B Pty Ltd & Anor and Batavia & Anor
[2018] FamCA 858
•25 October 2018
FAMILY COURT OF AUSTRALIA
| B PTY LTD AND ANOR & BATAVIA AND ANOR | [2018] FamCA 858 |
| FAMILY LAW – PROPERTY SETTLEMENT – proceedings between the liquidators of two companies conducted by a bankrupt who was a party to a marriage seek to recover monies retained in a controlled account from the sale of the parties home which was in the wife’s name only in circumstances where the company’s resources were improperly used as if they were the parties’ monies in respect of not only the acquisition of property but also mortgage payments and general expenses such as school fees of the parties together with renovations to the relevant properties – where the liquidators have undertaken a tracing exercise and it is appropriate on the evidence to find that the funds now held from the sale of the last time are directly traceable to earlier properties into which the company funds were improperly put without appropriate loans being set up due by the wife – where the relief sought is appropriate in the circumstances. |
| Corporations Act 2001 (Cth) Family Law Act 1975 (Cth) Family Law Rules 2004 (Cth) |
| Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 Ingram v Ingram (1941) VLR 95 Rural Press Limited v ACCC [2003] HCA 75; (2003) 216 CLR 53 |
| FIRST PLAINTIFF: | B Pty Ltd (In Liquidation) |
| SECOND PLAINTIFF: | C Pty Ltd (In Liquidation) ACN … |
| FIRST DEFENDANT: | Ms Batavia |
| SECOND DEFENDANT: | The Trustees of the Property of Mr Batavia, a Bankrupt |
| FILE NUMBER: | MLC | 9174 | of | 2017 |
| DATE DELIVERED: | 25 October 2018 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Cronin J |
| HEARING DATE: | 19 October 2018 |
REPRESENTATION
| COUNSEL FOR THE FIRST AND SECOND PLAINTIFF: | Mr McKillop |
| SOLICITOR FOR THE FIRST AND SECOND PLAINTIFF: | HWL Ebsworth Lawyers |
| THE FIRST DEFENDANT: | No Appearance |
COUNSEL FOR THE SECOND DEFENDANT: | Mr Fary with Mr Silver |
SOLICITOR FOR THE SECOND DEFENDANT: | Craddock Murray Neumann Lawyers |
Orders
IT IS ORDERED THAT
The Application in a Case filed by the First and Second Plaintiffs (“the Plaintiffs”) on 16 October 2018 is granted.
THE COURT DECLARES THAT
The First Plaintiff is entitled to $1,954,281.06 of the proceeds of the sale of D Street, Suburb E, Victoria (“the Property”) on the basis of its interest as beneficial owner of the Property.
The Second Plaintiff is entitled to $143,800.06 of the proceeds of the sale of the Property on the basis of its interest as beneficial owner of the Property.
The First Defendant’s interest in the proceeds of sale of the Property are subject to an equitable charge in favour of:
(a) the First Plaintiff as to $228,325.32;
(b) the Second Plaintiff as to $86,067.48.
IT IS FURTHER ORDERED THAT
The monies in the account BSB … and Account Number #33, held with the National Australia Bank Ltd in the name of Mr F as liquidator of B Pty Ltd (In Liquidation) (“Controlled Monies Account”), be paid as follows:
(a) to the First Plaintiff in the amount of $2,196,732.07; and
(b) to the Second Plaintiff in the amount of $231,355.23.
After the payments referred to in order 5, the balance of the Controlled Monies Account be applied in accordance with orders 9 and 10.
Pursuant to Section 22(1) of the Supreme Court Act 1986 (Vic) a Registrar of this Court is authorised to sign any document required to effect the payments from the Controlled Monies Account as established by an affidavit drawn by the solicitor for the Plaintiffs produced to the Registry should the First Defendant or her former solicitor Mr G fail to do so.
The First Defendant pay interest on the Plaintiffs’ claims as follows:
(a) to the First Plaintiff in the amount of $396,380.12
(b) to the Second Plaintiff in the amount of $41,745.93.
The costs of the First and Second Plaintiffs of the proceeding be paid by the First Defendant, Ms Batavia, including any reserved costs.
The costs referred to in order 9 above be paid or reimbursed out of the balance of the Controlled Monies Account on a pari passu basis.
That subject to the determination of the Orders sought by the Second Defendant in proceedings (P)MLC3497/2017, after the payments referred to in order 10, the Plaintiffs pay the balance of the Controlled Monies Account (if any) to the ATO in respect of its garnishee notice.
There be no order as to costs between the Plaintiffs and the Second Defendant.
The Orders sought by the First Defendant in her Response to Application in a Case filed in proceedings (P)MLC3497/2017 on 15 June 2018 is otherwise dismissed.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym B Pty Ltd and Anor & Batavia and Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 9174 of 2017
| B Pty Ltd (In Liquidation) |
First Plaintiff
And
| C Pty Ltd (In Liquidation) ACN … |
Second Plaintiff
And
| Ms Batavia |
First Defendant
And
| The Trustees of the Property of Mr Batavia, A Bankrupt |
Second Defendant
REASONS FOR JUDGMENT
These reasons set out the orders the Court made on 19 October 2018. They explain the basis of those orders.
Before the Court are a number of claims. For efficacious reasons, I have dealt with the immediate issue as a discrete claim.
The applicants or Plaintiffs are B Pty Ltd (in liquidation) and C Pty Ltd (in liquidation) (“the Plaintiffs”).
The first respondent or first defendant is Ms Batavia.
The Trustees of The Property of Mr Batavia, A Bankrupt (“the Trustees”), were also joined as a defendant, but by agreement with the lawyers for the Plaintiffs, they having their own claim for relief against Ms Batavia, agreement was reached for the issue vis-a-vis Ms Batavia, to be dealt with first. The Trustees agreed not to participate in that application but generally supported the orders sought.
This final hearing was set down by the Court on 9 May 2018. To give it some context, on 9 May 2018, I gave the following published reasons:
[4]Upon the trustees of the husband’s bankrupt estate bringing the proceedings to set aside the financial agreement, the wife filed a Notice of Address for Service notifying a firm of lawyers were acting for her. On 28 August 2017, that firm of lawyers filed a Notice of Ceasing to Act nominating the wife’s address at the [D Street] property as the place to which the court should address correspondence. As best I can determine from an examination of the file, the wife has not attended any of the hearings in this court but more importantly, has not filed any document in the current proceedings indicating what, if any, relief she is seeking. If I am wrong about that, and no counsel at the hearing on 9 May 2018 was able to indicate otherwise, the orders that I now propose to make setting this case down for trial will give the wife an opportunity to rectify that situation. If she fails to do so, the other parties may seek to proceed against her interests on an undefended basis.
Since 9 May 2018, save for what I refer later to as her formal defence filed 14 November 2017 and outside the time required by an order made on 1 September 2017, Ms Batavia has not filed any other responding documentation seeking substantive relief.
On 15 June 2018 from Country J where it appears she now resides, Ms Batavia filed an application in a case seeking a raft of interlocutory orders including that she be either excused from attending, or be allowed to attend by telephone at the hearing that had been set for 15 October 2018. That hearing was to have commenced on 15 October but it was subject to any part heard case.
In support of her interlocutory application, Ms Batavia filed an affidavit. Whatever that document may be seen to have contained, it did not comply with the trial directions of May 2018 concerning the substantive issues.
Because she is not represented, I have decided to at least consider her affidavit notwithstanding counsel for the other parties did not address that material. As will become obvious, I am satisfied the affidavit does little to assist in this determination. In her affidavit, Ms Batavia said that she insisted on two financial agreements being signed by Mr Batavia (“the Bankrupt”) before she left Australia as there was nothing to confirm that she was the “primary caregiver” for the children. She said she had no idea that when she signed the agreements anyone had applied to bankrupt the Bankrupt. She heard about it she said, nine months later. She then argued that these financial agreements did “nothing other than to formalise” some documents she had executed with the Bankrupt in September 2001 about future acquisition of property. She said that if there was some contention about the existence of the 2001 document, she would seek leave to subpoena the Department of Social Services presumably for the purposes of explaining its basis. As is well known, the Department of Social Security (as the relevant Department is generally but not correctly known) cannot be served with a subpoena for court proceedings.
In any event, Ms Batavia provided a copy of the “deed of ownership” document which was signed on 10 September 2001.
This deed of ownership could only be seen to be evidence of an intention about the parties’ respective futures. It does not, and cannot, bind them and does not protect them against the claims for relief sought by the Plaintiffs having regard to the statutory provisions upon which the Plaintiffs rely.
Additionally, the deed says the “governing law” is the “laws of Victoria”. The Bankrupt is, or was, a lawyer practising in Australia. He presumably would have been aware of what “laws of Victoria” he considered were binding on he and Ms Batavia. The laws relied upon by the liquidator (as distinct from the trustee) are Commonwealth laws.
The affidavit went on to say that the Plaintiffs and I take it the Trustees as well, were “allegedly” being funded by the Australian Taxation Office in respect of the application. She then set out her complaints in respect of that but it would seem what underlies her complaint is that the Australian Taxation Office asserts it is owed a substantial amount of money and by virtue of her connections with the Bankrupt, and her financial activities with him, she has had the benefit of the income and wealth whilst the Bankrupt has avoided paying his tax. The contentious issues is who has the obligation to meet the taxation liability regardless of the formal assessment.
It is asserted by the Trustees (as distinct from the liquidators) and found to be the case by the Federal Circuit Court, that the Bankrupt left Australia on 1 October 2015 and because he was aware of the outstanding taxation issues, that was an act of bankruptcy. Ms Batavia confirms by her affidavit her knowledge of the assessments but maintains no responsibility. There is currently an outstanding appeal to the Federal Court of Australia from the Administrative Appeals Tribunal in relation to the taxation assessments and she was a participant.
Ms Batavia complained about the Plaintiffs’ and the Trustees’ actions saying that they had tried to prevent her from “fighting” all of these matters by not allowing her access to funds from the sale of her house. As will be seen below, there was every justification from precluding her from having access to those funds.
The balance of the affidavit of Ms Batavia concerns matters which may be relevant to issues within the discretion to grant the relief sought by the liquidators. Ms Batavia contemplated that because she said:
[44] should the court be inclined to grant the applicant’s request to set aside the BFAs, it is my respectful submission that the court would have to proceed by way of making property orders between myself and the first respondent so as to determine the amount of funds that the applicants are entitled to on behalf of the first respondent.
That submission is clearly directed to the fact that Ms Batavia is dismissive of the claims by both the liquidators and also the trustees because she maintains that if the financial agreements between she and the Bankrupt were set aside, it would only then be known what assets vested in the Trustees as she had nothing to do with the liability that gave rise to the bankruptcy. That of course misses the point about the claim brought by the liquidators.
Ms Batavia did not participate, other than to file a defence and the affidavit which I have just referred, and there was no formal application within the Family Law Rules to attend electronically albeit it might be read that that was part of her application in a case. Importantly, Ms Batavia has not provided any address for service of documents in Australia.
Notwithstanding all of that, the position of Ms Batavia as described above seemed to alter as the court hearing was about to begin. On 19 October 2018 (the day the matter was listed to begin) Ms Batavia emailed the Court and all other relevant practitioners the following:
Dear All,
…
Please be advised that I have appointed a Trustee in Bankruptcy. She has been notified of the above matters on foot. Her details are as follows:
[Ms K]
Partner
[L ACCOUNTANTS]
…
Regards,
[Ms Batavia]
Enquiries of L Accountants were made by the solicitors for the Trustee and the solicitors for the liquidator as well as for the other participants in these proceedings. Confirmation was received that as Ms Batavia has not had a debtors petition accepted she is currently not a bankrupt.
Counsel for Mr and Mrs M (other parties to the proceedings) suggested that all of the hearings should be adjourned until some clarity was obtained from L Accountants (who I am told are a firm of accountants). I rejected that for the following reasons. First, the case was set down in May 2018. Ample time has been made available for parties to not only prepare for, and participate in, these proceedings but to the extent that Ms Batavia’s bankruptcy was looming, it could easily have been filed well before now. Secondly, the email was received on the very morning of the court hearing and looks remarkably like a delaying tactic from a litigant who has otherwise not complied with any of the directions of the Court made in May 2018.
Thirdly, there are other parties in these proceedings as well as the public interest in the Court using its resources wisely. The other parties have waited years for a resolution of this matter which began not just with the bankruptcy issue but also a dispute in the Supreme Court of Victoria.
Fourthly, even accepting that Ms Batavia was genuine, there was no indication from L Accountants about when they were instructed, or whether they had a view about the significance (if any) of the current proceedings, nor whether they intended to be involved including in respect of the appeal to the Federal Court of Australia. I could have no confidence that they would participate.
Fifthly, having regard to the defence to which I turn below, there is no indication even if Ms Batavia does become a bankrupt, that the cases of the Trustee and the liquidator would be doomed to fail. There is no indication that I can see that any trustee of a bankrupt estate of Ms Batavia would be prejudiced having regard to the financial circumstances outlined by Ms Batavia and the very strong evidence presented by both the liquidators and the Trustees which is not the subject of challenge.
Thus, an adjournment in this particular case is not appropriate.
The only other matter then of substance having regard to what appears to be a potential bankruptcy of Ms Batavia is to say that the interlocutory orders that she proposed in her application in a case have no basis any longer even if they were relevant in the first place. Her application in a case filed 15 June 2018 is therefore struck out.
The liquidator relied upon the evidence of Mr F. Nothing I have read in the affidavit of Ms Batavia seriously challenges the investigations he undertook. I shall refer below to Ms Batavia’s defence but as will also be seen, there is no evidence that supports the assertions she makes.
There are thousands of pages of documents which found the conclusions made by Mr F and those documents have all been provided in a substantial court book.
The immediate proceeding began in the Supreme Court of Victoria by an originating process in 2016. It is unnecessary for me to set out the details in full, but in 2017, the Judge made orders by an interlocutory process in the Supreme Court. His Honour ordered: that relevant proceeding be transferred to the Family Court of Australia (Melbourne Registry) and the costs of the Interlocutory Process filed by (the relevant parties as trustees) and the costs of (the relevant Supreme Court proceedings) be costs in the transferred proceedings in the Family Court of Australia (Melbourne Registry).
The Plaintiffs filed an amended statement of claim. Save for some minor matters, Ms Batavia responded to all matters in that statement of claim by her defence that she appears to have prepared herself. The defence was filed on 14 November 2017 so to that extent, Ms Batavia was then participating in the proceedings of this Court.
It is helpful to deal with the material facts as pleaded and focus on the relevant proofs as provided by the Plaintiffs wherever Ms Batavia either does not admit, or alternatively, denies, the relevant allegations.
As a matter of formality, although not admitted, incorporation of B Pty Ltd (“BPL”) C Pty Ltd (in liquidation) (“CPL”) is uncontroversial.
In respect of BPL, the Bankrupt was the sole director and shareholder after 9 February 2007.
Another formality here is that the court book shows that Judge Burchardt of the Federal Circuit Court of Australia made a sequestration order against the Bankrupt in 2016. The Trustees became trustees of his bankrupt estate thereafter.
The evidence relied upon by the liquidators comes from Mr F. He is a partner of N Accountants and a registered liquidator. His evidence is drawn from the sources set out in the court books. His conclusions are supported by the facts and wherever Ms Batavia did not admit a pleaded assertion, he provided corroboration of his evidence from those documents.
The Bankrupt was the sole director and shareholder of CPL from about May 2001 until August 2016 and then on 21 July 2017. Between April 2002 and December 2011, CPL operated a law firm in which the legal services were rendered principally by the Bankrupt. He was the sole director and shareholder at all times of CPL.
CPL maintained a bank account with O Bank limited and that is otherwise described as the CPL office account.
As indicated, the Bankrupt was a licensed professional. His business was initially operated by CPL; Ms Batavia worked there between 2002 and at least 2013. She was an office worker between 2002 and 2008 and between 2009 and 2013, a manager. She was also a registered agent. Prior to 2002, Ms Batavia appears to have been in full-time employment of the state of Victoria. That seems to have ended in 2002. An examination of her earnings showed that she earned modest amounts until 2010 when CPL paid her wages of $150,000. In 2010 through to 2013, she had wages of $150,000 in each year but assessable income higher than that.
In 2007, at an auction, the Bankrupt executed the contract to purchase a house at P Street, Suburb E. The handwritten contract of sale shows that he had contemplated either himself or a nominee ultimately being the purchaser because those words were added. The purchase price was $1.6 million.
In January 2008, CPL made a payment of $100,000 to the Q super fund. That money came from the CPL office account. The vendors of P Street wanted that sum to be paid directly into their superannuation fund in any event, but it formed part of the purchase price.
Around 1 February 2008, the transfer of land was executed by which stage, Ms Batavia had been substituted for the Bankrupt.
The R Bank provided a loan of $600,000 towards the purchase which was then completed.
Over five years later, both the Bankrupt and Ms Batavia entered into a loan facility with O Bank. Initially, it was the CPL office account that was nominated as the account from which the repayments of the O facility were authorised to be made. There was a direct debit request executed. Ms Batavia also signed a declaration as to the purpose of credit declaring to the O Bank that the loan was to be applied wholly or predominantly for business purposes or investment purposes other than investment in residential property. Despite that, on 23 June 2011, Ms Batavia granted a mortgage over the P Street property to O Bank to secure the O Bank loan facility. The mortgage document is in evidence. The registration of the mortgage is also shown on the title as coinciding with the discharge of the R Bank’s mortgage.
Between June 2011 and 30 September 2014, BPL and CPL made loan payments of $94,502.97 and $49,615.26 in reduction of a debt owing by the Bankrupt and Ms Batavia under the O Bank loan facility. It must be concluded that they were procured by the Bankrupt as he was the sole director.
Between 30 June 2011 and 31 May 2012, CPL made mortgage instalments and these were paid from the CPL office account. They totalled $36,452.22.
Between 29 June 2012 and 30 September 2014, BPL made mortgage instalment payments totalling $74,448.91. These came from the BPL O Bank cheque account. They were the mortgage payments. On 5 June 2014, Ms Batavia signed a contract to purchase the property in D Street, Suburb E. The purchase price was $3.85 million. She paid a deposit of $385,000 to the vendors’ agent.
Around 8 August 2014, Ms Batavia signed a contract to sell the P Street property for $2.01 million. The deposit was paid by the purchasers.
On 1 October 2014, Company S who, by that time had become the owners of the business, requested the release of the deposit to facilitate the purchase of D Street. The purchasers agreed. An amount of $175,890 was paid to Company T.
An amount of $717,050 had already been paid to Company T on 1 September 2014 but that sum was paid by BPL and it was described as part payment of the purchase price. The money went into Company T trust account.
On 1 October 2014, BPL made another payment of $490,000 to Company T also as part payment of the purchase price for D Street. On 2 October 2014, $175,890 was received and a further payment of $1.8 million went in to Company T all of which related to the settlement of the purchase price.
From 31 October 2014 until 30 October 2015, BPL paid $59,373.44 for interest payments due to O Bank being the money owed by the Bankrupt and Ms Batavia. There is something of an inconsistency in the defence of Ms Batavia as to whether or not ,upon the sale of P Street, O Bank was repaid or whether the funds were directly transferred over to the acquisition of D Street and the O Bank simply changed the security. Having now seen the documents, I am satisfied that the money did not go back to O Bank but rather direct to the vendors and O Bank agreed to that course of action with the execution of the security over D Street.
The payments between October 2014 and October 2015 came from the BPL cheque account. Undoubtedly, they were servicing the mortgage obligations of the Bankrupt and Ms Batavia to the O Bank.
As it transpires, around the time that these proceedings began, D Street was sold. By agreement, the caveat placed over the property was lifted to enable the settlement to be concluded and there is now cash held in a trust account.
In addition to mortgage payments, there is a history of monies being drawn from CPL and BPL for what must be seen as personal purposes. On 13 May 2005, CPL made a payment of $2,338.11 for school fees. Other payments shown in the affidavit of Mr F include a payment of $8,768.72 drawn from the O loan facility that was made available to the parties as a result of the security over the relevant residential property. There were also home renovations undertaken and payments have been identified from BPL and also the business relating to the residential property. It is unnecessary for me to set all those out in intricate detail because there is no evidence from Ms Batavia or any other person to indicate that the conclusions, that seem apparent, are incorrect.
There are payments that were made from May 2014 to September 2015 from the legal firm through its corporate entity relating to a German motor vehicle 1 and a German motor vehicle 2. Records show that the payments went to the finance arm of the motor vehicle company and it is interesting to note that Ms Batavia points to the financial agreements one of which shows that she had a German motor vehicle. Absent any evidence to the contrary, and there is none here, this is not simply a case where inferences could be drawn. These are facts supported by documents and as such, statements as set out above, are findings of fact.
I turn then to the relevant pleadings. As I have indicated, Ms Batavia filed a defence albeit she refers to herself as “they” but I have understood her to be referring to herself.
The Plaintiffs plead that at all relevant times, the Bankrupt had been in a fiduciary duty with BPL and owed statutory and common law duties as a director to exercise his powers and discharge his duties in good faith in the best interests of BPL and for a proper purpose. Those duties included that he was not to make an improper use of his position to gain an advantage for himself or someone else to the detriment of BPL nor to mistake company property as his own or to appropriate that property for his own or some other person’s benefit. Ms Batavia said she did not admit and could not admit that because it was directed to the Bankrupt. However, it is simply a statement of law and therefore uncontroversial. It relies upon ss 181 and 182 of the Corporations Act 2001 (Cth) (“the Corporations Act”).
The pleading also went on to assert that the Bankrupt had the same duties in respect of CPL. Ms Batavia took the same approach by not admitting the material fact pleaded. It is therefore uncontroversial because it is a statement that reflects the law.
In respect of the purchase, sale and satisfaction of mortgage obligations concerning P Street, the Plaintiffs pleaded facts consistently with the affidavit of Mr F. Ms Batavia did not admit some of those details but I am satisfied on the findings above, each of the allegations is proved on the balance of probabilities.
To the extent necessary to say so, the Plaintiffs pleaded that P Street was to be a matrimonial home for both the Bankrupt as well as Ms Batavia and the family. That was not admitted by Ms Batavia however she conceded that the Bankrupt had been appointed to attend the auction and purchase the property on her behalf. This was apparently something to do with the original deed of ownership document to which I earlier referred but it is not controversial that it was the home for both persons including their children.
Between June 2011 and September 2014, the mortgage instalment payments in respect of P Street were made by BPL and CPL. Ms Batavia’s defence asserted that the payments had been made on account of monies owed by those entities to her. There is no evidence to support such an assertion. Apart from the absence of any plausible evidence being provided by Ms Batavia or for that matter the Bankrupt, nothing in the records of the companies would corroborate her assertion. Indeed, it was said that the books of accounts were “a mess”. Bearing in mind the professional nature of the business conducted by the Bankrupt and for that matter, Ms Batavia, not to mention that the accountant for the business was the Bankrupt’s brother, this “mess”, is hard to understand.
Ms Batavia pleaded that payments relating to loan accounts were “moneys” borrowed by the Bankrupt to “loan” to the self-managed superannuation fund and “BPL super fund” for the purchase of two properties rented by the two companies and the impugned payments were made on account of rent. There is no evidence to support such a conclusion.
I find in the circumstances that the sums of money asserted by Mr F arising from his investigations were indeed paid.
The pleading in respect of the acquisition of D Street and the sale of P Street were also only partly controversial from the perspective of Ms Batavia. The Plaintiffs pleaded that Ms Batavia agreed to purchase D Street with the intention that it was to be used as the matrimonial residence for herself, the Bankrupt and their family. Her response to that was that she partially admitted it but when the Bankrupt commenced his own business, he and she entered into the “deed of ownership” which sets out what she describes as their then intention. I find there is no evidence to indicate that whatever intention they had in 2001, it was continued thereafter but even if it was, both of the parties linked to the marriage lived there. The legal ownership argument does not assist Ms Batavia because the payments were made drawn from the entities the primary source of which was the Bankrupt’s business and its associated activities.
The Plaintiffs pleaded that the deposit for D Street came from BPL and Ms Batavia “partially” admitted that but said that she directed the Bankrupt to make such a payment on account of monies owed to her by him. No evidence supports such a conclusion and no records of the company showing such a loan account have been provided nor has any evidence, oral or written, as between the Bankrupt and Ms Batavia, been provided either.
The Plaintiffs asserted that BPL made the payment of $490,000 and Ms Batavia made the same response to that just mentioned. My finding remains the same.
The Plaintiffs pleaded that the amount of money to complete the purchase of D Street can be traced to those matters to which I have already referred in the affidavit of Mr F. That money predominantly came from the O Bank. It is here that there is an inconsistency. Ms Batavia said that the money previously had been paid back to the O Bank but at paragraph [37] of her defence she said that the bank offered and extended the mortgage for D Street and rather than the money being paid back to O Bank, it was simply transferred across to the new mortgage. I accept that is what happened.
In respect of payments from 31 October 2014 until 30 October 2015, the Plaintiffs allege that it was BPL that made the mortgage payments. Ms Batavia admitted that but indicated that the payments were on account of wages and monies owed by BPL to her. To the extent that they were wages, they presumably would have been income but her records and returns to which Mr F referred would indicate that was not to be the case. In addition, to the extent that Ms Batavia said that they were monies owed by the company, no such evidence was presented and there has been ample time since these proceedings began for Ms Batavia to seek to reconstruct or construct, the relevant accounts and she has not done so.
The Plaintiffs pleaded that the Bankrupt in his capacity as the sole director of BPL procured the payments and curiously, Ms Batavia said she did not know and could not admit that. She must have known that the payments were being made by BPL because she said in the previous paragraph of her defence that the payments were made on account of wages and monies owed by BPL to her. It is a curious statement to say that she could not know or admit what is pleaded by the Plaintiffs because she knew that the Bankrupt was the sole director of BPL. She does not say that she requested him to make the payment but rather, pleads that they were made on account of monies owed to her. However, in the very paragraph of her defence she does say that they were made at the direction of the Bankrupt on account of monies owed to her. She says that she had no ability to make the payments because she was neither a director nor officeholder of BPL. Again, absent any evidence to establish the wages argument or her assertion as to monies owed, I accept the evidence of the Plaintiffs.
The Plaintiffs then pleaded that the acquisition of D Street by Ms Batavia having regard to the source of funds, did not benefit BPL, but rather, benefited the Bankrupt in that it became a residence for him and the family. It also became “matrimonial property” giving rise to an entitlement on his part to make a claim in equity or under the Family Law Act 1975 (Cth). Ms Batavia said she did not know and could not admit those assertions.
The evidence clearly shows that substantial sums of money were paid by BPL to enable the Bankrupt and Ms Batavia to live in affluent circumstances. There is no evidence from Ms Batavia of any commercial or for that matter, personal, arrangement under which the Bankrupt was entitled to live in the home. There is no doubt that he did live there and regardless of the “deed of ownership”, all the facts as known to the Plaintiffs would suggest that this was a long relationship where the Bankrupt was the substantial financial provider albeit that Ms Batavia contributed her income in various ways as well. The evidence of Mr F is that both Bankrupt and Ms Batavia earned an income so one would presume that the Bankrupt was making contributions towards the household and I accept that it may have given rise to his entitlement to make a claim based on his contributions.
The Plaintiffs asserted that the Bankrupt breached his duties as a director of BPL in improperly using his position to gain an advantage for himself and/or Ms Batavia in relation to the purchase of D Street and that he appropriated funds to Ms Batavia’s benefit as well as his own and failed to exercise his powers and discharge his duties as required under the law relating to corporations. Ms Batavia responded by saying she had no rights to make any decisions and therefore was not in contravention of the corporations law. She asserted that any monies paid were again wages or loans at the direction of the Bankrupt. What that ignores is that the parties had operated their financial activities using BPL and CPL and to the extent that there were loans or wages, the books of account should have shown them. No evidence supports such a conclusion. It is not Ms Batavia who breached any duties but rather the Bankrupt but Ms Batavia gained the benefit therefrom.
Section 181(2) of the Corporations Act provides that a person who is “involved” in a contravention also contravenes this subsection. Ms Batavia denies any such involvement.
Section 79 of the Corporations Act provides that a person is involved if, and only if, they have aided, abetted, counselled or procured the contravention or relevantly, been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention. All that is necessary to become involved is that the person knew the essential facts and in this case, that means knowing that the money was coming from the relevant companies and that it should not have happened. The test seems to me to be something akin to being an accessory including knowing, but not doing anything about stopping, these payments from the companies. Ms Batavia knew her husband was involved with that sort of conduct as the director of the company. The Bankrupt must have known that use of the company money for those purposes was not permitted absent some clear commercial arrangement because he was a lawyer.
The wording of s 79 of the Corporations Act makes it clear that for Ms Batavia to be an accessory, it is essential that she actually knew that she was participating in the Bankrupt doing what amounts to a contravention of his duties. Whilst her defence indicates that she did not admit the allegation, she did not say that she was unaware that the Bankrupt was contravening the relevant provision. In addition, she produced no evidence at all. Having regard to the complexities of the arrangements that would it were put in place, I consider it is open to find that she knew that the company could not just have its resources used in the way they were absent some form of loan arrangement. Ms Batavia makes reference to loans from which I have concluded that she knew the necessity to document any such arrangements (See Rural Press Limited v ACCC [2003] HCA 75; (2003) 216 CLR 53 at [74]).
The Plaintiffs allege that as a result of what has occurred, BPL is entitled to reimbursement.
I find on the evidence the Bankrupt improperly used his position as a director of CPL and BPL in respect of all the matters to which I referred and failed to exercise his powers and discharge his duties in good faith is required by the Corporations Act. I find the Bankrupt appropriated funds of both companies to both his own benefit and that of Ms Batavia. I find that Ms Batavia was aware at all times that the Bankrupt was not entitled to use the company funds as he did. I find that she was an employee of the relevant business from which the Bankrupt’s source of income was derived and that there was no benefit in any such payments to the respective companies.
I find that CPL accordingly had a beneficial interest in the P Street property and BPL had a beneficial interest in the D Street property by virtue of, and in proportion to, its contribution to the purchase price for the reasons already set out, in the payments made in respect of the relevant mortgages.
By virtue of the sale of the D Street property I find that BPL has a corresponding beneficial interest in the proceeds and is entitled to be reimbursed by Ms Batavia the mortgage payments made by BPL.
I find BPL is entitled to a lien over any interest of Ms Batavia in the proceeds of the sale of the D Street property together with a reimbursement of the relevant mortgage payments which I have referred.
It was submitted on behalf of the Plaintiffs that both CPL and BPL are able to trace their respective contributions towards the purchase of the D Street property both by direct payment and from the proceeds of the sale of the P Street property. The evidence supports such a conclusion.
In respect of the loan repayments drawn from CPL and BPL, it was submitted that each company was entitled to an equitable charge in respect of the payments made over any part of the proceeds to which either the Bankrupt or Ms Batavia would otherwise be entitled. That submission emanates from the proposition that where a person other than the owner makes payments without agreement with the legal owner, a right of contribution, and a resulting trust, arises in favour of the companies here having made the payments. An equitable charge therefore arises over the property in favour of the companies (see Ingram v Ingram (1941) VLR 95 cited by Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 at [262]).
The liquidators prepared a report setting out how their claim was quantified and absent any evidence to the contrary from Ms Batavia, I accept those calculations.
The Plaintiffs claimed relief by way of a declaration specifically that Ms Batavia holds her interest in the traced proceeds as constructive trustee for BPL to the extent of the part payments, the BPL mortgage payments and the funds supplied by BPL towards the purchase of the D Street property. It follows that the claim also seeks a portion of the proceeds derived from the capital appreciation of the D Street property since its acquisition. Similar declarations were sought arising from s 1317H of the Corporations Act. The Plaintiffs also sought interest and costs.
On all of the evidence, and excepting the submissions of the Plaintiffs, the companies are entitled to the relief sought and accordingly, I make orders in the terms of those set out at the commencement of these reasons.
It goes without saying that the balance of proceeds that would otherwise be due to Ms Batavia shall remain in the controlled account until such time as the determination of the claim by the Trustees is completed.
I certify that the preceding eighty seven (87) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 25 October 2018.
Acting Associate:
Date: 25 October 2018
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