Case: Official Trustee in Bankruptcy v Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217
Outcome: cited
claiming that the alleged relinquishment and forfeiture of claims by the respondent did not constitute valid consideration the trustee relied in particular on the decision of the Full Court in Official Trustee in Bankruptcy v Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 , in which case their Honours had in turn considered the earlier Full Court decision in Official Trustee in Bankruptcy v Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217. The respondent claimed that her forbearance to sue and relinquishment of claims as pleaded in both the Amended Defence and the Cross-Claim constituted consideration in the circumstances of this case, and that accordingly those pleadings were not untenable as claimed by the trustee. Submissions of the trustee In summary Mr McQuade for the trustee submitted that: The claims in relation to the properties listed in para 10j of the Amended Defence, in respect of which the respondent alleges relinquishment and forfeiture of her claims and in respect of which the respondent also claims forfeiture of her claims to spousal maintenance, are inconsistent with the recitals and terms of the Financial Agreement (in particular Recital N and cl 6) and are therefore untenable. Recital K to the Financial Agreement stated that the agreement was entered into in substitution for any rights for spousal maintenance and property under Pt VIII of the Family Law Act . Whitlam and Jacobson JJ in Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at [97] - [102] rejected the proposition that valuation of consideration in the form of a forbearance to sue could be undertaken by assessing the non-financial and financial contributions to the marriage as if an application had been made under s 79 of the Family Law Act . The respondent's pleaded case is underpinned by the allegation of assessment of the value of the consideration, namely the relinquishment of causes of action on the basis of the factors set out in paras 10a to 10d and 10f to 10(ia) of the Amended Defence and Cross-Claim. For the reasons set out in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 and Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 that is untenable. Submissions of the respondent The Full Court allowed the appeal against the decision of the primary judge. The majority judgment in the case was delivered by Whitlam and Jacobson JJ. Their Honours considered the earlier decision of the Full Court in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 upon which the trial judge in Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 relied, and in summary observed that: The trial judge in Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 had found that there was implied in the settlement a forbearance on the part of Mrs Lopatinsky to make a claim against Mr Lopatinsky under the Family Law Act , and that an implied forbearance to sue constitutes good consideration. ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 245-246) Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 was not a case involving express or implied forbearance to sue rather consent orders had been made and entered pursuant to s 79 of the Family Law Act which provided for , inter alia, the transfer of the matrimonial home. ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 244) All the members of the Full Court in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 were of the view that where a consent order is made under s 79 of the Family Law Act the transfer of property takes place pursuant to the order of the Court. Accordingly, as a matter of construction of s 121 , there can be no "transfer of property by a person who later becomes a bankrupt". ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 246) The purpose of s 120 of the Bankruptcy Act is to prevent properties, including the matrimonial home, from being transferred to related parties to the disadvantage of the bankrupt's creditors. Disadvantage will occur if the property is transferred for no consideration or for less than market value. ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 249) There is nothing in s 120(5) to suggest that Parliament intended that the term "consideration" in s 120(1)(b) is to be read in anything other than its legal sense. It would be inconsistent with the observations of Wilcox and Branson JJ in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 to proceed upon the basis that "consideration" could be something less than the ordinary legal and commercial understanding of that term. ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 249) In applying s 120(1)(b) the first step is to identify the consideration which was actually given. If consideration was given, the second step is to determine whether its value was less than the market value of the property transferred. ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 249) As Wilcox J observed in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217 at [66] , the issue of the value of contributions is to be determined at a time when the marriage has come to an end and any contributions to the marriage were made in the past. Past consideration is, generally speaking, no consideration. The only significant exception to that rule arises where there is an earlier promise to pay (express or implied), an exception which is difficult to apply to matrimonial contributions unless for example there is a valid prenuptial agreement to that effect. ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 247) The primary judge acknowledged that there was no express agreement between the Lopatinskys that Mrs Lopatinsky would not maintain proceedings for an adjustment of her property rights under the Family Law Act. ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 250) The trustee accepted that an implied forbearance to sue can constitute good consideration. While the evidence of such a forbearance was slim, it was in any event unnecessary to decide whether the primary judge was correct in drawing the inference that Mrs Lopatinsky had so acted because the approach of the primary judge as to what constituted consideration and the value of it was contrary to the decision in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217. Their Honours continued: [Findings of the primary judge] indicate that his Honour endeavoured to value the "consideration" provided by Mrs Lopatinsky upon the basis of her financial and non-financial contributions to the marriage in accordance with the criteria referred to in s 79 of the Family Law Act . The short answer to this appeal is therefore that the primary judge's view of the value of the consideration given by Mrs Lopatinsky depended upon factors which cannot provide a basis for assessing the value of the consideration which was given. ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 250) In any event, actual forbearance to sue does not constitute consideration unless it is evidence of an implied promise to forbear or unless it is given at the express or implied request of the other party. There was no evidence to support a finding that Mrs Lopatinsky promised to give up a claim under s 79 of the Family Law Act , in that there were no proceedings on foot in the Family Court and no mention by either party of the possibility of such a claim. ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 250) Further, even if the informal agreement between Mr and Mrs Lopatinsky was supported by consideration in the form of an implied promise not to sue, it would not amount to a legally binding agreement for a compromise of Mrs Lopatinsky's entitlement to make a claim for a further property adjustment. ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 251) Findings 4. Fourth, I do not accept the submission of the respondent that the decision in Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 is distinguishable because in Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 there was only an informal agreement whereby the wife had relinquished her entitlement to sue, whereas in this case the respondent and Mr Jensen had executed a financial agreement pursuant to the Family Law Act in which the respondent had expressly relinquished and forfeited any claims and entitlements to property in Mr Jensen's name as well as an entitlement to spousal maintenance. I take this view because: (a) Although one of the reasons for the decision of the Full Court in Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 was that there was no evidence to support a finding that Mrs Lopatinsky had promised to give up a claim under s 79 of the Family Law Act , in fact the primary reason described by Whitlam and Jacobson JJ as "the short answer to this appeal" (at [101]-[102]) was the incorrect view the primary judge had taken of the alleged consideration provided in the circumstances of the case. (b) It is not in dispute that a binding financial agreement which is valid under the relevant provisions of Pt VIIIA of the Family Law Act has the effect of ousting the jurisdiction of the court in respect of certain matters covered by the agreement, including financial matters or financial resources to which a binding financial agreement applies: Black &amp; Black [2008] FamCAFC 7 at [29] . However the simple fact of acknowledgment by one spouse in a financial agreement of the provision of consideration for the transfer of property does not mean that the alleged consideration is adequate for the purposes of s 120 and s 121 of the Bankruptcy Act if a transaction is subsequently challenged by a trustee in bankruptcy. As I noted earlier in this judgment, "consideration" in the context of the bankruptcy legislation has its ordinary legal and commercial meaning ( Lopatinsky [2003] FCAFC 109 ; (2003) 129 FCR 234 at 249). The fact that the movement of consideration is acknowledged in a financial agreement does not give the consideration validity it would not otherwise have. (c) Further, and in any event, as I have already found in Combis, Trustee of the Property of Peter Jensen (Bankrupt) v Jensen [2009] FCA 778 , the transfer of property pursuant to a financial agreement does not equate to a transfer of property pursuant to Court order, as was the case in Mateo [2003] FCAFC 26 ; (2003) 127 FCR 217. The current legislative framework applicable to financial agreements contemplates that a trustee in bankruptcy may make application pursuant to both s 120 and s 121 of the Bankruptcy Act to set aside a transfer pursuant to a financial agreement executed by the parties. Similarly, it is open to the Court to review the nature of the consideration stated in a financial agreement. The Court is not in any way prevented from doing so by the fact that the financial agreement is enforceable as between the parties under the Family Law Act. (b) Alleged payment by the respondent and her mother for the Carrara property, resulting in the transfer of that property to the respondent by Mr Jensen was merely a transfer of the bare legal title