FEDERAL COURT OF AUSTRALIA

Travaglini v Spencer [2008] FCA 1618

BANKRUPTCY AND INSOLVENCY – claim that property transferred under value should be void as against the Trustee in Bankruptcy – motion for dismissal - transferor was not the subsequent bankrupt but an entity allegedly acting on his instruction and direction – property said to be held on bare trust on behalf of the bankrupt – whether trustee or agent – novel point - not obviously without reasonable prospects – not dismissed

Held:  Minute of Amended Statement of Claim permitted.

Bankruptcy Act 1966 (Cth) ss 120, 120(1), 121, 120(7)(b)

Federal Court of Australia Act 1976 (Cth) s 31A

Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720

Dandaven v Harbeth Holdings Pty Ltd [2008] FCA 955

In the matter of Rose, a bankrupt; Whitton v Regis Towers Real Estate Pty Ltd (in administration) [2006] FCA 1553

J F Keir Pty Limited v Sparks [2008] FCA 611

Jefferson Ford Pty Ltd v Ford Motor Company Australia Ltd and Others (2008) 167 FCR 372

Peldan v Anderson (2006) 227 CLR 471

Whitton v Regis Towers Real Estate Pty Ltd (in administration) (2007) 161 FCR 20

DINO TRAVAGLINI (AS TRUSTEE IN BANKRUPTCY FOR THE ESTATE OF CARMELO FRANSCESCO RACCUIA) v HALFORD GRAHAM SPENCER, ANTONIO GUISEPPE RACCUIA, VASTO (WA) PTY LTD ACN 008 935 313, TRIVIEW HOLDINGS PTY LTD ACN 079 339 914, MICHAEL PATERSON & ASSOCIATES, KING & OH and PPB ASHTON READ

WAD 36 of 2008

MCKERRACHER J

31 OCTOBER 2008

PERTH

THE COURT ORDERS THAT:

1.                  The minute of proposed amended substituted statement of claim dated 18 September 2008 do stand as the amended substituted statement of claim.

2.                  The fifth, sixth and seventh respondents pay the applicant’s costs of opposition to the minute to be taxed if not agreed. 

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     The applicant seeks leave to file an amended substituted statement of claim in support of his application.  Various grounds have been raised in opposition by a number of the respondents.  Most have been resolved.  Ultimately the grounds of opposition that remain are quite limited.  They are advanced only by the fifth, sixth and seventh respondents. 

2                     In addition to opposing the proposed amended statement of claim, the fifth, sixth and seventh respondents seek summary judgment under s 31A of the Federal Court of Australia Act 1976 (Cth) (FCA).

3                     Relevantly the claim by the applicant as trustee of the bankrupt’s estate is that the first respondent (Mr Spencer) held certain property (the property) on trust for the bankrupt and that the beneficial ownership in the property has consequently vested in the applicant as trustee.  (There are alternative claims but that is the only claim which is presently under attack). 

4                     These respondents have been joined as they claim to hold an interest in the property by way of a fixed charge.  The applicant contends that the charge is void as being a transfer of the property at an undervalue under s 120(1) of the Bankruptcy Act 1966 (Cth) (BA). 

Statutory Provisions

5                     Section 120 and s 121 BA relevantly provide as follows:

120      Undervalued transactions

Transfers that are void against trustee

(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 transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and

(b)        the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.

…

Meaning of transfer of property and market value

(7)        For the purposes of this section:

(a)        transfer of 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.

121      Transfers to defeat creditors

…

Meaning of transfer of property and market value

(9)        For the purposes of this section:

(a)        transfer of 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.

6                     Section 120(1) provides in substance that a transfer of property by a person who later becomes bankrupt to another a person is void against the trustee in bankruptcy if it took place within 5 years of the bankruptcy (as this transfer did) and if there was insufficient consideration or no consideration.  The expression ‘transfer of property’ is given an extended meaning by s 120(7)(b) BA.  Accordingly a person ‘who does something that results in another person becoming the owner of the property that did not previously exist is taken to have transferred the property to the other person’. 

The Pleaded Facts

7                     The relevant pleaded facts and contentions as against these respondents are that:

·                    at all relevant times until 2 January 2002, the registered owner of the property was Ladell Pty Ltd (Ladell).  Thereafter the registered proprietor of the property was Mr Spencer;

·                    the bankrupt was director and secretary of Ladell;

·                    on or about 1 July 1999, Ladell granted an initial charge called the ‘Ladell Charge’ to these respondents;

·                    in or about July 2001, the bankrupt entered into a so-called oral ‘Front Man Agreement’ with Mr Spencer.  Under this agreement the bankrupt agreed that Mr Spencer was to acquire the property and to hold it for the bankrupt;

·                    by a deed dated 6 July 2001 signed by Mr Spencer and by the bankrupt on behalf of Ladell as agent for the bankrupt’s son, Antonio Raccuia, the third respondent (Antonio), the purported Antonio Trust was created;

·                    under the Antonio Trust, Mr Spencer would hold the property on trust for Antonio and further, Mr Spencer would not deal with the property in any way without consulting Antonio or his agent, Ladell;

·                    in or around August or September 2001, Mr Spencer acting on instructions and under the direction of the bankrupt entered into an agreement (the Paterson Agreement) with the fifth, sixth and seventh respondents.  Under this agreement, these respondents agreed to withdraw a caveat over the property in consideration of the bankrupt, Mr Spencer, Ladell and another entity entering a deed (the ‘Paterson Deed’);

·                    on or about 29 October 2001, these respondents as lender, Mr Spencer as borrower and each of the bankrupt, Ladell and another corporation as guarantors entered into a deed known as the Paterson Deed.  The effect of that Deed was that Mr Spencer acknowledged that he was indebted to these respondents in the principal sum of $100,000 plus interest.  He granted to them a charge known as the Paterson Charge over the property in order to secure the debt; and

·                    at all times Mr Spencer held the property on trust for and on behalf of the bankrupt. 

8                     Essentially the arguments of these respondents is that given that it is pleaded that Ladell and thereafter Mr Spencer were the registered proprietors of the property, there is no basis on which it can be alleged that the bankrupt (as opposed to Ladell or Mr Spencer) transferred the property, that is, by creating the Paterson Charge.  For the purposes of the argument, it is accepted that the bankrupt controlled Ladell so while no issue is taken for present purposes concerning the bankrupt’s control of Ladell, the question is how Mr Spencer as registered proprietor at the relevant time could effect a transfer by the bankrupt.  The argument raised is that even assuming for present purposes the correctness of this assertion, there is no basis at law upon which the bankrupt as beneficial owner of the property (under a bare trust) actually ‘did something’ that ‘results’ in the charge over that property within the meaning of s 120(7)(b) BA. 

9                     The applicant’s answer is that it is pleaded that Mr Spencer not only held the property on trust for the bankrupt but that he also acted in relation to it, exclusively at the instruction and direction of the bankrupt. 

10                  Central to the applicant’s claim against these respondents is the pleading that Mr Spencer at all times acted on the instructions and at the direction of the bankrupt.  This is said to have taken place pursuant to the oral Front Man Agreement.  Accordingly the applicant argues that all of the actions taken by Mr Spencer were taken for the bankrupt.  It is said that Mr Spencer was a bare trustee acting in accordance with his direction and instruction.

Section 31A FCA

11                  Section 31A FCA would require these respondents to satisfy the Court that only the conclusion for which they contend can be said to be reasonable:  Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720 at [45] and see also the Full Court in Jefferson Ford Pty Ltd v Ford Motor Company Australia Ltd and Others (2008) 167 FCR 372 at [21]-[23], [71]-[74] and [122]-[134]. 

12                  There are slightly differing views in relation to the extent to which the Court should enquire into the merits of a matter in circumstances where a question of law will decide the issue.  See for example the Full Court in Jefferson167 FCR 372 at [23] per Finkelstein J and at [34] per Rares J compared with Gordon J at [128]-[131]. 

13                  The law on s 31A FCA has been exhaustively analysed.  While there is no doubt that the bar has been lowered for summary dismissal, it is still a serious matter to dismiss a proceeding at an early stage.  None of those cases would suggest otherwise.  To those I would also adopt the observations of Graham J in J F Keir Pty Limited v Sparks [2008] FCA 611 at [9]-[15] and Gilmour J in Dandaven v Harbeth Holdings Pty Ltd [2008] FCA 955.  It is clear that, despite the bar being lowered, the Court should approach the question of summary dismissal with considerable caution.  For all the reasons expressed in these authorities, as I apprehend it, the lowering of the bar or relaxing of the standard was intended only to give a power which the Court may exercise in the more obvious instances. 

14                  The respondents submit that the transfer of the property must be ‘by’ the bankrupt.  The transfer in this instance, they argue, was not by the bankrupt for two reasons.  First, it was not owned by the bankrupt.  Secondly, the act was carried out by Mr Spencer rather than by the bankrupt himself. 

15                  The respondents do accept that to give a charge over property is to ‘transfer’ property within the extended meaning of s 120(7)(b) BA:  Peldan v Anderson (2006) 227 CLR 471 at [23]-[26].  However they stress that it must be the bankrupt who ‘does something’ that results in the charge.  The respondents contend that as the bankrupt was not the owner of the property at the relevant time, there was not therefore even arguably a transfer of the property ‘by’ the bankrupt within the meaning of s 120(1) BA. 

16                  Of some importance in the argument advanced by the respondents is that Mr Spencer was not acting as an agent for the bankrupt but acting as his trustee.  Counsel for the respondents accepted in argument that an agent could relevantly execute a transfer of a bankrupt’s property for the purpose of s 120 BA.  He contended, however, that the position of the trustee was different. 

17                  In my view that distinction is, with respect, one of some considerable subtlety for the purpose of a dismissal motion under s 31A FCA.  Further, it is a subtle distinction on a statutory construction point in respect of which there seems to be no direct authority.  Further, one needs to add to the trustee relationship, the ingredients of the Front Man Agreement, if it be established. 

18                  The respondents also argue that even if the bankrupt was the beneficial owner of the land at the relevant time when the Paterson Charge was granted and the Charge was granted at his instruction and direction, he did not ‘do anything’ that resulted in the charge over the property.  For this submission, the respondents draw on a passage in Peldan 227 CLR 471 at [25]-[30].  Reliance is also placed on In the matter of Rose, a bankrupt; Whitton v Regis Towers Real Estate Pty Ltd (in administration) [2006] FCA 1553 at [156]-[161] upheld on appeal in Whitton v Regis Towers Real Estate Pty Ltd (in administration) (2007) 161 FCR 20 at [49]. 

19                  The emphasis in these authorities is on the significance (for the purpose of the sections concerned), on the bankrupt relevantly doing something which results in the transfer. 

20                  The applicant argues in this case that short of actually signing the Deed which he directed Mr Spencer to do, there was nothing more that the bankrupt could have done in transferring the property. 

Conclusion

21                  Whether or not this submission is correct as a fact or whether it will ultimately have the legal effect for which the applicant contends, I am not satisfied that it is so weak that it is obvious that there are no reasonable prospects of success.  As novel as the claim is, it seems to me that the risk of doing injustice by summarily dismissing it, is significantly greater than permitting the claim to stand.  In my opinion, the minute should be permitted.  Accordingly, I will order:

1.                  The minute of proposed amended substituted statement of claim dated 18 September 2008 do stand as the amended substituted statement of claim.

2.                  The fifth, sixth and seventh respondents pay the applicant’s costs of opposition to the minute to be taxed if not agreed. 

Associate:

Dated:         31 October 2008