Re John Antoniadis Ex Parte: Kenneth James Russell v Paresa Antoniadis [1985] FCA 349 (23 September 1985)

FEDERAL COURT OF AUSTRALIA

Re: JOHN ANTONIADIS
Ex Parte: KENNETH JAMES RUSSELL
And: PARESA ANTONIADIS
No. 76 of 1984
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
Smithers J.

CATCHWORDS

Bankruptcy - disposition of property by the bankrupt - whether void against the Trustee in bankruptcy under s.120 of the Bankruptcy Act 1966 - whether disposition made in good faith - whether purchaser's knowledge of probable increase in the future value of the property because of inflation is relevant to the question of good faith.

Bankruptcy Act 1966 - s.120

HEARING

MELBOURNE
23:9:1985

ORDER

The motion be dismissed with costs.

DECISION

This is a motion brought by the Trustee of the bankrupt estate of John Antoniadis seeking an order that the disposition by the bankrupt of all his estate and interest, as one of two joint proprietors in land and a house thereon known as 83 Mitchell Street Northcote is void as against him.

2. The disposition of the one undivided half interest of the bankrupt would be void against the trustee if it were not made in good faith and for valuable consideration. See s.120(1) of the Bankruptcy Act 1966 (the Act). The purchase pursuant to which the disposition was made was the purchase of the interests of both the bankrupt and the owner of the other undivided one half interest in the property. The full current value of the property was paid to them. There is no dispute on this point. The bankrupt received his full half share of the consideration. Of course there were encumbrances of a substantial amount which had to be discharged out of the purchase money. But after deducting the amount required for their discharge there were some five thousand dollars representing the bankrupt's proper share. That amount was received by him and paid to creditors of his. It is clear therefore that the disposition in question was made for valuable consideration.

3. It is said, however, that it was not made in good faith. It was said by Gibbs J., as he then was, in re Hyams; Official Receiver v. Hyams (1970) 19 FLR 232 at 256 that for the purpose of s.120 good faith means "without notice that any fraud or preference contrary to the provisions of the Bankruptcy statute is intended". A person is a purchaser in good faith within the meaning of the section if he himself acts with good faith, and it is not necessary that both parties should so act. See Mackintosh v. Pogose (1895) 1 Ch 505. As pointed out by Fisher J. in Barton v. Official Receiver (1984) 58 ALR 328 at 337 the test of good faith for the purposes of s.120 may differ from that in relation to the preferential payments provisions of the Act. The learned Judge refers to the observation in McDonald Henry & Meek: Australian Bankruptcy Law and Practice 5th Ed. p.320, and without expressing reservations as to its validity, that under the sections dealing with avoidance of settlement the words "in good faith" in s.120 mean "absence of dishonesty or of any conscious attempt to defraud any other person.". Fisher J. said, "I note that Buckley L.J. in re Pope (1908) 2 KB 169 at 174 said that the words @in good faith' exclude colourable transactions", and added that the expression normally means that "dealings are made with honesty and propriety." See also In re a Debtor, Ex parte The Official Receiver (Trustee of the Property of the Debtor) v. Morrison (1965) 1 WLR 1498 per Stamp J. at 1505.

4. The estate of the bankrupt was sequestrated on 7 February 1984. The act of bankrutcy upon which the order was based was committed on 28 July 1983. It is said that, by reason of non-compliance by the bankrupt with a bankruptcy notice issued against him in proceedings wherein a petition No. P 632 of 1983 was presented, the date of the commencement of the bankruptcy was 24 March 1983. This is not contested by the respondent.

5. The disposition by the bankrupt to the respondent was made pursuant to a contract of sale dated the 9th day of February 1983 which was entered into between the bankrupt and his wife Martha Antoniades, who were the joint proprietors of 83 Mitchell Street, Northcote as vendors, and the respondent as purchaser. The purchase price was $40,000 payable by a deposit of $4,000 forthwith and the balance within thirty days. The deposit was duly paid and the transaction was completed on 4 March 1983. It is not disputed that the date of the disposition under attack in this proceeding took place on 4 March 1983. The registration at the Office of Titles of the transfer did not occur until 31 March 1983.

6. Immediately prior to the disposition a valuation of the property by a sworn valuer had been obtained. The valuation was $40,000. The respondent paid that sum to the bankrupt and his wife on 4 February 1983. That sum was divided equally between the bankrupt and his wife.

7. It is not said that the sum of $40,000 was not a fair, reasonable and proper consideration for an arm's length purchaser to have paid for the property. The good faith of the respondent is challenged by reason of her acquaintance with the financial circumstances of the bankrupt at the time of and shortly prior to the disposition.

8. It appears that in September 1982 the bankrupt and his wife were the joint owners of three properties, namely, 83 Mitchell Street, Northcote, 22 Olive Grove, Heidelberg and a shop in High Street, Northcote. The property at 22 Olive Grove, Heidelberg was the family home. No. 83 Mitchell Street was let. The Northcote property appears to have been occupied by the bankrupt. It appears that he carried on a travel agency thereat. No ominous clouds had appeared on the family's financial horizon until about September 1982 when a notice to quit 22 Olive Grove was received by Martha Antoniadis from the mortgagee of that property. The respondent became aware of this and asked her father how it had occurred. He stated that there had been a "mix up" with the ANZ Bank and he would "fix it up". The respondent accepted this explanation.

9. However, in October 1982 the respondent attended the Taxation department with her mother and father and they had a discussion with a departmental official. The official said that the department wished to discuss a debt of the bankrupt to the department of about $2,085.38 and in respect of which a writ of fi fa had been issued. The bankrupt denied that he was so indebted. However, after the meeting when the respondent and her mother confronted the bankrupt he admitted the liability. He gave the respondent $1,000 as a first instalment in reduction of the debt. He later made two further payments of $500. The respondent contributed $585.38 of her own money to discharge the taxation debt which was accomplished on 18 February 1983.

10. The bankrupt assured the respondent that he had no debts other than the taxation debt and what he referred to as the overdraft on 22 Olive Grove. The bankrupt told the respondent that he proposed to sell the Northcote shop to pay off that overdraft. An auction of the shop was held in December but the property was passed in. The bankrupt then said that he would sell 22 Olive Grove and 83 Mitchell Street to pay out the overdraft on 22 Olive Grove and some outstanding creditors of his business. He said that that would enable him to retain the Northcote shop. The respondent believed there was an equity in that property of about $50,000. Partly for family reasons the respondent and her mother did not wish 83 Mitchell Street to be sold to strangers. Also, they did not desire the family residence to be sold. A plan was therefore devised under which Martha Antoniadis would purchase 22 Olive Grove and the respondent would purchase 83 Mitchell Street.

11. To carry through the purchase of 83 Mitchell Street it was necessary for the respondent to borrow $15,000 from the State Bank of Victoria and $20,000 from her mother. She had sufficient funds of her own to make up the balance. The sum borrowed from the State Bank was secured by a registered mortgage to the bank. The sum of $20,000 lent by the respondent's mother was provided out of money privately owned by her which the respondent believed to represent in part, funds received by the respondent's mother from her late husband's estate and in part, savings by her. The respondent's mother was in employment at all material times.

12. It appears that the deficiency of the assets of the bankrupt as against liabilities at the date of bankruptcy was considerable. The respondent was at no time informed with any precision of her father's financial position, or informed that he was unable to pay his debts as they fell due.

13. Before the completion of the transaction with respect to 83 Mitchell Street the respondent was aware of the proposal that her mother should become the sole owner of 22 Olive Grove by transfer to her of her husband's interest therein. The respondent's mother was able to do this by borrowing $37,500 from Statewide Building Society on the security of that property, by giving her husband a release from liability to her for $6,000 in respect of a payment of $12,000 made by her to discharge a liability of his on a mortgage on that property and by giving her husband a release from liability to her for $15,000 which he had obtained on the security of the Northcote shop without her knowledge, and which he had used for his own purposes. Although these amounts add up to $58,000, the consideration for the husband's one half interest in 22 Olive Grove was regarded as being $55,000. The discrepancy was not explained but seems to be of no significance.

14. It would seem that conversations which culminated in the purchases from the respondent's father of 22 Olive Grove and 83 Mitchell Street occurred during some months prior to their completion. The respondent knew her father had debts. There was the notice to quit, the incident concerning income tax and the occasional appearance of persons thought to be creditors calling at the house. The respondent knew that her mother was embarrassed by the circumstance that the bankrupt had obtained money from her relatives for travel fares and had not produced the tickets. In addition, it would appear that in the latter part of 1982 it was discovered by the respondent's mother that, by various ruses, her husband had succeeded in borrowing sums of money on the security of each of the three properties without her knowledge. Some of the documents required to achieve this had necessarily been signed by her. As to at least one, her signature had possibly been forged. Clearly there has been misleading conduct on the part of her husband. The unauthorised borrowings included $15,000 borrowed on the Northcote shop in addition to an authorised borrowing of $30,000, on the security of 83 Mitchell Street, and $12,000 on the Olive Grove home.

15. The husband was sent to prison in 1983, but apparently not in respect of those unauthorised borrowings. So far as the respondent is concerned it is not clearly established that she knew of her father's misconduct in respect of these borrowings. But it is unlikely that at the end of 1982 she was unaware that he had carried out borrowings seriously to the disadvantage of her mother. The respondent's father avoided answering questions or saying anything significant about his financial affairs. He maintained that his position was satisfactory. I think the respondent whilst basically recognizing that her father's assurances were of little value, nevertheless, actuated partly by human filial reasons, clung to the hope, and indeed the belief, that whatever her father had done in financial affairs his remaining assets would meet his liabilities.

16. It was put to the respondent that in the last months of 1983 she must have suspected strongly that her father had debts to an amount beyond what he would recover by a sale of his interests in the three properties. The respondent denied this. The conclusion I reach, drawn from all the evidence, is that the respondent believed that if 22 Olive Grove and 83 Mitchell Street were sold her father could with his interest in the Northcote shop pay his creditors. I formed the view that she was a very truthful witness. She recognized as a possibility that there might be a short fall, but thought that if that were so, the deficiency would be small, in the realm of a thousand dollars or perhaps up to three thousand dollars, and that she herself would be able to make it up. She had no notion that there would be a deficiency beyond the ability of her father, possibly with her help, to meet. The state of her mind existed in a context of little fact. She knew her father had debts, which were not trivial, but what they were she was not told and did not know. As an intelligent person she knew she did not know all the facts and it was possible her father had large debts. She knew there was no point in asking her father for a complete statement as he was unreliable. However, judging the situation as well as she could, she believed that the assets of her father were sufficient to avoid insolvency. In any event, of course, so far as she was concerned, it was clear that the purchase by her of her father's interest in 83 Mitchell Street would not reduce his estate. She was paying full value for it and his share of the purchase money was to be paid to solicitors representing creditors.

17. So far as the attitude of the bankrupt was concerned, there was no reason for the respondent to think that he saw any disadvantage to his creditors in the sale to his daughter. His equity in the property was quite small and his liability was in the region of $30,000. The transaction realised the value of his equity and secured the release of his debt secured on the property. The last thing in the respondent's mind was that the transaction would, or was designed to work to the disadvantage of the creditors or any of them. It was an opportunity for her to purchase the property on terms that she could manage. It was an opportunity to assist in concealing from her grandmother the financial difficulties which had been encountered by her father, and, in consequence, by her mother.

18. I reject the notion that there was any lack of bona fides on the part of the respondent. It was put to me by counsel for the trustee that the inference that there was lack of bona fides on the part of the respondent should be drawn from the circumstance that having regard to the inflationary trends in the economy of Australia, it would have been reasonable for the respondent to have realised that with the passage of time the value of the property would have increased, and the creditors, at some later date, might have had the advantage of a rise in the monetary value of the property. The suggestion was, presumably, that the respondent ought to have realised that by buying the property at its current value she was helping the bankrupt to defeat his creditors and that to proceed with the transaction in those circumstances was inconsistent with good faith on her part. I do not accept this submission. It seems to me quite unreal. That there was a possibility that the creditors could be defeated or delayed or injured in any way by her purchase of the property at its current value never entered the respondent's mind. In my view there was nothing colourable about the disposition in question and the respondent acted throughout with complete honesty and good faith.

19. In the result the motion must be dismissed with costs.