IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SG 7112 of 1997 BETWEEN: kenneth warwick henry perry Applicant AND: bruce james carter Respondent JUDGE: MANSFIELD J DATE: 24 NOVEMBER 1997 PLACE: ADELAIDE REASONS FOR DECISION HIS HONOUR: This is an application made under s 104 of the Bankruptcy Act 1966 by the applicant seeking a reversal of a decision of the trustee in bankruptcy of Emily Phyllis Gertrude Perry ("Mrs Perry") rejecting his proof of debt lodged in Mrs Perry's bankruptcy. The proof of debt is dated 15 August 1996. A sequestration order in respect of Mrs Perry's estate had been made on 10 July 1996, and the respondent then appointed trustee of her estate. At that time Mrs Perry was the registered proprietor of property situated at 153 Sturt Road, Dover Gardens, then being the land comprised in Certificate of Title Register Book Volume 4030 Folio 195 ("the property"). The respondent, upon his appointment, arranged to be registered on that title in his capacity as trustee of Mrs Perry's estate. The property, and transactions concerning it, featured largely on this application. The information before me indicates that Mrs Perry's statement of affairs identified the applicant as a creditor of her estate in the sum of $102,000 made up of $92,000 in payment for the property and a loan for her legal fees of $10,000. When the applicant, who is Mrs Perry's husband, lodged his proof of debt it was in the sum of $92,773.57. It was accompanied by a series of documents purporting to describe broadly how that amount was arrived at. In broad terms that material, together with the evidence before me, shows that the property was purchased in the joint names of the applicant and Mrs Perry in 1986 in their joint names, by transfer dated 30 September 1986. It appears that the property was purchased for $110,000, of which about $39,000 was secured by a mortgage to a financier. The balance of the purchase price came from moneys then available to the applicant through settlement of a claim against a former employer, apparently somehow under a salary continuance plan policy, which led, as he said, both to a lump sum settlement and to a monthly payment. The lump sum settlement was sufficient apparently to enable him to contribute something in the order of $75,000 towards purchase of the property. As Mr Perry indicated in his evidence, in 1988 it was decided between himself and Mrs Perry that the property would be transferred to her own name as the sole legal owner. That in fact took place. The mortgage to the financier was discharged. On the evidence, the funds available for that discharge came from the proceeds of a defamation action in which Mrs Perry was the principal plaintiff. The transfer to Mrs Perry of the property is dated 30 August 1988. It records that the property was transferred from their joint names to Mrs Perry at that time, and further records that it was for "nil" consideration. When the respondent came to consider proofs of debt, he rejected the proof of debt lodged by the applicant. He took the view, as his affidavit deposes, that because the transfer was expressed to be for nil consideration there was no debt owing by Mrs Perry to the applicant. The Court's role under s 104 of the Bankruptcy Act is not to consider the correctness of that decision, but to determine on the material before it whether or not the applicant has a debt capable of proof in the bankrupt estate of Mrs Perry: Re Payne; ex parte Levi (Toohey J, 23 September 1986, unreported); Re Rogers; ex parte CMV Parts Distributors Pty Ltd (1989) 20 FCR 561. I have considered the evidence produced before me. I note that, in addition to the affidavit evidence adduced, Mr Perry was cross-examined on his affidavit. I will refer to certain answers in his cross-examination below. Neither the applicant's proof of debt, nor any evidence, referred to a debt by reason of a loan of $10,000 or in any amount to pay legal fees. It is not necessary to further address that issue. Such a debt was not proved. Consequently, if the application is to succeed, it is necessary that I should find on the evidence that somehow, arising out of the purchase of the property or the transfer of it to Mrs Perry, there remains a debt owing by Mrs Perry to the applicant in the order of $93,000. It is only by reason of those dealings that somehow that debt is said to arise. Mr Perry quantifies it as being made up of his initial contribution towards the purchase of the property of about $75,000, and moneys paid by him from time to time due under the mortgage granted at the time of the purchase of the property and until its discharge. It is unclear whether those payments were for interest only, or were in part-reduction of the capital debt owing under the mortgage. A precise calculation has not been proved before me. Mr Perry acknowledged in his evidence that he is not himself clear exactly how that amount is arrived at. For reasons which will appear below, I do not need to address the detail of that figure. When the proof of debt was first lodged, it was supported by an affidavit of the applicant of 9 April 1996, which I received in evidence on this application. In it, Mr Perry explains the circumstance of the transfer of the property to Mrs Perry in 1988, and what was said to be its consequence. To avoid any suggestion that, given his then ill-health, his wife may take or may have taken steps to bring about his demise, it was decided between him and Mrs Perry that the property should be transferred to her name. Thus it could not later be said that there was a reason in relation to the property for her to have taken any steps to bring about his demise. That affidavit then says: "6. . . . After consultation with [the then solicitor] we arranged the transfer of the property into my wife's name. 7. At this time the mortgage had been paid out by my wife and up to the date of the transfer, 3 October 1988, all mortgage payments had been made by myself from my reinstated policy making a total of my payments, $92,773.57 . . .". That affidavit and the proof of debt which it accompanied did not describe in detail the precise nature of the transaction which underlay the transfer of the property, nor in the further material which was enclosed with the proof of debt was it clarified to any greater extent. The affidavit in support of this application, after referring to the transfer of the title to Mrs Perry's sole name, says: ". . . my understanding was that the paying out of the mortgage was in consideration of the transfer of my equity in the property." That is an explicit assertion in support of this application that Mr Perry no longer had equity in the property and that his equity had been transferred to Mrs Perry. It does not, by that part of it, suggest that the transfer was in consideration of, or somehow led to, the creation of a debt. Indeed, it suggests that the consideration for the applicant transferring his interest in the property was Mrs Perry applying funds to discharge the mortgage. There is no other material in the affidavit evidence or in the documents which identifies precisely the nature of the transaction which underlay that transfer of the property. However, Mr Perry's oral evidence makes the position clear. He said on a number of occasions, and on occasions when I asked him carefully to think about the matter, that he was now asserting that he had a continuing interest in the house property itself to the extent of $93,000 or thereabouts. He said that the transaction by which Mrs Perry became the registered sole owner of the property was not intended to remove his interest in the property at all, but simply to remove from the public formal record through the certificate of title as to the ownership of the property the fact that he had an ongoing interest in the property. He also confirmed to me that he understood, in a general sense at least, that whatever the legal title may record, there may nevertheless be other equitable interests in the property. He asserted that he had an ongoing equity in the property to the extent of some $93,000. At the time of the transaction, it seems to me, there were three possible underlying transactions behind the transfer of the property to Mrs Perry. One could be that such interest as the applicant then had in the land was simply given to her. That would reflect the consideration as expressed in the transfer. He did not say that that had occurred. The second could be that he transferred all of his interest in the property and had no ongoing interest in the property, but that Mrs Perry had been able to acquire his interest in the property by him selling her his interest and financing her purchase by him lending Mrs Perry a sum of money, be it $93,000 or some other amount, to do so. There would then be created a debt owing by Mrs Perry to him, and one which may have remained in existence up to the time of her bankruptcy. If that were the underlying transaction, it could provide a basis for him proving as a creditor in her bankrupt estate. That is not consistent with the transfer. Nor is it consistent with his evidence. On the basis of all the evidence, I do not find that that is what happened. The third alternative is that, despite legal title in the property being transferred to Mrs Perry, the "equity" which the applicant previously held in the property, whatever it may have been, remained. That is what Mr Perry says in his evidence has occurred. In those circumstances, but particularly because I have found that the second alternative did not occur, the applicant is not a person who is owed money by Mrs Perry as a result of the transfer of legal title to the property to Mrs Perry in 1988. No other basis for such a status was put forward. I therefore find that he is not a debtor in the estate of Mrs Perry. I reject the application to reverse the respondent's decision to reject the applicant's proof of debt. In those circumstances it is unnecessary for me to consider whether in fact the transaction which underlay the transfer of legal title to the property to Mrs Perry was one of gift, or was one by virtue of which Mr Perry retained some equitable interest in the land. Whether it be one or the other, he is not a debtor. Lest it be thought that it has been overlooked, I note that the applicant also relied upon minutes of meeting of the creditors in the estate of Mrs Perry held on 20 August 1996 in support of his application. He contended that, at that meeting, his debt was admitted, and that therefore the decision on this application should be to reverse the respondent's decision. It is clear from the minutes of that meeting that the trustee admitted creditors' claims solely for the purpose of that meeting. It did not amount to acceptance of the proof of debt. Accordingly I do not think that that evidence makes a difference to the outcome of the application. For those reasons, I dismiss par 1 of the application. Because the primary application is refused, I do not grant the application which is sought in par 2 of the application. It was a subsidiary application. It was not separately addressed by the applicant. No power was referred to upon which I could make such an order. As the foundation for the order was necessarily the reversal of the decision to reject the applicant as a creditor in the estate of Mrs Perry, it is unnecessary to further consider whether I could, in any circumstances, make such an order. The respondent seeks costs of this application to be taxed. That is opposed by the applicant, because of his personal affairs, in particular as he says, because he is in receipt only of a pension. In my view that is not a sufficient reason to depart from the normal rule as to costs. I order that the applicant pay to the respondent his costs of this application to be taxed. I certify that this and the preceding five (5) pages are a true copy of the Reasons for Decision herein of the Honourable Justice Mansfield. Associate: Dated: Applicant appears in person Counsel for the Respondent: Dr R J Baxter Solicitors for the Respondent: Johnson Winter & Slattery Date of Hearing: 24 November 1997 Date of Decision: 24 November 1997