Re Kerry William Fitzgerald Ex Parte: Robert John Fred Burns; Sandra Lee Fitzgerald [1986] FCA 10 (24 January 1986)

FEDERAL COURT OF AUSTRALIA

Re: KERRY WILLIAM FITZGERALD
EX PARTE: ROBERT JOHN FRED BURNS; SANDRA LEE FITZGERALD
No. QLD E64 of 1985
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Pincus J.

CATCHWORDS

Bankruptcy - settlement void - effect on mortgagee.

Bankruptcy Act, 1966, s.120(1), s.120(7)

HEARING

BRISBANE
24:1:1986

ORDER

THE COURT DECLARED AS FOLLOWS:

That the transfer by the bankrupt to the respondent of his interest in a residential dwelling situated at 8 Allan Street, Goodna in the State of Queensland, described as Subdivision 6 of Portion 304A and Suburban Allotment 305B on Registered Plan No. 22561, County of Stanley, Parish of Goodna, being the land described in Certificate of Title Volume 3991 Folio 29, is void as against the applicant, acting in his capacity as trustee of the estate of the bankrupt, but this declaration does not affect the title or interest of the registered mortgagee, Westpac Banking Corporation.
THE COURT ORDERED AS FOLLOWS:

That the respondent execute all such documents and do all such acts as are necessary to cause a transfer to the applicant of the said interest in the land.

That the respondent pay to the applicant his taxed costs of and incidental to this application.

That the matter be adjourned sine die, to enable it to be brought on again for the making of any further orders necessary to give effect to the declaration granted.

NOTE: Settlement and entry of orders is dealt with in Order 36

of the Federal Court Rules.

DECISION

This is an application made by Mr. R.J.F. Burns, the trustee of the bankrupt estate of Mr. K.W. Fitzgerald, for orders under s.120 of the Bankruptcy Act 1966. The applicant claims a declaration that a transfer by the bankrupt to Sandra Lee Fitzgerald of a house and land at Goodna is void against him. There is also a claim under s.121, but that is not pursued.

2. In substance, only one issue was contested, namely the operation of s.120(7) and it is therefore unnecessary to set out other relevant parts of the section. It is enough to mention that sub-s.120(1), with certain exceptions, makes a settlement of property void against the trustee if the settlor becomes a bankrupt and the settlement came into operation after or within two years before the commencement of the bankruptcy. Under s.115, the bankruptcy, which took place on a creditor's petition, is deemed to have commenced at the time of commission of the earliest act of bankruptcy within six months before presentation of the petition.

3. The property in question was bought in 1967 in the names of the bankrupt and his wife, Sandra Lee Fitzgerald, the respondent. On 19 May 1982, a judgment was entered in the Supreme Court of Queensland against the bankrupt in favour of Neleth Pty. Ltd. A bankruptcy notice and subsequent petition were based upon that judgment but it was set aside in September. The judgment was again entered, to similar effect, in October but again set aside, on 22 October 1982. On 21 July 1983 the bankrupt executed a memorandum of transfer of his interest in the property in favour of the respondent and that was registered in September.

4. On 26 September 1984 a third judgment in the same action was entered against the bankrupt and Neleth Pty. Ltd. brought fresh bankruptcy proceedings based on it, the petition being served on 12 December 1984. On 30 January 1985 the respondent mortgaged the property to Westpac Banking Corporation. That mortgage was registered in August, but in the meantime, on 5 February 1985, a sequestration order had been made.

5. It was not argued that in these circumstances s.120(1) was inapplicable. I hold that there was a settlement within the meaning of s.120 as explained in a passage from In Re Pahoff; Ex.Parte Ogilvie (1961) 20 ABC 17 quoted with approval by Woodward and Northrop JJ. in the Full Court in Official Trustee in Bankruptcy v. Arcadiou (unreported, 17 December 1985). It is clear that the settlement came into operation within the time specified in sub-s.120(1).

6. The argument advanced was, however, that no order could be made in favour of the applicant by reasons of the provisions of sub-s.120(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 this
settlement, covenant or contract or an interest in
that money or property."

The answer given by counsel for the applicant was that the sub-section relied on could be given full effect since the declaration sought would not affect the rights of the mortgagee.

7. Counsel for the respondent emphasised the presence of the word "affect" and argued that an order declaring the conveyance to the respondent void must necessarily affect the title or interest of the mortgagee who took from her.

8. The precise interrelationship of the provisions of the Bankruptcy Act avoiding settlements and preferences with those of Torrens Statutes like the Real Property Acts of the State of Queensland may not be clear in all respects; see N.A. Kratzmann Pty. Ltd. v. Tucker [1966] HCA 72; (1966) 123 CLR 257 at 285, 286 and 292. With respect to the matters here in issue, however, the two sets of provisions seem to mesh very well; declaring the prior transaction in favour of the respondent void as against the trustee cannot affect the title of the mortgagee, as the Torrens system "is not a system of registration of title but a system of title by registration": Breskvar v. Wall [1971] HCA 70; (1971) 126 CLR 376 at 385 per Barwick C.J. The mortgage is perfectly good because it remains on the register and it is good as against the trustee although the title of the mortgagor is not.

9. The same conclusion is supported by historical considerations. One of the functions of sub-s.120(7) of the 1966 Act, taken from sub-s.94(4) of the 1924 Act, was to put in statutory form a principle which had been worked out by English bankruptcy judges. This is exemplified by In Re Vansittart; Ex Parte Brown (1893) 2 QB 377. There the bankrupt assigned jewellery to his wife within two years of the bankruptcy and that was held to be void under s.47 of the English Act of 1883, which was in terms similar to sub-s.120(1) of our 1966 Act. In the Vansittart case, the wife had pawned the jewellery and the question was whether that was good against the trustee. It was decided that the pledge was good, on the basis that the pawnbrokers had taken her interest in good faith and for valuable consideration. The next case reported in the same volume, In Re Brall; Ex Parte Norton (1893) 2 QB 381 was rather similar and that was approved by the Court of Appeal In Re Carter and Kenderdine's Contract (1897) 1 Ch 776.

10. Although the reasoning in these cases is not directly applicable, because the legislation there did not have anything corresponding to sub-s.120(7), they prompt the thought that the legislature intended, in enacting sub-s.94(4) of the Bankruptcy Act 1924 and its present counterpart, to preserve the position then established. Reference to the State bankruptcy statutes in force in 1924 shows that they had followed the English model in this respect, that is in having no express preservation of the rights of the person taking, in good faith and for valuable consideration, from those entitled to the benefit of the settlement. It was appropriate that the Commonwealth Parliament should in 1924 have chosen to deal with the position expressly and is unlikely that it intended to alter the existing law on the point.

11. In the result, I am satisfied that the applicant is entitled to the relief sought.