufficient. - Bills of Sale and Other Instruments Act of 1955 (Q.) - s.7(1) - whether trustee in bankruptcy "any other person". Bankruptcy Act s.120(1) Bilis of Sale and Other Instruments Act of 1955 (Q.) ss.7(1) Re: John William Sullivan Ex parte: William Sullivan & Anor. QLD BN824 of 1986 PINCUS J. BRISBANE 11 NOVEMBER 1987 IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND - QLD BN824 of 1986 —~ RE: JOHN WILLIAM SULLIVAN EX PARTE: WILLIAM SULLIVAN and GLADYS J. SULLIVAN Applicants THE OFFICIAL RECEIVER Respondent MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDER: 11 NOVEMBER 1987 WHERE MADE: BRISBANE THE COURT DECLARES THAT - The Ford Falcon utility the subject of these proceedings is vested in the respondent. ORDERS THAT - 1. The application is dismissed. 2. The applicants pay the respondent's costs of and incidental to the application to be taxed. 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 BN824 of 1986 ~ BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND ~ RE: JOHN WILLIAM SULLIVAN EX PARTE: WILLIAM SULLIVAN and GLADYS J. SULLIVAN Applicants THE OFFICIAL RECEIVER Respondent PINCUS J. 11 NOVEMBER 1987 REASONS FOR JUDGMENT This 1s a dispute about ownership of a motor vehicle, a Ford Falcon utility. The applicants are parents of the bankrupt and apply to have it declared that they own the vehicle and that it is not an asset in the bankrupt's estate. The relevant sequestration order was on 15 September 1986. The respondent is the Official Receiver. On 22 January 1985, the applicants lent the bankrupt $26,000 to buy four bulldozers. A document was executed to record the loan, which was free of interest and payable on demand. of the amount loaned, $8,000 was subsequently repaid. On 16 October 1985, the applicants, the bankrupt and one Graham Donovan agreed that one of the bulldozers would be exchanged for a Ford Falcon utility, being that in issue. Under the agreement, Mr. Donovan acquired the bulldozer and transferred the utility. Since the applicants had no security over the bulidozer, the transaction did not require their consent, but the evidence is that it was effected by agreement between all the parties. A document was executed on 16 October 1985 by the applicants and the bankrupt which said in part: "I also agree to give my Parents Mr. W. & G.J. Sullivan ownership of the Falcon Ute Reg. 880-PEI until finance 1s arranged or Loan Repaid in full." It is that document on which the applicants rely and the basis of their case is that it effected an out-and-out transfer. In my opinion it did not. The true intention of the parties, as a matter both of law and of commercial reality, was that the transfer was by way of security. One of the applicants gave evidence that the bankrupt was to have possession of the vehicle. The transfer was one which assigned the whole legal interest, but the words of the sentence I have quoted from "until" to the end, show that the intention was that the bankrupt was to have the right to regain full ownership on paying out the loan. [It is not very clear what the use of the expression "until finance is arranged" was intended to achieve. Presumably, the parties referred to the possibility of arranging finance because they thought that the bankrupt might refinance his indebtedness, whereupon the Falcon utility would be made available as whole or part security for the new loan. Two points arise. Settlement The Trustee argued that the transaction in question is caught by s.120(1) of the Bankruptcy Act 1966 which reads as follows: "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 bankruptcy, void as against the trustee in the bankruptcy." Mr. Donovan owned the utility before 16 October 1985, but the document I have quoted above treats the bankrupt as the owner on that date. It is not clear whether the proper analysis is that the title went from Mr. Donovan to the bankrupt, and then to the applicants, or whether it should be taken that Mr. Donovan assigned the vehicle to the applicants at the direction of the bankrupt. On either view, there was in my opinion a_ settlement within the meaning of the section. In Barton v. Official Receiver (1986) 66 A.L.R. 355 at p.356, the High Court referred, with approval, to the exposition of the principles "governing the making of the settlement" in Williams v. Lloyd; In Re Williams (1934) 50 C.L.R. 341 at 367, 375 and Re Hyams; Official Receiver v. Hyams (1970) 19 F.L.R. 232 at 247-253. It is necessary to refer only to the latter for present purposes. There, Gibbs J. held that a particular mortgage of Torrens land was a settlement because "the retention of the property by the mortgagee was contemplated" (p.251). His Honour referred (p.252) to Williams v. Lloyd (above) for the view that there must be "dispositions of property to be held for the enjoyment of other persons, i.e., where the donor contemplates the retention of the property by the donee, either in its original form or in such a form that it can be traced". The present transaction fulfils this description. It was contemplated by the parties, as the very words they have used demonstrate, that the mortgagees (the applicants) would have and keep the legal interest; the bankrupt had a right to redeem: see E.I. Sykes "The Law of Securities" 4th Ed. pp.533, 534. Barton's Case also establishes that to constitute good "valuable consideration" for the purpose of s.120(1), the consideration must have a "real and substantial value" (p.362). Mr. Given, who argued the case persuasively on behalf of the applicants, contended that there was such consideration here, consisting in forebearance to sue; but in cross-examination the applicant, Mr. Sullivan, agreed that the loan "started off and it always was a loan that he was going to repay ... As and when he could afford to." ("He" refers to the bankrupt.) There was never any question of the applicants' suing for their money; they intended to take no steps in that direction, either before or after the impugned transaction. The difference the transaction made to them was only that, being without security beforehand, they became partially secured. But they gave no consideration for that. They in fact forbore after the transaction, but not in consequence of it. Bills of Sale Legislation The conclusion just mentioned makes it strictly unnecessary to proceed further, but I think I should deal with the respondent's second point, that the transaction 1s caught by s.7(1) of the Bills of Sale and Other Instruments Act of 1955 (Q.) reading as follows: "Subject to subsection two of this section, an unregistered instrument, executed after the commencement of this Act, shall not have any effect as to the chattels comprised therein or subject thereto, against any person other than the grantor and grantee." The document from which I have quoted was not registered under the Act. Is it an "instrument"? The definition of "instruments" in s.6(1) of the Act includes bills of sale and the transaction is plainly a "bill of sale" within the meaning of the definition. However, 3.6(2) of the same Act reads as follows: "Unless otherwise provided, this Act applies only to bills of sale under which the grantee has power, either with or without notice, and either immediately or at any future time, to seize or take possession of any chattels comprised therein or subject thereto: Provided that this Act shall not apply to any bill of sale where the grantee shall bona fide take the chattels comprised therein or subject thereto out of the possession, or apparent possession, of the grantor within twenty-one days of the date of the execution of such bill of sale, and shall keep such possession." There is a question whether this mortgage gives' the right to seize or take possession of the vehicle. It does not do so explicitly, but in my opinion express words are unnecessary: Purcell v. The Deputy Federal Commissioner of Taxation (1920) 28 C.L.R. 77 at p.84: -. in our opinion it is sufficient if the legal effect of the transaction evidenced by the bill of sale is to confer on the grantee a right enforceable at law or in equity to take possession of the chattels comprised therein." See also Fink v. Fink (1946) 74 C.L.R. 127 at p.145 and in Re Conway (1938) 10 A.B.C. 250. Conway's Case was one in which Lukin J. held that a deed of charge of chattels gave a right to seize by the operation of Statutory provisions entitling the chargee to take possession: pp. 262-263. In this case, there is no relevant statutory provision giving power of seizure. Under the general law, a mortgagee has a right to take possession, inthe absence of stipulation to the contrary: Four-Maids Ltd. v. Dudley Marshall (Properties) Ltd. (1957) Ch. 317. There may be an implied stipulation to the contrary here, arising from the wording of the document and the surrounding circumstances, but such an implication could not reasonably be held exclude the right to take possession in the event of default. Putting that another way, the Mortgagee has at least a right to seize on default; that is enough. It follows that 3.7(1) operates on the instrument. The remaining question is whether the trustee in bankruptcy 1s "any person other than the grantor and grantee" within the meaning of s.7(1). Legislation of this sort used simply make the unregistered bill of sale void, but the Queensland Act, and some others, give it partial validity. Mr. Dutney, who appeared for the trustee, referred me to the unreported decision of the Supreme Court in Re Mercantile Credits Limited (Moynihan J., 21 October 1987). That Court there held that for the purposes of the operation of s.7 of the Bills of Sale Act on a bill of sale given by people who become bankrupt the "Official Receiver effectively stands inthe position of the bankrupts". If that is correct, it would seem to follow that an unregistered instrument is effective against any subsequent assignee of the rights of the grantor. In my respectful opinion, that is not so. If an unregistered instrument is given andthe grantor subsequently assigns all his interest in the chattels in question to another person, the second assignee is at least prima facie entitled to whatever advantage the avoiding effect of s.7(1) gives him; if that were not so, the Act would seem to have little point to it. The principle that the trustee in bankruptcy takes only the bankrupt's interest subjects the trustee to equities good against the bankrupt; but I can see nothing in that principle to assist the applicants, who are not asserting any equity, but seeking to escape the impact of a statutory provision which operates in favour of "any person other than the grantor and grantee", an expression which includes the respondent. I can see that other considerations might be argued to arise if the second assignee takes knowing of the first's interest, but that point is not material here. In the result, I am of the view that s.7(1) operates to deprive this unregistered instrument of effect against the respondent. The result appears to be that the property in the utility must be taken to have been vested in the bankrupt on 16 October 1985, and not passed to the applicants. In the result, the applicants fail as to both issues. There will bea declaration that the Ford Falcon utility, the subject of these proceedings, is vested in the respondent and the application will otherwise be dismissed with costs. Counsel for the Applicants: Solicitors for the Applicants: Counsel for the Respondent: Solicitors for the Respondent: Date of Hearing: t certify that this and the 5 preceding Pages are 4 trua copy of the reasons for Asc xciate Dated || Novemlooy 9&7. judgment he-cin of His Heacur Mr Justice Pincus Mr. S. Given Messrs. Baker & Loel Mr. P. Dutney Messrs. F.M. Forde & Co. 23 October 1987