The Cummins principle has again surfaced in the decision in Turner as Trustee of the Bankrupt Estate of Wallace v Wallace [2017] FCCA 3044 (Wallace).

The case further demonstrates that transferring a property for love and affection is not enough to defeat creditors for the purposes of sections 120 and 121 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act).

Background

The Cummins principle is a controversial principle in the law of trusts and stems from Trustee of the property of Cummins, a Bankrupt) v Cummins (No 5) [2002] FCA 1503.

Where there is a joint tenancy over a matrimonial home, it is presumed that the couple have perfectly equal interests in it. Problems stemming from this principle include difficulties for a non-bankrupt spouse who attributed more than half the purchase price of the property to argue they should be entitled to more than 50% of the equity. Other such difficulties are yet to be fully explored, due to the vast number of different types of relationships in modern society, particularly marriage like relationships that lack formalization.

Section 120 of the Bankruptcy Act provides that a transfer of property by a person who becomes a bankrupt is void if:

(a) The transfer took place within 5 years prior to the commencement of bankruptcy; and
(b) There was no consideration given for the transfer or if the consideration was less than the market value of the property.

Section 121 of the Bankruptcy Act provides that a transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void if the property would probably have become part of the transferor’s estate or been available to creditors had it not been transferred.

In Wallace, the Respondent was the wife of a bankrupt who transferred his interest in a matrimonial home in Sandringham and a holiday home in Robina to her for “natural love and affection”. The Trustee of the Bankruptcy sought declarations that the transfers of interest in land were void pursuant to sections 121 and 120 of the Bankruptcy Act respectively.

Decision

Riethmuller J considered and applied the Cummins principle in his judgment to determine the existence of a trust between the respondent and the bankrupt concerning the two properties. The existence of a trust would result in the two transfers of property not being classified as transfers for the purposes of sections 120 or 121, but rather the vesting of trust assets to the beneficiary of the trusts.

The court rejected the argument that there was a trust existing for the Sandringham property between the respondent and the bankrupt, and accepted the presumption in the Cummins principle that it was a joint property. The principle applied as the property was to be the matrimonial home in the circumstances where they were married and both contributed to its acquisition. He found that the presumption agreed with the registered title and ultimately decided that the respondent held no greater equitable interest than what was registered at the time of purchase (50%).

Since the couple then sold the Sandringham property and retired to the Robina home, the Cummins Principle also applied to this property. The presumption yielded the same result as the Sandringham property and it was found that the respondent only had an equitable interest of that which was registered at the time of purchase.

Riethmuller J then went on to determine that both of the transfers of property were void under the respective provisions of the Bankruptcy Act, as while love and affection is “good consideration” it is not “valuable consideration” (see Wirth v Wirth (1956) 98 CLR 228 and Director of Public Prosecutions for Victoria v Le [2007] HCA 52), and that the purpose of the Robina transfer was to defeat creditors’ interest.

Conclusion

Wallace demonstrates that the courts have a long way to go before the Cummins Principle can be settled and understood as originally intended. There is still much confusion surrounding the principle and how it might apply in a number of different circumstances and relationships, but one thing is clear, the Cummins principle is here to stay.