Cummins v the Trustees of the Property of John Daniel Cummins¸ A Bankrupt

• Jurisdiction: Australia Federal only
• Judge: Gleeson CJ,Gummow,Hayne,Heydon,Crennan JJ
• Judgment Date: 07 March 2006
• Neutral Citation: 2006-0307 HCA A,[2006] HCA 6
• Court: High Court
• Docket Number: S286/2005
• Date: 07 March 2006

[2006] HCA 6

HIGH COURT OF AUSTRALIA

Gleeson CJ, Gummow, Hayne, Heydon AND Crennan JJ

S286/2005

The Trustees of the Property of John Daniel Cummins, a Bankrupt

Appellants

and

Mary Elizabeth Cummins and Anor

Respondents

Representation:

B A J Coles QC with C R C Newlinds SC and P Kulevski for the appellants (instructed by Clayton Utz)

W Sofronoff QC with M A Ashhurst for the respondents (instructed by Russell and Company)

Bankruptcy Act 1966 (Cth), ss 6, 121.

The Trustees of the Property of John Daniel Cummins A Bankrupt v Cummins

Bankruptcy — Transfer to defeat creditors — Main purpose — Bankrupt transferred interest in matrimonial property to first respondent wife and transferred shares to second respondent — Whether evidence sufficient to permit inference that bankrupt's main purpose in transferring assets was to defeat or delay creditors — Whether main purpose of transfers to protect assets against future professional negligence suits — Whether transfer of assets void against trustee in bankruptcy — Bankruptcy Act 1966 (Cth), s 121(1)(b).

Evidence — Judicial notice — Bankrupt, a Queen's Counsel who maintained two sets of chambers, failed to lodge tax returns for about 45 years — Whether inference should be drawn that bankrupt had a taxable income at a level which gave rise to a liability to pay income tax — Whether income disclosed in later tax returns relevant to establish income from earlier period of time — Whether Australian Taxation Office a creditor of the bankrupt.

Trusts — Resulting trusts — Joint tenancy — Bankrupt and wife purchased land as joint tenants — Purchase money provided in unequal shares — Whether presumption of resulting trust applies such that property beneficially held in proportion to contributions — When appropriate point in time for determination of equitable interests in property — Bankrupt and wife in subsisting matrimonial relationship improved property subsequent to purchase by constructing matrimonial home — Whether evidence sufficient to rebut presumption of resulting trust — Whether transfer was of bankrupt's interest as joint tenant without any adjustment to allow for beneficial tenancy in common in unequal shares.

ORDER

1. Appeal allowed with costs.

2. Set aside the orders of the Full Court of the Federal Court of Australia made on 30 July 2004 and, in their place, order that the appeal to that Court be dismissed with costs.

1 Gleeson CJ, Gummow, Hayne, Heydon AND Crennan JJ. The appellants (‘the Trustees’) were appointed by a resolution of creditors passed on 16 March 2001 to be trustees of the bankrupt estate of John Daniel Cummins. Mr Cummins had become bankrupt by force of s 55(4A) of the Bankruptcy Act 1966 (Cth) (‘the Act’) when the Official Receiver endorsed his debtor's petition dated 12 December 2000.

2 The statement of affairs disclosed that as at 30 January 2001 the assets of Mr Cummins totalled $259,614 and his liabilities to unsecured creditors $1,040,400. Of the gross receipts disclosed in the 1992–1999 income tax returns, the great bulk was derived from practice as a barrister. There was a public examination of Mr Cummins under s 81 of the Act held on 6 June 2001, but, in the litigation from which this appeal arises, he was not a party 1, and the Trustees could not use the transcript of what he had said at his examination 2.

The dramatis personae

3 Mr Cummins was admitted first as a solicitor in 1957 and practised at the New South Wales Bar after his admission in April 1961. He took silk in December 1980. At that time, appointments in New South Wales as Queen's Counsel were made by the Executive Council upon nomination by the Attorney-General, who, by convention, was advised by the President of the New South Wales Bar Association 3.

4 The first respondent, Mrs Cummins (formerly Mary Elizabeth Power), married Mr Cummins in 1964. They lived thereafter as husband and wife but, in February 2002, they had separated and by June 2002 proceedings were pending in the Family Court.

5 The second respondent (‘Aymcopic’) is the trustee of the Cummins Family Trust, the beneficiaries of which are Mrs Cummins and the four children

of her marriage with Mr Cummins. Mr Cummins is not a beneficiary. The deed whereby Aymcopic became trustee of the Cummins Family Trust was executed on 24 August 1987, a week after Mr and Mrs Cummins each had acquired one share in Aymcopic which had been a ‘shelf’ company.

The tax history of Mr Cummins

6 The largest creditor by far in the bankruptcy is the Commonwealth in the guise of the Australian Taxation Office (‘the ATO’). This indebtedness of Mr Cummins followed the issue of assessments upon the lodgment on 14 February 2000 of income tax returns for the years ended 30 June 1992 to 30 June 1999 and the ATO had instituted proceedings to recover $955,672.92.

7 Before lodging these returns on 14 February 2000, Mr Cummins had not lodged any income tax return since about 1955. Section 208 of the Income Tax Assessment Act 1936 (Cth) (‘the Assessment Act’) stipulates that income tax when due and payable is a debt due to the Commonwealth, and s 222 provides for the imposition of additional tax, by way of penalty, upon a taxpayer who has failed to furnish a return 4. Part XXIV of the Taxation Laws Amendment Act 1984 (Cth) had introduced into the Taxation Administration Act 1953 (Cth) detailed offence provisions 5 for failure to furnish returns when required under a taxation law. No default assessments under s 167 of the Assessment Act were made against Mr Cummins. The upshot was that, during the whole of the period in which he had practised as a barrister, Mr Cummins had paid no income tax.

8 Upon success in their appeal to this Court, the Trustees seek two declarations and consequential relief with respect to two transactions in August 1987 (‘the August transactions’). The first declaration is that the transfer made on or about 26 August 1987 by Mr Cummins to Mrs Cummins of his legal and beneficial interest as joint tenant in the property at 77 Alexandra Street, Hunters Hill, a Sydney suburb, (‘the Hunters Hill property’) is void against the Trustees,

pursuant to s 121 of the Act. The Hunters Hill property is land registered under the provisions of the Real Property Act 1900 (NSW). The second declaration is that the transfer of 6,000 shares in Counsel's Chambers Ltd (‘the Shares’) made by Mr Cummins to Aymcopic on or about 26 August 1987 is void as against the Trustees, again pursuant to s 121 of the Act. The Shares entitled Mr Cummins to occupancy of a double room on a floor of barristers' chambers in Wentworth Chambers in Phillip Street, Sydney.

9 In addition to his chambers in Phillip Street, Mr Cummins maintained chambers at Parramatta. In 1986 he acquired for $30,000 units in the Barristers Chambers Parramatta Unit Trust. These formed part of the bankrupt estate and ultimately were sold by the Trustees for $100,000. Mr Cummins had intended in 1987 to transfer these units to Aymcopic by way of gift, but his instructions to his solicitor were not implemented.

10 The documents to give effect to the August transactions were prepared by Mr Harris, a solicitor practising as ‘B C Harris & Co’. Mr Harris did not give evidence but his file notes and some of his correspondence with Mr Cummins respecting the August transactions were in evidence. None of the other participants in the August transactions gave evidence respecting them. Mrs Cummins gave evidence but upon what were then other live issues. Little of the documentary evidence was in dispute; the principal area for debate at all stages of the litigation has been the nature of the inferences to be drawn from that evidence.

The Federal Court litigation

11 Upon application made by the Trustees to the Federal Court in 2001 and heard by Sackville J, they obtained declarations in the terms described above and consequential relief. His Honour gave detailed reasons for judgment on 24 September 2003 6. Sackville J had earlier, on 5 December 2002, rejected a ‘no case’ submission made by the respondents in respect of the Trustees' s 121 applications regarding the Hunters Hill property and the Shares. His Honour proceeded upon the footing provided by his earlier decision in Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd7

that the Federal Court Rules 8 authorised the entertainment of ‘no case’ submissions. Sackville J gave detailed reasons upon the ‘no case’ submission 9. We shall refer to the two sets of reasons in order of their delivery and respectively as ‘the first judgment’ and ‘the second judgment’.

12 An appeal to the Full Court of the Federal Court by Mrs Cummins and Aymcopic was successful. The Full Court (Carr and Lander JJ; Tamberlin J dissenting) 10 set aside the final orders made by Sackville J, including the declaratory and consequential relief, and ordered in place thereof that the application by the Trustees be dismissed. Hence the reinstatement of those orders which is sought on the appeal by the Trustees to this Court.

The August transactions

13 The Hunters Hill property had been purchased in 1970 and the title was taken by Mr and Mrs Cummins as joint tenants. They were registered as proprietors on 10 August 1970. The solicitors acting for the purchasers were Messrs J P Grogan and Co. The property so acquired was then vacant land. A dwelling was erected on it shortly thereafter which served as their matrimonial home.

14 Sackville J found that Mrs Cummins had contributed 65.8 per cent of the purchase price of $31,000; in the Full Court, further allowance was made in Mrs Cummins' favour for the whole of the deposit she provided, raising her contribution to 76.3 per cent. In the second judgment, Sackville J held that any presumption of resulting trust in shares proportionate to the respective contributions...