ww LOL JUDGMENT No. 225 4.82. IN THE COURT OF AUSTRALIA ) G DIVISION ) QLD NO.X35 of 1987 BANKRUPTCY DISTRICT OF THE SOUTHERN } DISTRICT OF THE STATE OF QUEENSLAND ) RE: BRIAN VICTOR OTTO a debtor EX PARTE: RODNEY DOUGLAS OTTO and ELLEEN OTTO Applicants A.R. TAYLOR: THE TRUSTEE OF THE PROPERTY OF BRIAN VICTOR OTTO, A DEBTOR Respondent SPENDER J. BRISBANE 15 JUNE 1988 EXTEMPORE REASONS FOR JUDGMENT An application was made to the Court on behalf of Rodney Douglas Otto and Eileen Otto concerning, essentially, the validity of a deed dated 1 July 1986, which purported to give them security in respect of some sums to which Brian Victor Otto and his wife were entitled to receive from interests associated with the Manners family. The application, and its various contentions in respect of it, are not assisted by 'a lack of precision in a number of the documents associated with the Part X arrangements of Brian Otto and his wife. As a result of those Part X deeds of assignment, Mr. Alan Richard Taylor became the trustee of the property of Brian Victor Otto and Gwendoline Otto. I accept that the factual situation is as set out in the affidavit of Rodney Douglas Otto, sworn 17 November 1987, from paragraphs 2 to 13 inclusive. In particular, (since the parties have treated this as a crucial issue), I accept what is deposed to by Mr. Rodney Otto at paragraph 12 where he swears:- "IT agreed with the Debtor that I would not enforce against him the repayment of the loan plus interest on the due date but would wait until the proceeds of the sale of the business became available. I further informed the Debtor that I was only agreeable to such a course of action if he gave me some security over the proceeds of the sale of the business." The business referred to was the sale of some business interests to Fabian Perry Manners, Judith Mary Manners and Fabius Perry Manners, for a total purchase price of $78,000, to be paid to Mr. Brian Victor Otto and Mrs. Gwendoline Otto by 36 equal monthly instalments of $2,166. There is no doubt that Rodney Otto advanced to his brother the sum of $70,000, which was unsecured. It was for a short term and, just before the time for repayment became due, Brian Otto told Rodney that he was not able to repay the sums on the due date as agreed. I say frankly that I was impressed by the forthrightness and honesty shown by Mr. Rodney Otto in giving his evidence, and I have no reservation about any aspect of the account that he gave, either in oral evidence or in the affidavit material to which he swore. I accept that there was a forbearance associated with the entry into the deed on 1 July 1986 by Mr. Rodney Otto and his wife in respect of the repayment of the $70,000 plus interest, for at least the period until the proceeds of the sale of the business became available. It is to be noted that no assianment of those proceeds wag made by Brian Otto and his wife to Rodney Otto and Eileen Otto, but that perhaps is simply one manifestation of the informality with which the family arrangements had, in fact. been conducted. I think the proper position in relation to 3.120 an these various factual circumstances is succinctly summarised by Smithers J. in Re Johnston; Ex parte Cole (1984) 3 F.C.R. 32 at 35, where he said:- "The question of good faith relates to the good faith of the purchasers, in this case the Sullivans. It is not necessary that both the Sullivans and Mrs. Johnstone should have acted in good faith:...". He then quoted a number of authorities, and went on to say:- "It appears from a review of the authorities, that good faith in the context of 3.120(1) of the Act requires an absence of knowledge or notice by the purchaser that: 1. The bankrupt is unable to pay his/her debts or is financially unsound. 2. By taking the property the purchaser is defeating or delaying creditorsC,]" and there are a number of cases quoted. Smithers J. concludes by saying:- "The onus is upon the trustee to prove both lack of good faith and lack of valuable consideration." T am satisfied in this case that there was no lack of good faith on the part of Rodney Otto in entering into the deed ef 1 July 1986 and that conclusion extends to that of his wife. The primary contention on behalf of the trustee was that the consideration given by the 'purchaser' of the 'settlement' was an indefinite forbearance and that that consideration properly was to be characterised as either nominal or colourable, as that term has been addressed in Re Tapp; Ex parte Official Receiver (1987) 75 A.L.R. 79 at 83; Barton v. Official Receiver (1986) 66 A.L.R. 355; and Re Fairline Furniture (Australia) Proprietary Limited In Lign. (1986) 6 A.C.L.R. 364. On the factual considerations to which I referred earlier, I do not accept the submission. I think that the position should properly be seen that there was in truth a forbearance to enforce the debt for $70,000 principal, plus interest at 20%, until the proceeds of the sale of the business to the Manners family became available. It is in my view irrelevant that some parts of that payment were in fact paid by Mr. Brian Otto into his own accounts, and not accounted to his brother and his brother's wife as was the contemplation of the parties. In those circumstances, I am of the clear view that, not only was the deed entered into in good faith, but for valuable consideration, as the meaning of that term is explained by the authorities. In the circumstances, I should declare that the transaction by which the debtors assigned the said monthly sums or the right to receive the said monthly sums, or the right to enforce payment of the said monthly sums to the applicant, is not void as against Alan Richard Taylor, the trustee of the property of Brian Victor Otto and his wife, Gwendoline Otto. I invite the parties to prepare short minutes of orders, if they can agree. If not, the matter is to be arranged to be brought on again before me at a time convenient to counsel. rT will just adjourn the matter to the registry on that basis and, if the partfes can agree as to the form of orders that I should make, I will do that by consent. As between the trustee and the applicants, I order that the applicants have the costs of their application, to be taxed if not agreed, limited to today. Any further question of costs is reserved. 1 certify that this and tha 5 preceding pages are a true con, of the reasons for judgment heretn of His Honour Mr Just'ce Spender