FEDERAL COURT OF AUSTRALIA

Ashton v Prentice;  in the matter of Jury [1999] FCA 671

BANKRUPTCY – disposition of property – transfer of real estate mortgaged by transferee and proceeds of mortgage paid to transferor on account of price – whether transfer void as against trustee in bankruptcy – interpretation of subs 121(2) and (3) of Bankruptcy Act – whether burden of persuasion under s 121(4) on transferee – whether consideration within meaning of s 121(5) passed from transferee – lease back to transferor and relatives – whether lease survives avoidance of transfer – whether vested in trustee as property of the bankrupt requiring disclaimer – whether trustee estopped from denying continuing validity of lease.

COURTS AND JUDGES – bias – judge a beneficiary of discretionary trust holding shares in bank which is a creditor of bankrupt – judge a customer of same bank – whether direct pecuniary interest or reasonable apprehension of bias – party proposing to call a witness who is friend of judge – witness not actually called – whether that party can assert reasonable apprehension of bias – application to call medical witness to prove principal witness suffering from cognitive dysfunction – whether trial judge should have received that evidence to explain apparent unreliability of the witness.

Bankruptcy Act 1966 (Cth) s 121, 133

Re Ebner; Ebner v Official Trustee in Bankruptcy (1999) 161 ALR 557, followed

John v FCT (1989) 166 CLR 417, cited

Clenae Pty Limited v Australia & New Zealand Banking Group Limited [1999] VSCA 35 (unreported; 9 April 1999), considered

R v Industrial Court [1966] Qd R 245, cited

Dovade Pty Limited v Westpac Banking Corporation [1999] NSWCA 113 (unreported; 30 April 1999), considered

Gascor v Ellicott [1997] 1 VR 332, considered

Munro v Australia & New Zealand Banking Group Limited (unreported; 29 June 1993; FCA: Ryan J), cited

Sankey v Whitlam [1977] 1 NSWLR 333, considered

P.T. Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515, cited

Titterton v Cooper (1882) 9 QBD 473, explained

Ex parte Bolland;  In re Dysart (1878) 9 Ch D 312, explained

Tucker v Hernamon (1853) 4 DM&G 395:  43 ER 561, explained

Shaw v Hyatt (1891) 17 VLR 612, explained

IN THE MATTER OF ERIC ABRAHAM JURY;  ANDREW CRAIG ASHTON V MAXWELL WILLIAM PRENTICE

NG 1406 OF 1998

JUDGES:       RYAN, HEEREY & KATZ JJ.

DATE:            21 MAY 1999

PLACE:          SYDNEY

THE COURT ORDERS THAT:

1.                  Paragraphs 1, 2 and 3 of the orders dated 11 December 1998 be set aside.

2.                  In lieu thereof, it be ordered that, within seven days, the appellant sign and deliver to the respondent a transfer to the respondent in registrable form of the house and property at 4 Molloy Avenue, South Coogee, New South Wales.

3.                  The appeal be otherwise dismissed.

4.                  The appellant pay the respondent’s costs of the appeal.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

THE COURT:

1                     This is an appeal from a judgment of Hill J given on 11 December 1998, which gave effect to his Honour’s conclusion that a house property at 4 Molloy Avenue, South Coogee, New South Wales (“the house”), should, by reason of s 121 of the Bankruptcy Act 1966 (Cth) (“the Act”), vest, free of any tenancy, in the respondent Mr Prentice as trustee of the bankrupt estate of Eric Abraham Jury (“the bankrupt”).  A sequestration order in respect of the bankrupt’s estate had been made on 22 May 1997 on the petition of Westpac Banking Corporation (“the Bank”), which had issued a bankruptcy notice founded on a judgment debt of $15,352,210.12 including interest together with costs.  In the same proceedings Bill Acceptance Corporation (“BAC”) had obtained judgment against the bankrupt in the sum of $4,606,974.36 plus costs.

2                     The appellant, Mr Ashton, had acted as an accountant for the bankrupt and his associated companies from about January 1994.  He had been retained to provide accounting services and professional assistance in connection with the proceedings in the Supreme Court of New South Wales in which the Bank and BAC eventually obtained judgment against the bankrupt.  Mr Ashton claimed to have rendered considerable services in that connection.  He assessed the value of those services at an amount in the vicinity of $240,000, all of it referable to work done between January 1994 and August 1995.  However, during the whole of that time Mr Ashton rendered no invoices or memoranda of fees to the bankrupt or any of his associated companies.  It was apparently not until shortly before he came to swear an affidavit in this proceeding on 10 October 1997 that Mr Ashton reduced to written invoices his claim against the bankrupt for professional services.  The relevant paragraphs from that affidavit were:

“3.7.1  In or about January 1994 Mr Jury agreed to pay me for my services at the rate of $120 per hour.  This rate was increased to $130 per hour in or about December 1994.

3.7.2        I kept a record of the time spent in performing services for Mr Jury in my diaries.  I have recently examined by [sic] dairies [sic] and have constructed invoices addressed to Mr Jury setting out the number of hours, the rate per hour and the total amount due for the months of January 1994 to August 1995.  The total amount of costs incurred by Mr Jury for my services during the period January 1994 to August 1995 is $240,090.00.  Annexed and marked “B” are copies of the invoices addressed to Mr Jury which I have recently constructed.

3.7.3        The services which I provided to Mr Jury included accounting services and professional assistance in proceedings commenced in the Commercial Division of the Supreme Court of New South Wales.”

3                     On 8 August 1995 Mr Ashton entered into a contract to purchase the house from the bankrupt for $550,000.  Of that price, the sum of $345,000 was raised by way of loan from R W Smyth King & Son (“Smyth King”) on the security of a first mortgage over the house, and the balance of $205,000 was, according to Mr Ashton, “agreed to be contra-ed off” against the amounts due to him for professional fees.  There was evidence that the bankrupt himself had attempted to raise a loan from Smyth King similarly secured by a first mortgage over the house.  However, according to Mr Ashton, Smyth King had declined to accede to that request because Mr Anderson of Smyth King was uncomfortable about having the bankrupt as a borrower on account of the substantial pending litigation in which he was then engaged.  Mr Ashton also thought that Mr Anderson’s discomfort was partly due to his reservations about the valuation which was being put on the house for the purposes of the bankrupt’s application for finance.  Mr Ashton then put himself forward to Smyth King as a purchaser of the house and a first mortgagor.  That was first done by a postscript to a letter dated 11 July 1995 and confirmed by a letter dated 19 July 1995.  Smyth King thereupon obtained a valuation of the house dated 25 July 1995 which assessed it as having “average marketability” and ascribed to it a value of $595,000.

4                     Smyth King apparently agreed to accept Mr Ashton as a borrower of $395,000 and settlement of the purchase occurred on 11 August 1995.  At the end of his answers to the mortgagee’s requisitions, Ashton gave it these instructions for the disbursement of principal moneys which it had agreed to lend:

“On settlement you are required to pay the following sums from the Mortgage advance.

Mortgage Advance                                                                          $395,000.00

Less

1.         P W Smyth King and Son                45,878.00

2.         Sydney Water                                       221.12

3.         Randwick City Council                     1,388.00

4.                  Eric Abraham Jury

Less amount paid to

Castrission and Co

As agreed                                      ­347,512.88

                                                                              $395,000.00”

5                     (Castrission and Co, it seems, was a firm of finance brokers which had introduced the bankrupt to Smyth King and was regarded as entitled to some form of commission or fee for procuring the loan which, in the event, was made to Mr Ashton.)

6                     After Mr Ashton’s purchase of the house had been completed, the bankrupt and his family continued to reside there.  The learned primary Judge’s findings in respect of that arrangement, contained in reasons for judgment which he gave on 23 October 1998, were as follows:

“The cross-examination [of Mr Ashton] then turned to the question of the lease which Mr Ashton had entered into with Mr Jury.  That lease, headed ‘Residential Tenancy Agreement’ purports to have been made on 1 July 1997.  It is for a term of three years beginning on 8 January 1996 and ending on 1 July 1999 at a weekly rent of $450.00.  Four options take the available tenancy to 7 January 2011.  In the event of exercise of the options rent is to be market rent.

In response to requisitions given in regard to the mortgage Mr Ashton indicated that the property was purchased with vacant possession on settlement, that the vendor, Mr Jury, was in possession and that there were no current leases.  He agreed that whatever happened, Mr Jury’s occupancy was not to be disturbed, an occupancy that included, of course, Mr Jury’s family.  However, according to Mr Ashton he had subsequently spoken to Mr Anderson saying that he wanted to give a lease to the Jurys to give them security of tenure, with which Mr Anderson acquiesced.  He said he might have provided Mr Anderson with a copy.

…

In the examination before a Registrar, Mr Ashton said on oath that from August 1995 to January 1996 he had received $150 per week rent from Mr Jury’s daughter or son in cash.  After January that figure changed to $450 per week.  If Mr Ashton’s income tax returns are to be believed that was clearly also untrue.  Mr Ashton said in evidence before me that he had first received rent from Mr Jury in August 1995 of $100 per week, paid in cash.  Nothing turns on the figure of $100 rather than $150 for Mr Ashton said he was unsure which was the correct figure.  Cash would be handed over sometimes by Mr Jury, sometimes by his daughter.  If Mr Ashton had regularly received rent in the amount he claimed the receipts in the year ended 30 June 1996 would have been in the order of $15,000.  What Mr Ashton received was $9,600 according to his tax return.  There were no records to verify the matter.  The mathematics of rent payable as against tax return records indicates clearly enough that at least in the initial period from August 1995 to January 1996 Mr Ashton could not have been paid anything like either $100 or $150 per week.  He made, it would seem, no complaint about his being out of pocket;  nor did he attempt to recover arrears.  When the figures were put to him Mr Ashton accepted that prior to January 1996 payments of rent to him were irregular.

The date on the lease agreement of 1 July 1997 can not be accepted.  In response to a notice regarding his examination by the trustee in July 1997 Mr Ashton said that there was no documentary evidence of a lease, except for rent statements.  The latter Mr Ashton said he ‘constructed’, whatever that expression may be taken to mean.  It follows that the lease agreement was probably prepared after that date, although Mr Ashton continued to protest that it had been prepared around the date it bore.  However, in the course of his examination under oath by the Trustee Mr Ashton had said that it had been prepared about two weeks before the examination which took place on 21 August 1997.  When confronted with this Mr Ashton said the truth was what was stated in the transcript.  It is easy to infer that the continuing bankruptcy enquiries prompted the preparation of the lease.  The successive options display both Mr Ashton’s and Mr Jury’s preoccupation with securing Mr Jury’s continued occupation of the home at the expense of creditors.

…

I find that the arrangement under which Mr Jury was to reside in the house was not formalised in any way until around October 1997.  Until that date I think all that is likely is that some monies were paid from time to time by Mr Jury or his family, probably to assist Mr Ashton make the payments under the mortgage for interest.  It has already been noted that the mortgage arrangement provided that half the interest payable for the two year term of the mortgage was to be deposited in the name of Smyth King and came from the funds advanced, so that for the first two years at least Mr Ashton only had to meet half the interest payable.  I would find that receipts of rent, particularly until January 1996 were irregular.”

7                     In his reasons for judgment of 23 October 1998, as well as setting out the matters to which we have just referred, the primary Judge explained his rejection of a renewed request by Mr Ashton at the commencement of the substantive hearing of the proceeding that his Honour should disqualify himself from hearing the proceeding. The argument that the primary Judge should have disqualified himself was put at the forefront of the appellant’s submissions on the hearing of the appeal and it is accordingly convenient to deal with that issue first.

DISQUALIFICATION FOR INTEREST OR BIAS

8                     It was argued on behalf of Mr Ashton that the primary Judge had been disqualified from determining the proceeding then before him, either because he had a direct pecuniary interest in the outcome of the proceeding or because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue.

9                     The argument of disqualification by reason of direct pecuniary interest arose because (as he disclosed to the parties in advance of the substantive hearing) the primary Judge was a discretionary beneficiary of a family trust which held 2,375 fully paid ordinary shares and 3,225 convertible preference shares in the Bank and the Bank, as the bankrupt’s largest creditor, stood to derive a financial benefit if Mr Prentice were to succeed in the proceeding before the primary Judge.

10                  As counsel for Mr Ashton conceded before us, his argument that the primary Judge had been disqualified by reason of direct pecuniary interest could not succeed unless this Court were persuaded to overrule its own earlier decision in Re Ebner; Ebner v Official Trustee in Bankruptcy (1999) 161 ALR 557 (Sackville, Finn and Kenny JJ).

11                  Ebner, like the present case, was one in which a trustee in bankruptcy was seeking under the Act to have set aside a transfer of property by a person who had later become a bankrupt.  As in the present case, the primary Judge in that case was a discretionary beneficiary of a trust which held shares in a bank which was a creditor of the bankrupt and was likely to benefit from an increased distribution if the trustee’s proceeding should succeed.

12                  The Full Court in Ebner, in joint reasons for judgment, approached the question whether the primary Judge had been disqualified by reason of direct pecuniary interest from determining the proceeding then before him by assuming, contrary to the fact, that the primary Judge had held a direct shareholding in the bank equal to that held by the trust:  see at 569, par 43.  On that assumption, nevertheless, it held that the primary Judge had not been disqualified by reason of direct pecuniary interest from determining the proceeding then before him. It said (at 570 - 571, par 48):

“A line can and should be drawn between a case in which a judge has a shareholding, however small, in one of the parties to litigation and a case in which the judge has a shareholding in a corporation which may ultimately obtain a financial benefit from proceedings, although not as a direct beneficiary of any order made by the court.”

13                  The Court’s view was that, in the first class of case, the Judge concerned was disqualified by reason of direct pecuniary interest from determining the proceeding then before him or her; in the second class of case, he or she was not.  Obviously, the case before the Court fell into the second class, so that the primary Judge had not been disqualified by reason of direct pecuniary interest from determining the proceeding then before him.

14                  After counsel for Mr Ashton conceded that Ebner, if followed, presented an insuperable obstacle to the success of his argument that the primary Judge in the present case was disqualified by reason of direct pecuniary interest, we invited him to make submissions, particularly by reference to the “John” considerations (John v Federal Commissioner of Taxation (1989) 166 CLR 417 at 438 - 439 (Mason CJ and Wilson, Dawson, Toohey and Gaudron JJ)) on the question whether we should give him leave to argue that Ebner had been wrongly decided.

15                  However, although we were pressed to grant leave, those submissions made no reference whatever to any of the John considerations.  Rather, the simple submission was made that we should give leave to re-argue Ebner because its reasoning was defective.  Its reasoning was said to be defective, in substance, because it failed to give any weight to the fact that the bankruptcy trustee’s function in proceedings like those in Ebner or the present case is to recover assets for the benefit of the bankrupt’s creditors.

16                  In the circumstances, the appellant’s failure to address the John considerations is not of any moment, because, if leave were granted to challenge the correctness of Ebner, we would not be persuaded that it was wrongly decided.  We agree, for the reasons given in Ebner, that it is appropriate to draw the line which their Honours drew in that case.  We are comforted, in reaching that conclusion, by the knowledge that, in Clenae Pty Limited v Australia & New Zealand Banking Group Limited [1999] VSCA 35 (unreported; 9 April 1999), Charles JA (with whom Winneke P agreed: see at par 1) said (at par 65) that he agreed with the conclusion of the Full Court in Ebner that the primary Judge in that case had not been disqualified because of direct pecuniary interest.

17                  It follows that we reject the appellant’s argument that the primary Judge had been disqualified from determining the proceeding before him because he had a direct pecuniary interest in its outcome.

18                  Before turning to Mr Ashton’s argument that the primary Judge had been disqualified from determining the proceeding then before him because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue, it is convenient that we refer to a matter which arose at the outset of the hearing of Mr Ashton’s appeal.

19                  Before the hearing of the appeal had commenced, Katz J had notified the parties that his wife owned 412 fully paid ordinary shares in the Bank.  That disclosure provoked a submission by Mr McQuillen of counsel for the appellant at the outset of the appeal that Katz J was disqualified from participating in its determination by reason of his having a direct pecuniary interest in the outcome of the appeal.  Having heard that submission and the respondent’s submission in reply, we announced our view that Katz J was not so disqualified and that we would give our reasons for that decision concurrently with our reasons for judgment on the appeal itself.

20                  It follows from what we have said above about the position of the primary Judge that, if we were now being called upon to decide whether Katz J had been disqualified from participating in the determination of the appeal by reason of direct pecuniary interest and were to make the assumption that Katz J himself owned the shares concerned, we would nevertheless not hold him to be disqualified by reason of direct pecuniary interest.

21                  However, at the time we made the decision regarding Katz J, the making of such an assumption would, in any event, have been contrary to the approach of the High Court in the Bank Nationalisation Case.  As was pointed out by the Full Court in Ebner (at  567, par 34), in that case, which was one in which the bank concerned was a party, the High Court ruled that Starke J was not disqualified because of direct pecuniary interest from participating in the determination of that case by reason of his wife’s shareholding in a bank.

22                  That ruling was afterwards applied by the Full Court of the Supreme Court of Queensland in R v Industrial Court [1966] Qd R 245.

23                  In recent times, in Dovade Pty Limited v Westpac Banking Corporation [1999] NSWCA 113 (unreported; 30 April 1999), the New South Wales Court of Appeal (Mason P and Sheller and Stein JJA) has discussed further the position of a Judge whose spouse owns shares in a corporation which is a party to litigation before the Judge.  The Court referred (at par 86) to an argument made in that case, in the context of a submission of disqualification of the trial Judge by reason of direct pecuniary interest, that the Judge had such a community of economic interest with his wife that whatever affected the value of her interests affected his.  That submission, the Court said, overlooked the fact that Australian law had, for over a century, had a separate property regime for married persons.  It later said (at par 89), by way of conclusion to its discussion of the topic of disqualification because of direct pecuniary interest, that “the position of the pecuniary interest of a family member, however close, cannot be equated automatically with that of the judge”.

24                  In the circumstances, our rejection of the submission that Katz J was disqualified from participating in the determination of the appeal because of direct pecuniary interest was inevitable, even if the Bank had notionally been treated as a party to the appeal, as the appellant argued it should.

25                  The appellant’s argument that the primary Judge had been disqualified because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue was based upon a number of matters.

26                  The first matter was the very one relied upon in an attempt to establish the primary Judge’s disqualification because of direct pecuniary interest, namely, his status as a discretionary beneficiary of the trust which owned shares in the Bank.

27                  We note that the Full Court in Ebner was not required to deal with an argument based on a reasonable apprehension of bias, it being expressly conceded by the appellant in that case that the trust’s shareholding (nine thousand shares in ANZ Bank) and the primary Judge’s status as a discretionary beneficiary of the trust did not give rise to a reasonable apprehension of bias on the primary Judge’s part.  However, as we have already made plain, no such concession was made in the present case.  That exemplifies, it appears to us, the comment of the Full Court in Ebner (at  570, par 47), in the context of submissions of judicial disqualification in the bankruptcy jurisdiction, that it is a jurisdiction “not always characterised by restraint and common sense on the part of litigants”.

28                  It appears to us that fair-minded people might reasonably apprehend or suspect that a Judge had prejudged or would prejudge the matters then before him or her in circumstances like those of the present case only if:  first, either the price of the shares concerned or the level of dividends to be paid on them could be affected by the outcome of the case;  and, secondly, the shareholding concerned were large enough for that effect to result in a significant benefit or detriment to the Judge.  One may compare in that respect the approach taken by Charles JA in the Clenae Case at pars 55 to 57.

29                  In the present case, Mr Prentice was seeking to obtain for the benefit of the creditors (let it be assumed the Bank alone) an asset which, putting his case at its highest, had a value of slightly less than six hundred thousand dollars.  Let it be assumed that, on a wholly successful outcome of the case from Mr Prentice’s point of view, the Bank would be the indirect beneficiary of Mr Prentice’s success to the full extent of that amount (although such an assumption is obviously far too favourable to Mr Ashton).  Since it was being suggested, in substance, by Mr Ashton that such an outcome could have some measurable effect on either the price of the 2,375 fully paid ordinary shares and 3,225 convertible preference shares concerned or the level of dividends to be paid on them, it appears to us to have been incumbent upon Mr Ashton to put before us evidence which would sustain, even at the crudest level, that conclusion.  For instance, as was pointed out by Charles JA in Clenae (at par 55), one would need to know the ratio of the shareholding concerned to the Bank’s total issued share capital.  Mr Ashton made no attempt to adduce, either before the primary Judge or before us, evidence of that kind.  However, knowing what we are permitted to know about the Bank even in the absence of evidence, we would be astonished if the distribution as a dividend of the full value of the house to the Bank’s shareholders rateably would lead to the trust’s gaining as much as an additional two cents in total.

30                  It was pointed out by Tadgell JA in Gascor v Ellicott [1997] 1 VR 332 at 342 that the Court’s search in present circumstances is for a “reasonable” apprehension of bias, “not a fanciful or fantastic” one.  In the absence of the necessary evidence from Mr Ashton, we can only regard the argument of apprehension of bias in the primary Judge because of his status as a discretionary beneficiary of the trust which owned shares in the Bank as fanciful or fantastic.

31                  (We should perhaps add here that the same conclusion applies, if anything, even more strongly to the submission that Katz J was disqualified from participation in the determination of the appeal because of apprehension of bias on his part based on his wife’s shareholding.)

32                  The second matter upon which Mr Ashton based his argument that the primary Judge had been disqualified from determining the proceeding then before him because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue was the fact that (as he disclosed to the parties in advance of the substantive hearing of the proceeding) the primary Judge was a customer of the Bank and had been so for many years, having “moneys on deposit, cheque and savings accounts and matters of that kind”.

33                  We think it is a sufficient answer to that submission to repeat what was said, relevantly, by the New South Wales Court of Appeal in Dovade. It said:

“100    The suggestion that the mere relationship of banker and customer could give rise to a reasonable apprehension of bias in accordance with the Livesey [v New South Wales Bar Association (1983) 151 CLR 288 at 293-94] test should be firmly rejected….  Whatever the situation in times past, the relationship that now exists between a banking corporation and its customers is necessarily highly impersonal and remote.  Modern banking is, for most customers, a relationship in which the intercourse takes place at the ATM and through the mail and the telephone.  It is analogous to that which exists with a telecommunications service provider, a motor vehicle or general insurer, or a large supermarket chain.  No one would reasonably apprehend that the judge might be diverted from the judicial oath to do justice without fear or favour, affection or ill will by the mere existence of such a link.

101      And, as regards the judge who is a customer of a particular bank, telecommunications service provider, motor vehicle insurer or supermarket chain, nothing turns upon the state of accounts at any point of time, at least with a customer who pays accounts as they fall due.  For many people, short-term indebtedness to the provider of goods or services is a relationship of pure convenience, which in no way places the debtor at the pecuniary mercy of the creditor or establishes any sense of obligation beyond the immediate indebtedness from time to time.

102      Obviously, there will be situations where the affairs of a particular bank branch or group of bank personnel are involved in litigation, or where the judge has some special association with the branch or bank personnel.  And it is conceivable that a particular judge may be in such financial difficulty or may through some dealing with a present or former bank have a such a level of obligation towards or animus against a bank that there may be actual bias or at least its appearance to a reasonable observer. But these are exceptional cases.  They are no different from the infinite range of adventitious relationships with litigants, counsel or witnesses that could arise in any piece of litigation, and which are dealt with (in the ultimate resort) by application of the Livesey principle to the particular facts of the case.”

34                  There being nothing in the present case to suggest that the primary Judge’s relationship with the Bank as a customer was in any way exceptional, that relationship could not, in our view, give rise to a reasonable apprehension of bias on the primary Judge’s part.

35                  The third matter upon which Mr Ashton based his argument that the primary Judge had been disqualified from determining the proceeding then before him because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue was the fact that (as he disclosed to the parties in advance of the substantive hearing of the proceeding) the primary Judge had, many years earlier, when a barrister, given taxation advice to the transferor of the property the subject of the proceeding before him.

36                  The argument based upon this matter had, as we understood it, the following steps:  first, the primary Judge had specialised in taxation law when a barrister and had on occasion given taxpayers advice on how to minimise their future taxation liability;  secondly, we should infer from the fact that the primary Judge had given such advice that the subject of his advice to the transferor had been how the transferor could minimise his future taxation liability;  thirdly, an issue before the primary Judge could be whether the transferor’s main purpose in making the transfer had been either to prevent the transferred property from becoming divisible among the transferor’s creditors or to hinder or delay the process of making property available for division among the transferor’s creditors (see par 121(1)(b) of the Act);  and, fourthly, the primary Judge was more likely than he would otherwise have been to conclude, assuming it to be necessary to make a finding on the matter, that the transferor had been actuated by one of the nominated purposes, by reason of the Judge’s knowing that the transferor had earlier taken advice on minimising his future taxation liabilities.

37                  About such an argument, we consider it only necessary to say that if it was on the right side of the line between arguments which counsel can and cannot make to a Court consistently with their professional obligations, then it was just barely so.

38                  The final matter upon which the appellant based his argument that the primary Judge had been disqualified because fair-minded people might reasonably have apprehended or suspected that he had prejudged or would prejudge the matters in issue was the fact that the primary Judge was friendly with a person named Arnold Milton.

39                  To explain the significance of this matter, it is necessary to make reference to events which occurred at the outset of the proceeding before the primary Judge.

40                  At that time, Counsel for Mr Ashton submitted to the primary Judge that he was disqualified from hearing and determining the proceeding on a number of grounds.  Among those grounds was that it was “more likely than not” that Mr Ashton would seek leave to adduce in his case evidence from Mr Milton and that Mr Milton was friendly with the primary Judge.  (Mr Ashton required leave to adduce evidence from Mr Milton, there having been a direction made earlier in the proceeding for evidence in chief to be on affidavit which had not been complied with by filing and serving any affidavit from Mr Milton.)

41                  While that submission was being made, the primary Judge said that any question of his relationship with Mr Milton could not possibly become relevant until Mr Ashton actually sought leave to adduce evidence from Mr Milton, such leave was granted and evidence was ultimately adduced from Mr Milton.  His Honour went on to say that, if those events occurred and if Mr Milton’s credit were subsequently put in issue by Mr Prentice, then he (the primary Judge) would “of course” disqualify himself, “there is no doubt about that”.

42                  It should be noted immediately that at no stage during those submissions was any attempt made by counsel for Mr Ashton to identify the “victim” of the bias which could be reasonably apprehended by the fair-minded observer if evidence were ultimately to be adduced from Mr Milton in the circumstances.

43                  Before us, it was submitted that, as a result of the primary Judge’s relationship with Mr Milton and particularly in the light of his Honour’s statement that if evidence were ultimately to be adduced from Mr Milton and if Mr Milton’s credit were subsequently in issue, then his Honour would disqualify himself, the fair-minded observer would, at that time, have had a reasonable apprehension of bias on his Honour’s part.

44                  When that submission was made, we immediately requested counsel for Mr Ashton to identify the “victim” of the bias which could reasonably have been apprehended by the fair-minded observer if evidence were to be adduced from Mr Milton in the circumstances.  Was it his case, we enquired, that, the primary Judge being friendly with Mr Milton, the fair-minded observer would conclude that the Judge was likely to be prejudiced against Mr Ashton by way of overcompensating for his friendship with Mr Ashton’s witness:  see, on the “overcompensation” argument, Munro v Australia & New Zealand Banking Group Limited (unreported; 29 June 1993; FCA: Ryan J).

45                  Counsel disavowed the “overcompensation” argument and, although he did not then in terms acknowledge what his case actually was, it can only have been that the fair-minded observer would have concluded that the Judge was likely to be prejudiced in favour of Mr Ashton if Mr Milton were to give evidence in his case.

46                  We reject the notion that it is open to Mr Ashton to assert that the primary Judge was disqualified because of a reasonable apprehension of bias in his favour.

47                  The matter was referred to by Hutley JA in Sankey v Whitlam [1977] 1 NSWLR 333.  In that case, a magistrate conducting a committal proceeding had refused to continue the hearing, taking the view that he was disqualified from doing so.  The informant had then obtained from the Supreme Court a mandamus to the magistrate, requiring him to resume the hearing on the basis that, contrary to his view, he was not disqualified from continuing.  In the course of an appeal from that decision, the defendants in the committal proceeding sought to support the magistrate’s decision by arguing that he was disqualified because of a reasonable apprehension of bias in their favour. Hutley JA dealt with that submission as follows (at 358):

“Though in raising this point, the accused are showing a commendable zeal for the purity of the administration, this is not for them to rely upon. They can complain against bias against themselves or suspicion of bias to their disadvantage, not a suspicion of bias in their favour. It would make the administration of justice impossible if bias or suspicion of bias to which the victim does not object could be used by his opponent to abort a hearing.”

48                  However, even assuming, contrary to our view, that it is open to Mr Ashton to seek to establish that the primary Judge was disqualified because of a reasonable apprehension of bias in his favour, we still regard as hopeless the argument that the fair-minded observer would, at the conclusion of the submissions at the outset of the proceeding before the primary Judge, have reasonably apprehended bias in Mr Ashton’s favour on the part of the primary Judge because of his Honour’s relationship with Mr Milton.

49                  We say that because the fair-minded observer would have been aware that the adducing of evidence from Mr Milton was, at that stage, hypothetical.  First, Mr Ashton would have to decide to seek leave to adduce such evidence, something which he acknowledged he had not yet decided; secondly, the primary Judge would have to grant such leave; and, thirdly, admissible evidence would actually have to be adduced from Mr Milton.

50                  We add that, in fact, Mr Ashton never did seek leave to adduce evidence from Mr Milton because of concessions made on behalf of Mr Prentice as to the matters to which Mr Milton’s evidence would have been directed. 

THE TRANSFER OF THE HOUSE

51                  We have earlier set out various matters of fact relating to the transfer of the house from the bankrupt to Mr Ashton. It is convenient now to deal with the learned primary Judge’s application to those facts of s 121 of the Act.  That section provides:

“(1)     A transfer of property by a person who later becomes a bankrupt (the ‘transferor’) to another person (the ‘transferee’) is void against the trustee in the transferor’s bankruptcy if:

(a)                the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred;  and

(b)                the transferor’s main purpose in making the transfer was:

(i)                 to prevent the transferred property from becoming divisible among the transferor’s creditors;  or

(ii)               to hinder or delay the process of making property available for division among the transferor’s creditors.

(2)               The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.

(3)               Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.

(4)               Despite subsection (1), a transfer of property is not void against the trustee if:

(a)               the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property;  and

(b)               the transferee did not know that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b);  and

(c)               the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.

(5)               The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.

(6)               For the purposes of subsections (4) and (5), the following have no value as consideration:

(a)               the fact that the transferee is related to the transferor;

(b)               if the transferee is the spouse or de facto spouse of the transferor – the transferee making a deed in favour of the transferor;

(c)               the transferee’s promise to marry, or to become the de facto spouse of, the transferor;

(d)               the transferee’s love or affection for the transferor.

(7)               This section does not apply to a transfer of property under a debt agreement.

(8)               This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property.

(9)               For the purposes of this section:

(a)               ‘transfer or property’ includes a payment of money;  and

(b)               a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person;  and

(c)               the ‘market value’ of property transferred is its market value at the time of the transfer.”

52                  His Honour proceeded on the basis, favourable to the appellant, that because the trustee overall carried the onus of proof (as to which see e.g. P.T. Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515), he was required, not only to prove the matters referred to in subs 121(1), but also to negative the defence afforded by subs 121(4).  His Honour did so without expressing a concluded view on the allocation of the burden of persuasion under subs 121(4).

53                  From that starting point, his Honour examined the provisions of par 121(1)(a) and concluded that, had it not been transferred to Mr Ashton, the house would have been available, or would probably have been available, to the bankrupt’s creditors.  That conclusion was not challenged on appeal.

54                  Next, his Honour considered the provisions of subs 121(2) and concluded that, at the time of the transfer of the house to Mr Ashton, it could reasonably have been inferred that the bankrupt was, or was about to become, insolvent.

55                  In our view the phrase in subs 121(2), “if it can reasonably be inferred from all the circumstances that… the transferor was… insolvent”, is not synonymous with “if the transferor was insolvent”.  The statutory provision, as a matter of ordinary language, leaves open the possibility that it may also reasonably be inferred that the transferor was solvent.  In other words, it is sufficient if the inference of insolvency is reasonably open.  An analogy is the leaving of a case to a civil jury.  If it can reasonably be inferred from all the circumstances that the defendant was negligent, or that the publication complained of was defamatory of the plaintiff, then the matter must go to a jury.  Nevertheless the jury is not required to draw the relevant inference, and may not do so.

56                  His Honour’s conclusion about the existence of a reasonable inference concerning the bankrupt’s state of solvency was supported by the conceded inability of the bankrupt to pay current legal expenses or expected future legal expenses in connection with the litigation in the Supreme Court of New South Wales.  Also, in this context, his Honour relied on the large sums being claimed by the Bank and BAC which the bankrupt could not pay.  Although those claims had not by then merged in a judgment, his Honour held that they represented “a debt which came into existence, no doubt, at the latest when the bankrupt was called upon to pay under his guarantee.  That is to say, it was a debt which existed and was due and payable at the time the transaction was entered into”.

57                  Counsel for Mr Ashton did not attack his Honour’s finding that it could reasonably be inferred from all the circumstances that in August 1995 the bankrupt was insolvent.  Rather, he argued that the presumption created by subs 121(2) of the Act could be rebutted by direct proof that the transferor’s main purpose was other than that described in par 121(1)(b).  It was sought to derive support for that interpretation from the language of subs 121(3). 

58                  However, subs 121(3) does not weaken or make rebuttable the presumption created by subs 121(2).  What subs 121(3) does is acknowledge that the trustee may resort to modes of proving the transferor’s main purpose which are alternative to the presumption afforded by subs 121(2).  For example, the trustee may prove an admission by the transferee that the main purpose of the transfer was to prevent the property becoming divisible among the transferor’s creditors, even though all of the circumstances at the time of the transfer did not permit, or positively contradicted, the inference that the transferor was, or was about to become, insolvent.

59                  We are supported in this conclusion that subss 121(2) and (3) have independent spheres of operation by the reflection that the transferor’s evidence of his or her own subjective intention in making the transfer cannot usually affect the existence of circumstances giving rise to a reasonable inference of insolvency.  In other words, even if the Court were to accept that the sole purpose of the transfer had been to effectuate a long-standing charitable or benevolent intention evidenced by a history of similar benefactions, that would not render unavailable the reasonable inference of insolvency required to support the conclusive presumption created by subs 121(2).

60                  In the present case, as we have already mentioned, there was no attack on his Honour’s finding that insolvency, or imminent insolvency, could reasonably be inferred from all the circumstances.  It must follow that, subject to subs 121(4), subs 121(1) operated to render the transfer to Mr Ashton void because the “main purpose” required by par 121(1)(b) (consisting of the two components in subpars (i) and (ii)) had been established by the operation of subs 121(2).

61                  It would thus not be to the point if, contrary to his Honour’s findings, the bankrupt in fact had the purpose of selling the house to meet legal costs.  Nor would it matter if, leaving subs 121(2) aside, that might have been his main, or even only, purpose.  Subsection 121(2) cannot be left aside.  In its terms it operates to establish the par 121(1)(b) “main purpose” if the reasonable inference of insolvency is open.

62                  Under the heading “Consideration for the transfer” the learned primary Judge next considered the provisions of par 121(4)(a).  He noted that “the cash provided by the mortgagee less the amount deposited with Smyth King went into an account with a company called World Wisdom Pty Ltd, a company of which the bankrupt was neither a director nor shareholder”.  Nevertheless, his Honour went on to make these findings in respect of consideration:

“However, the evidence does establish that monies from that account were used, at least among other things, to pay solicitors and barristers in the litigation, that is to say on behalf of either Mr Jury or his companies.  The account of World Wisdom had been reconciled by an external accountant who was able to give evidence that legal expenditure on the litigation came from the account.  That evidence does not require the conclusion that the deposit of monies from Smyth King was used to pay legal expenditure as a matter of trading.  There may well have been both other deposits or other outgoings from the account.  I would not, therefore, conclude that there was no consideration and indeed, on the contrary, would conclude that the cash ultimately paid on settlement was part of any consideration.”

63                  The learned primary Judge discounted the possibility (even though not advanced by counsel for Mr Ashton) that the promise to pay the purchase price under the contract to buy the house constituted consideration for the transfer.  He then made these findings in respect of the suggestion that part of the consideration had been supplied by Mr Ashton’s agreement to set off against the balance of the price the amount due to him from the bankrupt for accounting services:

“The case for Mr Ashton is that the fee set off arrangement should be seen as providing the balance of the consideration.  With respect that is not so.  First, there never was such an arrangement in fact, as I find.  This conclusion is reinforced by the fact that, as I have found, the invoices were never even sent to Mr Jury or quantified to him, nor was there any evidence of anything which Mr Ashton ever said to Mr Jury from which a conclusion could be drawn as to the terms of any fee set off arrangement.   Second, there could not be a set off until the fees became due and payable.  At the time of the transfer I would find that they had not yet become payable.  If fees were payable at all they were not payable until the litigation was at an end, and probably were not intended to be payable unless the litigation ended with a settlement favourable to Mr Jury.  It is thus unnecessary to pursue the question whether the monetary amounts could be accepted, or whether all the amounts shown on the constructed invoices were liabilities of Mr Jury personally or liabilities of his companies.

The market value of the property was as I have found, the figure of $590,000.

In the result it is obvious that the consideration was considerably less than the market value of the property.”

64                  Next, his Honour considered the provisions of par 121(4)(c) and also concluded that, at the time of the transfer, Mr Ashton knew or could reasonably have inferred that the bankrupt was, or was about to become, insolvent.  That finding was not challenged on appeal.

65                  Finally so far as the present discussion is concerned, his Honour considered the provisions of par 121(4)(b) and concluded that Mr Ashton had been well aware that the bankrupt’s main purpose in fact for transferring the house had been to preserve it from creditors.

66                  As we have already mentioned above, there was no challenge on the appeal to the primary Judge’s finding made for the purpose of par 121(4)(c) that Mr Ashton could reasonably have inferred that, at the time of the transfer, the bankrupt was or was about to become insolvent. There were, however, challenges to his Honour’s findings made for the purposes of pars 121(4)(a) and (b).

67                  As we have also already mentioned above, his Honour found it unnecessary to express a concluded view on the allocation of the burden of persuasion under subs 121(4). Having considered the matter, it is our view that, on its proper construction, the burden under the subsection is on the transferee. In that connection, we draw particular attention to the fact that one of the three matters dealt with in the subsection is the transferee’s own state of knowledge about a matter at a particular time. The allocation to a party of the burden of persuasion in connection with matters depending upon his or her state of knowledge is a commonplace and if, as we think it is, it be proper to conclude that the burden of persuasion with respect to one of the three matters dealt with in subs 121(4) was intended to be on the transferee, in seems to follow inevitably that the same result was intended with respect to the other two matters.

68                  Given that there was no challenge on the appeal to his Honour’s conclusion that Mr Ashton knew or could reasonably have inferred at the time of the transfer that the bankrupt was or was about to become insolvent, and given the burden of persuasion under subs 121(4), it is unnecessary for us to consider the challenges made on the appeal to the primary Judge’s findings of an absence of full consideration and presence of knowledge of the transferor’s main purpose.

69                  In the circumstances, the challenge to his Honour’s conclusion that the transfer of the house by the bankrupt to Mr Ashton was void as against Mr Prentice must fail.

THE LEASE

70                  The primary Judge’s findings of fact in respect of the lease of the house by Mr Ashton to the bankrupt and his family have already been set out in par 6 of these reasons.  It was argued on behalf of Mr Ashton that “whatever the position in relation to the transfer of the house from Mr Jury to Mr Ashton”, the lease was “property” of the bankrupt within ss 5, 58 and 116 of the Act.  We disagree.  The lease depended for its continuing existence as property of the bankrupt (and of the other tenants) on the validity of the title derived by the lessor from the transfer to him by Mr Ashton.  Once that transfer is avoided, as both the primary Judge and this Full Court have held it should be, the lessor can no longer observe the covenant for quiet enjoyment and the tenants’ rights to possession fall together with the freehold title derived from the impugned transfer out of which the leasehold interest was carved.

71                  This analysis provides a complete answer to the contention advanced by Mr McQuillen that the lease included other parties as lessees as well as the bankrupt, namely Sonia Jury and William Jury.  Another answer, equally compelling for practical purposes, is provided by the fact, as Mr Coles QC, who appeared with Ms Pepper for the respondent, pointed out, that Sonia and William Jury both entered appearances in the proceedings below and indicated that they would abide any orders which the trial Judge might make.

72                  It was next submitted on behalf of the appellant that the lease, as after-acquired property of the bankrupt, vested in the trustee pursuant to s 116 of the Act.  Accordingly, so it was argued, the trustee, in the absence of a disclaimer under s 133 of the Act, became personally liable on the tenant’s covenants in the lease.  That argument is based on a misunderstanding of the facility to disclaim onerous property which is conferred by s133.  That section is related to property which is indisputably part of the bankrupt estate.  Here the trustee was seeking to avoid the transfer of the freehold estate out of which the leasehold interest was created.  Once he succeeded in that application, as it has been held he should, the reversion vested in the trustee and, since the leasehold interest, which he presumptively acquired on appointment as trustee, was also in his hands, the merger of the two interests made disclaimer unnecessary.

73                  Titterton v Cooper (1882) 9 QBD 473, to which we were referred by Mr McQuillen, was an action for rent by a landlord against the trustee of a liquidating debtor.  The lease having vested in the trustee and not having been disclaimed by him, he was held to be liable for rent which accrued after the time when he became assignee.  That case throws no light on the present case where the trustee has consistently sought to avoid the transfer to the landlord, Mr Ashton, and there can be no suggestion that the tenants acquired their interest from Mr Ashton in good faith and for at least market value as is required for them to obtain the protection of subs 121(8).  That protection, as the primary Judge recognised in framing the orders as he did, remained available to Smyth King.

74                  It was also argued on behalf of the appellant that the trustee was estopped from denying the validity of the lease.  The conduct pointed to as giving rise to the estoppel was “having allowed” the bankrupt and the other tenants to remain in possession.  However, from the time when a notice under s 139ZQ of the Act was issued to Mr Ashton on 1 October 1997 neither he nor the tenants could have been under any illusion that the trustee was recognising the continuing validity of any of their interests in the house.  Moreover, it remains unclear how the conduct of the trustee operated to the detriment of the appellant, Mr Ashton.  Presumably he has continued to receive rent referable to the tenants’ occupation of the house and has paid that money on account of his liability for interest under the mortgage to Smyth King.

75                  The authorities to which we have been referred by counsel for the appellant do not assist this part of his case.  Ex parte Bolland;  In re Dysart (1878) 9 Ch D 312 concerned a representation made by the trustee of a liquidating debtor to a bank which was held entitled to retain out of the proceeds of its security an amount equal to advances made to the debtor on the faith of the trustee’s statement.  Tucker v Hernamon (1853) 4 DM&G 395;  43 ER 561 held that, where creditors of an undischarged bankrupt acquiesced in his carrying on business after the bankruptcy, subsequent creditors were entitled on the distribution of his deceased estate in priority to the former creditors who had proved in the bankruptcy.  A similar order was made on almost identical facts in Shaw v Hyatt (1891) 17 VLR 612.

76                  It is also significant that no submission involving the doctrine of estoppel was made to the primary Judge.  Had such a submission been made, his Honour would have found it necessary to make findings of fact on each element of the claimed estoppel including the conduct or representation by the trustee and action to his detriment by Mr Ashton which we have been unable to discern.

77                  For all of these reasons we reject each of the grounds on which the appellant has sought to maintain the continuing validity of the lease.  Paragraphs 6 and 7 of the orders made below on 11 December 1998 must therefore stand.

MR ASHTON’S MEDICAL CONDITION

78                  The reasons for Hill J’s substantive decision were delivered on 23 October 1998.  These contained passages which reflected adversely on Mr Ashton’s credit.

79                  On 2 November 1998, and before any formal orders had been made, counsel for Mr Ashton moved for an order that his Honour re-open the hearing to receive certain medical evidence concerning Mr Ashton.  His Honour gave directions as to the filing of evidence and heard argument on the motion on 16 November 1998.

80                  The evidence filed included details of an assault suffered by Mr Ashton in 1981 and certain sequelae, including epileptic attacks, loss of long-term memory and unreliability of short-term memory.  In an affidavit sworn by Dr Darveniza, a neurologist, the following view was expressed:

“Clinically, this gentleman suffered a significant closed head injury complicated by port[sic]-traumatic epilepsy, loss of balance and mild clumsiness in the right limbs.  In my view, there is also evidence of cognitive dysfunction with an expressive dysphasia and some difficulty in thought processing.

This may well adversely impact on his demeanour and reliability as a witness under cross-examination in court.”

81                  Hill J assumed, for the purposes of argument, that Mr Ashton’s injury and subsequent condition would adversely affect his demeanour and reliability as a witness but nevertheless held that such evidence, if admitted at a re-opened hearing, would not make any difference to the outcome.

82                  His Honour analysed thirteen of his findings to support this conclusion.  It will be sufficient to quote some of these by way of example:

“2.       I found that Mr Ashton knew there was a reasonable chance that Mr Jury would lose the proceedings and become bankrupt with his house in jeopardy.  If Mr Ashton had given no evidence at all, that conclusion inferentially was highly likely.  It must be borne in mind that Mr Jury himself never sought to go into the witness box and give evidence and the open inference was clearly more readily drawn on this account.

3.                  I then found that Mr Ashton knew that, in the event that Mr Jury lost, he would be hopelessly insolvent.  Objectively, that is obvious.

4.                  I then found that Mr Ashton together with Mr Jury devised a plan involving the contract of purchase.  Pausing at that point, it perhaps does not matter whether Mr Ashton or Mr Jury devised the plan.  Ultimately the question is more relevant to Mr Jury than it is to Mr Ashton.  What is painfully obvious is that Mr Ashton participated in it.  Whether he did so dysfunctionally does not matter.

5.                  I then reached the conclusion that Mr Jury’s main purpose of transferring the home to Mr Ashton was to ensure that it not be available to creditors.  That inference was open whether or not I accepted Mr Ashton’s evidence.  Again, Mr Jury’s failure to go into the witness box enabled that inference more readily to be drawn.  Having regard to the structure of s 121 of the Act, however, this question was not itself of any significance.

6.                  I rejected Mr Ashton’s evidence of the market value of the home.  I did so because there was an expert valuation available.  Mr Ashton was far less qualified to give that evidence, if qualified at all.  That has nothing to do really with Mr Ashton’s credit.”

83                  In our view the approach his Honour took was plainly correct.  We see no appellable error in his refusal to re-open the hearing.  In any event, if a trial judge finds a witness unreliable because of demeanour, internal inconsistency, conflict with established facts or inherent implausibility, the result cannot logically be different if medical evidence assigns another reason for that unreliability.

POWER TO BIND THE REGISTRAR-GENERAL

84                  Among the orders made by the primary Judge on 11 December 1998 was paragraph 3, directing the New South Wales Registrar-General to take certain action in respect of the Register maintained for the purposes of the Real Property Act 1900 (NSW).  That order was framed to give effect to the primary Judge’s conclusion that the transfer of the house from the bankrupt to Mr Ashton had been void as against Mr Prentice.

85                  Among Mr Ashton’s grounds of appeal from the primary Judge’s judgment was a ground denying the Federal Court’s power to make such an order.

86                  Although it was not apparent from the notice of appeal, it became apparent from Mr Ashton’s written outline of submissions before us (filed moments before the close of the Registry on the Friday before the Monday on which the hearing of the appeal began) that the denial of the Federal Court’s power to make such an order was based on constitutional grounds.

87                  When the hearing of the appeal began, Mr McQuillen’s first submission was that, the notices provided for in subs 78B(1) of the Judiciary Act 1903 (Cth) not having been given in respect of his constitutional attack on the Federal Court’s power to make an order in terms of paragraph 3, this Court was unable to proceed in the appeal.  He offered no explanation as to why the requisite notices had not already been given in a timely fashion, given that, as he informed us, he had earlier made before the primary Judge the same constitutional argument which he proposed now to make before us.  Be that as it may, we decided to proceed, hearing argument on all grounds of appeal except that challenging the Court’s power, leaving to the end of the hearing a decision as to how to proceed in respect of that ground.

88                  When that point was reached, counsel for the trustee submitted that, rather than troubling ourselves about the validity of the primary Judge’s order directed to the Registrar-General, we should simply vary the primary Judge’s orders by omitting that directed to the Registrar-General and substituting an order that Mr Ashton sign a real property transfer in favour of Mr Prentice in respect of the house.  Such a transfer could obviously be registered in the usual way and would be given effect to by the Registrar-General without the need for any coercive order against him.

89                  In reply, counsel for the appellant conceded that, if he should fail on all of his grounds of appeal, apart from that challenging the order directed to the Registrar-General, then he could not successfully oppose our substituting for the order directed to the Registrar-General an order directing Mr Ashton to sign a transfer in Mr Prentice’s favour.  That concession, we consider, was wisely made.  Accordingly we shall set aside, by consent, order 3 made by the primary Judge (and order 2 as well, it being preparatory to order 3) and make the other orders indicated below.

FORM OF ORDERS

90                  The primary Judge, in his reasons for judgment of 23 October 1998, found that most of the moneys raised by granting the mortgage to Smyth King found their way into an account which was used to pay legal expenses of Mr Jury and his companies in connection with the litigation against the Bank.  Accordingly, his Honour said, in a passage quoted in par 62 above:

“I would not, therefore, conclude that there was no consideration and indeed, on the contrary, would conclude that the cash ultimately paid on settlement was part of any consideration.”

91                  That conclusion led his Honour to say, under the heading “Orders Required to be Made”:

“It is provided both by s 120(4) and s 121(5) that where a transfer occurs for consideration the Trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for the transfer.  On the evidence, I would conclude that that amounted to $345,000.  Hence, the relief to the Trustee should be conditioned upon the Trustee paying that amount.”

92                  However, in the very next paragraph his Honour contemplated that any order which he might make must preserve the rights of Smyth King as a mortgagee which had given full consideration for the transfer to it of the interest represented by its registered charge.  He there said:

“Under both sections the rights of those who acquired in good faith and for a full consideration are protected.  That must, of necessity, include the mortgagee.  Accordingly, I would propose to declare the transfer of the house void and order that Mr Jury execute a transfer in registrable form, but subject to the mortgage in favour of Robert Stewart Anderson and Wayne Scott Hibbert (both of Smyth King) as joint tenants.”

93                  The learned primary Judge obviously recognised, when he came to frame his orders of 11 December, the inconsistency inherent in requiring the trustee to pay to Mr Ashton $345,000 no part of which had come from Ashton’s own funds, and yet providing that the transfer of the house to the trustee be subject to the mortgage in favour of Smyth King for the full amount of its advance which included the same $345,000.  His Honour therefore adopted the expedient in paragraph 1 of his order of 11 December 1998 of requiring Mr Ashton to execute a direction to pay $345,000 to Smyth King to be applied in reduction of the principal due under the mortgage.

94                  We have noted above the difficulties which have been created for paragraph 3 of the order below by the appellant’s contention about the Court’s power to bind the Registrar-General.  That paragraph included the conditions that the trustee pay $345,000 to Smyth King and deliver to that firm the direction to pay which paragraph 1 of the order required Mr Ashton to execute.  Because the so-called consideration for the transfer to Ashton came, not from his own moneys but from the proceeds of a charge which correspondingly diminished the value of the bankrupt’s estate, we consider that the same result can be achieved without injustice by dispensing with each of the conditions which his Honour imposed respectively on the trustee and Mr Ashton. 

95                  We shall therefore set aside paragraph 1 as well as paragraphs 2 and 3 of the order of 11 December 1998 and order in lieu thereof that Mr Ashton within seven days deliver to the trustee a transfer in registrable form of the house.  That transfer, we contemplate, will be registered subject to the mortgage in favour of Smyth King which may be discharged out of the proceeds of a sale by the trustee or otherwise as the trustee thinks fit.

96                  The appeal is otherwise dismissed.  Mr Ashton must pay the costs of the appeal.

Associate:

Dated:              21 May 1999