COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL
TERRITORY
Morling J.(1)

CWDS
  Bankruptcy - encumbrance granted by bankrupt - whether granted in good faith
and for valuable consideration - alleged family arrangement - agreement to buy
brother's interest in father's estate - whether genuine - whether agreement to
grant mortgage - past consideration - mortgage not supported by valuable
consideration.
  Bankruptcy Act 1966, s.120(1)

HRNG
SYDNEY
#DATE 25:8:1988
  Counsel for applicant: J. Wilson
  Instructed by: Lobban McNally & Harney
  Counsel for Respondents Tedros and George Nader: C.T. Barry
  Instructed by McClellands

ORDER
  Declare that the mortgage granted by Tedros Nader and Nawal Nader over the
land in Certificate of Title Volume 6764 Folio 181 in favour of George Nader
is void as against the applicant as trustee of the bankrupt estate of Tedros
Nader.
  Order that the first, second and third respondents pay the applicant's
costs.

NOTE: Settlement and entry of orders is dealt with in Rule 124 of the
Bankruptcy Rules.

JUDGE1
  Tedros Nader became bankrupt on his own petition on 18  October 1985.   At
that date he was the registered proprietor with Nawal Nader of land at
Yagoona.  In the bankrupt's statement of affairs his brother George Nader was
disclosed as a secured creditor to whom the sum of $100,000 was owed.   The
security was stated to be an unregistered mortgage over the Yagoona property.
In these proceedings the bankrupt's trustee in bankruptcy seeks a declaration
that the granting of the mortgage is void as against him.   He claims that the
mortgage was a settlement of property within the meaning of s.120(1) of the
Bankruptcy Act 1966 and that George Nader was not an encumbrancer in good
faith and for valuable consideration.
2.  According to the bankrupt and George Nader, the mortgage document was
executed in January 1985.   The mortgage is expressed to have been given by
the mortgagors in consideration of George Nader having advanced to them the
sum of $200,000, not $100,000.   The loan is expressed to be repayable on 3
January 1986 and the mortgagors covenant to pay interest at the rate of 14%.
3.  Both the bankrupt and George Nader concede that no part of the $200,000
referred to in the mortgage was in fact advanced to the mortgagors.  They also
concede that there was no agreement between them that any loan would be repaid
on 3  January 1986 with interest at 14%.
4.  The facts that I have so far mentioned would, in the absence of further
evidence, plainly establish the trustee's claim that the granting of the
mortgage was a disposition of property by the bankrupt in circumstances that
made it void as against the trustee.  However, the bankrupt and George Nader
submit that when regard is had to all the circumstances that occurred before
the mortgage was executed in January 1985 the Court should find that George
Nader took the mortgage in good faith and for valuable consideration and that,
accordingly, it was not a settlement of property which is void as against the
trustee.   To understand this claim it is necessary to give a brief outline of
the facts which are said to support it.
5.  The bankrupt was born in Lebanon.  He is about 40  years of age and has
six brothers and two sisters.   He was brought up in Kafr Zena, a small
village near Tripoli, where his father lived until recently.  George Nader
came to Australia about 30 years ago and over the succeeding years several of
his brothers have also migrated here.   After George established himself he
assisted one of his brothers to migrate and over the succeeding years other
brothers have been afforded similar assistance by members of the family
already living in Australia.   The bankrupt came to this country about 20
years ago.   George appears to have prospered financially in Australia and the
evidence suggests that he is more affluent than his siblings.   As at 1984 he
was more affluent than the bankrupt.  He is the eldest son.
6.  The bankrupt's father carried on business in a small way in Kafr Zena.
The village has a population of about 500. The father was a butcher and also
dealt in a small way in olives and olive oil.   I am far from being persuaded,
as was suggested by the bankrupt, that the father had extensive business
interests.
7.  The father also owned several parcels of land in Lebanon.  There was a
good deal of evidence as to the extent of the landholdings in Lebanon of the
father and other members of the family.  Although it is difficult to piece
together an entirely comprehensive picture, I think it is fairly clear on the
evidence that, as at October 1984, the father owned four or five parcels of
land with a total value of about L\ Leb. 440,000 (Lebanese pounds), the
Australian dollar equivalent of which was about $75,000.
8.  In October 1984 the bankrupt and George Nader were in Lebanon visiting
their father.  Other members of the family were also there at the time.   The
father was a fairly old man and I infer from the evidence that he was probably
then aged about 80 years.   According to the bankrupt, the purpose of his and
George's visit to Lebanon was to discuss with their father the distribution of
his real estate holdings.  At that time four of the bankrupt's brothers were
still resident in Lebanon. The bankrupt claims that a family meeting was held
at his father's home on 11 October 1984, at which Mr Sayed Saada, a person
skilled in the transfer of lands, was present. According to the bankrupt, his
father said that he proposed to distribute all his land among his children.
However, George said that he didn't want "anything at all".  The father said,
in effect, that he didn't accept George's attitude and that since he was the
eldest son he wished to give him more than the other children.   After some
argument, George said, in effect, that he would accept his father's wishes in
the matter, but would sell all of his share to the bankrupt.  According to the
bankrupt, there was further discussion concerning the value of George's share.
The bankrupt claims that the following conversation then ensued:
    Father:                'If Ted is going to have your share,
                            Ted's got to give you Australian
                            $200,000 when he goes back to
                            Australia.'
    George:                'All right.'
    Tedros:                'I accept on that basis.'
    Father
      (to Sayed Saada):    'Will you prepare the necessary
                            documents?'
    Sayed Saada:           'Yes.'
    Father (to Tedros):    'You must give George a mortgage in
                            Australia to secure the moneys you
                            owe him.'
    Tedros:                'Yes, I will do that as soon as he
                            comes back to Australia.  I will be
                            returning before him, as you
                            know.'
9.  George Nader gave an account of the conversation that differed in some
significant respects from the account given by the bankrupt.  In an affidavit
sworn in the proceedings, George Nader  said that it was his belief that it
was Tedros who raised the question of a mortgage after the conversation with
the father, saying that he (Tedros) would draw up a mortgage for George.
According to George Nader, he replied saying that he didn't want a mortgage.
However, under cross-examination he said that there was no mention of a
mortgage in Lebanon and that the first suggestion of a mortgage was made in
Australia at the time the mortgage was executed.   When examined under s.81 of
the Bankruptcy Act, George Nader said, with respect to the mortgage, that the
bankrupt "did it of his own accord.  I did not know nothing about it 'til he
give me the mortgage."
10.  According to both the bankrupt and George Nader they, in company with Mr
Saada and their father and others went to the Government Land Register Office
at Zagharta on 12 October 1984.   Zagharta is a village some 15 minutes drive
from Kafr Zena.  They claim that while they were at the Land Register Office
they, their father and Saada signed a document which, (translated into
English), is in the following terms:
                              "Contract
      Whereas the first party wishes to sell his share
      (in his father's estate) to the second party,
      The two parties, in the presence of their father,
      Youssef Forsan Nader, hereby agree upon the
      following:
      1.   The first party agrees to sell all his share
           in his father's estate to the second part in
           return for two hundred thousand Australian
           dollars to be paid in Sydney, Australia;
      2.   The second party accepts the arrangement
           referred to in clause 1 and undertakes to pay
           in Australia the sum of money agreed upon
           upon their return to the country;
      3.   The two parties request their father to
           directly register the share of the first
           party in the name of the second party and
           appoint Mr Sayed Saada to carry out the
           registration as such with the departments
           dealing with matters of real estate according
           to the law;
      4.   Two copies of this contract were drawn up in
           the presence of the father of the two parties
           to the contract, Youssef Forsan Nader, and of
           Mr Sayed Saada whose signature appear
           hereunder with the signatures of the two
           contractants.
      Zagharta, October 12, 1984"
11.  It will be convenient to refer to this document as "the contract".   The
bankrupt and George Nader rely upon the contract, and the agreement it is said
to reflect, as providing sufficient consideration for the granting of the
mortgage to take it outside the operation of s.120(1) of the Bankruptcy Act.
12.  Upon his return to Australia at the end of 1984 the bankrupt received
some disturbing news to the effect that he was under-insured in respect of a
claim being made against him in the Supreme Court of New South Wales by one
Wakim, a former employee.   Wakim had been injured while working for the
bankrupt and had sued the bankrupt, whose defence was being undertaken by his
insurer's solicitors.   The bankrupt had insurance cover for only $100,000,
but was advised upon his return from Lebanon that Wakim would be likely to
receive a verdict in excess of that sum.  In fact, in July 1985 judgment was
entered against the bankrupt in the Supreme Court in the amount of $787,000.
13.  Not long after the bankrupt learned he was under-insured he executed a
power of attorney in favour of his father.  In January 1985 he sent this
document to Lebanon and, in exercise of his powers under it, the father sold
lands owned by the bankrupt. The proceeds of sale have not been forwarded to
the trustee.
14.  The signatures on the mortgage were witnessed by one of the bankrupt's
employees. No steps were taken to stamp or register it. However, a few days
before the sequestration order was made against the bankrupt's estate a caveat
was lodged protecting George Nader's interest under the mortgage.
15.  In his statement of affairs the bankrupt disclosed unsecured creditors in
an amount of about $816,000, the principal creditor being Wakim.  He disclosed
his assets as being worth about $1,000. George Nader was disclosed as a
secured creditor in the sum of $100,000, not $200,000 being the amount
referred to in the mortgage. The bankrupt did not disclose that he had assets
in Lebanon.
16.  The trustee called evidence from a handwriting expert, Mr Anderson that a
signature purporting to be that of the bankrupt's father on the contract was
not, in fact, his signature.  Photostat copies of a number of documents
unquestionably signed by the father were tendered in evidence. The father's
signature, as appearing in those documents, bears no resemblance to the
signature on the contract said to have been signed by him.  Anderson, whose
evidence I found impressive, was of the opinion that it would have been very
difficult for the writer of the indubitably genuine signatures to so alter his
hand as to write the signature which appears on the contract. Anderson said
the fact that the genuine signatures were on photostat copies of documents and
that they, as well as the signature on the document of 12  October 1984, were
in Arabic script gave him some difficulty in concluding that it was unlikely
that the writer of the genuine signatures could have written the impugned
signature on the contract. Nevertheless, I am left with the most serious doubt
whether the father's signature on the contract is genuine.
17.  I am bound to say that I find most of the evidence given by the bankrupt
and George Nader quite unconvincing and I do not accept it.  I do not think
they are reliable witnesses. There is an air of unreality about their version
of what is supposed to have occurred. The arrangement supposed to have been
made between them strains credulity. In spite of what they would have the
Court believe, I do not think their father was a very wealthy man. The
bankrupt claimed that his father had a fortune of about $U.S. 2 million, but
there is not the slightest evidence to support this statement.
18.  As I have observed, the father's lands were worth about $A75,000 as at
October 1984. It was suggested in evidence that the father wished to
distribute his lands between his children in more or less equal shares.   On
this basis, George's share of his father's land holdings would have been worth
about $A15,000.  It is beyond belief that the bankrupt would have offered to
pay him $200,000 for that share, particularly having regard to George's
professed wish not to share in his father's bounty.  It is also unbelievable
that the father, who appears to have been on good terms with all his children,
would have extracted a promise from his son Tedros to pay $200,000 to his more
affluent brother George.  Moreover, I think it is highly unlikely that the
father would have required that Tedros execute a mortgage over his property
when he returned to Australia before he (the father) transferred George's
share to Tedros.
19.  There is conflicting evidence as to what occurred in the father's
household on the day preceding the signing of the alleged contract. According
to some of the evidence, a list was drawn up of all the father's land-ownings
and values ascribed to each parcel.  Other evidence suggests the contrary.
20.  There are many other matters about the alleged contract which make me
suspicious of it. I find it difficult to believe why the parties would have
gone to a Land Register Office to sign it.  It was not left at the Office. It
was said that it was taken back to the father's house. The contract, if it
existed and was genuine, was important to the bankrupt and George Nader. Yet
neither took possession of it. They claim that it remained in Lebanon after
they returned to Australia.   Moreover, no action was taken to carry its terms
into effect.
21.  Evidence was given by Edward Nader, a brother of the bankrupt, that on 12
October 1984 he saw his brothers execute a document, the terms of which were
not discussed with him.   His evidence does not prove that the document he saw
executed is identical with the contract now relied upon as supporting the
grant of the mortgage.
22.  It appears that, as at October 1984, the most valuable of the lands owned
by the father were known as Estates  49 and 299.   On 7 November 1984 these
lands were sold to the bankrupt and three of his brothers for L/ Leb. 350,000,
or about $56,450 Aust. This transaction seems to be entirely inconsistent with
any arrangement whereby the bankrupt agreed to pay $A200,000 for George's
share.  After the sale of Estates 49 and 299, the lands still retained by the
father appear to have had a value of only about $A15,000. It was submitted
that the value attributed to the father's lands might not have been reliable.
This may have been the case but, nevertheless, the transaction into which the
father entered on 7 November 1984 casts the most serious doubt upon the
version of the facts for which the bankrupt and George Nader contend.
23.  It is difficult to believe that, under Lebanese law, the alleged contract
in 1984 was effective to transfer any interest in the father's lands to his
son Tedros.  Indeed, I did not understand it to be suggested that this was the
case. The document does not, of course, refer to any particular land. There is
no evidence that the document was produced to any official at the Land
Register Office and it does not bear any endorsement such as one would expect
to find if it had been lodged, even temporarily, with the Land Register
Office.
24.  It would have been open to the father at any time during his lifetime to
change his intentions as to distributing his lands amongst his children.  It
was open to him not to give any share to George, in which case the bankrupt
would have been liable (if the contract was genuine and enforceable) to pay
his brother $200,000 for a non-existent share.
25.  I do not accept that the bankrupt made any promise to his father or to
his brother George to execute a mortgage over his Australian land securing the
payment of $200,000, or any other sum.  In my opinion, the execution of the
mortgage in January 1985 was an entirely voluntary act on the bankrupt's part
and was unrelated to any obligation he had previously undertaken in favour of
George Nader.  It is not in doubt that the grant of a mortgage is a
disposition of property and is therefore  a settlement for the purposes of
s.120(1) of the Bankruptcy Act:  see Official Trustee in Bankruptcy v Arcadiou
(1985) 8 FCR 4.
26.  I am not satisfied that any arrangement was made in October 1984 that
provided consideration for the granting of the mortgage. In my opinion, the
granting of the mortgage was no more than a device to make George Nader a
secured creditor in the bankrupt's estate, although he had given no
consideration for the mortgage. I am satisfied that George Nader was not an
encumbrancer for valuable consideration within the meaning of s.120(1)(a) of
the Bankruptcy Act. Such an encumbrancer is one who gives consideration for
the encumbrance which has a real and substantial value and not one which is
merely trivial or colourable. See Barton v The Official Receiver (1986) 161
CLR 75.
27.  I should add that, even if I had been of the view that the alleged
contract was genuine, the consideration moving under it from George Nader to
the bankrupt would not have provided consideration of the kind necessary to
take the mortgage outside the operation of s.120(1) of the Bankruptcy Act.
The bankrupt was not obliged under the contract to give his brother a mortgage
over his land in Australia.  The contract makes no mention of the giving of
security. The only obligation assumed by the bankrupt was to pay a sum of
money. Even if the mortgage executed in January 1985 be accepted at face
value, no consideration was given for it. Assuming the bankrupt and George
Nader reached an agreement as evidenced by the contract, the consideration
given by George for the bankrupt's promise to pay him $200,000 was past at the
time the mortgage was executed.
28.  On this basis, the case would have been distinguishable from cases such
as Pao On v Lau Yiu Long (1980) AC 614 at p 629, and Re Douglas;  Ex parte
Starkey (1987) 15 FCR 475. In the latter case, the encumbrance was granted by
the bankrupt pursuant to a clear understanding, made at an earlier point of
time, that it would be granted.  In the present case, I am satisfied that the
giving of a mortgage was first raised in January 1985.  There was no previous
agreement between the parties that security would be given to secure the
performance of any obligation undertaken by the bankrupt under the contract.
I am of the opinion that the sole reason for the execution of the mortgage was
to diminish the value of the bankrupt's assets. The execution of the power of
attorney at about the same time confirms me in this opinion. The conclusion is
irresistible that the bankrupt secured the co-operation of his brother in a
plan to defeat his creditors, particularly Wakim. The mortgage was not granted
in good faith and for valuable consideration. Accordingly the Trustee is
entitled to the declaration which he seeks.
29.  I declare that the mortgage granted by Tedros Nader and Nawal Nader over
the land in Certificate of Title Volume 6764 Folio 181 in favour of George
Nader is void is against the applicant as trustee of the bankrupt estate of
Tedros Nader.