Re James Louis Florance and Jean Margaret Florance v William Edward Andrew [1985] FCA 49; 1980 Bankruptcy 58 ALR 377 (27 February 1985)

FEDERAL COURT OF AUSTRALIA

Re: JAMES LOUIS FLORANCE AND JEAN MARGARET FLORANCE
And: WILLIAM EDWARD ANDREW
Nos. G.14 of 1984 and N.S.W. 95 of 1980
Bankruptcy
58 ALR 377

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Fisher J.
Lockhart J.
Jenkinson j.

CATCHWORDS

Bankruptcy - sequestration order - options to purchase the bankrupt's interests in real estate granted to the bankrupt's wife - whether dispositions were made with intent to defraud creditors within s. 121 of Bankruptcy Act 1966 - whether the wife was a purchaser for value within para. 120(1)(a) - application by trustee during hearing of appeal to adduce fresh evidence - principles governing such an application - meaning of the expression "becomes a bankrupt" within s. 120 of Bankruptcy Act.

Bankruptcy Act 1966, ss. 120, 121.

Federal Court of Australia Act 1976, s. 27.

Bankruptcy Amendment Act 1980, s. 56.

HEARING

SYDNEY
27:2:1985

ORDER

1. The proceeding be remitted to Sweeney J. for further hearing and determination, including the taking of further evidence, if any, on matters relevant to sub-section 120(2) of the Bankruptcy Act 1966.

2. The order for costs made by Sweeney J. be confirmed.

3. Otherwise the appeal be allowed.

4. The cross appeal be dismissed.

5. There be no order as to the costs of the appeal or cross appeal.

DECISION

I have had the advantage of reading in draft form the reasons for judgment of Lockhart J. I agree with his conclusions and the reasons therefore together with the orders that he proposes.

On 18 February 1980 a sequestration order was made against the estate of James Louis Florance ("the bankrupt"). William Edward Andrew, the trustee of the bankrupt's estate ("the trustee"), applied to this Court to declare void five options to purchase the bankrupt's interest in certain real estate granted by him to his wife, Jean Margaret Florance ("Mrs. Florance") on 28 March 1977. The trustee relied on two grounds: first, that each of the options was a disposition of property made with intent to defraud creditors which is void as against the trustee pursuant to s. 121 of the Bankruptcy Act 1966 ("the Act"); and second, that each of the options was a settlement of property which is void as against the trustee pursuant to s. 120 of the Act. The learned trial Judge found against the trustee on s.121 of the Act and in his favour on s. 120 and accordingly declared each of the options void as against the trustee and made consequential orders to ensure that the interest of the bankrupt in the properties the subject of the options was not dealt with by Mrs. Florance.

The bankrupt and Mrs. Florance appealed to a Full Court of this Court from his Honour's judgment in relation to s. 120 and the trustee cross appealed, albeit otherwise than in accordance with the terms of the leave granted to him by this Court, from his Honour's judgment in relation to s. 121.

It is necessary to mention the relevant facts and I draw largely upon the trial Judge's findings of fact for this purpose. The bankrupt executed five options in total. Two were granted in respect of the bankrupt's interest as a tenant in common in equal shares with Mrs. Florance in two properties near Orange known as "Greenwood" and "Boronia". One option was granted by the bankrupt in respect of his interest in each of the following properties: the bankrupt's interest with Mrs. Florance in a property known as "Aroona Road, Oxford Falls"; his interest as sole registered proprietor of their matrimonial home in Beacon Hill and his interest as sole registered proprietor in a property known as "Eighth Avenue, Llandilo" near Penrith. One of the options in respect of the Orange properties contained a term that it might be exercised by Mrs. Florance at any time before 15 March 1981. Each of the other options contained a term that it might be exercised by Mrs. Florance at any time within five years from its date. The consideration for the grant of the options was as follows:-

Greenwood and Boronia: $10 for each option

Aroona Road, Oxford Falls: $1

The matrimonial home: $10

Eighth Avenue Llandilo: $10.

The purchase price specified in the option over the matrimonial home was

$57,000. Notice of the exercise of that option was served on 14 March 1982. The purchase price specified in the option over the Llandilo property was $18,000 and notice of its exercise was also served on 14 March 1982. In late 1977 the bankrupt had contracted to sell the Llandilo property to a company Dalliam Pty. Limited for $21,000. On 14 December 1978 the Supreme Court of New South Wales, Equity Division, ordered specific performance of the contract by Dalliam. Dalliam was wound up on 11 December 1979 but before then it contracted to sell the Llandilo property for $25,000. The bankrupt is still presently the sole registered proprietor of the property.

The purchase price specified in the option over the Oxford Falls property was $32,500 and notice of its exercise was served on 14 March 1982.

The purchase price specified in each of the options over the Orange properties was $69,400.

The option exerciseable prior to 15 March 1981 was not exercised. Notice of the exercise of the other option in respect of the Orange properties was served on 12 March 1982.

The trial Judge found that:

"the purchase prices specified in the options broadly accorded with

the valuations put into evidence on behalf of the respondents. No evidence to the contrary was led . . ."

Later in his reasons for judgment the trial Judge found:

". . . the specified price in respect of each option broadly accorded

with the valuation in evidence before me, and there was no provision in any of the options for the price to be increased."

Each of the properties the subject of the options was encumbered by mortgages in favour of the Bank of New South Wales ("the Bank") at the time of the grant of the option. In 1982 the Bank brought proceedings in the Supreme Court of New South Wales against the bankrupt and Mrs. Florance for possession of the properties. Those proceedings were settled and terms of settlement were signed on 28 September 1982.

On 18 February 1980 the sequestration order was made against the estate of the bankrupt on the petition of Turimetta Properties Pty. Limited ("the petitioning creditor") which had on 15 February 1978 obtained judgment against the bankrupt and a Mr. Knight in the Supreme Court of New South Wales in respect of their liability under a guarantee of the obligations of a company Louis John Holdings Pty. Limited under a mortgage between it and the petitioning creditor. The amount of the judgment was $432,545.50. The act of bankruptcy upon which the sequestration order was based was the failure of the bankrupt on or before 21 February 1979 to comply with the requirements of the bankruptcy notice founded upon that judgment. Accordingly, the commencement of the bankrupt's bankruptcy was 21 February 1979.

The bankrupt and Mrs. Florance gave evidence before the trial Judge and were cross examined at length. His Honour said:

"I accept them as witnesses of truth whose account of the circumstances surrounding the giving of the options may be safely accepted. Mr. Florance said that he wished to retire from the practice of law, sell the properties and move to the country to take up farming, but that Mrs. Florance opposed this strenously. It was Mrs. Florance who had suggested and insisted upon the options, and he eventually granted them to her in the interests of domestic harmony. Mrs. Florance gave evidence by affidavit that her reasons for insisting on 'an arrangement in general', and options in particular, were as follows:

(a) my husband's state of health;

(b) the pressure of work on my husband;

(c) I was uneasy about my husband's partners;

(d) I did not want the properties sold (one was the matrimonial home

and the other three properties I wanted to use when we retired);

(e) I did not want our children taken away from their schools and their friends;

(f) I did not want to get out of touch with my friends;

(g) options would enable me to select the time best suited to me to

enter into contract (sic) for the purchase of my husband's shares of the various properties and I would need time in order to arrange finance, and until such time as I exercised my right under the options, the present situation would be unaltered.'"

Mrs. Florance gave evidence before his Honour that she was anxious for her husband to remain in his legal practice and that she had always hoped that her son and daughter, who are both presently studying law, would eventually also go into the practice.

His Honour said the bankrupt conceded in the course of cross-examination that at the time of the grant of the options he had considerable actual or contingent liabilities, but his Honour accepted his evidence that he believed he was financially sound and solvent. The bankrupt and his partners in the legal practice had used a company named Wegrow Products Pty. Limited to conduct various business activities which were financed by monies raised from clients of the practice. The company owned commercial land in Bungan Street and Parklands Road, Mona Vale which was to be developed. In September 1977, at a meeting of the partners, the bankrupt proposed that the properties be realised. The bankrupt gave evidence that had this been done there would have been no shortfall, but rather a very substantial profit. To support his proposal Mrs. Florance had requested the bankrupt to arrange the transfer of her interest in certain property in Darley Road worth approximately $200,000 to a company Civic Ice Rinks Pty. Limited upon trust for Wegrow Products Pty. Limited to cover the bankrupt's proportion of any shortfall which might occur if his proposal were carried out. His Honour held that the bankrupt would have been unlikely to request or accept such a contribution from Mrs. Florance if, at that time, he was seriously concerned about the state of his financial affairs. His Honour found that Mrs. Florance was a woman versed in business affairs who would have been most unlikely to provide such a substantial sum had she regarded the bankrupt as being in serious financial difficulties.

In the result his Honour was satisfied that the bankrupt, in granting the options to his wife, was motivated solely by domestic considerations and that in the circumstances any intention to defraud the creditors could not be inferred. His Honour was satisfied that Mrs. Florance acted in good faith. Accordingly, the application failed in so far it was based upon s. 121 of the Act.

In relation to the claim under para. 120(1)(a) of the Act his Honour held that it should be construed as requiring a purchaser to provide a quid pro quo in the commercial sense. He relied on various English authorities in support of that approach, in particular Re A Debtor Ex Parte: The Official Receiver v. Morrison (1965) 3 All E.R. 453 per Stamp J. at p. 457; Re Windle (1975) 3 All E.R. 987 per Goff J. at p. 995; Re Densham (1975) 3 All E.R. 726 per Goff J. at pp. 735 and 736; Trustee of C.R. Spinks (In Bankruptcy) v. Vicker noted at 122 Sol. Jo. 971; and Re Abbott (1982) 3 All E.R. 181 per Peter Gibson J. at p. 184 and Sir Robert Megarry V.C. at p.187; and Re Marchiori Ex Parte: The Official Trustee, Fisher J. unreported 11 March 1983. His Honour held that the consideration provided by Mrs. Florance in each case in return for the options granted by the bankrupt was trivial and could not be regarded as a quid pro quo in the commercial sense. His Honour concluded that Mrs. Florance was not a purchaser for valuable consideration within the meaning of para. 120(1)(a) of the Act and that the application, in so far as it relied upon s. 120, should succeed.

During the course of argument before us counsel for the trustee applied for leave to call further evidence pursuant to s. 27 of the Federal Court of Australia Act (1976) and Order 52 Rule 36 of this Court's Rules. Order 52 Rule 36(4) requires the party who seeks to adduce further evidence to state the grounds of the application in an affidavit. The evidence which the party wishes the court to receive must be given by affidavit (Order 52 Rule 36(5)) and the party must file any affidavit not later than 21 days before the hearing of the appeal (Rule 36(6)). Two affidavits were relied on by the trustee as stating the grounds of the application to receive further evidence and as giving the evidence which the trustee wished the Court to receive. The deponents are Mr. B.H.J. Levy, a Sydney solicitor, and Mr. B.D. Bridges, a former solicitor and former partner of the bankrupt in the legal firm Messrs. J.E.A. Florance and Florance. Both affidavits were filed within the time prescribed by Order 52 Rule 36(6). Counsel for the trustee accepted that before the further evidence could be received by the Court, it was necessary for the trustee to establish that it must be reasonably clear that if the evidence had been available at the trial and had been adduced an opposite result would have been produced or, if it is not reasonably clear that such a result would have been produced, it must have been so highly likely as to make it. unreasonable to suppose the contrary. Also reasonable diligence must have been exercised to procure the evidence which the defeated party failed to adduce at the trial. Fresh evidence will not be received unless it produces such a different complexion on the case that a reversal of the former result ought certainly to ensue: Orr v. Holmes [1948] HCA 16; (1948) 76 C.L.R. 632; The Commissioner for Government Tram and Omnibus Services v. Vickery [1952] HCA 44; (1952) 85 C.L.R. 635; McCann v. Parsons [1954] HCA 70; (1954) 93 C.L.R. 418; Council of the City of Greater Wollongong v. Cowan [1955] HCA 16; (1955) 93 C.L.R. 435. All applications relating to fresh evidence were opposed by counsel for the appellants.

When this application was made to receive further evidence on Tuesday, 23 October 1984 the Court (Fisher and Lockhart JJ., Jenkinson J. dissenting) refused the application. We said that we would give our reasons later; these are my reasons. Mr. Levy is the solicitor for the trustee in these proceedings and he acted for him in the proceedings before the trial Judge. He swore that the evidence contained in his affidavit and that of Mr. Bridges was not available to the trustee at the hearing before the trial Judge and that it became known to him when, on behalf of the trustee, inquiries were made by him of Mr. Bridges concerning the bankrupt's activities whilst a partner in the legal practice relating to a bank account of a client of the firm. He swore that as a result of those inquiries Mr. Bridges made available to him certain documents and papers relating to proceedings between himself (Mr. Bridges) and the Law Society of New South Wales touching upon the bank account. With Mr. Bridges' consent he perused the papers whereupon the matters referred to in his affidavit and the affidavit of Mr. Bridges became known to him. He swore that he believed that those documents and papers would not otherwise have been previously available to him. The evidence of Mr. Levy and Mr. Bridges was directed to establishing that the property in Darley Road was worth in September 1977 not about $200,000, but a much lower figure. Hence it was submitted that this would have been material evidence likely to have led the trial Judge to draw different conclusions as to the motivation of the bankrupt in granting the options to Mrs. Florance and as to the bankrupt's financial position at the relevant times and his own view of it.

Nothing emerges from the affidavits and nothing was advanced in argument which satisfied me that reasonable diligence would not have discovered the evidence so that it could have been adduced before the trial Judge. Further, the probative value of the evidence sought to be adduced falls far short of the tests laid down in the cases to which I have referred. Indeed, the admissibility of much of the material contained in those affidavits is open to serious question and even if admitted, its probative value is slight. Certainly I am far from persuaded that it would have produced any different conclusion at the trial.

Counsel for the trustee finally sought to have his application to call fresh evidence adjourned in order to obtain further affidavits stating the grounds of the application and the evidence to be adduced if the application were to succeed.

It was apparent that at the time this application was made to us (23 October) the appeal would not finish that day and that it would be necessary for the further hearing of the appeal to be adjourned to a date somewhat later. It was submitted by counsel for the trustee that no prejudice therefore would be sustained by the appellants if the trustee was given another chance to put his case in order as far as the application to receive further evidence was concerned. I was not persuaded that prejudice would not be sustained by the appellants. Further, if the trustee was given this second opportunity I took the view that when the hearing of the appeal resumed before us it would be likely that a further adjournment would be required so that, if the fresh evidence were admitted by us, the appellants could be given an opportunity to adduce further evidence themselves. I did not, and still do not, hold the view that it would be fair to require the appellants to place their evidence on affidavit replying to matters that would be the subject of further affidavits to be filed by the trustee without the appellants first knowing whether the evidence would be admitted or not. It is plain from what we were told by counsel for the appellants that there would be a serious issue of fact over material of the kind that is already referred to in the affidavits of Mr. Levy and Mr. Bridges. Also, counsel for the trustee told us that the further evidence which the trustee wished to adduce would be along the lines of the evidence in the two affidavits of Mr. Levy and Mr. Bridges already filed; but would be fuller and in proper form.

Litigation should not proceed this way. The parties must know where they stand. There has to be some end to the extent to which courts will extend leniency to parties who have not complied with rules of court, especially when a matter such as the reception of fresh evidence on the hearing of an appeal is concerned. Hence I joined in the refusal of the application of the trustee.

Even if the tests referred to in the decisions of the High Court to which I have referred are not apposite for s. 27 of the Federal Court of Australia Act and 0. 52 r. 36 of this Court's Rules and the Court's discretion is more at large I would have reached the same conclusion.

The trustee challenged, although only faintly, the trial Judge's findings which led him to dismiss the application in so far as it was based on s. 121 of the Act. Nothing was said in argument which leads me to disturb his Honour's findings that the bankrupt, in granting the options to Mrs. Florance, was motivated solely by domestic considerations; that in the circumstances any attempt to defraud creditors could not be properly inferred; and that Mrs. Florance acted in good faith.

I turn to sub-s. 120(1). At the commencement of the hearing of this appeal the Bench drew counsel's attention to the fact that the case evidently had been conducted before the trial Judge on the assumption that sub-s. 120(1) was in its present form at all times relevant to this case. Counsel agreed that this was the basis on which the case had been conducted. However, the subsection was not in that form at the relevant times. Section 120 was amended to its present form by the Bankruptcy Amendment Act (1980) (Act No. 12 of 1980): section 56 of that Act which amended s. 120 came into operation on 8 April 1980. Sub-section 120(1) was in the following terms up to that time:

120.(1) 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 or 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 within two years after the date of the settlement, void as against the trustee in the bankruptcy."

Section 56 of the Bankruptcy Amendment Act (1980) omitted from sub-s. 120(1) the words "within two years after the date of settlement" and substituted the words "and the settlement came into operation after or within two years before the commencement of the bankruptcy". Subsection 56(2) provided:-

"(2) Notwithstanding the amendments of section 120 of the Principal Act made by sub-section (1) of this section, the provisions of that section of the Principal Act continue to apply, after the commencement of this section, in relation to a settlor who became a bankrupt before the commencement of this section as if those amendments had not been made."

It was not disputed that this case must be determined by reference to the previous form of sub-s. 120(1). The sequestration order against the estate of the bankrupt was made on 18 February 1980 and the date of the settlement was 28 March 1977 so that, assuming the bankrupt "becomes a bankrupt" within the meaning of s. 120(1) upon the making of the sequestration order, sub-s. 120(1) could not operate to avoid the settlement.

It was argued by counsel for the trustee that the expression "becomes a bankrupt" in sub-s. 120(1) means "commits an available act of bankruptcy" and reliance for this construction was based upon earlier English decisions of In Re Reis, Ex Parte Clough (1904) 1 K.B. 451 per Wright J. at p. 455 and on appeal to the Court of Appeal (1904) 2 K.B. 769. The Court of Appeal reversed the judgment of Wright J., but all three members of the Court appear to have concurred in what his Lordship said about the meaning of the expression "becoming bankrupt" in sub-s. 47(2) of the Bankruptcy Act 1883 of England.

In In Re Hart, Ex Parte: Green (1912) 3 K.B. 6 Kennedy L.J. said at p. 16

"By the course of s. 43 the bankruptcy had relation to and commenced

at the date of the commission of this act of bankruptcy, and the words 'becoming bankrupt' in s. 47 have been held by Wright J. (though not without doubt) in In Re Reis to refer to the date specified in s. 43 as the commencement of the bankruptcy. His decision on this point is unaffected by the reversal of his judgment on other grounds by the Court of Appeal. Moreover the same opinion as to the interpretation of the words 'to become bankrupt' in s. 47 was expressed both by A.L. Smith L.J. and by Rigby L.J. in the course of their judgments in In Re Carter and Kenderdine's Contract (1897) 1 Ch 776. . . "

See also Fawcett v. Fearne [1844] EngR 572; (1844) 6 Q.B. 20 or [1844] EngR 572; 115 E.R. 8.

I share the reservation expressed by Kennedy L.J. about the correctness of those decisions on this question, but I do not find it necessary to decide the matter. Those cases involved consideration of sections of the English bankruptcy legislation comparable to s. 120 where the relevant expression was "becoming bankrupt".

Whatever the position may have been under the English legislation and, indeed, under the Australian Bankruptcy Act 1924, since the coming into operation of the Act in 1968 it is plain that the draftsman chose materially different language. The relevant expression in sub-s. 120(1) is not "becomes bankrupt" but "becomes a bankrupt" (the emphasis is mine). The same expression appears in other sections of the Act including ss. 123 and 124.

It is plain therefore that, when passing the Act, Parliament deliberately chose an expression to make it plain that the words "becomes a bankrupt" mean, at least in sub-s. 120(1), when a person is made bankrupt either by the making of a sequestration order against his estate or following the presentation of his own petition: see the definition of "bankrupt" in sub-s. 5(1). It follows that the appeal must be allowed so far as it concerns sub-s. 120(1).

That leaves sub-s. 120(2). It too was amended by the Bankruptcy Amendment Act 1980, but not materially. There were no pleadings in the case but the issues emerged from the application dated 25 March 1983 filed by the trustee and the amended notice of opposition dated 10 June 1983 filed by the appellants. The application itself is cast in sufficiently wide language to raise sub-s. 120(2) which involves, of course, different considerations from sub-s. 120(1) including the question of the solvency of the bankrupt. The notice of opposition is directed, so far as s. 120 is concerned, solely to sub-s. 120(1). I am satisfied from my reading of the appeal book and from the argument before us that the case was conducted before the trial Judge on the basis that the questions for determination by his Honour centred round sub-s. 120(1) and s. 121 and not sub-s. 120(2). We were referred to a cryptic passage in the transcript which records discussion between counsel for the appellants and the trial Judge (p. 166); but that does not convince me that sub-s. 120(2) was the subject of evidence or submissions before his Honour. However, I think the appropriate course to take in all the circumstances is to accede to the application made by counsel for the trustee that the matter should be referred back to the trial Judge for further hearing and determination including the reception of further evidence, if necessary, on matters relevant to sub-s. 120(2).

I would refer this matter back to the trial Judge in so far as it remains to be determined under sub-s. 120(2), allow the appeal in relation to sub-s. 120(1) and dismiss it in relation to s. 121.

On the question of costs, the trial Judge said that the trustee had failed as to s. 121 and succeeded as to sub-s. 120(1). He said that the ground of s. 121 was strongly pressed and was based on an allegation of fraud. It gave rise to a lengthy cross examination of the bankrupt and Mrs. Florance and accounted for a substantial part of the hearing and of the submissions of counsel. In the circumstances his Honour thought that the appropriate order for costs was that the appellants should pay one-third of the taxed costs of the trustee including reserved costs. As no party realised before his Honour that the case as to sub-s. 120(1) fell to be determined on the footing of the form of that sub-section as it stood before the Bankruptcy Amendment Act 1980 came into operation the order for costs made by his Honour should not be disturbed.

As to the costs of the appeal, in my opinion the appropriate order is that there be no order as to costs. The appellants won on the issue of sub-s. 120(1) but on a point which was raised at the commencement of the argument on 23 October 1984. The meaning of the expression "purchaser. . . for valuable consideration" in sub-s. 120(1) was argued before us at some length. After 23 October a Full Court of this Court (Sweeney, Fisher and Lockhart JJ.) considered that expression and concluded that it means consideration in a commercial sense: Re Barton, Ex Parte: The Official Receiver, 12 November 1984. The meaning which the Court attributed to that expression in the Barton Case involves the rejection of the argument by counsel for the appellants in this case. The trustee failed in his cross appeal based on s. 121. In all the circumstances the appropriate result is that each party should bear his or her own costs. Hence no order as to costs is the appropriate order.

Appeals against declarations by Sweeney J. that several transactions between the appellant bankrupt and his wife, the other appellant, are void as against the bankrupt's trustee, the respondent to the appeals.

A sequestration order was made against the estate of the appellant James Louis Florance on 18 February 1980. On 28 March 1977 he had granted to his wife what were taken by the parties to the appeals to be options to purchase his freehold estates in five parcels of land. The trustee sought and was granted by Sweeney J. declarations that each of the options "purported to be granted . . . . constituted a settlement of property by the bankrupt on" his wife "within the meaning of s.120 of" the Bankruptcy Act 1966 "and as such was and remains void as against . . . . the . . . . trustee of the property of the bankrupt."

When the documents which the parties treated as options (and to which I will refer as "options") were executed in 1977 s.120 of the Bankruptcy Act 1966 was in these terms:-
"(1) 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 within two years after the date of the settlement, void as against the trustee in the bankruptcy.

(2) A settlement of property, whether made before or after the commencement of this Act, not being a settlement referred to in paragraph (a) or (b) of the last preceding sub-section or a settlement that is void as against the trustee by reason of the operation of that sub-section, is, if the settlor becomes a bankrupt within five years after the date of the settlement, void as against the trustee in the bankruptcy, unless the parties claiming under the settlement prove -

(a) that the settlor was, at the time of making the settlement, able to pay all his debts without the aid of the property comprised in the settlement; and

(b) that the settlor's interest in the property passed to the trustee of the settlement or to the donee under the settlement on its execution.

(3) A covenant or contract made, whether before or after the commencement of this Act, in consideration of marriage either -

(a) for the future payment of money to the settlor's spouse or children; or

(b) for the future settlement of property on or for the settlor's spouse or children,

being money or property in which the settlor did not, at the date of the marriage, have any estate or interest, whether vested or contingent, in possession or remainder, and not being money or property of, or in right of, the settlor's spouse, is, if the settlor becomes a bankrupt before the covenant or contract has been executed, void as against the trustee in the bankruptcy.

(4) The persons entitled under the covenant or contract may claim for dividend in the settlor's bankruptcy under the covenant or contract, but such a claim shall be postponed until all claims of the other creditors for valuable consideration in money or money's worth (including claims under section 111 of this Act and claims for interest on interest-bearing debts in respect of a period after the date of the bankruptcy) have been satisfied.

(5) A payment of money or transfer of property made by the settlor in pursuance of such a covenant or contract, whether before or after the commencement of this Act, is void as against the trustee in the settlor's bankruptcy, unless the persons to whom the payment or transfer was made prove -

(a) that the payment or transfer was made more than two years before the commencement of the bankruptcy;

(b) that at the date of the payment or transfer the settlor was able to pay all his debts without the aid of the money so paid or the property so transferred; or

(c) that the payment or transfer was made in pursuance of a covenant or contract to pay or transfer money or property expected to come to the settlor from, or on the death of, a particular person named in the covenant or contract and was made within three months after the money or property came into the possession or under the control of the settlor.

(6) Where any such payment of money or transfer of property is void as against the trustee in the settlor's bankruptcy by virtue of the last preceding sub-sectio, the persons to whom the payment was made or the property was transferred are entitled to claim for dividend under the covenant or contract as if it had not been executed at the commencement of the bankruptcy.

(7) Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired from the persons entitled to the benefit of the settlement, covenant or contract or from the trustee of the settlement the money or property the subject of the settlement, covenant or contract or an interest in that money or property.

(8) In this section, settlement of property' includes any disposition of property."

The reasons of Sweeney J. for his judgment contain no reference to any but the first sub-section of s.120. His declaratory orders must be understood as intended to refer to that sub-section. Nor do those reasons contain any reference to s.120 as enacted in 1966 and in force until 8 April 1980. On that date s.56 of the Bankruptcy Amendment Act 1980 came into operation. That section provided:

"(1) Section 120 of the Principal Act is amended -

(a) by omitting from sub-section (1) 'within two years after the date

of the settlement' and substituting 'and the settlement came into operation after, or within 2 years before, the commencement of the bankruptcy';

(b) by omitting from sub-section (2) 'within five years after the date of the settlement' and substituting 'and the settlement came into operation after, or within 5 years before, the commencement of the bankruptcy';

(c) by omitting from sub-section (3) 'before the covenant or contract has been executed' and substituting 'and the covenant or contract was executed after the commencement of the bankruptcy';

(d) by omitting from sub-section (4) 'for valuable consideration in money or money's worth'; and

(e) by inserting in sub-section (4) ',claims in respect of excess interest under section 112' before 'and claims for interest'.

(2) Notwithstanding the emendments of section 120 of the Principal Act made by sub-section (1) of this section, the provisions of that section of the Principal Act continue to apply, after the commencement of this section, in relation to a settlor who became a bankrupt before the commencement of this section as if those amendments had not been made."

In consequence of that amendment s.120 has been, since 8 April 1980, in these terms:

"(1) 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 the bankruptcy, void as against the trustee in the bankruptcy.

(2) A settlement of property, whether made before or after the commencement of this Act, not being a settlement referred to in paragraph (1)(a) or (b) or a settlement that is void as against the trustee by reason of the operation of that sub-section, is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 5 years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy, unless the parties claiming under the settlement prove -

(a) that the settlor was, as the time of making the settlement, able to pay all his debts without the aid of the property comprised in the settlement; and

(b) that the settlor's interest in the property passed to the trustee of the settlement or to the donee under the settlement on its execution.

(3) A covenant or contract made, whether before or after the commencement of this Act, in consideration of marriage either -

(a) for the future payment of money to the settlor's spouse or children; or

(b) for the future settlement of property on or for the settlor's spouse or children,

being money or property in which the settlor did not, at the date of the marriage, have any estate or interest, whether vested or contingent, in possession or remainder, and not being money or property of, or in right of, the settlor's spouse, is, if the settlor becomes a bankrupt and the covenant or contract was executed after the commencement of the bankruptcy, void as against the trustee in the bankruptcy.

(4) The persons entitled under the covenant or contract may claim for dividend in the settlor's bankruptcy under the covenant or contract, but such a claim shall be postponed until all claims of the other creditors (including claims under section 111, claims in respect of excess interest under section 112 and claims for interest on interest-bearing debts in respect of a period after the date of the bankruptcy) have been satisfied.

(5) A payment of money or transfer of property made by the settlor in pursuance of such a covenant or contract, whether before or after the commencement of this Act, is void as against the trustee in the settlor's bankruptcy, unless the persons to whom the payment or transfer was made prove -

(a) that the payment or transfer was made more than 2 years before the commencement of the bankruptcy;

(b) that at the date of the payment or transfer the settlor was able to pay all his debts without the aid of the money so paid or the property so transferred; or

(c) that the payment or transfer was made in pursuance of a covenant or contract, to pay or transfer money or property expected to come to the settlor from, or on the death of, a particular person named in the covenant or contract and was made within 3 months after the money or property came into the possession or under the control of the settlor.

(6) Where any such payment of money or transfer of property is void as against the trustee in the settlor's bankruptcy by virtue of sub-section (5), the persons to whom the payment was made or the property was transferred are entitled to claim for dividend under the covenant or contract as if it had not been executed at the commencement of the bankruptcy.

(7) Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired from the persons entitled to the benefit of the settlement, covenant or contract or from the trustee of the settlement the money or property the subject of the settlement, covenant or contract or an interest in that money or property.

(8) In this section, 'settlement or property' includes any disposition of property."

The reasons for judgment refer only to s.120 as it read after amendment by s.56 and contain no reference to the amendment of the former section. Counsel for the parties had not directed his Honour's attention to the amendment of the section which had supervened upon the making of the sequestration order. The "commencement of the bankruptcy" of the appellant James Louis Florance had occurred on 21 February 1979, for that was the date to which his bankruptcy was deemed to have relation back, by the operation of s.115(1). (See the definition of "the commencement of the bankruptcy" in s.5(1).)

When these changes in the terms of s.120 were drawn to the attention of counsel for the parties on the hearing of the appeals, counsel for the respondent did not submit that the effect of s.56 of the Act of 1980 had been to constitute both the provisions of sub-section (1) as they had existed before 8 April 1980 and the provisions of that sub-section as they existed on and after that date as legislative provisions applying "in relation to a settlor who became a bankrupt before" 8 April 1980. Mr. Darvall Q.C., who appeared with Mr. Cramer-Roberts for the respondent, framed his submissions on the assumption, if he did not expressly concede, that the sub-section in its amended form did not apply in relation to a settlor against whose estate a sequestration order had been made before the date on which s.56 of the amending Act came into operation. I think the assumption was correct. In Ex parte Todd. In re Ashcroft (1887) 19 Q.B.D. 186 Lord Esher M.R. and Fry L.J. thought that s.47 of the Bankruptcy Act 1883 (which includes provisions very similar to those of s.120(1)) would apply to circumstances which had preceded the enactment of that Act. Section 91 of the Bankruptcy Act 1869, which was repealed by the Act of 1883, had contained substantially the same provisions as s.47, but its application was restricted, as the application of s.47 was not, to traders. The Master of the Rolls observed (19 Q.B.D. at 195):

"As a general rule an Act of Parliament which affects rights is not retrospective, unless the intention of the legislature that it shall be retrospective is plainly expressed or implied. But, if that part of s.47 which is old be not retrospective, what would be the result? The Act of 1869 is repealed, and a number of settlements to which it applied would be left untouched by reason of the repeal. In determining whether any provision of an Act was intended to be retrospective or not, I think the consequences of holding that it is not retrospective must be looked at, and to my mind it is inconceivable that the legislature, when, in a new Act which repeals a former Act, they repeat in so many words certain provisions of the repealed Act, should have intended that persons who, before the passing of the new Act, had broken the provisions of the old Act - who had been doing that which the legislature thought to be wrong - should entirely escape the consequences of their wrongdoing by reason of the repeal of the old Act. I think, therefore, that, so far as s.47 is a repitition of s.91, the legislature obviously intended to replace the old enactment at once by the new one, and that, to that extent, s.47 must apply to transactions which took place before the commencement of the new Act. But why should we carry it any further, and say that the new part of s.47 applies to antecedent transactions? I can see no reason for doing so, and I think it is a wholesome doctrine to hold that the section is retrospective so far as it is a repetition of the former enactment, but that it is not retrospective so far as it is new. If this be so, s.47 cannot apply at all to any settlement executed by a non-trader before the commencement of the Act, nor can the final clause (which is a new enactment) apply to any settlement executed by a trader before the date."

But in s.56(2) of the Bankruptcy Amendment Act 1980 the legislature has made express provision to prevent the lacuna which Lord Esher was constrained to obviate by "wholesome doctrine". In those circumstances I do not think that I should place upon s.120(1) as amended a construction which would render void transactions which were not avoided either by that sub-section before its amendment or by force of the provision made in s.56(2) of the amending Act. (See Chang Jeenq v. Nuffield (Australia) Pty. Ltd. [1959] HCA 40; (1959) 101 C.L.R. 629 at 637-638; In re a Solicitor's Clerk (1957) 1 W.L.R. 1219 at 1220-1221.) I have found nothing in the explanatory memorandum relating to the Bill for the amending Act that was furnished to the members of the House of Representatives before its enactment, or in the speech to that House by the Minister on the occasion of his moving the second reading of the Bill, which favours such a construction.

Mr. Darvall submitted that the reasoning of Sweeney J. to the conclusion that the transactions in question were void as against the trustee was not affected by the circumstance that it is to s.120(1) as in force before 8 April 1980 that those transactions are subject, because, as Mr. Darvall submitted, the words "becomes a bankrupt" in the unamended sub-section are to be understood as describing, not the making of a sequestration order, but the happening of the event the time of occurrence of which is, by virtue of s.115, "the commencement of the bankruptcy".

That was the construction, Mr. Darvall pointed out, which English authorities had placed on the expressions "becomes bankrupt" and "becoming bankrupt" in s.47 of the English Bankruptcy Act 1883. (See In re Hart. Ex parte Green (1912) 3 K.B. 6 and the cases there cited.) The English judges had been constrained, as Mr. Darvall submitted that this court should be constrained, to construe the expression in the light of the relation back to the act of bankruptcy of the trustee's title. If that construction of the expression "becomes a bankrupt" in s.120(1) were adopted, then the appellant had become bankrupt on the date of the act of bankruptcy which, in his case, was "the commencement of the bankruptcy", namely 21 February 1979. In those circumstances, if the settlements "came into operation" upon grant of the options, the conclusion of Sweeney J. that the settlements came into operation within two years before the commencement of the bankruptcy would necessarily involve the conclusion, which s.120(1) in its unamended form required for justification of his Honour's orders, that the settlor had become a bankrupt within two years after the date of the settlements.

Neither the learned judge nor counsel for the parties called in question the assumptions, upon which the appeal was argued, that the grant of the options had constituted settlements of property and that upon the grant of the options the settlements had come into operation.

The word "bankrupt" is defined, as a noun, in both the Bankruptcy Act 1924 and the Bankruptcy Act 1966. In the former Act the word is defined to mean, unless the contrary intention appears, "any person in respect of whose estate a sequestration order has been made". In the 1966 Act the defined meaning, again subject to a contrary intention, is

"a person -

(a) against whose estate a sequestration order has been made; or

(b) who has become a bankrupt by virtue of the presentation of a

debtor's petition."

In sections 94(1)(i), 94(1)(ii), 94(2) and 95(1) of the 1924 Act - to which sections 120(1), 120(2), 120(3) and 122(1), respectively, of the 1966 Act correspond - the word "bankrupt" is used as an adjective : "if the settler becomes bankrupt" (s.94(1)(i), s.94(1)(ii)); "on the settlor becoming bankrupt" (s.94(2)); "if the debtor becomes bankrupt" (s.95(1)). That circumstance might be thought to give some ground for acceptance of the submission advanced by Mr. Darvall, if the submission had related to s.94(1)(i) of the 1924 Act. (There are other indications, for and against acceptance of such a submission in relation to the 1924 Act : see s.94(3)(2) (cf. s.120(5)(a) of the 1966 Act) and s.96A (cf. s.124(1)(a) of the 1966 Act). But the consistent terminological usage of the 1966 Act precludes acceptance of the submission in relation to that Act, in my opinion. The expression "the commencement of the bankruptcy" is defined in s.5(1) of that Act to mean, "in relation to a bankrupt, . . . . the time at which his bankruptcy is, by virtue of s.115 of this Act, to be deemed to have commenced". The word "bankrupt" is used consistently as a noun, whereby the definition of that word is imported. The contrast was clearly drawn in s.120, before the amendments effected in 1980, between the event on the occurrence of which a person "becomes a bankrupt" and the event which marks "the commencement of the bankruptcy" : compare sub-section (1) and sub-section (5) of s.120 as they stood before those amendments. The contrast is drawn even more clearly after the amendments of 1980 : it is drawn in each of the first two sub-sections of s.120. In my opinion a person "becomes a bankrupt", within the meaning of that expression in s.120(1) of the 1966 Act when one or other of the events contemplated by the definition of "bankrupt" occurs in relation to him.

For those reasons the orders Sweeney J. made cannot be justified by reference to the first sub-section of s.120 : the sequestration order against Mr. Florance's estate was made, on 18 February 1980, more than two years after the date, 8 March 1977, on which the options were granted.

The application in writing by which the respondent sought the declarations which Sweeney J. made did not specify the sub-section of s.120 upon which the respondent would rely. The appellants' notice of their intention to oppose the application disclosed only grounds of opposition referable either to the first sub-section or to both sub-section (1) and sub-section (2). Since the appellants' legal advisers, like the respondent's legal advisers, took the amended section to be that which applied to the transactions and regarded the grant of each of the options as constituting a settlement of property, it was natural that all three parties before Sweeney J. should regard the fate of the application as necessarily turning on the operation of the first sub-section. If the grant of an option were not of a description contained in paragraph (a) or (b) of that amended sub-section, none of the parties doubted that the grant of the option was subject to its operation. Accordingly no issue of fact or question of law arising under the second sub-section and not under the first sub-section was raised before Sweeney J. In those circumstances, and having regard to the interests of creditors on whose behalf the respondent instituted the application, I think that this court should remit the application for further hearing and determination by a single judge of the court, unless we are able to determine, upon the evidence before us and by reference to the submissions advanced to us, that s.120(2) does, or that it does not, operate to avoid the settlements.

Sweeney J. concluded that none of the options had been given "for valuable consideration" within the meaning of that expression in paragraph (a) of s.120(1). That conclusion the appellants attacked in their grounds of appeal and in submission. The same issue of fact and the same question of law are involved in such a conclusion, whether it be drawn in respect of the first or the second sub-section of s.120.

The appellants submitted that it is an error to deny that a consideration is "valuable consideration", within the meaning of that expression in s.120, merely because the consideration cannot be characterised as of real and substantial value in a commercial sense. That which the appellants' submission asserted to be an error is, however, what I understand the other two members of this court to have held to be the law, in a decision of another Full Court of this court which was given on 12 November 1984, after the hearing of these appeals : Terence Barton v. The Official Receiver. What they have laid down in exposition of the phrase "for valuable consideration" in s.120 accords with English authority on similar legislation. I follow that decision and reject the appellants' submission.

It was submitted that, even if the phrase "for valuable consideration" were understood in the sense expounded by Fisher and Lockhart J.J. in Terence Barton v. The Official Receiver, the conclusion of Sweeney J. that the options were not purchased for such a consideration was not justified by the evidence. There is in my opinion no substance in that submission. In the case of each option $10 or less was the consideration for a right, exercisable at any time within a period of more than the four years succeeding the grant of the option, to buy for a specified price (the lowest $32,500, the highest $69,400), which was about the market value of the grantor's interest in the land at the time of the grant of the option, the grantor's interest in the fee simple estate in a parcel or parcels of improved land of which the grantor was, either alone or jointly with the grantee, registered proprietor. The grantor of the option foregoes during the period in which the option is exercisable his right to dispose of any but a minor leasehold interest in the land, as well as the value of any accretion which should occur in the market price of his estate in the land between the grant of the option and the date of its exercise, if it be exercised. For those detriments $10 could not, as I think, be found to be a consideration of real value in a commercial sense.

No other issue of fact or question of law arising under s.120(2) was raised on the hearing of the appeals or on the hearing before Sweeney J. In particular, the parties did not raise any issue or question arising under paragraph (a) of that sub-section. I would propose that this court order that the appeals be allowed, that each order of Sweeney J. declaring an option to have constituted a settlement of property by the appellant James Louis Florance on the appellant Jean Margaret Florance within the meaning of s.120 of the Act, and to have been void as against the respondent trustee of the property of the appellant bankrupt, be set aside, that the orders numbered 7 and 8 of the order of Sweeney J. be set aside, that in lieu of the foregoing orders of Sweeney J it be declared in respect of each option that sub-section (1) of s.120 of the Act did not operate to avoid the same, and that the respondent's application dated 25 March 1983 be remitted for further hearing and determination by a single judge of the Court.

Although his conclusion was not given expression in an order, Sweeney J. heard and determined the respondent's application for a declaration that the grant of each option constituted a disposition of property made with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, and that s.121 of the Act had operated to render the disposition void as against the respondent, the trustee in Mr. Florance's bankruptcy. Sweeney J. refused the application, being unpersuaded that there had been an intent to defraud creditors. During the hearing of the appellants' appeals the respondent, by leave of this court, appealed against his Honour's refusal of the application.

Upon the evidence before Sweeney J. the conclusion to which his Honour came in relation to s.121 could not be seriously challenged. But this court was moved to receive further evidence, which it was said would lead to the contrary conclusion. The evidence filed in support of that motion was quite insufficient to justify our acceding to the motion, but counsel for the respondent sought an adjournment of the motion and of the respondent's appeal in order to adduce further evidence on the adjourned hearing. Notwithstanding the long delays and the gross deficiencies of the evidence filed in support of the motion, I would have granted the adjournment sought and entertained on the resumption of the hearing an application on behalf of the respondent for leave to file further evidence in support of the motion. It was for that reason only that on 23 October 1984 I dissented from the order then made by this court that the motion be refused.

I would dismiss the respondent's appeal.

I think no order with respect to any party's costs of any of the appeals ought to be made. I would set aside the order with respect to costs which Sweeney J. made and in lieu thereof order that there be no order with respect to the costs of each party of the hearing before Sweeney J. on 15, 16 and 17 August 1983 and that otherwise the costs of the application be reserved to the judge by whom the application shall be further heard and determined.