Re Ian Andrew Mcgoldrick (A Bankrupt) Ex Parte: Australia and New Zealand Banking Group Ltd v the Official Trustee In Bankruptcy and Pasquale Viceconte [1992] FCA 63 (26 February 1992)

FEDERAL COURT OF AUSTRALIA

Re: IAN ANDREW McGOLDRICK (a bankrupt)
Ex Parte: AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD.
And: THE OFFICIAL TRUSTEE IN BANKRUPTCY And PASQUALE VICECONTE
No. V B385 of 1989
FED No. 80
Bankruptcy

COURT

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

CATCHWORDS

Bankruptcy - avoidance of settlement - equitable assignment of money - whether settlement in favour of purchaser for valuable consideration - forebearance to sue as valuable consideration.

Bankruptcy Act 1966 - s.120(1), (8).

Re Hyams; Official Receiver v Hyams (1971) 19 FLR 232

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

Midland Bank Trust Co. Ltd. v Green [1980] UKHL 7; (1981) AC 513

Re Abbott (1983) 1 Ch 45

N.A. Kratzman Pty. Ltd. v Tucker (1966) 40 ALR 373

HEARING

MELBOURNE
26:2:1992

Counsel for Australia and New Zealand Banking Group Limited: Mr K. Baker

Solicitors for Australia and New Zealand
Banking Group Limited: Messrs Dunhill Madden Butler

Counsel for The Official Trustee in Bankruptcy: Mr J. Lenzner

Solicitor for the Official Trustee in Bankruptcy: Australian Government

Solicitor

Counsel for Pasquale Viceconte: Mr B. Scheid

Solicitor for Pasquale Viceconte: Messrs Vann Fisher and Associates

ORDER

DECLARE that
The money held on deposit by Australia and New Zealand Banking Group Limited

in the joint names of Pasquale Viceconte and the bankrupt (the deposit money) did not form part of the estate of the bankrupt which vested in the Official Trustee in Bankruptcy at the time of the bankruptcy;

With effect from 11 July 1988, Rodaley Pty. Ltd. became beneficially entitled to the deposit money;

The settlement of the deposit money is not void as against the Official Trustee in Bankruptcy.

ORDER that
1. the application of Australia and New Zealand Banking Group Limited
be dismissed;
2. the application of the Official Trustee in Bankruptcy be dismissed;
3. (costs).

DECISION

On 14 April 1989 Ian Andrew McGoldrick (the bankrupt) became a bankrupt upon the presentation of his own petition and The Official Trustee in Bankruptcy (the trustee) became the trustee of his estate. At the date of bankruptcy Australia and New Zealand Banking Group Limited (ANZ) held on deposit at its South Melbourne branch in the joint names of the bankrupt and Pasquale Viceconte (Viceconte) a sum of money which together with accrued interest now amounts to approximately $150,000 (the deposit money).

2. The proceedings presently before the Court involve three separate applications relating to the deposit money. In chronological order the applications can be summarised as:

1. An application filed by ANZ on 20 June 1991 seeking a declaration
as to whether ANZ or alternatively Viceconte is beneficially
entitled to the deposit money.
2. An application filed by the trustee on 9 July 1991 seeking:
(a) declarations that a document described as an irrevocable
authority executed by the bankrupt on or about 17 March 1988
(the authority) and the payment of the sum originally
deposited with ANZ are void pursuant to section 120(1)(a) of
the Bankruptcy Act;
(b) alternatively, a declaration that ANZ holds the deposit
money upon trust for the trustee;
(c) an order that ANZ pay the deposit money to the trustee;
(d) an order that Viceconte pay the trustee $32,705.88;
(e) alternatively to all of the foregoing, a declaration that
the trustee is entitled to an order that Viceconte pay to
the trustee the amount of instalments of principal paid by
the bankrupt to Viceconte pursuant to a contract of sale
entered into between Viceconte and the bankrupt on 15
October 1984 and varied on 31 October 1985.
(The alternative relief described in (e) is sought only if the
contract referred to is found to have been rescinded on or prior
to 17 March 1988).
3. An application filed by Viceconte on 18 July 1991 seeking a
declaration that the authority constituted an equitable assignment
in favour of Rodaley Nominees Pty. Ltd. (Rodaley) or
alternatively, in favour of Viceconte.

3. Each application is supported by affidavit evidence. At the trial of the applications, which were heard cognately, counsel for the trustee cross-examined Viceconte, but otherwise the evidence relied upon is contained in the affidavits.

4. Prior to his bankruptcy the bankrupt was engaged in the business of running establishments which can conveniently be described as nursing homes and he did this through a group of companies known as the Consolidated Health Care Group. One company within the group was Kymrange Pty. Ltd. (Kymrange). ANZ was a major financier of the group, the borrowings of which were guaranteed by, inter alia, the bankrupt. As at 20 June 1991 the bankrupt was indebted to ANZ in a sum exceeding $11m. The bankrupt's business interests were obviously quite extensive and it is said that at one time he or his group of companies controlled some 1200 nursing home beds. In the course of his business the bankrupt had a number of dealings with Viceconte, details of some of which will be examined later in these reasons.

5. Viceconte is a company director with various interests and at one stage, if not still, he was also involved in the business of running nursing homes. One of the companies owned or controlled by Viceconte is Rodaley.

6. By contract of sale bearing date 15 October 1984 the bankrupt agreed to purchase from Viceconte for the sum of $300,000 a property known as 3-5 Madeline Court, Avondale Heights (Madeline Court). The contract provided for a deposit of $5,000 payable upon signing of the contract and the balance of $295,000 payable on 15 March 1985. Neither the deposit nor the balance of purchase price was paid as agreed. On 31 October 1985 the bankrupt and Viceconte entered into an agreement whereby they varied the terms of the original contract to provide for the payment of $90,000 on 31 October 1985 (which sum was apparently paid) with the balance of $210,000, together with interest thereon at the rate of 10% per annum, payable by weekly instalments of $1,750 commencing on 31 October 1985. The variation also substituted for the penalty interest rate provided for in condition 4 of the conditions in Table A of the Transfer of Land Act 1958, the rate of 48% per annum. At the date of the contract the property was subject to a registered mortgage in favour of ANZ, a fact disclosed in the variation. On 16 January 1986 the bankrupt lodged a caveat against the title to the property to protect his interest as purchaser.

7. On or about 30 September 1985 Rodaley sold to Kymrange 2 nursing home businesses then conducted under the names of Radford Private Nursing Home (Radford) and Grevillea Court Nursing Home (Grevillea). The purchase price was $1,800,000 payable on 30 September 1985. The contract provided that on the completion date Rodaley would lend Kymrange a sum equal to the purchase price for a term of 3 years with interest at 10% per annum and that during that period Kymrange would make monthly payments of $11,090.25 commencing on the completion date. Kymrange agreed to secure such loan by a debenture creating a first charge over the assets and undertaking of the company and a mortgage of the existing leases of the nursing home premises. On 30 September 1985 the bankrupt and others executed a document entitled Guarantee and Indemnity whereby they, inter alia, agreed to guarantee the due and punctual performance and observance by Kymrange of the terms and conditions contained in the contract with Rodaley and the due and punctual payment by Kymrange of the purchase money interest and other money (including the loan deferred (sic) - presumably "referred to" - therein) intended to be paid and secured thereunder. Also on 30 September 1985, Kymrange executed in favour of Rodaley a debenture to secure repayment of the loan of $1.8m agreed to be made pursuant to the contract of sale.

8. Although there is no direct evidence of the exact arrangement between the parties it appears that Kymrange also entered into a lease with Rodaley in respect of Radford.

9. On 12 January 1988 a meeting took place at ANZ's premises. The bankrupt, some members of his family and his solicitor were in attendance as were three representatives of ANZ. Viceconte (who was also a customer of ANZ) was present for part of the meeting. The diary entry made at the time by one of the ANZ officers reveals that a proposal had been advanced, and agreed to by the McGoldrick interests, that the bank would go into possession under its mortgage securities of 5 nursing homes (including Grevillea and Radford). The minutes record that Kymrange had given a registered mortgage debenture to Viscount Finance Group Pty. Ltd. (Viscount Finance), a company controlled by Viceconte, as security for moneys outstanding on the original purchase of Grevillea and Radford and that ANZ had subsequently taken an assignment of the debenture from Viscount Finance as security for that company's borrowings. At the time Viscount Finance was owed approximately $1.2m and Kymrange was actively involved in trying to sell both Grevillea and Radford. The diary note also included the following statement:

The monthly cash flow for each of the Bank's nursing homes
shows a marginal cash shortfall each month excluding
interest costs and in the case of Grevillea and Radford,
principal repayments to Viscount Finance Company.

From the tenor of the diary note it would appear that Kymrange's liability in respect of the loan from Rodaley to purchase Radford and Grevillea was treated, at least by ANZ, as being due to Viscount Finance.

10. It is clear from correspondence emanating from Viceconte's solicitors in February 1988 that the McGoldrick interests were by then substantially in default in respect of their obligations under the lease of Radford, the sale of Madeline Court and the vendor's loan in respect of the purchase of Radford and Grevillea.

11. By letter dated 11 February 1988 Viceconte's solicitors forwarded to the bankrupt notice of rescission of the Madeline Court contract. After reciting the details of the contract the notice continued:

THE VENDOR HEREBY GIVES YOU NOTICE:
1. That default has been made by you in the observance of the
terms and conditions in the said contract of sale in the manner
specified in the Schedule hereinafter referred to.
2. That it is the intention of the Vendor to exercise its rights
and remedies arising out of such default unless such default is
made good within fourteen (14) clear days from the date of
service of this notice by payment to the Vendor of the whole of
the moneys overdue and unpaid by you under the said Contract of
Sale together with the proper legal costs occasioned by such
default as set out in the aforesaid Schedule.
3. That unless the said default is so remedied and the said costs
paid the Vendor will rescind the said Contract of Sale and the
Vendor will exercise such other of the rights and remedies
conferred upon it by the said Contract of Sale or by statute or
otherwise arising out of such default as the Vendor may elect.

A schedule to the notice headed "Particulars of the default abovementioned" contained the following details:

(a) Payments due under the Contract of Sale are overdue and
payable as at the date hereof $92,940.66 including interest
on arrears.
(b) Proper legal costs TWO HUNDRED AND FIFTY DOLLARS (250.00).

It is Viceconte's evidence (which is uncontradicted and which I accept) that shortly after 18 January 1988 he was advised that the bankrupt intended to sell Madeline Court to persons by the name of Arduca for $300,000. Due to delay in the finalisation of the sale, he (Viceconte) instructed his solicitors to serve notice of rescission of the contract which they did by the notice referred to above. Subsequently, there were discussions between the bankrupt and Viceconte concerning the payment of the stamp duty required to finalise the original sale which was necessary to enable the bankrupt to settle with the Arducas. The bankrupt said he was unable to pay the stamp duty because of his financial position. An agreement was reached whereby the bankrupt would not contest the rescission of the contract (and thus not be liable for the stamp duty) and would withdraw his caveat and Viceconte would transfer the property to the Arducas at the agreed price of $300,000. It was further agreed that upon settlement the net sale proceeds would be appropriated first to whatever sum would have been due to Viceconte under the terms of the original sale and variation agreement as if it had been completed on the date settlement with the Arducas was finalised, and the balance would be paid into an interest bearing account in the joint names of the bankrupt and Viceconte with ANZ South Melbourne branch. In his affidavit sworn 18 July 1991 and filed in these proceedings Viceconte says in paragraphs 16 - 18:

16. ...The intention of paying the surplus moneys into this
account was to better secure amounts due by Kymrange to
Rodaley (in respect of the sale of Radford and Grevillea).
17. It was always understood by both McGoldrick and myself that
if there was a shortfall in the sale proceeds of the Radford
and Grevillea businesses then the surplus mentioned in
paragraph 16 herein would be appropriated to make up such
shortfall. To further record these intentions an
irrevocable authority was signed by McGoldrick on the 17th
March, 1988. ...
18. In consideration of the execution of the irrevocable
authority I undertook to procure from Rodaley its
forebearance in taking action against McGoldrick and other
guarantors and against Kymrange under both the contract of
sale and the debenture thereby giving McGoldrick time to
sell the two nursing home businesses for the best possible
price.

The authority referred to in paragraph 17 of Viceconte's affidavit was forwarded by facsimile transmission to ANZ by Viceconte's solicitors on 17 March 1988. On the same day ANZ acknowledged receipt of the authority in a fax addressed to Viceconte's solicitors in the following terms:

17 March 1988
Vann Fisher and Associates
Barristers and Solicitors
Suite 8, 4th Floor
Illoura Plaza
424 St Kilda Road
MELBOURNE 3004
Attention: Mr Vann Fisher
Dear Sir
McGOLDRICK AND VICECONTE
3-5 MADELINE COURT, AVONDALE HEIGHTS
Further to your FAX letter of 17 March 1988, as discussed
the following matters are confirmed:
- an amount of $185,089-28 plus interest will be lodged
on deposit with the ANZ on behalf of Mr Pat Viceconte
and/or associated company.
- the balance of the sale proceeds will be lodged on
deposit in the joint names of Mr Pat Viceconte and Mr
Ian Andrew McGoldrick. Disposal of these funds held
in the joint deposit will be subject to the
instruction/direction of Mr Pat Viceconte.
Yours sincerely
(signed)
JOE TAGLIAVENTO
ACTING MANAGER COMMERCIAL ACCOUNTS

On 18 March 1988 settlement of the sale of Madeline Court took place. Initially on that day $67,362.50 was received by ANZ and placed in a joint deposit in the names of Viceconte and the bankrupt. Later a further sum of $23,402.15 was received to make a total deposit of $90,764.65.

12. It is appropriate to now set out in full the text of the authority.

IRREVOCABLE AUTHORITY
To: The Manager,
Australia and New Zealand
Banking Group Limited,
52 Albert Street
SOUTH MELBOURNE 3205
Attention: Mr John Bibby
Dear Sir,
re: McGoldrick and Viceconte
3-5 Madeline Court, Avondale Heights
WHEREAS:
A. I, Ian Andrew McGoldrick ("McGoldrick") agreed to
purchase the above-mentioned property from Pasquale
Viceconte ("Viceconte") (hereinafter called "the
terminated contract") and Viceconte has issued a
Notice of Rescission in relation to that contract)
B. McGoldrick has agreed not to contest the rescission
following allegations of breaches which McGoldrick
does not hereby admit, in order to mitigate any losses
(if any) by permitting Viceconte to enter a fresh
contract of sale to Anthony and Annunziata Arduca
(referred to respectively as "the Arduca contract" and
"the Arducas")
C. Upon the settlement of the sale of the above-mentioned
property to the Arducas by Viceconte, Viceconte has
agreed with McGoldrick to pay to the ANZ Banking Group
Limited, 52 Albert Street, South Melbourne, a sum of
money representing the difference in the sale price on
the contract between Viceconte and the Arducas (net of
adjustments, selling expenses and Viceconte's legal
costs incurred in respect of the terminated contract
and the Arduca contract) and the sum which would be
due to Viceconte if the terminated contract had
settled on the same date as the contract with Arducas
(hereinafter called "the net proceeds"). McGoldrick
acknowledges that the said sum due pursuant to
terminated contract was $185,089.28 at 22nd February,
1988 with daily interest due of $104.42 per day
thereafter.
I, IAN ANDREW McGOLDRICK DO HEREBY AUTHORIZE AND DIRECT
the ANZ Banking Group Limited as follows:
1. To receive as Stakeholder the said net proceeds on
behalf of Viceconte and myself;
2. To deposit the said net proceeds in an interest
earning account in the names of Pasquale Viceconte and
Ian Andrew McGoldrick;
3. To pay on or after 4th April, 1988, and from time to
time thereafter and in such manner and to such persons
as Viceconte directs so much of the net proceeds of
sale and interest earnt thereon as are required to
satisfy the indebtedness of Kymrange Pty. Ltd.
pursuant to a Debenture dated 3rd September, 1985 made
between Kymrange Pty. Ltd. and Rodaley Nominees Pty.
Ltd. and/or pursuant to the Lease of the Radford
Private Nursing Home and legal fees due to Viceconte's
solicitor and to pay the surplus to such accounts
operated by myself or associated companies as shall be
agreed upon between the Australia and New Zealand
Banking Group Limited and myself.
Dated this 17th day of March 1988
SIGNED BY THE SAID ) (signed) I.A. McGoldrick
IAN ANDREW McGOLDRICK ) ........................
in the presence of: ) I.A. McGoldrick
............................
(signature indecipherable)

(It is common cause that the reference to 3 September 1985 as the date of the debenture was an error and should have been 30 September 1985, and in all respects the various parties treated the authority as if the debenture had been correctly described.)

13. I propose to pause in the narrative of events to consider a number of questions which do not depend upon anything that may have occurred since the deposit money was received by ANZ.

14. First, there is the question of whether the contract between Viceconte and the bankrupt in respect of Madeline Court was rescinded. In my opinion there was clearly no rescission. The notice forwarded on 11 February 1988 contemplated that the bankrupt would have a period of 14 days within which to make good the claimed default, but it is a fair inference from the evidence, and in particular from the final sentence of recital C of the authority, that before the expiration of that period the parties had reached a compromise in the terms later set out in the authority. There is no evidence to suggest that Viceconte ever carried through the intention expressed in the notice to rescind the contract. In the circumstances I am satisfied that there can be no basis for the alternative relief claimed by the trustee based upon a rescission of the contract.

15. Second, there is the trustee's claim for payment of $32,705.88 said to represent a penalty extracted by Viceconte from the bankrupt. The evidence concerning the calculation of interest under the contract is not free from confusion. There is no doubt that Viceconte did purport to invoke the penalty interest provision but it is equally clear that he later rebated the amount debited to a considerable extent. In any event, it seems beyond question that the ultimate resolution of the Madeline Court transaction was in the nature of an accord and satisfaction thus resolving all outstanding issues between the parties in relation to it. In my opinion there is no basis for the trustee's claim against Viceconte.

16. Third, there is in my opinion no question that immediately prior to the deposit money being deposited with ANZ on 18 March 1988 it belonged to the bankrupt. Viceconte and the bankrupt had resolved the Madeline Court transaction as if the bankrupt had finalised the contract with Viceconte and then onsold to the Arducas. The form of the transaction was however varied in order to assist the bankrupt so far as stamp duty liability was concerned but also to assist Viceconte by ensuring that settlement took place expeditiously. The difference between the net sale price and the amount agreed to be due to Viceconte at settlement was clearly the bankrupt's money. Otherwise, there would have been no basis for him to retain any interest in the money. The authority recognises that any surplus that might remain in the deposit account would be at the bankrupt's disposal. Paragraph 3 of the authority is quite inconsistent with the suggestion that the document operated as an absolute assignment of that money to either Rodaley or Viceconte or indeed to anyone else. The authority is however perfectly consistent with Viceconte's understanding, as expressed in paragraph 16 of his affidavit, that the surplus money from the Madeline Court transaction be deposited to better secure moneys due by Kymrange to Rodaley.

17. It is beyond argument that the mortgaging or charging of property may amount to a "settlement" for the purpose of s.120 of the Bankruptcy Act. In re Hyams; Official Receiver v Hyams (1971) 19 FLR 232, which had to do with the question of whether a mortgage of Torrens system land in New South Wales is capable of being a "settlement" within the meaning of s.94(1) of the Bankruptcy Act 1924-65 (the then equivalent of the present s.120(1)) Gibbs J (as he then was) sitting in the Federal Court of Bankruptcy said at pp 251-253:

It can hardly be doubted that a mortgage of land not under
the Real Property Act (N.S.W.) would be a conveyance or
transfer of property and therefore a settlement, provided
that the retention of the property by the mortgagee was
contemplated, and there is no reason why if such a mortgage
is exposed to attack under the section a mortgage of land
under the Real Property Act (N.S.W.) should be immune.
Indeed, to exclude the latter mortgages from the scope of
s.94 would be to open a ready way to the evasion of its
provisions. However, in my opinion, the execution of a
mortgage of land under the Real Property Act (N.S.W.) can
amount to a settlement within s.94. By sub-s. (5),
"settlement" includes any conveyance, and that term "denotes
an instrument which carries from one person to another an
interest in land" and can include an instrument giving a
charge: Credland v Potter (1874) LR 10 Ch App 8 at p 12.
A disposition of an equitable interest can be a settlement
within the meaning of the section: see Shrager v March
(1908) AC 402. A mortgage of land under the Real Property
Act (N.S.W.) has the effect of giving the mortgagee an
interest in the land, and operates as a conveyance of that
interest. The distinction between conveyances and charges
drawn for the purposes of ss.52(c) and 95(1) does not in my
opinion indicate that the legislature intended that the
words of s.94 ought to be given a restricted meaning. On
the contrary, the reference in s.94(1)(a) to settlements
made in favour of an encumbrancer shows that "settlement" is
intended to have a wide signification and to include the
conveyance of interests in property short of ownership - and
indeed that it is intended particularly to include
mortgages. I agree with the conclusion reached by Clyne J.
in Re Pahoff; Ex parte Ogilvie (1961) 20 ABC 17 that a
mortgage of land under the Real Property Act (N.S.W.) is
capable of being a settlement within s.94.
However, not every mortgage, and for that matter not every
transfer or conveyance, will amount to a settlement with
s.94. In Williams v Lloyd; In re Williams [1934] HCA 1; (1934) 50 CLR
341 at p 364, Starke J. said: "A settlement of property is a
conveyance or transfer of property, and 'the voluntary
settlements to which this section applies are only such
conveyances or transfers of property as are in the nature of
settlements in the sense of being dispositions of property
to be held for the enjoyment of other persons, i.e., where
the donor contemplates the retention of the property by the
donee, either in its original form or in such a form that it
can be traced'." In the same case, Dixon J. (as he then
was) at p 375, cited the following passage from In re
Player; Ex parte Harvey (1885) 15 QBD 682 at p 687: "'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.'" He went on to explain that this "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". It seems to me that
in the present case the purpose contemplated was that the
mortgage would for an indefinite time be retained by and for
the benefit of the respondent.

In my opinion, the payment of the deposit money to ANZ in accordance with the agreement between Viceconte and the bankrupt, the terms of which are evidenced by the authority, constitutes a settlement of that money. In effect the bankrupt put the money beyond his own reach as security for an amount owed by Kymrange to Rodaley for which he was personally liable. The bankrupt empowered Viceconte to appropriate the money towards satisfaction of Kymrange's liability to Rodaley.

18. Until the money was appropriated the bankrupt clearly retained some interest in it, but it was an interest fettered by the authority given to Viceconte to apply it towards the particular liabilities referred to in the authority. The bankrupt ceased to enjoy some of the rights and powers associated with absolute ownership of the property. In terms of section 120(8) of the Bankruptcy Act, there had been 'a disposition of property', and thus a settlement.

19. It is appropriate to now return to the narrative of events.

20. A creditor's petition was issued against the bankrupt on 5 May 1988. The name of the petitioning creditor has not been disclosed in the evidence in these proceedings. This petition was withdrawn on 28 June 1989 some months after the bankrupt had become bankrupt on his own petition. Presumably nothing of relevance occurred in the intervening period.

21. On 20 June 1988 the bankrupt signed an authority in form 33A of the Bankruptcy Rules pursuant to section 188 of the Bankruptcy Act. There is no evidence of what further steps, if any, were taken under Part X of the Act.

22. On 11 July 1988 solicitors acting for Viceconte and Rodaley wrote to ANZ in the following terms:

11th July, 1988
Mr J. Bibby,
Manager,
ANZ Banking Group Limited,
Facsimile 696 2909
Dear Sir,
Re: Mr P. Viceconte and Rodaley Nominees Pty. Ltd.
As you are aware we act on behalf of the abovenamed.
We confirm, as you are already aware, that there has been
and continues to be default by Kymrange Pty. Ltd. pursuant
to the Debenture dated the 3rd September, 1985 made between
Kymrange Pty. Ltd. and Rodaley Nominees Pty. Ltd. Our
client is presently considering its options with respect to
such breach and we intend to be in contact with you
regarding our clients' proposed action later this week.
In accordance with the Irrevocable Authority dated the 17th
March, 1988 as acknowledged in your letter of the same date
(copies of which Irrevocable Authority and letter are
attached) we now require that the Bank credit to the account
of our client forthwith the balance of the moneys on deposit
in the joint names of Mr P. Viceconte and Mr I.A.
McGoldrick, being the funds originally deposited on the
bases set forth in the attachments to this letter together
with all interest to date accrued thereon.
Would you please confirm by 5.00 p.m. this day that such
transfer has been effected detailing the account number of
our client into which the funds have been transferred and of
course the total amount transferred.
Yours faithfully,
VANN FISHER and ASSOCIATES

(It is common cause that the reference to the date of the debenture is incorrect, and that the intention was to refer to the debenture of 30 September 1985.)

23. ANZ responded to this letter through its solicitors who wrote on 22 July 1988 in part as follows:

July 22, 1988
Messrs. Vann Fisher and Associates,
Suite 8,
4th Floor,
421 St.Kilda Road,
MELBOURNE. VIC. 3004
Dear Sirs,
Re: Australia and New Zealand Banking Group Limited
- Viceconte and Rodaley Nominees Pty.Ltd.
We refer to your letter of the 11th July, 1988 and to our
subsequent discussions in respect of this matter.
As you are aware the execution by Ian Andrew McGoldrick of
an authority under Part X of the Bankruptcy Act has operated
to place his affairs under the control of a Controlling
Trustee and that situation will continue until the
Bankruptcy Court permits the Controlling Trustee to retire.
Given the currency of a bankruptcy petition against
McGoldrick it would seem that his ultimate bankruptcy is
inevitable.
By virtue of those facts it is impossible for the Bank to
deal with the moneys standing in the names of Viceconte and
McGoldrick unless it is clear that McGoldrick has no
interest in those moneys whatsoever.
It is far from clear that that position currently exists and
for that reason the Bank requires that further information
be placed before it and submissions made by you as to your
client's entitlement to the moneys.
There is no doubt that an irrevocable authority to pay given
for valuable consideration constitutes an equitable
assignment of the moneys the subject of the authority to pay
in favour of the payee. Unless your client can bring itself
within this principle of law it is clear that McGoldrick has
an interest in the joint deposit account which cannot be
dealt with without the joint request of both Viceconte and
the Controlling Trustee or Trustee in Bankruptcy.
...
Yours faithfully,
MADDEN BUTLER ELDER and GRAHAM.

By letter dated 6 September 1988 Viceconte's solicitors replied to ANZ's solicitors and concluded their letter with a direction that the deposit money be paid to Rodaley.

24. A further creditor's petition was issued against the bankrupt on 19 December 1988 and this was withdrawn on 24 April 1989, after the bankrupt had filed his own petition. Again, presumably nothing of relevance occurred in the intervening period.

25. On 14 April 1989 the bankrupt filed his own petition which, on that day, was accepted by the Registrar in Bankruptcy.

26. Subsequent to the bankruptcy, extensive correspondence was engaged in between solicitors acting for ANZ and the trustee and later the trustee's solicitor without any resolution of the question as to the appropriate manner of disposal of the deposit money.

27. The present proceedings were instituted by the filing of ANZ's application on 20 June 1991.

28. I turn now to consider the effect of the letter written to ANZ by the solicitors acting for Viceconte and Rodaley on 11 July 1988. In the heading to the text of the letter reference is made to both Viceconte and Rodaley, and the letter opens by reminding the addressee that the solicitors acted for "the abovenamed", clearly a reference to both the individual and the company. After referring to the continued default under the debenture and to the authority, the letter continues:

We now require that the Bank credit to the account of our
client forthwith the balance of the moneys on deposit in the
joint names of Mr P. Viceconte and Mr I.A. McGoldrick ...

In the context of the overall dealings between the parties I have no difficulty in construing the reference to "we" as meaning, and being understood to mean, "On behalf of Mr Viceconte, we", but the use of the term "our client" in the same sentence is ambiguous, given the opening sentence which identifies both Viceconte and Rodaley as the solicitors' clients. This confusion is compounded somewhat by the final paragraph which seems to suggest that the writer was either uncertain, or at least unconcerned, as to the ultimate destination of the funds so long as they finished up in an account of "our client".

29. Whilst it is easy enough after the event to be critical of individual statements and pieces of correspondence when taken out of their proper context, there is no reason to doubt that the true meaning of the letter of 11 July 1988 was that on behalf of Viceconte, his solicitors gave a direction to ANZ to appropriate the whole of the deposit money, in accordance with the authority. The authority is not specific as to who should be the payee of the money except to the extent that the payment was to be in or towards satisfaction of a debt due by Kymrange to Rodaley. As the payment, when made, would result in the discharge pro tanto of Kymrange's liability to Rodaley, the only sensible construction of the authority is that the payment must be made to either Rodaley or some third party acting in Rodaley's interest. And if that is what the authority contemplated would happen, then ANZ, upon receipt of Viceconte's direction to pay the money pursuant to the authority, had no option but to pay it to Rodaley or some other person representing Rodaley. The fact is that ANZ did not actually disburse the deposit money when directed, and the reason for its failure to do so is explained in the letter from its solicitors. Nevertheless, so far as the bankrupt was concerned there had been an appropriation of the deposit money in favour of Rodaley and he thereupon ceased to have any interest in it. In my opinion there was on 11 July 1988 a disposition of the bankrupt's remaining interest in the deposit money in favour of Rodaley, and thus in terms of section 120(8) of the Bankruptcy Act there was then a settlement of that interest.

30. Nothing seems to bear upon whether the settlement of the money to which the bankrupt became entitled upon the finalisation of the Madeline Court transaction took place by one or two stages. The net result was that by 11 July 1988, the bankrupt had ceased to have any interest in the money.

31. The settlement of the deposit money whether it occurred on 18 March 1988 or 11 July 1988 or partly on one day and partly on the other, nevertheless occurred within 2 years before the commencement of the bankruptcy, and thus, it will be void against the trustee unless it was made "in favour of a purchaser or encumbrancer in good faith and favourable consideration" (Bankruptcy Act, s.120(1)(a)).

32. The leading Australian authority upon this aspect of section 120 of the Bankruptcy Act is the decision of the High Court in Barton v Official Receiver [1986] HCA 44; 161 CLR 75, the facts of which have no relevance in the present context. The decision is however important in this case as it involves an extensive review of a number of English authorities dealing with relevantly similar legislation. In the joint judgment of Gibbs C.J., Mason, Wilson and Dawson JJ the Court said at p 79:

The appeal by special leave to this Court raises the short
but important point as to the meaning of the phrase "for
valuable consideration" in s.120(1)(a). In the course of
argument, it was submitted for the respondent that a proper
construction of the paragraph required that the three
elements contained in the description "a purchaser ... in
good faith and for valuable consideration" be read together
in determining their application to the circumstances of a
particular case. In our opinion the submission has
considerable force because it will often be the case that
the considerations touching each of the elements will
overlap and thereby influence the conclusion as to any one
element. Certainly one would expect this to be so with
respect to the elements of "purchaser" and "valuable
consideration": cf., as to "good faith", Re Hyams (1970) 19
FLR at p 256. However, it is unnecessary to pursue this
aspect of the matter separately from a consideration of the
argument presented for the appellant, although in coming to
a conclusion we shall take as the appropriate phrase
"purchaser ...for valuable consideration".

The Court referred to and considered the decision of the House of Lords in the case of Midland Bank Trust Co. Ltd. v Green [1980] UKHL 7; (1981) AC 513 dealing with the protection provided by s.13(2) of the Land Charges Act 1925 (U.K.) to a purchaser against an unregistered land charge, and a passage from the speech of Lord Wilberforce in which his Lordship said, at p 528:

The argument is that the protection of s.13(2) of the Land
Charges Act 1925 does not extend to a purchaser who has
provided only a nominal consideration and that 500 is
nominal. A variation of this was the argument accepted by
the Court of Appeal that the consideration must be
'adequate' - an expression of transparent difficulty. The
answer to both contentions lies in the language of the
sub-section. The word 'purchaser', by definition (s.20(8)),
means one who provides valuable consideration - a term of
art which precludes any inquiry as to adequacy. This
definition is, of course, subject to the context. Section
13(2), proviso, requires money or money's worth to be
provided: the purpose of this being to exclude the
consideration of marriage. There is nothing here which
suggests, or admits of, the introduction of a further
requirement that the money must not be nominal.

As to the foregoing their Honours commented at p 80:

On the other hand, each of the judges in the Federal Court
has held that s.120 is to be construed in a commercial sense
and that in the context of the section "valuable
consideration" requires something more than merely nominal
consideration which would suffice to support a simple
contract at common law. While fully adequate consideration
is not required, what is advanced must be real and
substantial. In formulating this criterion their Honours
found assistance in a body of doctrine developed in England
in a series of decisions extending back to 1879. The
precise point at issue has not previously come before this
Court for consideration and the Court was not referred to
any other relevant decision in Australia, save for a
decision of Sweeney J. in Re Florance; Ex parte Andrew
(1983) 52 ALR 339, to similar effect to that now under review.

It is unnecessary to canvass all of the authorities analysed by the High Court. Sufficient to say that their Honours, inter alia, quoted from the judgment of Sir Robert Megarry V.C. in re Abbott (1983) 1 Ch 45 in which the Court was concerned to construe the words "purchaser ... for valuable consideration" in s.42 of the English Bankruptcy Act 1914. At p 57 of the report the Vice-Chancellor said:

Plainly, "good consideration", in the sense of the natural
love and affection that a man has for his wife and children,
is not enough. Nor is a merely nominal consideration, even
though it would suffice to support a simple contract at
common law. In the context of the avoidance of settlements
by a trustee in bankruptcy, a "purchaser ... for valuable
consideration" must be someone who can not only be described
as being a "purchaser" but can also be said to have given a
consideration for his purchase which has a real and
substantial value, and not one which is merely nominal or
trivial or colourable.

The High Court rejected the observations of Lord Wilberforce as not being pertinent to the issue then before the Court, they being directed to the construction of a conveyancing statute whereas the Court was concerned "with social legislation the counterpart of which in England has consistently been construed differently over a long period" (161 CLR at p 86). Their Honours then continued (at p 86):

It is true that the earlier decisions to which we have
referred focus attention more on the word "purchaser" than
on the words "valuable consideration" whilst in the more
recent cases the reverse is true. As indicated in the early
part of this judgment, we have considerable sympathy with
the proposition that the words "purchaser" and "valuable
consideration" should be held together as a single concept.
One could then accept as of more general application Lord
Wilberforce's statement that "valuable consideration" is a
term of art which precludes any inquiry as to adequacy but
find room in which to give effect to the beneficent purpose
of the bankruptcy legislation by construing "purchaser"
broadly in a commercial sense. A beneficiary under a
settlement is not a purchaser within the meaning of the
section unless he has given such valuable consideration as
is sufficient in all the circumstances to make him a "buyer"
in a commercial sense of the interest passing to him under
the settlement. Unless there is good reason to the
contrary, we believe it to be important in legislation of
this kind to maintain a construction of the Australian Act
which accords with English authority. We would therefore
accept Sir Robert Megarry's formulation and endorse the Full
Court's ruling that a "purchaser ... for valuable
consideration" within the meaning of s.120(1) of the Act is
one who has given consideration for his purchase "which has
a real and substantial value, and not one which is merely
nominal or trivial or colourable.

It remains to consider the facts of this case in the light of the principle adopted in Barton v Official Receiver.

33. The question whether a forebearance to sue amounted to good consideration was considered by the High Court in N.A. Kratzman Pty. Ltd. v Tucker (1966) 40 ALJR 373 which was discussed by Gibbs J in re Hyams; Official Receiver v Hyams in which his Honour said at p 254:

It is clear that the mere existence of an antecedent debt is
not consideration for the giving of a security in respect of
that debt; "in order to have consideration for a further
security there must be an agreement, express or implied, to
give time or some further consideration, or else there must
be an actual forbearance which ex post facto may become the
consideration to support the deed": Wigan v English and
Scottish Law Life Assurance Association (1909) 1 Ch 291, at
p 303. In considering whether an agreement to forbear can
be implied, or whether the creditor has in fact forborne
from taking action on the strength of the security, it is an
important matter that the creditor has requested the giving
of the security. If the creditor has requested the
security, the inference is that if he had not obtained it he
would have taken action which he forbears to take on the
strength of the security: Glegg v Bromley (1912) 3 KB
474 at p 491. Similarly, the fact that a security was given
at the request and demand of the creditor was held in Re
Dundas; Moss v Dundas (1933) 6 ABC 265 at p 267, to
support an implication of an agreement to forbear. In the
present case, as I have held, the respondent in no way
sought the mortgage. However, even where there has been no
request or demand by the creditor, it may be inferred from
the circumstances of the case that he did in fact forbear
from action on the strength of the security. In Glegg v
Bromley (1912) 3 KB, at pp 486-487 Fletcher Moulton L.J.
said: "If there has been pressure and in response to that
pressure the further assignment is made, that suffices. But
the cases also shew that even if there has not been
pressure, but there has been a further assignment, and it is
known to the person who is the creditor and has the power to
put pressure upon the debtor that a further assignment has
been made, the law will, if it possibly can, give effect to
the probability that the fact that the security has been
increased will have influenced the creditor and made him
more forbearing. I go so far as to say that in the absence
of evidence to the contrary I should presume that the
increase of the security when known would be responded to by
an increase of forbearance on the part of the creditor. The
cases, such as the one I have just mentioned, where the
existence of an antecedent debt has been held not to be good
consideration for a voluntary increase of the security, are
cases where that voluntary increase of the security was not
known to the creditor, and therefore could not possibly have
influenced him in the way of forbearance." His Lordship
went on to say that he was not uninfluenced by the fact that
further advances were made after the increase in the
security, and that this indicated that an increase of
security produced an increase of forbearance. It seems to
me clear that he was not saying that when there has been an
increase of security known to the creditor it will be
conclusively presumed that there was a resulting
forbearance, but rather that in such a case there will be a
strong although rebuttable presumption that there was such
forbearance.
In the present case, the evidence plainly rebuts any
presumption that the respondent forbore from enforcing her
rights against the bankrupt because she had been given the
mortgage. The evidence clearly establishes that the
respondent had no intention of enforcing the debt whether or
not she obtained a mortgage and that the execution of the
mortgage made not the slightest difference to her attitude.

I turn now to the facts of the present case. First, there is no evidence from which any inference can be drawn that the settlement of the deposit money was made otherwise than in good faith in the ordinary course of the rather complex business dealings between the bankrupt and Viceconte and their respective companies but the question as to whether it was made for valuable consideration calls for some examination.

34. It is Viceconte's case that at the time the Madeline Court transaction was finalised, and indeed at all relevant times thereafter, the bankrupt was personally indebted to Rodaley under the guarantee given by the bankrupt of Kymrange's liability to Rodaley. No attempt has been made to contradict this assumption and I am prepared to accept it to be fact.

35. Earlier in these reasons reference is made to correspondence emanating from Viceconte's solicitors in February 1988 indicating that the McGoldrick interests where then in default in respect of their obligations under the lease of Radford, the sale of Madeline Court and the vendor's loan in respect of the purchase of Radford and Grevillea. On 1 February 1988 the solicitors acting for Viceconte and his companies wrote to solicitors then acting for the bankrupt and his companies, in part, as follows:

1st February, 1988
Messrs. Mills Oakley and McKay,
Solicitors,
Facsimile 670 2508
Dear Sirs,
Re: Our clients - Tulip Nominees Pty. Ltd., Rodaley Nominees
Pty. Ltd. and P. Viceconte
Your clients - Kymrange Pty. Ltd. and Mr and Mrs I. McGoldrick
We refer to our numerous telephone conversations regarding
our abovenamed clients.
We remind you of the contractual relationships between our
respective clients which have been the subject of our
communications as follows:-
(a) Lease of the Radford Private Nursing Home ;
(b) Sale of the property in Madeline Court ;
(c) Vendor's loan and Debenture in respect of Vendor's
financing of the purchase by Kymrange Pty. Ltd. of the
Radford Private Nursing Home and the Grevillea Court
Nursing Home.
We note again that your client's are in default of each of
the above three contractual relationships full details of
which defaults have been communicated to your clients.
We note for the record that you have advised that Agreements
have now been exchanged in respect of your clients' sales of
the Radford Private Nursing Home and the Grevillea Court
Nursing Home and that an Agreement has been entered into by
your clients with respect to the sale of the Madeline Court
property. ...
As you are aware our clients have in the past from time to
time extended certain indulgences and concessions to your
clients. Due to your clients' conduct and indeed that of
your Mr Nolch our clients can no longer extend further
concessions and indulgences and must take positive action to
adequately protect their position with respect to the above
contractual commitments.
Our clients therefore advise that unless:-
1. All existing arrears in respect of the above
contractual commitments are paid in full to this
office, and
2. A formal proposal with respect to the continuity of
payments due under the above contractual commitments
and in addition repayment of same is submitted and
agreed to between our respective clients -
by 5.00 p.m. Wednesday the 3rd February, 1988 our clients
will be obliged albeit reluctantly to exercise all rights
vested in them pursuant to the documentation entered into
and referred to above.
Yours faithfully,
VANN FISHER and ASSOCIATES

36. Viceconte says in paragraph 18 of his affidavit (quoted above) that in consideration of the execution of the authority he undertook to procure from Rodaley its forebearance in taking action, inter alia, against the bankrupt, thereby giving him time to sell the two nursing home businesses for the best possible price. Viceconte was cross-examined at some length concerning paragraph 18, and whilst it is clear from what he said that no formal document or agreement was entered into binding Rodaley not to take action to enforce its rights against the bankrupt, it is equally clear that there was at the time an understanding to that effect between Viceconte and the bankrupt. Counsel for the trustee attempted to make something of the point that at the 18 January 1988 meeting with ANZ there had in effect been an agreement by Viceconte on behalf of his company to forebear so far as taking action against the bankrupt was concerned, but even if that be the case, circumstances had changed since 18 January. There was clear evidence that by February Viceconte was becoming concerned at the continued delay and had his solicitors commence to put pressure on the bankrupt to remedy his contractual defaults. In the context of the situation as set out in the solicitors' letter of 1 February 1988 and the threats contained therein, and the arrangements made between Viceconte and the bankrupt concerning the Madeline Court transaction, I accept as fact that in consideration of the bankrupt signing the authority and depositing the money as agreed, Rodaley did, at the instance of Viceconte (who was in a position to control not only his own affairs but also Rodaley's) forebear in taking the type of action contemplated in the solicitors' letter. The bankrupt thereby obtained the advantage that flowed to him by reason of maximising Kymrange's chances of making a favourable sale of the nursing home businesses, thus mitigating the extent of the bankrupt's liability under the guarantee. I am satisfied that the benefit received by Rodaley's forebearance had a real and substantial value. In no sense was it merely nominal, trivial or colourable.

37. Furthermore, the ultimate settlement of the property by the appropriation of the deposit money in favour of Rodaley in or towards settlement of Kymrange's liability to Rodaley must necessarily have reduced the amount of the bankrupt's personal liability to Rodaley under the guarantee to the same extent. The consideration received by the bankrupt was both real and substantial.

38. In my opinion the settlement of the deposit money in favour of Rodaley is not void by reason of the provisions of s.120(1)(a).

39. The following conclusions follow from the foregoing:

1. The authority either alone or in conjunction with the letter of 11
July 1988 constituted an equitable assignment of the deposit money
in favour of Rodaley.
2. Neither the settlement made on 18 March 1988 nor that made on 11
July 1988 is void as against the trustee.
3. Neither the deposit money, nor any part thereof, forms part of the
estate of the bankrupt which vested in the trustee at the time of
the bankruptcy.

40. I propose making orders substantially in the terms of the draft minute accompanying these reasons but will hear counsel thereon before settling the final form of same.

41. I will also hear counsel on the question of costs.