Re Francesco Candeloro La Rosa and Linda Robyn La Rosa Ex Parte: Ross Stewart Norgard As Trustee In Bankruptcy of the Estate of Francesco Candeloro La Rosa and Linda Robyn La Rosa v Rocom Pty Ltd [1990] FCA 21 (7 February 1990)

FEDERAL COURT OF AUSTRALIA

Re: FRANCESCO CANDELORO LA ROSA and LINDA ROBYN LA ROSA
Ex Parte: ROSS STEWART NORGARD AS TRUSTEE IN BANKRUPTCY OF THE
ESTATE OF FRANCESCO CANDELORO LA ROSA AND LINDA ROBYN LA ROSA
And: ROCOM PTY LTD
No. 616 of 1988
FED No. 28
Bankruptcy - Equity

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
French J.(1)

CATCHWORDS

Bankruptcy - effect of bankruptcy on antecedent transactions - avoidance of settlements - what is settlement - intended retention by donee - history of requirement - whether affected by definition of settlement of property in terms of "disposition" - sham transaction - criteria for determining - relevant factors - ulterior purpose - exchange of cheques - equitable fraud - whether payment recoverable as equitable fraud on creditors - whether money had and received under void contract.

Equity - fraud - improvident benefit conferred under sham transactions - no intention to defraud creditors - whether equitable relief available.

Words and Phrases - "settlement of property", "disposition"

Bankruptcy Act 1966 s.120

Motor Vehicle Dealers Act 1973

Bankruptcy Law Consolidation Act 1849 s.126

Bankruptcy Act 1869 s.91

Bankruptcy Act (1883) (UK) s.47(1)

Bankruptcy Act 1914 (UK) s.42(1)

The Bankruptcy Act 1924 (Cwth)

Insolvency Act 1890 (Vic)

Insolvency Act 1874 (Qld)

Bankruptcy Act 1898 (NSW) s.55

Bankruptcy Act 1924 s.94

Bankruptcy Act 1919 s.62

Bankruptcy Act 1949 (Can)

Halsbury's Laws of England 2nd Edition

Waters Law of Trusts in Canada (1974)

Snell's Principles of Equity 28th Edition p 548

Sanguinetti v Stuckey's Banking Co. (1895) 1 Ch 176

Re: Farnham (1895) 2 Ch 799

Re: Fitzgerald Ex parte Burns (1986) 10 FCR 261

Scott v Commissioner of Taxation (No. 2) (1966) 40 ALJR 265

Sharrment v Official Trustee (1988) 82 ALR 530

See v Cohen [1923] HCA 66; (1923) 33 CLR 174

Boydell v James (1936) 36 SR(NSW) 620

Re Barnett (Deceased) (1969) 2 NSWR 720

Littlewoods Mail Order Stores Ltd v Inland Revenue Commissioners (1963) AC 135

Miles v Bull (1969) 1 QB 258

Snook v London and West Riding Investments Ltd (1967) 2 QB 786

Perpetual Trustee Co. Ltd v Bligh (1940) 41 SR(NSW) 33

Hawke v Edwards (1947) SR(NSW) 21

Re Kastropil (unrep 14/7/89; French J.)

Ex parte Shorland [1802] EngR 181; (1802) 7 Ves Jun 89

Kensington v Chantler (1813) 2 M & S 36

Ex parte Skerratt (1816) Rose 384

Jones v Yates [1829] EngR 499; (1829) 9 B & C 532

In Re Player (1885) 15 QBD 682

Re Vansittart (1892) 1 QB 181

Wenman v Lyon & Co. (1891) 1 QB 634

In Re Tankard (1899) 2 QB 57

In Re Plummer (1900 2 QB 790

Re Harrison and Ingram (1900) 2 QB 710

Re Mathieson (1927) 1 Ch 283

Davey v Danby (1887) 13 VLR (L & LI VICT) 957

Jack v Smail [1905] HCA 25; (1905) 2 CLR 684

Hutton v Wilkinson (1906) St R Qd 237

Re Hermann (1916) 16 SR(NSW) 264

Re Love (1930) 3 ABC 24

Re Simmons (1931) 3 ABC 233

Re Trautwein (1944) 14 ABC 61

Re Hair (1957) St R Qd 12

Re Pahoff (1961) 20 ABC 17

N.A. Kratzmann Pty Ltd (In Liq.) v Tucker [1966] HCA 72; (1966) 123 CLR 257

Re Hyams (1971) 19 FLR 232

Re Barton (1983) 52 ALR 95

Re Ward (1984) 3 FCR 112

Barton v Official Receiver (1984) 58 ALR 328

Official Trustee v Arcadiou (1985) 8 FCR 4

Barton v Official Receiver [1986] HCA 44; (1986) 161 CLR 75

Re Sullivan; Ex parte Sullivan v Official Receiver (1987) 16 FCR 405

Re Bozanich, A.H. Boulton Co. Ltd v Trusts and Guarantee Co. Ltd (1942) 2 DLR 145

Re Aliotis & Cliris (1922) 1 DLR (NS) 348

Re Cohen and Lyons (1926) 3 DLR 942

Re Cohens and Lyons (1927) 1 DLR 576

Re Geraci (1970) 121 DLR (3d) 314

Re Reddin (1980) 34 CBR 285

Re Bragg (1983) 47 CBR 98

Re Barnett (1983) 46 CBR 211

Re Whetstone (1984) 12 DLR (4th) 249

Re Associated Fisheries of Canada Limited (1987) 64 CBR 242

Toronto-Dominion Bank v Fisher (1988) 69 CBR 22

Wilson and Wilson v Doan Raymond Limited (1988) 69 CBR 156

Earl of Chesterfield v Jannsen [1750] EngR 25; (1751) 2 Ves Sen 125

HEARING

PERTH
7:2:1990

Counsel for the Applicant: Mr R. Fisher and Mr G. Murphy

Solicitors for the Applicant: Blake Dawson Waldron

Counsel for the Respondent: E.M. Heenan QC and Mr P. Bogue

Solicitors for the Respondent: Bogue and Pass

ORDER

The application is dismissed.

The applicant pay the respondent's costs to be taxed out of the bankrupt estate.

The applicant's costs to be paid out of the bankrupt estate.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

DECISION

Introduction
This action is brought by the Trustee of the bankrupt estate of Francesco Candeloro La Rosa and his wife, Linda Robyn La Rosa, who, as appears from the Court record, were made bankrupt on 26 August 1988 on presentation of their own petition. The Trustee seeks recovery of sums totalling $290,000 said to have been paid by the La Rosas to Rocom Pty Ltd in May 1988. The principal basis for the claim is that the payments were voluntary settlements and are recoverable under s.120 of the Bankruptcy Act 1966. Alternative relief based upon equitable fraud and a claim for money had and received is also sought.
Factual History

2. A coherent account of the events which led to the Trustee's claim is made difficult by the incomplete, and in certain respects, incredible nature of some of the evidence given at trial.

3. In May 1988 Mr and Mrs La Rosa were trading in partnership in Albany as motor vehicle dealers under the name Moor Motors. Through a company called Hobourne Pty Ltd of which they were shareholders, they also operated two motor vehicle wholesaling businesses under the names, Town Auto Auctions ("TAA") and Australian Auto Auctions ("AAA"). A company called Feli Pty Ltd which was trustee of the La Rosa Family Trust, acquired the business, assets and liabilities of Moor Motors in late June or early July 1988. Mr La Rosa was described by Mr Eric Pearce, District Manager for Esanda Finance Corporation Ltd, as one of the best car salesmen in Albany. Prior to March 1988 he had been known to Esanda as a dealer in a small way to whom that company had provided some finance. Around March or April however, it became known in the trade that he was engaging in some large transactions including the purchase of the auction houses and sales of motor vehicles to other dealers.

4. Rocom Pty Ltd ("Rocom") is trustee for the Barbagallo Investment Trust and in that capacity carried on business at the relevant times as Oxford Allenby Motors. Mr Alf Barbagallo is a director of the company and its effective controller. He has been involved in the motor vehicle industry for 27 years. Mr Eric Pearce described him, on a ranking by volume of retail sales, as among the top seven motor vehicle dealer principals in Perth. He is one of Esanda's "largest and most valued connections". Mr Pearce has been employed by Esanda for some 24 years in Western Australia.

5. According to La Rosa, Barbagallo contacted him sometime between late February and early April and asked if he would like to do business. Barbagallo said that their first contact, which was at La Rosa's instigation, followed his purchase of a Ferrari motor vehicle from Oxford Allenby Motors. It was however common ground that they met on or about 13 May 1988 at the Oxford Allenby premises. La Rosa's affidavit evidence on what transpired was notably spare. After saying that he met Barbagallo on that day, it continued:

"14. On or about that day I received three cheques
drawn on the Australia and New Zealand Banking
Group Ltd ("ANZ") account of Oxford Allenby Motors
in favour of Moor Motors and totalling $1,000,000.
They were in the amounts of $400,000, $400,000 and
$200,000.
15. The cheques drawn on the account of Oxford
Allenby Motors were deposited at the Albany branch
of the Bank on 13 May 1988. Now produced and shown
to me and marked exhibit "FLR 3" is a true copy of
the deposit slip.
16. These cheques were not given to me in payment
of any invoice or consideration provided by me.
The cheques were not given to me by way of a loan.
The cheques were given to me in exchange for one
cheque drawn on Moor Motors in favour of Alf
Barbagallo in the sum of $1,040,000 and numbered
811856. Now produced and shown to me and marked
exhibit "FLR 4" is a true copy of that cheque."

A copy of the respondent's bank statement was exhibited and the affidavit went on:

"18. The cheque drawn on Moor Motors was cleared
against the Moor Motors account. The cheques drawn
by Oxford Allenby Motors were credited to the Moor
Motors account. Now produced and shown to me and
marked exhibit "FLR 6" is a true copy of that part
of the bank statement showing the debit and the
credit on the Moor Motors account. Now produced
and shown to me and marked exhibit "FLR 7" is a
true copy of the ANZ statement showing the debit on
the Oxford Allenby Motors account."

On this evidence, La Rosa's approach to Barbagallo and the exchange of cheques all happened on the same day. His oral evidence in chief was more expansive. He said that the $1 million he received "was made up of several cars which I sold to Alf and I purchased the cars back". He believed that the sale took place on a Friday and that he repurchased the cars on the Monday or Tuesday of the following week. Contrary to his affidavit evidence, invoices were prepared.

6. Barbagallo said that at their meeting on 13 May La Rosa asked him whether his company would be interested in buying some motor vehicles and a boat for $1 million. La Rosa explained that he had money in Italy which he wanted to bring out to Australia and that he needed to create a debt or loss in this country in order to obtain releases from the Italian authorities. He also said he wanted to create tax losses which he could offset against future profits. Barbagallo said he did not know how much money could have been transferred as a result of the transactions proposed, although La Rosa told him he had "lots of it". He imagined that more than the amount of the debt could be brought in. He asked La Rosa why he did not simply buy some properties and generate debts in that way. But he was told that La Rosa had already bought the properties that he wanted and needed to get the money in quickly using the sale and purchase of motor cars. Asked whether he thought it strange that La Rosa could bring in more than the debt he was generating, Barbagallo's answer was "Well why couldn't he? I mean if he had got it then why couldn't he bring it in?"

7. La Rosa told the Court in cross-examination that his explanation for wishing to enter the transaction was false. He was in truth entering into it on the "Bank's instructions" and did not see what the real purpose of the proposal had to do with Barbagallo. The basis of the claim that he was acting on instructions from the Bank and the true purpose of the intended transaction was never explained.

8. Although La Rosa said that Barbagallo required some assurance that the transaction was legitimate and asked to speak to his solicitor about it, I am satisfied that Barbagallo's evidence on this point is more likely, namely that he spoke to the solicitor a few days later in relation to the second and larger of the impugned transactions. I accept that on the day of their meeting Barbagallo made enquiries with his accountants who told him that another of their clients had authorised extensive investigations into La Rosa's position and were reassured by the results. He also asked Rocom's accountant and financial controller, Robert Hutchinson, to get in touch with the manager of the Rural and Industries Bank at Albany where the La Rosas operated their account. Hutchinson reported back that the bank manager said the La Rosas' unencumbered stock was worth around $12 million to $15 million and that the Bank would have no difficulty honouring a cheque for $1,040,000.

9. In the event Barbagallo and La Rosa purported to agree that the La Rosas would sell three cars and the boat to Rocom trading as Oxford Allenby Motors for $1 million on condition, it was said, that title would pass to Rocom and all statutory requirements would be completed and attended to. La Rosa agreed to repurchase these items for $1,040,000. According to Barbagallo the necessary paperwork was brought to his premises on a second visit shortly after the initial meeting by La Rosa and a man called O'Neill, whom he introduced as his accountant. No date was given for this visit but if it occurred as Barbagallo claimed, before the transaction was effected, then it must have occurred on the same day, that is to say 13 May. Among the papers which were exhibited to Barbagallo's affidavit were 4 undated invoices of unknown authorship recording the sale of the cars and boat to the respondent. The details of those invoices were as follows:

Vendor Purchaser Item Price
Hobourne Oxford Allenby Mercedes 560
Pty Ltd Motors SEC Coupe $200,000
Trading as
Australian
Auto Auctions
Moor Motors Oxford Allenby Used Ferrari
Motors 400 I Coupe $120,000
Moor Motors Oxford Allenby Bentley
Motors Mulsanne "S"
Saloon $280,000
Feli Pty Ltd Oxford Allenby Precision 45'
Motors Motor Cruiser $400,000

There was no evidence that the invoices were prepared or delivered before the transactions they evidenced. The papers said by Barbagallo to have been received from La Rosa and O'Neill included several documents which plainly could not have been so received. There were two Oxford Allenby Motors cheque requisition forms, each dated 13 May 1988 and a receipt issued by the Police Department of Western Australia in relation to the transfer of the Ferrari to the respondent. Also in this category was a receipt dated 17 May issued by the Department of Marine and Harbours in respect of the transfer of the power boat to the respondent from Feli Pty Ltd. Documents which might have been received as suggested, were notices of sale under the Motor Vehicle Dealers Act 1973, each dated 13 May recording the transfer of the Ferrari, the Bentley Mulsanne and the Mercedes. Each was signed on behalf of buyer and seller. Some indication of the haste with which the transaction was undertaken is given by the inclusion, in the papers allegedly delivered to Barbagallo, of a notice of sale of the boat under the Motor Vehicle Dealers Act. This too was signed for both buyer and seller. There was also a certificate of registration dated 29 April 1988 in relation to the boat showing Feli Pty Ltd as the company in whose name it was registered.

10. Barbagallo said in his affidavit that after La Rosa and O'Neill handed over their papers he gave La Rosa "the defendant's cheque for $1 million". In fact, as appeared from the documentary evidence, there were three cheques drawn by Rocom all dated 13 May 1988. One was for $200,000 and the other two for $400,000. They were drawn in favour of Australian Auto Auctions, Moor Motors and Feli Pty Ltd respectively. La Rosa gave Barbagallo a cheque for $1,040,000 dated 13 May 1988 drawn on the Moor Motors account with the R. & I. Bank at Albany and expressed to be in favour of "ALF BARBAGALLO". He subsequently deposited Rocom's three cheques to the credit of Moor Motor's account in Albany and these were debited to Rocom's account on that same day. The cheque for $1,040,000 was not debited to the Moor Motor's account until 17 May. Various papers were prepared to evidence retransfer of title of the vehicles and boat from Rocom. There were three notices of sale and applications to transfer in respect of the motor vehicles and an advice of disposal and acquisition in relation to the boat. Each of these documents was dated 16 May 1988 and showed the prices on the re-transfer as $290,000 for the Bentley, $125,000 for the Ferrari and $205,000 for the Mercedes. No price was shown in relation to the boat but presumably this was treated as resold for $420,000.

11. "Some days later" according to Barbagallo, La Rosa again visited him at his premises, this time with his solicitor and accountant. He proposed that Rocom purchase all the stock of Australian Auto Auctions, Town Auto Auctions and Moor Motors for $10 million on the basis that he would repurchase it within a few days for $10,250,000. When Barbagallo pointed out that he was simply losing money, La Rosa replied that it didn't matter because of the amount he had in Italy. Barbagallo expressed concern at the size of the transaction, but said he was assured by La Rosa's solicitor and accountant that there was no problem. Neither of these persons gave evidence. Accepting that some inquiry as to the propriety of the transaction was made, the content of any questions put and answers received was not elicited. La Rosa also suggested Barbagallo check his standing with a man called Wheatley who was well known in the motor trade. Upon inquiry, Wheatley told Barbagallo he had obtained legal advice about similar transactions to that proposed and had asked the police to look into La Rosa's background. That investigation had reassured him. Wheatley's comments evidently were of some comfort to Barbagallo who knew him well through the trade and regarded him as someone he could trust.

12. He said he rang his own solicitor and "asked if there was any legal restriction on buying and selling the same cars". To this oddly worded question he received the reply that "it was in order provided all statutory requirements were complied with". In cross-examination it emerged that Barbagallo had phoned his solicitor on another matter and put the question to him in the course of that conversation.

13. He also contacted Esanda and invited Mr Pearce to his premises to meet La Rosa. Pearce did so and subsequently suggested to Barbagallo that because of the size of the proposed transaction and rumours he had heard of big spending by La Rosa, he should let Esanda make some background inquiries. Barbagallo agreed and Pearce caused a credit check to be made on La Rosa and companies associated with him. The upshot of these basic enquiries was that nothing adverse was known about La Rosa and he was regarded as a satisfactory client of his bank. Pearce nevertheless said he decided to become personally involved because he believed the transactions proposed to be of sufficient magnitude to warrant Esanda's close concern to protect the interests of its client, Rocom. He telephoned the R. & I. Bank in Albany and spoke to a person who identified himself as the relieving manager. This officer confirmed that large transactions had been and were going through La Rosa's bank accounts and that the Bank was satisfied with his performance in that regard. He also told Pearce that La Rosa had purchased a large home in Albany. A further enquiry directed to the Corporate Division of the R. & I. Bank in Perth elicited the advice that there were no debenture charges on any of La Rosa's companies in favour of the Bank, but that securities were being prepared to protect the Bank's position and these would include debenture charges. No general opinion of La Rosa was forthcoming. As La Rosa had mentioned in Pearce's presence that he was the beneficiary of a substantial estate of his grandfather who had died in Italy and that he had funds coming from that country to purchase real estate and motor vehicle businesses in Western Australia, Pearce asked the Perth office of the Bank whether there were any overseas funds coming in to his account. He was told that there was money coming in from overseas and that some deposits had already been made. The general import of the results of his inquiries was conveyed to Barbagallo. Barbagallo's evidence on affidavit differed from that of Pearce to the extent that it suggested that the only contact between himself and Esanda in relation to the La Rosa proposal involved a telephone call to and from the company, the latter being Pearce's advice that a standard credit check on La Rosa revealed nothing adverse and that he was considered a satisfactory client of the Bank.

14. In any event, Barbagallo decided that Rocom would enter into the transaction proposed and contacted La Rosa and told him this, saying once again that it would be on the condition that title in the various vehicles passed to Rocom with all the necessary paperwork being completed and statutory requirements being complied with. La Rosa, he said, agreed to this. The nominal financial significance of the transaction for Rocom may be measured by the fact that the amount to be paid over to the La Rosas exceeded the value of the entire Oxford Allenby stock at that time.

15. Barbagallo instructed Robert Hutchinson, the respondent's accountant and financial controller, to obtain invoices and attend to the preparation of the necessary paperwork and compliance with statutory requirements. He told him that stock lists would be delivered on that day. Rocom did not have sufficient funds in the Bank to cover a cheque for $10 million. However La Rosa told Barbagallo he should delay banking his cheque until the day after he had handed over the $10 million cheque. By that time both cheques could be cleared.

16. According to Hutchinson, Barbagallo told him that the transaction was conditional upon getting the paperwork completed. At his direction, temporary secretarial staff were engaged to attend to the paperwork. But the process was not completed before the transaction had been carried out. Indeed there was no evidence of the extent, if any, to which it was begun. Stock lists were provided and these were in evidence. Although Barbagallo said he had seen the stock lists, it is apparent that he did not give them anything more than the most cursory perusal. His discussion with La Rosa in relation to the second transaction had taken place on or about 16 May. The Town Auto Auctions' stock list was expressed to reflect the position as at 10 May. There was no evidence that this was up to date when provided or that anyone bothered to enquire.

17. In the event Rocom paid to the La Rosas three cheques totalling $10 million. At La Rosa's request one was for $1.5 million in favour of Australian Auto Auctions, one for $1.2 million in favour of Town Auto Auctions and one to Moor Motors for $7.3 million. The cheques were banked before all the papers had been collated. Barbagallo sent his secretary to Albany to obtain a warrant from the Albany branch of the Rural and Industries Bank to clear funds on the cheque for $10.25 million. She travelled to Albany and obtained that authority. Also acting in accordance with Barbagallo's instructions she called at Moor Motors and attempted to collect outstanding licence papers involved in the transaction, but was unable to do so as Moor Motors did not have them available. She so informed Barbagallo on her return to Perth.

18. Barbagallo agreed that he had not given any instruction to La Rosa that he must cease trading in the vehicles the subject of the transactions. Nor did he collect any keys. It was put to him and he denied that the sale and repurchase of the vehicles and the completion of the paperwork was entirely immaterial to him. He also denied the contention that the only significant feature of the transaction was the exchange of cheques. He said that he could have disposed of all the stock from the La Rosas within the space of a week. He claimed that from the stock lists produced by the La Rosas it was apparent that the wholesale value of the vehicles to be acquired exceeded $10 million and that Rocom was thereby protected. Asked whether he had considered the possibility of the risk that La Rosa's cheque might not be met, he said that after making enquiry and finding out that La Rosa had money on term deposit and that his stock was not encumbered, he felt comfortable in that respect.

19. Arrangements not having been made with the ANZ Bank, Rocom's cheques were not immediately met upon presentation. After some telephone exchanges however, they were debited to the account on 18 May and on the same day the sum of $10,250,000 was credited from the cheque drawn on the Moor Motors account.
Issues

20. The transactions the subject of these proceedings were described in a schedule to the application as follows:

No. DATE OF PAYMENT BY RECEIPT BY NET AMOUNT
TRANSACTION BANKRUPTS BANKRUPTS OF TRANSACTION
1. 13.05.1988 $ 1,040,000 $ 1,000,000 $ 40,000
2. 16.05.1988 $10,250,000 $10,000,000 $250,000
Total Net Amount: $290,000
========

The primary relief sought was a declaration that "the transactions described in the Schedule...constitute settlements of property by the bankrupts on the respondent of the net amount paid by the bankrupts to the respondent in consequence of these transactions which settlements of property are void against the applicant under section 120(1) of the Bankruptcy Act". In the alternative, a declaration was sought that the net amount so paid "constitutes dispositions of property by the bankrupts made with intent to defraud their creditors which are void against the applicant under section 121(1) of the Bankruptcy Act". This claim was abandoned at trial. A further alternative declaration "that the transactions were a sham", did not seem to have any relevance to the transactions described in the Schedule although it was part of the trustee's case that the sale and repurchase of the various motor vehicles was a sham. The order for repayment of the sum of $290,000 rests primarily upon the avoidance of the transactions and the consequence that the net benefit is said to revert to the donor and therefore vest in the trustee - Sanguinetti v Stuckey's Banking Co. (1895) 1 Ch 176; Re: Farnham (1895) 2 Ch 799; Re: Fitzgerald Ex parte Burns (1986) 10 FCR 261.

21. By its notice of opposition to the application, Rocom put in issue the characterisation of the transactions as settlements and asserted that any payment received by it "as part of, or associated with, either of the transactions referred to in the Schedule to the Application" was received in good faith and for valuable consideration. The absence of any intent to defraud creditors was asserted although this became academic in the light of the applicant's abandonment of its claim under s.121. Rocom further contended that the transactions referred to in the application involved sales and purchases of motor vehicles for valuable consideration and that it acted in good faith. It was denied that either of the transactions or any part of them was a sham.
The True Character of the Transactions

22. The true character of the transactions entered into between the La Rosa entities; Hobourne Pty Ltd, Feli Pty Ltd and Moor Motors one the one hand, and Rocom Pty Ltd on the other hand must be determined before the question whether there was or were any avoidable settlements. They are presented by the respondent as genuine contracts for the sale and repurchase of goods. They are said by the applicant not to have been sales at all but a cloak for a different kind of transaction.

23. The task of penetrating the outward form of a transaction to determine its true nature and the difficulties of finding criteria by which such judgments may be made have occupied many pages of the law reports. And although some broad guide lines have emerged, the task of the Court has always been to examine the particular circumstances of the impugned transaction. In Scott v Commissioner of Taxation (No. 2) (1966) 40 ALJR 265 at 279, Windeyer J. identified as the relevant question whether the parties entering into the ostensible transaction "mean it to be their transaction or did they mean it to be, and in fact use it as, merely a disguise, a facade, a sham, a false front...concealing their real transaction." This and other authorities were recently reviewed by the Full Court in Sharrment v Official Trustee (1988) 82 ALR 530. Lockhart J. concluded at p 537 that:

"A "sham" is therefore, for the purposes of
Australian law, something that is intended to be
mistaken for something else or that is not really
what it purports to be. It is a spurious
imitation, a counterfeit, a disguise or a false
front. It is not genuine or true, but something
made in imitation of something else or made to
appear to be something which it is not. It is
something which is false or deceptive."

It is necessary, as Beaumont J. observed at p 550, to ascertain the true intentions of the parties to the transaction. There is little scope in that process for resort to any rule of thumb guide to non-authenticity. It has been said, for example, that within the limited context of a contract for the sale of goods neither party may expect the other to deliver yet the contract may create legal obligations and be a valid contract - See v Cohen [1923] HCA 66; (1923) 33 CLR 174 at 182 (Isaacs J.). And although Jordan C.J. in Boydell v James (1936) 36 SR(NSW) 620 observed that the device of sale and repurchase is not uncommonly resorted to as a means of making money available to a person in need of it, he added the qualification that:

"... the parties may have intended that the sale and
purchase should be real transactions creating the
rights and obligations appropriate to such
transactions."

But referring to the device whereby a person who is intended to be the recipient of money appears in the role of the vendor, sells some chattel for cash down and repurchases it for a higher price payable in the future, he said:

"It is obvious that in such a transaction both the
sale and the purchase may be mere shams by which it
is hoped to disguise what both parties realised and
intended to be merely a loan."

24. While the element of an exchange or round robin of cheques may arouse suspicion it may nevertheless be consistent with a valid transaction. An exchange carried out in pursuance of a real and legally permissible transaction cannot be impugned simply on the basis that each party knows and intends that the cheques shall cancel each other out or that neither party has the funds to meet them - Re Barnett (Deceased) (1969) 2 NSWR 720 at pp 730-731 (Helsham J.). And that is perhaps no more than a special case of the proposition in the authorities canvassed by Lockhart J. in Sharrment (supra) that neither artificiality nor complexity in dealings is sufficient to establish a sham. In Littlewoods Mail Order Stores Ltd v Inland Revenue Commissioners (1963) AC 135, the transactions in question were reflected in what Lord Reid described as "a bizarre series of six deeds". He nevertheless held that none was a sham, each had the effect it purported to have, and if the parties chose to proceed in that way they were quite entitled to do so (at pp 154-156). Similarly, the existence of an ulterior purpose for the dealing will not be sufficient to vitiate it - Miles v Bull (1969) 1 QB 258 (Megarry J.) and Sharrment (supra) at p 538.

25. Lord Diplock in Snook v London and West Riding Investments Ltd (1967) 2 QB 786 expressed his often quoted test thus at 802:

"But one thing, I think, is clear in legal
principle, morality and the authorities... that for
acts or documents to be a "sham", with whatever
legal consequences follow from this, all the
parties thereto must have a common intention that
the acts or documents are not to create the legal
rights and obligations which they give the
appearance of creating."

26. The intentions of the parties are to be ascertained by reference to their actual intentions whether by direct evidence or by inference from the circumstances of the transactions - Sharrment (supra) at p 539. In arriving at that determination all the circumstances and incidents of the ostensible transaction may be taken into account and nothing said in Sharrment or the cases there reviewed, prevents consideration of ulterior purpose, artificiality, complexity and the exchange of cheques if they be relevant. A fortiori the Court may receive oral testimony as to those intentions - Perpetual Trustee Co. Ltd v Bligh (1940) 41 SR(NSW) 33 at 39; Hawke v Edwards (1947) SR(NSW) 21 at p 23; Sharrment (supra) at p 550 (Beaumont J.). It may have regard not only to the inferences to be drawn from its acceptance of such evidence but also those which flow from its disbelief. And it is appropriate in deciding whether the transactions were shams to bear in mind the warning in Sharrment (supra) at p 544 that to draw that inference in the absence of direct evidence, is to reach a strong finding and one which cannot be made if another inference is at least equally open.

27. Mr La Rosa's true purpose in promoting the various transactions between his companies, Moor Motors and Rocom did not emerge with any clarity from the evidence beyond the cryptic remarks in cross-examination that he was entering into them on the "bank's instructions". I am satisfied however, that he told Barbagallo that he wanted to create an apparent debt or loss in order to obtain permission from Italian authorities to bring money from that country into Australia. The story was false and in my opinion, transparently so. I consider it improbable that a businessman of Barbagallo's experience would have believed it. Whether he knew of La Rosa's real purpose however is ultimately of marginal importance. The evidence is sufficient as it stands for a finding that Barbagallo entered into the dealings on the basis that they served some purpose of La Rosa's other than the sale of stock. His principal concern was that Rocom be adequately protected and that La Rosa had sufficient assets to indicate that the obligation created by the proposed Moor Motors' cheque would be met. He satisfied himself of that much in respect of the first round of dealings by making inquiries with his accountants and by having Rocom's financial controller, Hutchinson, contact the manager of the Rural and Industries Bank at Albany. Nor does any greater concern emerge from the evidence of the inquiries said to have been undertaken in relation to the second and larger group of transactions.

28. This finding does not of course determine the question whether the transactions attacked were shams. The existence of some ulterior purpose on La Rosa's part and its acceptance or the turning of a blind eye to it by Barbagallo, may be logically consistent with the existence of a common intention that the ostensible vendors and purchasers should be bound by their apparent obligations even if delivery and redelivery were never to be effected. It is however a factor which with other factors is relevant to the question whether that intention existed. Also relevant is the approach taken to the execution of the purported sales particularly in relation to the second group of transactions. There the relevant paperwork was not undertaken before the transaction was complete and Barbagallo made no real effort to check or have checked the stock that Rocom was supposed to be purchasing from La Rosa's companies. Nor were any steps taken to ensure that the stock, the subject of the sale, was preserved pending the presentation of the Moor Motors' cheque for $10,250,000.

29. At the centre of the impugned transactions however are the payments and repayments amounting in the circumstances to exchanges of cheques subject to premium payments in favour of Rocom. These exchanges were not, in my opinion, of the type contemplated in Re Barnett (supra), incidents of some larger real transaction. They were in substance what the transactions were all about and it was the payments and repayments that represented all that the parties intended to do. I am satisfied that neither La Rosa nor his companies nor Rocom regarded themselves as undertaking or intended to undertake the sale and purchase of stock ostensibly the subject of their dealings. The true transaction in each case contemplated a short term advance by Rocom to be repaid virtually instanter by the return of the moneys with a substantial premium.
Whether the Premiums Were Settlements - the Retention Question

30. The transactions exposed by the characterisation of the motor vehicle sales as shams reduce to payments by Rocom of certain sums to entities associated with La Rosa and the repayment of those sums plus substantial premiums of $40,000 and $250,000 respectively to Rocom. The question that follows is whether these payments are recoverable by the trustee as settlements pursuant to sub-s.120(1) of the Bankruptcy Act 1966. The relevant parts of s.120 provide as follows:

"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;
.
.
.
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 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, 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.
.
.
.
(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."

31. The term "property" is defined in s.5 as follows:

"'Property' means real or personal property of every
description, whether situate in Australia or
elsewhere, and includes any estate, interest or
profit, whether present or future, vested or
contingent, arising out of or incident to any such
real or personal property;"

The power to make orders which would effect repayment of the settled property is found in s.30 of the Act:

"30(1) The Court -
(a) has full power to decide all questions,
whether of law or of fact, in any case of
bankruptcy or any matter under Part X or Part
XI coming within the cognizance of the Court;
and
(b) may make such orders (including declaratory
orders and orders granting injunctions or
other equitable remedies) as the Court
considers necessary for the purposes of
carrying out or giving effect to this Act in
any such case or matter."

In Re Kastropil (unrep 14/7/89; French J.) I reviewed authorities relating to the operation of s.120 and its statutory ancestors and concluded that the word "settlement" as used in that section bore the long standing meaning of a disposition of property contemplating its retention in some form by the donee rather than immediate consumption or dissipation. There was no evidence in this case to suggest that the premium payments made to Rocom were intended to be retained in any sense falling within that traditional understanding. It has been submitted for the trustee however that the conclusion in Kastropil was wrong and that the definition of "settlement of property" as it currently stands in the Bankruptcy Act 1966 would encompass the payments in issue in this case. Having regard to the importance of the question and in deference to the careful submissions of counsel, I have reconsidered Kastropil. I have nevertheless come to the view that I should not depart from it. In setting out in these reasons the matters which have led me to that conclusion, I have, for the sake of completeness, retraced some of the material adverted to in the reasons for judgment in that case.
Voluntary Settlements - History and Authorities

32. The history of English statute law on the subject of bankruptcy began in 1542 with 34 and 35 Hen VIII c.4 - "An act against such persons as do make bankrupts". 13 Eliz c.5 in 1570, declared null and void all conveyances and dispositions of property made with the intention of defrauding creditors. And in 1604 1 Jac c 15 provided for the avoidance, as against the Bankruptcy Commissioners, of transactions whereby the bankrupt conveyed property to his children or other persons. This was said by Lord Eldon L.C. not to catch "a mere gift of money", Ex parte Shorland [1802] EngR 181; (1802) 7 Ves Jun 89, a view enlarged upon by Lord Ellenborough C.J. in Kensington v Chantler (1813) 2 M & S 36. The statute, he said, had not the word money and seemed to be confined to things which were the subject of conveyance or capable of being conveyed - see also Ex parte Skerratt (1816) Rose 384. Like provision for the avoidance of such conveyances was made in s.73 of 6 Geo IV c 16 (1825) - "An Act to amend the laws relating to bankrupts". It reflected in part the judicially perceived policy of the legislation as "made for the purpose of effecting an equal distribution of the insolvent's estate among all the creditors" - Jones v Yates [1829] EngR 499; (1829) 9 B & C 532 at p 540 per Lord Tenterden C.J. The language of s.73 was picked up in s.126 of the Bankruptcy Law Consolidation Act 1849.

33. The word "settlement" first appeared in the Bankruptcy Act 1869 in s.91 which was as follows:

"Any settlement of property made by a trader not
being a settlement....made in favour of a purchaser
or incumbrancer in good faith and for valuable
consideration... shall, if the settlor becomes
bankrupt within two years after the date of such
settlement, be void as against the trustee of the
bankrupt appointed under this Act, ..."
.
.
""Settlement" shall for the purposes of this section
include any conveyance or transfer of property."

Section 47(1) of the Bankruptcy Act 1883 (UK) was in similar terms but deleted the limiting reference to traders. It was that section that Cave J. addressed when he said in In Re Player (1885) 15 QBD 682 at 687:

"...A settlement in the ordinary sense of the word
is intended. The transaction must be in the nature
of a settlement, though it may be effected by a
conveyance or transfer. The end and purpose of the
thing must be a settlement, that is, a disposition
of property to be held for the enjoyment of some
other person."

Implicit in that definition was the element of contemplated retention of the property settled. Re Player was followed in Re Vansittart (1893) 1 QB 181, where a gift of diamonds by the bankrupt to his wife was set aside. Vaughan Williams J. there suggested that the word "settlement" had been introduced into the 1869 statute "to indicate that the section was not intended to apply to transfers of property which from the nature and circumstance of the transfer shewed that the donor did not contemplate the preservation of the actual subject matter of the transfer". Player's case received glancing approval in discussion of the definition of marriage settlement in the Bills of Sale Act 1878 in Wenman v Lyon & Co. (1891) 1 QB 634 at p 637 (Pollock B. and Charles J.). It was followed in In Re Tankard (1899) 2 QB 57 and approved by the Court of Appeal in In Re Plummer (1900) 2 QB 790. Rigby L.J. said of Re Player:

"It appears to me that in that case the Court went
on the very intelligible principle that a gift of
money which is not hedged about with conditions
that it shall be invested and, kept in a certain
way cannot be called a settlement within the
meaning of s.47."

The requirement for a settlement of money to be "intended to be earmarked or kept separate" was also adverted to by the Court of Appeal in Re Harrison and Ingram (1900) 2 QB 710 at p 718.

34. Section 47 of the 1883 Act was reproduced as s.42(1) of the Bankruptcy Act 1914 (UK). The approach to the construction of s.47 of the 1883 Act in Re Player (supra) was applied to s.42 of the 1914 Act by Lord Hanworth M.R. in Re Mathieson (1927) 1 Ch 283 at p 293, which decided that the exercise of a general power of appointment by the bankrupt could not of itself give rise to a settlement. Provisions similar to those mentioned in the Acts of 1869 and 1883 were incorporated in the insolvency statutes of what were to become the Australian States. Eventually s.47 of the 1883 Act appeared as s.94 of the first Commonwealth legislation, The Bankruptcy Act 1924 (Cwth). It is substantially reflected in s.120(1) of the Bankruptcy Act 1966, although, critically for the applicant's submissions, the definition of "settlement of property" was altered from "includes any conveyance or transfer of property" to "includes any disposition of property".

35. Re Player found early favour with the Supreme Court of Victoria in relation to s.70 of the Insolvency Statute 1871 - see Davey v Danby (1887) 13 VLR (L & LI VICT) 957 at p 965 (Webb J.) and in the High Court in Jack v Smail [1905] HCA 25; (1905) 2 CLR 684 which concerned the operation of s.72 of the Insolvency Act 1890 (Vic). A woman saved money from a housekeeping allowance made to her by her husband and with his consent deposited it in a savings bank account in her own name. The Court held that her savings did not constitute a settlement by the husband. Griffith C.J. referred at pp 700-701 to Re Player, Re Vansittart, Re Tankard and Re Plummer and applied the latter. Barton J. made like observations at pp 709 to 710. Another housekeeping allowance case which yielded an avoidable settlement on the same criteria was Hutton v Wilkinson (1906) St. R. Qd. 237 at p 241, dealing with s.106 of the Insolvency Act 1874 (Qld). And Street J. in relation to s.55 of the Bankruptcy Act 1898 (NSW) said in Re Hermann (1916) 16 SR(NSW) 264 at p 270:

"...the section does not extend to every gift of
property, but only to such gifts as are intended to
be kept and used for an indefinite period."

Single judge decisions to similar effect were Re Love (1930) 3 ABC 24 (Lukin J.) and Re Simmons (1931) 3 ABC 233 at p 238-239 (Lukin J.) both on s.94 of the Bankruptcy Act 1924. In Williams v Lloyd [1934] HCA 1; (1933) 50 CLR 341, the High Court held that an arrangement whereby a father, later bankrupt, procured from a debtor the grant of a mortgage naming his daughter as mortgagee, was void against the trustee so that the daughter held the mortgage under a resulting trust. Also avoided as a voluntary settlement was a payment of one thousand pounds into a savings account in the names of the bankrupt's wife and daughter. Explaining the retention requirement which originated in Re Player, Dixon J. with whom Rich, Evatt and McTiernan JJ. agreed said:

"...it does not mean that there shall be any
restriction on the donee's power of disposal, but
merely that the retention of the property in some
sense must be contemplated and not its immediate
dissipation or consumption."

Similar remarks supporting the retention requirement were made in the judgment of Starke J. (with whom Gavan-Duffy C.J. agreed) at p 364. Later applications of s.94 consistent with that approach are seen in Re Trautwein (1944) 14 ABC 61 at pp 75-77 (Clyne J.) and Re Hair (1957) St R Qd 12 at pp 17-19 (Townley J.). In Re Pahoff (1961) 20 ABC 17 a mortgage given by a bankrupt in favour of his two sons was set aside. Clyne J. referred to the inclusive definition of "settlement" in s.94(5) of the 1924 Act and observed at p 20 that:

"The words in sub-s.(5) of s.94 "any conveyance or
transfer" must, I think, be qualified so as to mean
a conveyance or transfer which constitutes a
settlement within the meaning of sub-s.(1)."

36. The grant of a mortgage as a form of settlement under s.94 in its application to the winding up of a company under s.293 of the Companies Act 1961 (Qld), was considered in N.A. Kratzmann Pty Ltd (In Liq). v Tucker [1966] HCA 72; (1966) 123 CLR 257. Barwick C.J. on the facts of the particular case said shortly at p 284 that it was not a gift and "clearly not a settlement". Kitto J., a little more expansively, observed at p 293 that there was no intention of benefaction in favour of the mortgagee and "what is more to the point, there was no intention of making an enduring provision in the form of property to be retained, in the sense that is explained in In Re Player ... and Williams v Lloyd." Windeyer J. agreed with the reasons given by both Barwick C.J. and Kitto J. in that case. And in Re Hyams (1971) 19 FLR 232, Gibbs J., sitting in the Federal Court of Bankruptcy, referred to Re Pahoff and N.A. Kratzmann Pty Ltd (In Liq) v Tucker (supra) in concluding that a mortgage of land under the Torrens system could be caught by s.94. Noting at p 252 that:

"...not every mortgage and for that matter not every
transfer or conveyance will amount to a settlement
within s.94"

he accepted the retention requirement as enunciated in Williams v Lloyd (supra) and concluded in the case before him that the mortgage given by the bankrupt was a settlement:

"It seems to me that ... the purpose contemplated
was that the mortgage would for an indefinite time
be retained by and for the benefit of the
respondent."

37. Although that case dealt with a transaction arising under the 1924 Act, it was decided when that Act had already been repealed and supplanted by the Bankruptcy Act 1966. The definition of "settlement of property" in s.120(8) of that Act substituted for "includes any conveyance or transfer of property" the words "includes any disposition of property". As a matter of logical analysis the new definition is no wider than the old. The old definition with a logical structure identical to that of the new, was wide enough on a strict analysis to cover all forms of disposition of property. But it was read down by reference to the criterion of contemplated retention implicit in the notion of settlement. That reading down may not have had the virtue of strict logic. It was, however, the invention of necessity for without some such limitation all manner of intra familial payments for maintenance and housekeeping and other purposes of a day to day character would have been caught. The retention of the term "settlement" and the same logical structure in its definition in the 1966 Act points, in my opinion, strongly to the conclusion that it was intended to be construed in the same way as in the 1924 Act. The substitution of the word "disposition" in sub-s.120(8) can, I think, be explained as an attempt to simplify and condense the language of the provision. It was used in the definition adopted by Cave J. in Re Player and repeatedly in subsequent English and Australian authorities as a description of the larger class of transactions in which settlements were included.

38. The Bankruptcy Act 1966 was preceded by the report published in 1962 of a committee chaired by Sir Thomas Clyne and appointed by the Attorney-General to review the bankruptcy law of the Commonwealth. It is apparent from the report that the Committee did not consider any change necessary or desirable to the range of transactions which could be avoided as voluntary settlements. At para.172 the Committee concluded in relation to the 1924 Act:

"172. The Committee considers that the provisions
of section 94 in relation to voluntary and marriage
settlements are satisfactory in substance and
should be retained."

And in the draft Bill which was set out in the Third Schedule to the Report and which gave effect to its recommendations (see para.8 of Report), s.94 was replaced by s.120 and the proposed sub-s.120(8) defined "settlement of property" in precisely the terms in which it was subsequently enacted and which subsist today.

39. Since the enactment of the 1966 Act there has been only limited exegesis of the concept of settlement in s.120 but some divergence of view has been exposed. The earliest reported decision on the new section is that of McGregor J. in Re Barton (1983) 52 ALR 95, a case involving a loan of $170,000 made by the bankrupt on terms particularly favourable to its recipient. His Honour applied the retention test as enunciated in relation to the 1924 Act by Dixon J. in Williams v Lloyd (supra) and concluded that the payment was a settlement. The case went on appeal to the Full Court of the Federal Court. In the meantime another single Judge decision suggesting a new approach to the concept of settlement was given in Re Ward (1984) 3 FCR 112. There Wilcox J. held the bankrupt's forgiveness of a debt owed to him by a trustee was a settlement. His Honour was satisfied that the traditional retention requirement was met in the case before him but questioned the correctness of its continued application. He remarked upon the absence, in cases going back to Re Player, of any supporting analysis for the requirement in terms of principle or statutory construction. He saw the substitution in sub-s.120(8) of "a new and wider definition of "settlement"" as offering to Australian courts the opportunity to rethink the desirability of adhering to the traditional test:

"No longer does the definition have the connotation
of permanent benefit suggested by "conveyance or
transfer" of property. Rather it refers to
"disposition" of property. It ought to be enough
that the relevant transaction is a deliberate
disposition of a capital fund. It ought to be
immaterial whether the settlor contemplates that
the capital will be held indefinitely in specie,
converted to some other form of capital or spent by
the settlee."

His Honour's remarks derived obiter support from two members of the Full Court in Barton v Official Receiver (1984) 58 ALR 328. Sweeney J. referred to Re Ward and said at p 335:

"In the case before us, it is unnecessary to decide
whether a wider interpretation is justified, but if
the question were to arise, there is clearly, if I
may say so with respect, a great deal to be said in
favour of that interpretation."

And Fisher J. at p 336 had "little doubt" that by defining "settlement" to include "any disposition of property" the legislature intended to expand the ambit of the term. Lockhart J., on the other hand observed that the whole of the language of s.120 had to be considered to determine the meaning of the expression "settlement" and concluded at p 343:

"In my opinion for there to be a "settlement of
property" within the meaning of s.120 there must be
a settlement in the ordinary sense of the word, a
transaction in the nature of a settlement, though
it may be effected by any disposition. The
retentioin (sic) of the property in some sense
must be contemplated and not its immediate
dispersion."

40. In Official Trustee v Arcadiou (1985) 8 FCR 4, the principal question was whether a detriment to a disponee could constitute valuable consideration for the purpose of s.120. At p 10 however in the joint judgment of Woodward and Northrop JJ. their Honours observed in passing that the words "any disposition of property" in sub-s.120(8) have a wider connotation than those in the predecessor sub-s.94(5). They noted with interest, but no further comment, the use of the word "disposition" by Clyne J. in Re Pahoff (supra) to describe the class of transactions caught by s.94(1) of the 1924 Act. That usage was, however, quite consistent with the view adopted by the Bankruptcy Review Committee chaired by his Honour, which proposed the term "disposition" for the 1966 Act while expressly disclaiming any intention to change the law.

41. When Barton's case reached the High Court - see Barton v Official Receiver [1986] HCA 44; (1986) 161 CLR 75 - the characterisation of the impugned loan transaction as a settlement was no longer in contest. The issue on appeal was whether there had been any valuable consideration. Their Honours nevertheless accepted the continuing application of the retention requirement when they said:

"There being no contemplation of the immediate
dissipation or consumption of the money, the
established principles governing the making of a
settlement were satisfied."

More recently in Re Sullivan; Ex parte Sullivan v Official Receiver (1987) 16 FCR 405, Pincus J. at p 407 regarded the observations of the High Court in Barton as approving the exposition in Williams v Lloyd of the principles governing the making of a settlement and applied the retention requirement accordingly to the case before him.

42. In the report on its General Insolvency Inquiry published in 1988, the Australian Law Reform Commission asserted at para.663 that in Australia "a wider view of the application of the existing provision is now possible, unrestricted by notions of retention and permanency of the subject matter of the disposition". The test suggested by Wilcox J. requiring "deliberate disposition of a capital fund" was said to represent a statement of a desirable policy in this area of the law which would remove the difficulty of anomalous and arbitrary distinctions capable of being drawn by the use of the word settlement. As to the desirability of the proposed test, I make no comment beyond the observation that the identification of capital payments has traditionally been a task not unattended by fine distinctions. As to the statement that the wider view is now possible in Australia however, I respectfully differ if by that it is intended to say that the wider view is the law. In my opinion the history of the legislation, the identity of the logical structure of s.120 with that which preceded it, the views of Sir Thomas Clyne, who oversaw its drafting, and the weight of judicial authority are to the contrary.

43. The persistence of the retention requirement is not a uniquely Australian phenomenon. It is a well established feature of bankruptcy law in Canada, whose voluntary settlement provisions, like ours, originally derived their form and content from the English Acts of 1869 and 1883. In Re Bozanich, A.H. Boulton Co. Ltd v Trusts and Guarantee Co. Ltd (1942) 2 DLR 145, Sir Lyman Duff C.J.C. in the Supreme Court of Canada construed s.62 of the Bankruptcy Act 1919 in the light of Luxmoore L.J.'s definition of settlement in the 2nd Edition of Halsbury's Laws of England as implying "an intention that the property shall be retained or preserved for the benefit of the donee in such a form that it can be traced." That construction, he said, was well settled in 1919 when the Canadian statute was enacted. He added:

"It is proper to assume that it was the statute as
it had been construed by the English Courts and
applied in the administration of bankruptcy law in
England that Parliament intended to adopt."

Davis and Kerin JJ. agreed with the Chief Justice. Renfrit J., with whom Crocket J. agreed, arrived at the same conclusion. That position was already established in Provincial Courts - see Re Aliotis & Cliris (1922) 1 DLR (NS) 348 at p 350 and Re Cohen and Lyons (1926) 3 DLR 942 at p 952 - reversed on grounds unrelated to definition of settlement in Re Cohen and Lyons (1927) 1 DLR 576.

44. The successor to the 1919 Act was the Bankruptcy Act 1949 (Can) which dropped the statutory definition of "settlement". The word itself was retained and appears in s.69 which is the equivalent of s.120 of the Australian Act. The retention requirement as an essential element of the concept of "settlement" survived the change - Re Geraci (1970) 121 DLR (3d) 314 at p 316; Re Reddin (1980) 34 CBR 285 at p 287; Re Bragg (1983) 47 CBR 98 at p 101; Re Barnett (1983) 46 CBR 211 at pp 214-215; Re Whetstone (1984) 12 DLR (4th) 249 at pp 252-253; Re Associated Fisheries of Canada Limited (1987) 64 CBR 242 at pp 248-249; Toronto-Dominion Bank v Fisher (1988) 69 CBR 22 at p 31; Wilson and Wilson v Doan Raymond Limited (1988) 69 CBR 156 at pp 158-159. Waters Law of Trusts in Canada (1974) cited in Re Reddin (supra), observed at p 255:

"The present Canadian Bankruptcy Act does not define
a "settlement" but the English Act of 1914 which is
still in force in England lays down that it "shall,
for the purpose of this section, include any
conveyance or transfer of property"... and it is
for this reason that the courts of England and
Canada have sought in the past to distinguish
between a settlement and an out-and-out
disposition. The latter is conceived by Equity to
be the antithesis of a trust or settlement. A
settlement has therefore been interpreted as a
disposition of property by the settlor, either
directly or through the intervention of a trustee,
for the benefit of the person on whose behalf the
settlement is made, but with the contemplation,
even if there is no intermediate trustee, that the
property in some form shall be retained, its use
and enjoyment being determined by the terms of the
settlement."

It is also noteworthy that in most of the cases cited, the term "settlement" is defined as a class of "disposition".
Transaction Not a Settlement

45. In the event I am satisfied that it is still the law that a disposition of property is not a settlement unless made with the intention that it will be retained by the recipient and not immediately dissipated or consumed. There was no evidence in the present case to suggest that La Rosa intended or contemplated that what I have called the premium payments made to Rocom would be retained in any way or form. They were, in my opinion, straight out payments made in order to obtain, for whatever ultimate purpose, the passage of money through the accounts of one or more of Moor Motors and the two companies, Hobourne Pty Ltd and Feli Pty Ltd. In the event the payments were not settlements and are therefore not recoverable under s.120.
The Equitable Fraud Argument

46. The applicant contends in the alternative that, the purported sale and repurchase of the vehicles being a sham, the retention by Rocom of the benefit deriving from those transactions would be a species of equitable fraud against the La Rosas' creditors. Rocom, it is submitted, should therefore be required to account to the trustee for the profit it has made.

47. The submission was unsupported by authority beyond a reference to the fourth category of fraud described by Lord Hardwicke L.C. in Earl of Chesterfield v Jannsen [1750] EngR 25; (1751) 2 Ves Sen 125 at 156 in the following terms:

"A fourth kind of fraud may be collected or inferred
in the consideration of this court from the nature
and circumstances of the transaction, as being an
imposition and deceit on the other persons not
parties to the fraudulent agreement."

And further, at 156:

"Particular persons in contracts shall not only
transact bona fide between themselves but shall not
transact mala fide in respect of other persons, who
stand in such a relation to either as to be
affected by the contract or the consequences of it."

Examples of this category of fraud set out by Lord Hardwicke were marriage brokage contracts, payment to a parent to consent to the marriage of a child, private agreements between a compounding debtor and one of his creditors and payments agreed to be made for preferring or recommending someone to a public office or employment. To these examples can be added those set out in Snell's Principles of Equity 28th Edition at p 548: loans to a woman to swell her dowry and thus deceive her husband, rewards for influencing a testator and contracts in restraint of trade.

48. While the circumstances in which equity will provide relief to third parties are not closed, the evidence does not establish any relationship between the transactions and the position of actual or prospective creditors of the La Rosas' such that Rocom could, in equity, be called to account for the benefit it has obtained. There is no suggestion now made and no evidence to support any suggestion that the transactions were intended to defraud creditors. Indeed the abandonment of any reliance upon s.121 of the Act involved an abandonment of that contention. The payments, made as I have found in the service of some unspecified but clearly urgent purpose of the La Rosas, were improvident. But improvidence which benefits another will not of itself give rise to rights of recovery outside the framework of statutory provisions or some other legal or equitable basis for recovery.

49. It was also submitted by the applicant, albeit faintly, that the premium payments made to Rocom could be recovered as money had and received on the basis that they were paid under a void contract. On the basis of my findings however, there was an agreement underlying the shams and I am not satisfied that that agreement did not have legal effect. And even if it did not and the La Rosas were in effect making a gift to Rocom, no basis has been demonstrated upon which it could be recovered.
CONCLUSION

50. For the reasons which I have given the application will be dismissed. That is no endorsement of the conduct of the parties to the transactions. The evidence does not permit a complete account of their actions and purposes. And the law as it stands will not permit recovery of the extraordinary benefit conferred upon the respondent.