Carrafa v Gomez & Anor (No.3)
[2016] FCCA 3139
•7 December 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| CARRAFA v GOMEZ & ANOR (No.3) | [2016] FCCA 3139 |
| Catchwords: BANKRUPTCY – Application under s.120 and s.121 of the Bankruptcy Act 1966 – defence of equity of exoneration. |
| Legislation: Bankruptcy Act 1966, ss.120, 121 Duties Act 2000 (Vic) s.43(3) |
| Cases cited: Farrugia v Official Receiver in Bankruptcy (1982) 58 FLR 474; [1982] FCA 52 Ierino v Gutta (2012) 43 WAR 372; [2012] WASCA 222 Paget v Paget [1898] 1 Ch 470 Parsons v McBain (2001) 109 FCR 120; (2001) 192 ALR 772; (2001) 1 ABC(NS) 188; [2001] FCA 376 |
| Applicant: | MICHAEL CARRAFA AS TRUSTEE IN BANKRUPTCY FOR THE BANKRUPT ESTATE OF KALAISELVI GOMEZ |
| First Respondent: | IRWIN GOMEZ |
| Second Respondent: | JNGO PTY LTD (CAN 168 239 781) |
| File number: | MLG 2624 of 2014 |
| Judgment of: | Judge Riley |
| Hearing date: | 14 June 2016 and 11, 12 and 20 July 2016 |
| Date of last submission: | 2 August 2016 |
| Delivered at: | Melbourne |
| Delivered on: | 7 December 2016 |
REPRESENTATION
| Counsel for the applicant: | Tim Sowden |
| Solicitors for the applicant: | Zervos Lawyers |
| Advocate for the first respondent: | Kristen Moore, until Kennedy Guy was given leave to file a notice of ceasing to act on 14 June 2016, and then there being no appearance |
| Solicitors for the first respondent: | Kennedy Guy, until it was given leave to file a notice of ceasing to act, and then there being no solicitor on the record |
| Advocate for the second respondent: | No appearance on 14 June 2016 and then Nathan Gomez by leave of the court |
| Solicitors for the second respondent: | None |
DECLARATIONS
The transfer of the bankrupt’s interest in the property situated at 59 Hinrichsen Drive, Hallam in the State of Victoria (certificate of title volume 09970 folio 306), to the first respondent registered on or about 23 May 2014, is void pursuant to s.120 of the Bankruptcy Act 1966.
The transfer of the bankrupt’s interest in the property situated at 2 Hatherley Grove, Altona North in the State of Victoria (certificate of title volume 05218 folio 573), to the first respondent registered on or about 23 May 2014, is void pursuant to s.120 of the Bankruptcy Act 1966.
The transfer of $171,100 from the bankrupt’s Commonwealth Bank of Australia (ACN 123 123 124) bank account no. 10821202 on 27 February 2014 to JNGO Pty Ltd (“JNGO”) is void against the applicant, pursuant to s.120 the Bankruptcy Act 1966.
The funds held in Rabobank (ACN 001 621 129) (“Rabobank”) bank account no. 142-201-3587482-21 in the name of JNGO with a current balance of $123,139.01 are the property of the bankrupt.
ORDER
Rabobank pay the sum of $123,139.01, held in its bank account no 142-201-3587482-21 in the name of JNGO, to the applicant.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 2624 of 2014
| MICHAEL CARRAFA AS TRUSTEE IN BANKRUPTCY FOR THE BANKRUPT ESTATE OF KALAISELVI GOMEZ |
Applicant
And
| IRWIN GOMEZ |
First respondent
And
| JNGO PTY LTD (ACN 168 239 781) |
Second respondent
REASONS FOR JUDGMENT
Introduction
This is an application by a trustee in bankruptcy for declarations under s.120 and s.121 of the Bankruptcy Act 1966 (“the Act”) and consequential orders. Shortly prior to her bankruptcy, the bankrupt transferred her interest in two properties to her husband, the first respondent, Irwin Gomez, and transferred a sum of money to the second respondent, JNGO Pty Ltd (“JNGO”), a company of which her son, Nathan Gomez, is and was at all material times the sole director and shareholder.
Irwin Gomez resisted the declarations and orders sought by the applicant on the grounds that he had an equity of exoneration and rights as a surety. JNGO argued that the money apparently transferred to it by the bankrupt had actually been lent to it by Irwin Gomez, who was entitled to it pursuant to the equity of exoneration.
The equity of exoneration was said to arise because properties owned by the bankrupt and Irwin Gomez jointly were mortgaged to fund property investment and development by J Renee Nominees Pty Ltd (“J Renee”), a company wholly owned by the bankrupt.
The applicant is the trustee of the bankrupt estate of Kalaiselvi Gomez. A sequestration order was made against her estate on 21 August 2014. The order noted that the date of the act of bankruptcy was 2 July 2014. She was served with a bankruptcy notice on 10 June 2014.
Irwin Gomez and JNGO were initially represented by separate solicitors. However, both sets of solicitors withdrew from the record. Irwin Gomez later obtained other legal representation. However, those solicitors were given leave to file a notice of ceasing to act on the first day of the final hearing, that is, on 14 June 2016. The solicitors said that they had not been put in funds for the hearing and said further that they were unable to continue acting for ethical reasons. The nature of the ethical reasons was not explained to the court.
Nathan Gomez, as the sole director and shareholder of JNGO, was given leave at an interlocutory hearing to appear for JNGO. However, after the withdrawal of the Irwin Gomez’s solicitors on the first day of the final hearing, neither Irwin Gomez nor JNGO appeared on 14 June 2016.
The matter had been listed for a final hearing of three days. However, as the respondents did not appear on 14 June 2016, the matter proceeded on an undefended basis and the hearing finished on 14 June 2016. Judgment was reserved.
However, Nathan Gomez emailed the court on 15 June 2016, in effect, asking for the matter to be reopened. The matter was listed for the hearing of the application to reopen on 16 June 2016. That application was granted. Orders were made for the further hearing of the matter on 11 and 12 July 2016. The hearing proceeded on those days and also on 20 July 2016.
Irwin Gomez did not appear in person or by a legal representative on 11, 12 or 20 July 2016. However, Nathan Gomez appeared on those days on behalf of JNGO. JNGO’s case was dependent on the case of Irwin Gomez, so addressed the grounds that Irwin Gomez would have run if he had been present. Kalaiselvi Gomez, the bankrupt, substantially assisted Nathan Gomez during the hearing. She also swore and affidavit on 23 June 2016 that set out the respondents’ case.
The applicant’s case
The applicant alleged that:
a)the bankrupt and Irwin Gomez had been the joint registered proprietors of two properties;
b)shortly before the sequestration order was made against the bankrupt, the bankrupt and Irwin Gomez transferred the two properties to Irwin Gomez alone;
c)shortly before the sequestration order was made against the bankrupt, the bankrupt transferred $171,100 to JNGO; and
d)the transfers were for no consideration or consideration of less than the market value of the property transferred.
The applicant did not press paragraphs 3, 4, 5, 7, 8(b) or 10 of the amended application filed on 21 December 2015.
The applicant relied on two affidavits sworn by the applicant on 19 December 2014 and 25 February 2016, two affidavits sworn by Ravak Ahmad on 30 October 2015 and 4 December 2015, and an affidavit sworn by Samuel Tamblyn on 15 June 2016.
The affidavits relied upon by the applicant had exhibited to them various source documents including title searches, transfers of land, and bank records. A summary of the basic facts of the applicant’s case, substantially as set out below under the headings “The Hallam and Altona properties” and “The funds held by JNGO Pty Ltd”, was provided by the court to the respondents for comment after the hearing on 14 June 2016 and before the hearing resumed on 11 July 2016.
A. The Hallam and Altona properties
A current title search of certificate of title volume 5218 folio 573 shows that the street address of the property to which that certificate of title relates is 2 Hatherley Grove, Altona North (“the Altona property”). A historical title search of certificate of title volume 5218 folio 573 shows that the Altona property was registered in the names of the bankrupt and Irwin Gomez on 5 August 2002. It also shows that the Altona property was transferred from the bankrupt and Irwin Gomez to Irwin Gomez alone on 25 June 2014.
A current title search of volume 9970 folio 306 shows that the street address of the property to which that certificate of title relates is 59 Hinrichsen Drive, Hallam (“the Hallam property”). A historical title search of that property shows that it was transferred from the bankrupt and Irwin Gomez to Irwin Gomez alone on 25 June 2014.
A transfer of land dated 23 May 2014 shows that certificates of title volume 5218 folio 573 and volume 9970 folio 306 were transferred from the bankrupt and Irwin Gomez to Irwin Gomez alone for a consideration of $60,000. The transfer was stamped by the State Revenue Office on 25 June 2014 as being exempt under s.43-3.
A valuer by the name of Samuel Tamblyn swore an affidavit on 15 June 2016 saying that, as at 25 June 2014, the Hallam property was worth $370,000 and the Altona property was worth $470,000. That makes a total of $840,000.
The bankrupt lodged a statement of affairs dated 10 September 2004. That is probably a typographical error and should have said 10 September 2014. In her statement of affairs, the bankrupt said that the Hallam property had a mortgage of $252,000 and the Altona property had a mortgage of $316,000. The bankrupt said in her statement of affairs that she continued to be liable for both mortgages notwithstanding that she had transferred the Altona and Hallam properties to the first respondent.
On those figures, the equity in the Hallam property at the time of transfer was $118,000 and the equity in the Altona property was $154,000. That is a total equity of $272,000.
B. The funds held by JNGO Pty Ltd
A company search shows that the bankrupt was the sole director and shareholder of J Renee. A title search shows that J Renee transferred the property described in certificate of title volume 11177 folio 103 to another person. That was the property at 182 The Esplanade, Surf Beach, Phillip Island (“Surf Beach”). A transfer of land dated 15 January 2014 in respect of that transaction shows that the consideration was $650,000.
A settlement statement for that transfer shows that a sum of $584,839.72 was to be paid as directed by the vendor. On 15 January 2014, a National Australia Bank (“NAB”) bank statement in the name of J Renee shows that the sum of $584,289.72 was paid into the bank account of that company on 15 January 2014. That is, the proceeds of sale of a property owned by J Renee was paid into J Renee’s bank account.
The same bank statement shows that the sum of $144,039.33 was transferred to from J Renee to “Selvi Gomez” on 20 January 2014 (CB279). The bankrupt sometimes goes by the name of Selvi Gomez. A NAB bank statement in the name of a “Mrs K Gomez” of the bankrupt’s address shows the sum of $144,039.33 going into the bankrupt’s NAB account on 20 January 2014: CB283.
The same bank statement shows a debit of $144,039.35 on 23 January 2014. Another bank account in the bankrupt’s name with the Westpac Banking Corporation (“Westpac”) shows a deposit of $144,039.35 on 23 January 2014: CB285. The Westpac statement shows another $30,000 being deposited in the bankrupt’s account on 28 January 2014.
On 30 January 2014, the bankrupt’s Westpac statement shows $171,100 being withdrawn from that account. A Commonwealth Bank bank statement for account number 06 2948 10821202 in the bankrupt’s name shows the sum of $171,100 being deposited in her account on 6 February 2014. The same statement shows the sum of $171,484.90 being withdrawn from that account with the effect of closing it on 27 February 2014. A bank voucher shows that $171,484.90 was withdrawn from account number “06 29[illegible] 10821202 and $171,480 was deposited in an account of JNGO on 27 February 2014.
A Commonwealth Bank bank statement for JNGO shows that the sum of $171,480 was deposited in its account on 27 February 2014. The same statement shows that on 11 April 2014 $100,000 was withdrawn from that account and transferred to another Commonwealth Bank account in the name of JNGO. The same statement also shows that on 16 April 2014 $60,000 was withdrawn from that account and transferred to another Commonwealth Bank bank account in the name of JNGO.
Another Commonwealth Bank bank statement in the name of JNGO but in respect of a different account number shows that the sums of $100,000 and $60,000 were credited to that account on 11 April 2014 and 16 April 2014 respectively. The same bank statement shows that the sums of $100,000 and $60,000 were transferred by direct debit on 11 April 2014 and 17 April 2014 respectively to ING (Australia) Ltd (“ING Direct”) account number 6063 9660.
An interim statement from ING Direct in respect of JNGO’s account number 6063 9660 shows a withdrawal on 5 November 2014 of $153,522.24.
A bank statement in respect of one of JNGO’s Commonwealth Bank accounts shows the sum of $153,522.24 being credited from ING Direct bank account number 6063 9660 on 5 November 2014. The same Commonwealth Bank bank statement shows the sum of $153,500 being withdrawn on 6 November 2014 and transferred to a RaboDirect account.
A RaboDirect bank statement in the name of JNGO shows the amount of $153,500 being credited to that account on 6 November 2014 from a linked bank account. The same bank statement shows the amount of $149,507.58 being transferred on 7 January 2015 to account number 142-201-3587482-00.
The RaboDirect bank statement for that account shows the sum of $149,507.58 being deposited on 7 January 2015. The same bank statement shows the sum of $123,000 being transferred on 16 September 2015 to account number 142-201-3587482-21.
A RaboDirect bank statement for that account shows the sum of $123,000 being deposited in that account on 16 September 2015.
On 30 October 2015, the court made an ex parte order restraining JNGO from dealing in any way with the funds in Rabobank account number 142-201-3587482-21.
Disputed aspects of the applicant’s evidence
When the hearing resumed on 11 July 2016, Nathan Gomez accepted all of the summary of the applicant’s evidence set out above under the headings “The Hallam and Altona properties” and “The funds held by JNGO Pty Ltd”, except the two matters discussed below.
Firstly, Nathan Gomez accepted the applicant’s valuation of the Hallam property as at the date of transfer but challenged the applicant’s valuation of the Altona property as at the date of transfer. Rather than the Altona property being worth $470,000 as at the date of transfer, being 25 June 2014, as the applicant claimed, Nathan Gomez said it was worth $370,000. The applicant accepted that lower valuation (Tr. 11.7.16, p.108).
That meant that, at the time of transfer, the total equity in the Hallam and Altona properties was $174,000. The bankrupt’s half share of the equity in the two properties was $87,000. The transfer of the bankrupt’s share of both properties for a consideration of $60,000 was still substantially less than the market value of the bankrupt’s share of the equity in the two properties as at the date of transfer on 25 June 2014.
Secondly, Nathan Gomez said that the NAB bank statement which had been thought to show that $149,039.33 was transferred from J Renee to Selvi Gomez, the bankrupt, on 20 January 2014 (CB279) did not show that. In reality, Nathan Gomez said, the $149,039.33 was actually transferred to an account in the name of Irwin Gomez and the bankrupt, with the reference “Richmond & Waterways”: CB283.
Nathan Gomez is correct. The $149,039.33 was transferred on 20 January 2014 to an account in the name of Irwin Gomez and the bankrupt. The bank statement was addressed to the bankrupt alone, but the account was in the name of the bankrupt and Irwin Gomez. However, the fact remains that, on 23 January 2014, $144,039.35 was transferred from an account in the names of the bankrupt and Irwin Gomez to an account in the name of the bankrupt alone. Moreover, the bank voucher mentioned above shows funds being transferred from the bankrupt’s personal account to the account of JNGO on 27 February 2014.
Application of s.120 to the applicant’s case
Leaving aside for the time being the respondents’ arguments about the equity of exoneration, Irwin Gomez’s rights as a surety, and Irwin Gomez lending money to JNGO, the effect of the applicant’s evidence would be as follows.
Subsection 120(1) of the Act provides that:
A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a)the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b)the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
In the present case, the date of the bankruptcy was 21 August 2014, when the sequestration order was made against the bankrupt. The date of the commencement of the bankruptcy was 2 July 2014, when the bankrupt failed to comply with a bankruptcy notice. The relevant period under s.120 of the Act began five years before the commencement of the bankruptcy, that is, on 2 July 2009, and ended on the date of the bankruptcy, that is, on 21 August 2014. The transfer of the Hallam and Altona properties occurred on 25 June 2014. That was clearly within that time period.
There are various statutory exemptions and exceptions under s.120 of the Act. However, there is no suggestion that any of them apply in the present case.
In all the circumstances, and on the evidence before the court, it is clear that the bankrupt transferred to Irwin Gomez her half interests in the Hallam and Altona properties for less than the market value of those interests. Consequently, under s.120 of the Act, and subject to the respondents’ arguments, those transfers would be void as against the trustee in bankruptcy.
The documents clearly show that there was a transfer on 27 February 2014 from the bankrupt to JNGO of $171,480. There is nothing in the applicant’s material that suggests that there was any consideration for that transfer. It clearly fell within the period contemplated by s.120 of the Act.
The fact that the proceeds of J Renee’s sale of the Surf Beach property were briefly held in an account held by the bankrupt and Irwin Gomez does not alter the fact that $171,480 eventually arrived in an account of the bankrupt and was transferred from there to JNGO. The proceeds of the sale of Surf Beach were prima facie the bankrupt’s, as she was the sole shareholder of J Renee, which owned Surf Beach. Prima facie, the $171,480 was the bankrupt’s property and it was transferred to JNGO for no consideration.
In the circumstances, and subject to the respondents’ arguments, the transfer of $171,480 by the bankrupt to JNGO on 27 February 2014 would be void as against the trustee in bankruptcy.
As it happens, the applicant has been unable to locate the entirety of the $171,480. The applicant has only been able to find $123,139.01. The trustee seeks a declaration that the $123,139.01 held in Rabobank account number 142-201-3587482-21 in the name of JNGO is the bankrupt’s property and an order that it be paid to the applicant.
Cases on the equity of exoneration
The equity of exoneration was discussed by the Full Court of the Federal Court in Parsons v McBain (2001) 109 FCR 120 at 127 (per Black CJ, Kiefel and Finkelstein JJ) as follows:
18… The equity of exoneration is summarised in Fisher & Lightwood’s Law of Mortgage (Aust. Ed., 1995) at par 30.7:
“It is a well established principle that a person who has mortgaged his property to secure the debt of another stands only in the position of a surety and is entitled to be exonerated by the principal debtor. In this position is a wife who has mortgaged her property to secure money raised for the benefit of her husband. There is a similar equity in favour of a husband.
Where the property of the wife, or property over which she has a power of appointment, is mortgaged, and the money is paid to her and her husband, or to him alone, it is considered prima facie that it was borrowed for his benefit, and his property is first applied, as for payment of his own debt, unless the presumption is rebutted by proof on the part of the husband, that the whole or some part of the money did not come to his hands. If the debt was not originally incurred for the benefit of the husband, this equity of exoneration does not arise by reason of his giving a covenant as additional security. The result will be the same, where the husband has paid off the mortgage, and has taken an assignment of it in trust for himself.”
The authorities go back three centuries: Huntington v Huntington [1702] EngR 126; (1702) 2 Vern 438; 23 ER 881; Taite v Austin [1715] EngR 19; (1714) 1 P Wms 284; 24 ER 382; Parteriche v Powlet [1742] EngR 99; (1742) 2 Atk 383; 26 ER 632; Clinton v Hooper [1791] EngR 213; (1791) 3 Bro CC 201; 29 ER 490.
19It was once thought that this doctrine was limited to husband and wife. This appeared to be the view of Ashburner in his Principles of Equity (2nd ed, 1933) at p 170. In Halsbury’s Laws of England (4th ed, 1979), exoneration is discussed only under the title concerned with husband and wife (Vol 22, pars 1071-1076). However the authorities show that the doctrine is not so limited, and will apply in other cases. That is what occurred in Gee v Liddell [1913] 2 Ch 62 and Caldwell v Ridge Wholesale Acceptance Corporation (Australia) Limited (1993) 6 BPR 13,539.
20The equity of exoneration is an incident of the relationship between surety and principal debtor. It usually arises where a person has mortgaged his property to secure the debt of another, whether or not that other has covenanted to pay the debt. However, it will also arise in a case where, although not an actual suretyship, the relationship is treated as one of suretyship. This is Lord Selbourne’s third class of suretyship mentioned in Duncan, Fox, & Co v North and South Wales Bank (1880) 6 App Cas 1, 10. For the doctrine to apply in this class, the following facts will usually exist. First, a person must charge his property. Where the person is the beneficial owner of the property it will be sufficient if the charge is by his trustee. Second, the charge must be for the purpose of raising money to pay the debts of another person or to otherwise benefit that other person. Third, the money so borrowed must be applied for that purpose. See generally Re Berry (a Bankrupt) [1978] 2 NZLR 373.
21An equity of exoneration operates in the nature of “a charge upon the estate of the principal debtor by way of indemnity for the purpose of enforcing against that estate the right which [the beneficiary] has, as between [the beneficiary] and the principal debtor, to have that estate resorted to first for the payment of the debt” Gee v Liddell [1913] 2 Ch D 62 at 72. Thus, where co-owners mortgage their property so that money can be borrowed for the benefit of one mortgagor, the other has an interest in the property of the co-mortgagor whose property is to be regarded as primarily liable to pay the debt.
22The trial judge denied to each appellant the right of exoneration because she had received “a tangible benefit” from the 1992 mortgage. The benefit, which might more accurately be described as an expected benefit, was that, by putting money into the partnership business, the business might survive and, as put by counsel for the trustee, that would bring “home money to put food on the table and clothe the children”.
23If a surety receives a benefit from the loan, the equity of exoneration may be defeated. So, if the borrowed funds are applied to discharge the surety’s debts, the surety could not claim exoneration, at least in respect of the benefit received. But the benefit must be from the loan itself. The question suggested by the Lord Chancellor of Ireland is: “Who got the money?”: see Re Kiely (1857) Ir Ch Rep 394, 405. In Paget v Paget [1898] 1 Ch 470 both the husband and the wife “got the money” and this prevented the wife claiming exoneration. (emphasis added)
24The “tangible benefit” referred to by the trial judge will not defeat the equity. It is too remote. In any event, the exoneration to which a surety is entitled could hardly be defeated by a benefit which is incapable of valuation, and even if it were so capable, the value is unlikely to bear any relationship to the amount received by the principal debtor.
In Paget v Paget, the court said:
The husband and wife moved in good society and, large as their income was, they lived far beyond it. So recklessly extravagant were they, that five years after their marriage 23,000l. was sorely needed to relieve them from the pressure of debts for which the husband was legally liable, but which debts had been contracted to defray the expenses of the extravagant mode of living which they both apparently enjoyed. (at 471-2)
…
This doctrine is purely equitable, and the authorities which establish it shew that it is based on an inference to be drawn from the circumstances of each particular case … (at 474)
…
The circumstances of each case must all be weighed in order to see what inference ought to be drawn; and until an inference in favour of the wife arises there is no presumption for the husband to rebut. lf this is forgotten, error may creep in. (at 475)
The equity of exoneration gives effect to the intention of the parties at the time the mortgage was drawn down, as explained by the West Australian Court of Appeal in Ierino v Gutta (2012) 43 WAR 372; [2012] WASCA 222 as follows:
43The equity of exoneration is concerned with the $90,000 debt from which Ms Gutta sought exoneration from Mr Ierino. On 5 March 2004, that debt did not exist. The debt arose only when Mr Ierino later drew down that further amount from the HBS line of credit.
44The intention of the parties at a date prior to the date of the $90,000 debt might be relevant, but only if that earlier intention continued at the date the $90,000 debt arose.
45Mr Ierino’s submission that the relevant intention must be determined at 5 March 2004 relied heavily upon statements in various cases suggesting that the equity of exoneration “usually arises where a person has mortgaged his property to secure the debt of another, whether or not that other has covenanted to pay the debt”: Parsons v McBain (2001) 109 FCR 120, 127 [20] per the court, and that the equity arises “at the time she charges her estate” (Hall v Hall [1911] 1 Ch 487, 498 (Warrington J)) or that the property is charged “in order to raise money for the benefit of [another]”: Farrugia (702) (Deane J).
46In each of these cases the mortgage was given at the time that the relevant debt was incurred. Nothing was said in these cases to deny that the intention of the parties in relation to a debt subsequently incurred should be considered at the time the relevant debt is incurred. In cases where the relevant debt is an apportionable part of a line of credit, the relevant time for assessing the intention of the parties is the time when that part of the debt is drawn down and incurred: Dinsdale BHT Protective Commissioner v Aethur (2006) 12 BPR 23,509 at[24]-[25] per Brereton J; Burch v Cone [2009] NSWSC 1430 [24]-[32] per Barrett J; Boyd v Hummelstad [1996] NSWSC 93 per Brownie J.
47Almost all of the $90,000 debt to HBS was drawn down on 28 April 2004 and used solely for Mr Ierino’s benefit, about two months after the HBS line of credit was granted. On 28 April 2004, the discussions which the parties had previously had about building a house of the Dalyellup property did not reflect the parties' intention for the use of the funds.
48On the appeal, counsel for Mr Ierino accepted that at the date of drawdown it was Mr Ierino’s intention to use the money for his own purposes.
49This was also Ms Gutta’s evidence of the parties’ intention. Ms Gutta said that the reason for borrowing $150,000 rather than just the cost of the Dalyellup property was because Mr Ierino needed extra money to “buy other things”. Ms Gutta said that she thought the extra money was for his business and for his property in Lalor Road, Kenwick. She had no financial interest in either his business or in the Lalor Road property.
50The equity of exoneration must be assessed at the date the debt was incurred in relation to which exoneration is sought. In relation to almost all of the $90,000 debt, that date is 28 April 2004. The intention of the parties at 28 April 2004 was that Ms Gutta would be entitled to be exonerated as to that amount.
In Farrugia v Official Receiver in Bankruptcy (1982) 58 FLR 474; [1982] FCA 52, Deane J said that, where a debt was partly for the benefit of two co-owners and partly for the benefit of only one, the equity of exoneration could apply to the part of the debt that was only for the benefit of one co-owner, provided that the debt could be apportioned. His Honour said, at 476-77:
Where the property of a married woman is mortgaged or charged in order to raise money for the benefit of her husband, it is presumed, in the absence of evidence showing an intention to the contrary, that, as between her husband and herself, she meant to charge her property merely as a surety. In such a case, she is, as between her husband and herself, in the position of surety and entitled both to be indemnified by the husband and to throw the debt primarily on his estate to the exoneration of her own (see, generally, 22 Halsbury’s Laws of England (4th Ed.) paras. 1071-1076; Fisher & Lightwood’s Law of Mortgage (8th Ed.) p. 445; Huntingdon v. Huntingdon [1702] EngR 108; (1702) 2 Bro. Parl. Cas. 1; 1 E.R. 753; Peirs v. Peirs [1750] EngR 148; (1750) 1 Ves. Sen. 521; 27 E.R. 1180; Pocock v. Lee [1707] EngR 16; (1707) 2 Vern. 604; 23 E.R. 995; Hall v. Hall (1911) 1 Ch. 487).
The present case is not, however, the simple one where the whole of the moneys borrowed jointly by husband and wife on the security of their joint property have been applied for the benefit of the husband. As has been mentioned, $12,500 of the amount borrowed was applied for the joint benefit of Mr. and Mrs. Farrugia upon the discharge of the previous mortgage under which they were jointly liable. It was only the balance of $10,500 that was applied for the benefit of Mr. Farrugia alone. A question which arises is whether the one borrowing can, for the purposes of the application of the relevant equitable principles, be in effect subdivided into what was borrowed and applied for the joint benefit of Mr. and Mrs. Farrugia and what was borrowed and applied for Mr. Farrugia’s benefit alone. In my view it can. It seems to me that where the joint property is charged partially for the benefit of the husband alone and partly for the benefit of both husband and wife and it is possible to apportion the principal between the two, there is room for the application of the equitable doctrine of exoneration and the wife is, in the absence of agreement to the contrary, entitled to exoneration to the extent of what was borrowed and applied for the benefit of the husband alone (see, 22 Halsbury’s Laws of England (4th Ed.) para. 1073; Gee v. Smart [1857] EngR 727; (1875) 8 El. & Bl. 313 at p. 319; [1857] EngR 727; 120 E.R. 116 at p.119.
The relevant mortgages
Unlike the cases mentioned above, the potentially relevant mortgages and other relevant transactions in the present case were numerous. This is not a case in which there was a single mortgage that secured a single borrowing that was all drawn down on one occasion. On the contrary, the borrowing history of the bankrupt, the first respondent and their associated companies was very extensive. It included various borrowings and refinancings for the purposes of property development. The evidence was extensive but piecemeal, and not presented in a coherent manner. There are clearly many gaps in the evidence.
Nathan Gomez, when asked to identify which mortgage or mortgages were said to give rise to the equity of exoneration, nominated a Westpac mortgage in the names of the bankrupt and Irwin Gomez, being bank account number 037-140-24-2596. The bank statements for the loan associated with that mortgage are in the supplementary court book (“SCB”) filed by the respondents from SCB62 to SCB191. Documents relating to the drawdowns from that mortgage that the respondents relied upon were included from SCB192 to SCB370. Dealing with those drawdowns took a large amount of time at the hearing, and they are discussed at length later in these reasons.
However, towards the end of the hearing, Nathan Gomez said that all of the mortgages taken out by his parents gave rise to the equity of exoneration.
Applicant’s chronology of the mortgages in this case
In any event, the basic, though very long, chronology, from the applicant’s point of view, and as demonstrated by documents before the court, was as follows.
The bankrupt and Irwin Gomez were computer analysts employed by Nathans Solutions Pty Ltd (ACN 079 952 391) (“Nathans Solutions”), which was deregistered on 27 January 2013. Irwin Gomez was a director of that company, the company secretary and held 50 per cent of its shares. It was unclear who owned the remaining shares.
On an unknown date, the bankrupt and Irwin Gomez became registered proprietors of 59 Hinrichsen Drive, Hallam (“Hallam”). Hallam was subject to a mortgage to the Australia and New Zealand Banking Group Ltd (ACN 005 357 522) (“ANZ”). Hallam was and remains the home of the bankrupt, Irwin Gomez, Nathan Gomez and his sister, Jacintha.
On 2 September 1999, the bankrupt and Irwin Gomez became registered proprietors of an investment property at 20 Coles Terrace, Richmond (“Richmond”). Richmond was subject to a mortgage to the NRMA Building Society of $294,600.
On 18 December 2000, another investment property, Lot 55 The Waterways, Braeside (“Waterways”), was transferred to the bankrupt and Irwin Gomez for $163,000. Waterways was subject to a mortgage of $130,400 to ANZ.
In about May 2001, the bankrupt and Irwin Gomez refinanced Hallam and Richmond, with ANZ, to enable them to buy further investment properties at Units 1, 2 and 3 at 460 Kemp Street, Lavington (“Lavington”), and Units 1, 2, 3 and 4 at 190 Kiewa Street, Albury (“Albury”). The mortgage over Richmond to NRMA was discharged and was replaced with a mortgage to ANZ. The bankrupt and Irwin Gomez were joint mortgagors and joint proprietors of Hallam, Richmond, Lavington and Albury. As a result of the refinancing, on about 8 May 2001, they borrowed $280,000 secured against Richmond (CB943, 962), $120,000 secured against Hallam (CB950, 963), $86,800 secured against Lavington (CB964) and $58,975 secured against Albury (CB965).
On about 12 July 2001, the bankrupt and Irwin Gomez borrowed a further $112,000 from ANZ to purchase another investment property at 2 Hatherley Grove, Altona North (“Altona North”). That borrowing was secured against Altona North.
An ANZ file note dated November 2001 (CB993) stated that:
a)“Mr and Mrs Gomez” were existing ANZ customers with five properties financed by ANZ;
b)Hallam had a valuation of $150,000, a mortgage of $120,000 and was occupied by the owners;
c)Waterways had a valuation of $180,000, a mortgage of $112,000 and was to be the site of a future owner occupied home;
d)Richmond had a valuation of $410,000, a mortgage of $280,000, was an investment property and was to be refinanced with a loan of $328,000;
e)Albury had a valuation of $84,250 and a mortgage of $58,975 and was an investment property;
f)Lavington had a valuation of $124,000, a mortgage of $86,800 and was an investment property; and
g)Altona North had a valuation of $140,000, a mortgage of $112,000 and was an investment property.
On about 11 December 2001, the bankrupt and Irwin Gomez refinanced Richmond and borrowed $328,000 from ANZ on the security of Richmond: CB994.
ANZ account statements show that, on 24 December 2001, investment loan number 013-312 3431-88906 in the names of the bankrupt and Irwin Gomez was paid off with a payment of $277,283.49, and a new investment loan number 013-312 3443-92722 in the same names was drawn down in the sum of $328,000: CB999 and CB1000.
An ANZ account statement shows that, on 17 May 2002, investment loan number 013-312 3423-23213 in the names of the bankrupt and Irwin Gomez was paid off with a payment of $123,492.60: CB1001.
An ANZ account statement shows that, on 21 May 2002, investment loan number 013-312 3435-83658 in the names of the bankrupt and Irwin Gomez was paid off with a payment of $110,075.98: CB1002.
An ANZ account statement shows that, also on 21 May 2002, investment loan number 013-312 3452-17854 in the names of the bankrupt and Irwin Gomez and in the sum of $160,000 was drawn down: CB1003.
On 5 August 2002, 2 Hatherley Grove, Altona North (“Altona North”), was registered in the names of the bankrupt and Irwin Gomez.
An ANZ account statement shows that, on 6 September 2002, home loan number 013-312 3457-60988 in the names of the bankrupt and Irwin Gomez and in the sum of $160,000 was drawn down: CB1005.
A Strategic Alliance Mortgages statement for an account in the name of Nathans Solutions shows that, on 23 January 2004, a loan balance of $228,458.03 was paid out in full: CB1006.
On 15 March 2004, J Renee was registered: CB456. The bankrupt was the sole director, secretary and shareholder of J Renee from its incorporation until it was deregistered on 17 August 2014.
A Colonial Bank (“Colonial”) bank statement for the period 1 July to 31 December 2004 for account number 352430303 shows that the bankrupt and Irwin Gomez had borrowings from Colonial of between about $106,000 and $100,000 secured over their property in Waterways: CB1028 and CB1029.
An ANZ bank account statement shows that, on 19 August 2004, investment loan number 013-312 3432-95306 in the names of the bankrupt and Irwin Gomez was paid off with a payment of $81,255.03: CB1007.
An ANZ bank account statement shows that, on 21 January 2005, investment loan number 013-312 3443-92722 in the names of the bankrupt and Irwin Gomez was paid off with a payment of $333,014.32: CB1030.
An NAB letter dated 24 January 2004, which should have read 2005, shows that, on or about 24 January 2005, the bankrupt and Irwin Gomez borrowed $780,000 from NAB on account number 3352 57-978-9388: CB1031. Of that sum, $204,477.73 was used to discharge an existing mortgage over Waterways and $333,164.32 was used to discharge an existing mortgage over Richmond: CB1031.
On 3 May 2005, the bankrupt and Irwin Gomez applied to the Bank of Melbourne (“Westpac”) for a loan of $448,000 to refinance a home loan: CB1239. In the loan application, the bankrupt and Mr Gomez both described themselves as Systems – programmer / analyst / designer / engineer and said they were self-employed and worked fulltime at Nathans Solutions.
On 3 May 2005, the bankrupt and Irwin Gomez accepted a loan offer from Westpac of $448,000, consisting of two loans, one for $232,000 and the other for $216,000: CB1249. The Westpac loans remained in place until at least 9 May 2014, when they had a debit balance of $315,756.69. It was some of the drawdowns from these loans that the respondents primarily claimed gave rise to the equity of exoneration. Those drawdowns occurred over a period of years, and were in numerous small and not so small amounts.
On 6 May 2005, the bankrupt and Irwin Gomez paid out in full their ANZ investment loan number 013-312 3452-17854 with a payment of $162,510.51 (CB1041) and ANZ home loan number 013-312 3457-60988 with a payment of $157,741.55: CB1042.
On 21 September 2006, J Renee borrowed $480,000 from NAB and discharged another mortgage: CB1127. The loan was secured by a mortgage over Surf Beach, which was owned by J Renee, and a guarantee and indemnity for $480,000 given by the bankrupt and Irwin Gomez. The guarantee and indemnity were secured by mortgages over Richmond and Waterways, both of which were owned by the bankrupt and Irwin Gomez: CB1094.
On about 6 November 2006, the bankrupt and Irwin Gomez borrowed $780,000 from NAB on loan account number 86 445 5619: CB1098. Of that sum, $763,361.31 was used to discharge the NAB loan numbered 3352 579789388, which they had borrowed on 24 January 2005: CB1116.
An NAB credit memorandum finalised on 7 June 2007 (CB1128-1130) said as follows:
Customer details
Does the customer have an Aggregation Group Number? Yes
Aggregation Group Name Gomez Group
Aggregation Group Number 836802043
…
Number of Customers part of Current Submission 3
Customer Name …
J Renee Nominees Pty Ltd … Business/Company …
Irwin Gomez … Full/Part-time …
Kalaiselvi Gomez … Full/Part-time …
…
Borrowing Entity: J Renee Nominees Pty Ltd, Irwin Gomez & Kalaiselvi Gomez
This submission seeks approval to increase current $780k National Portfolio Facility to $1,430,000. Facility is currently in the name of Kalaiselvi & Irwin Gomez and this increased facility will add J Renee Nominees Pty Ltd as a borrowing entity.
Increase of $650k will be used to refinance debt from Owen Law solicitors. Clients currently have a $1m debt with Owen Law Solicitors which was used to fund a 3 unit development at Dorgan Street, Mount Waverley. Debt is coming due from renewal/expiry next week which co-incides with sale settlement of one of the units and a second going to Auction on 9th June.
Clients require $650k to payout Owen Law and would like to refinance this with Nab. Unit 2 has been sold for $410k and is likely to settle by 15/06/07 and Unit 1 goes to auction on 09/06/07 with OEMV being $530k. Irwin & Kalaiselvi would like to retain Unit 3 as a rental property. OEMV is $510k. Expected Rental would be $430 to $450 per week. Based on $430 per week provides $22,360 pa. (emphasis added)
Funding Table
Owen Law debt $1,000,000
less Sales Proceeds of Unit 2 $412,000
less Selling costs & other debts due
incl NAB pers loan
$ 62,000 $ 350,000
Residual Debt $ 650,000
As mentioned above, Unit 1 goes to Auction on 9th June and customer expects to receive $530k plus. Customers intention is to then reduce our debt by $500k. We have requested valuation and MV has been confirmed at $525k.
Client also have vacant land in Glen Waverley which we hold as security. Client has advised that land is currently on the market and Auction is due 23rd June. The proceeds of this sale will be used to clear the current $480k debt with NAB against this property along with funds being used to help with development of Phillip Island property. Customer wishes us to look at assisting with funding this development, but due to time constraints with this application and all information not being available, we need to assess this in the near future. No commitment has been given to customer regarding development.
…
Background / History
Customers were introduced via Paul Birss of Savings Dollar Pty Ltd in late 2004.
Customers Irwin and Kalaiselvi Gomez operate two companies, which make up the Gomez group: (emphasis added)
J Renee Nominees Pty Ltd This entity was formed in March 2004 and is the property investment arm of this group. Director is Kalaiselvi Gomez. Company currently owns two properties. (emphasis added)
Nathans Solutions Pty Ltd This entity had been the building company of the group. It currently has one property in its name. Directors of this company are both Irwin & Kalaiselvi Gomez. Company is now a computer consultancy business that pays directors fees to Selvi & Irwin. (emphasis added)
Customers have a number of properties within the group. Overall position can be summarised as follows:
| Assets | Worth estimate | Amount Owing | Equity | Owned by | Description | Lender | |
| 1 | 59 Hinrichsen Drv Hallam | 350,000 | 232,000 | 118,000 | K & I Gomez | Home | Westpac |
| 2 | 20 Coles Tce Richmond | 650,000 | 520,000 | 130,000 | K & I Gomez | Townhouse | NAB |
| 3 | 6 Waterside Drv Braeside | 325,000 | 260,000 | 65,000 | K & I Gomez | Land | NAB |
| 4 | 2 Hatherly Grv Altona Nth | 270,000 | 216,000 | 74,000 | K & I Gomez | House | Westpac |
| 5 | 460 Kemp St Lavington | 320,000 | 192,000 | 128,000 | K & I Gomez | 3 units | Interstar |
| 6 | Carpark | 30,000 | 0 | 30,000 | K & I Gomez | Own Title | |
| 7 | Unit 1-3/2 Dorgan St, Mt Waverley | 1,500,000 | 1,000,000 | 410,000 | J Renee Nominees P/L | 3 units | Owen Law |
| 8 | 6 Henderson Crt, Glen Wav | 600,000 | 480,000 | 120,000 | Nathans solutions P/L | Land | NAB |
| 9 | 182 The Esplanade, Phillip I | 600,000 | 480,000 | 170,000 | J Renee Nominees P/L | Land | NAB |
| Total | 4,645,000 | 3,380,000 | 1,245,000 |
Customer currently has the following plans for the above properties:
Property number 1: is the customer residential address
Property No 2: is currently rented out and there is no current plans to change this.
Property No. 3: is vacant land and there are no immediate plans to develop. It is a waterfront property in a relatively new development.
Properties No 4-6: are currently rented out and customers currently do not intend to change this.
Property No 7: Unit 2 has been sold and Unit 1 is being auctioned. Retaining Unit 3 to be retained as a rental.
Property No 8: is currently vacant land. Customer was going to develop this site but has now decided to place property on the market. These proceeds will be used to clear $480k debt with NAB and assist with development of Phillip Island property.OMEV is $780k+.
Property No 9: is currently vacant land and customer will be looking to build 2 units.
Costings etc are currently being obtained.
…
Although Debt Servicing is not evident below for Kalaiselvi & Irwin Gomez, we need to take note that customer currently in process of reducing their debt through sale of properties.
Calculation below takes into account the new debt at $650k. This will reduce by $500k minimum when Unit 1 is sold. This will result in $37,700 reduction in interest commitment.
As mentioned earlier, Glen Waverley property is also on the Market. This will reduce debt by a minimum of $480k. This will also reduce commitments by a further $36k.
Overall this improves serviceability by $73.3k. Shortfall after these two reductions is $34k.
Customer cannot currently prove serviceability as they have several properties which are vacant land and do not generate income.
Customers are going through the process of either selling land or developing sites to sell units or provide rental income. Through this reduction of debt and/or introduction of new rental income, customers debt servicing will improve.
Personal Income Summary
…
Salary Irwin Gomez $79,439 …
Salary Kalaiselvi Gomez $79,439 …
New rental Kalaiselvi Gomez $22,360 …
…
Net Self Employed/ Business/ Company Income
J Renee Nominees Pty Ltd $ 0 …
From that memorandum, it can be seen that J Renee owned the Mount Waverley properties, Nathans Solutions owned the Glen Waverley property, and the bankrupt and Irwin Gomez jointly owned Hallam, Richmond, Waterways, Altona North, Lavington and a car park. The bankrupt said in cross-examination that the descriptions and functions of J Renee and Nathans Solutions in the NAB memorandum were correct.
On about 14 June 2007, the bankrupt, Irwin Gomez and J Renee borrowed $1,430,000 from the NAB with loan account number 86-445-5619. The loan was secured with mortgages over Richmond (owned by the bankrupt and Irwin Gomez), Waterways (owned by the bankrupt and Irwin Gomez) and units 1 and 3 of 2 Dorgan Street, Mount Waverley (owned by J Renee): CB1132.
On 9 August 2007, “Settlement Funds” of $229,135.73 were used to reduce the debit balance on J Renee’s NAB loan account number 79-954-3259: CB1149. On 16 August 2007, a further $26,000 was used to reduce the debit balance on that account: CB1150. The settlement funds appear to have come from the sale of Surf Beach, which J Renee owned.
On 28 September 2007, J Renee’s NAB loan on account number 86-306-3429 was discharged in full with a payment of $479,905.00: CB1200.
On 29 October 2007, the NAB loan account numbered 79-948-4623 of the bankrupt and Irwin Gomez, with the title, “Kalaiselvi and Irwin Gomez – Richmond & Waterways – NAB Portfolio Sub Account” was reduced by $260,000 with “Funds From Settlement”: CB1207.
On 14 December 2007, $502,220.88 was paid into J Renee’s NAB loan account number 083-352-79-954-3259, from “Mt Waverley settlement”, and $20,000 was paid to account number 3352-799484623. That left J Renee’s account in credit to the extent of $102,272.87: CB1209.
On 18 December 2007, $101,118.31 was transferred from J Renee’s account number 083-352-79-954-3259 to account number 856004404, and account number 79-954-3259 was closed: CB1209.
On 28 May 2009, NAB opened a home loan account in the name of J Renee, being account number 083-266-89-354-0193. On 29 May 2009, that account was drawn down to the extent of $595,000. On 2 November 2009, that loan was drawn down by a further $111,837.50, leaving an outstanding balance of $706,837.50: CB1268.
On 17 June 2009, J Renee became the registered proprietor of 27 Portsmouth Street, Mount Waverley (“Portsmouth”): CB1538.
On 9 December 2009, J Renee opened NAB account number 083-266-16-536-3221. On 10 December 2009, J Renee drew down about $16,000 from that account and transferred it to account number 85-600-4404, and drew down about $708,000 from that account and transferred it to account number 89-354-0193: CB1324.
Prior to 2 February 2010, J Renee sold Surf Beach. On 2 February 2010, that property was registered to other owners: CB1325.
On 5 February 2010, J Renee drew down a further $80,000 on NAB loan account number 083-266-16-536-3221 and transferred it to account number 89-474-2643: CB1269. Account number 89-474-2643 was an NAB account in the name of J Renee subtitled “PORTSMOUTH INTEREST ACCOUNT”: CB279. J Renee was the owner of Portsmouth: Tr.12.7.16, p.293, l.33.
On 8 September 2010, J Renee deposited $50,000 to NAB account number 083-266-89-435-0957 and on the same day drew down $20,000 and then a further $50,000: CB1282.
On 7 October 2010, J Renee drew down a further $50,000 from NAB account number 083-266-89-435-0957 and transferred it to account number 083-266-894742643, being J Renee’s NAB Portsmouth interest account: CB1282.
On 2 February 2011, J Renee reduced NAB loan number 083-266-89-435-0957 by $450,000, which was described as “Settlement Funds Lot 2 27 Portsmouth”: CB1283. On 24 February 2011, J Renee reduced that loan further with a deposit of $57,260.53, described as “Funds From Term Deposit”: CB1283.
From account number 083-266-89-435-0957, J Renee drew down $8,230 on 15 March 2011, $16,809.44 on 23 May 2011, $9,183.25 on 28 June 2011, $17,011.05 on 9 August 2011, and $6,026.79 on 30 September 2011: CB 1284. All of those drawdowns were paid to account number 89-474-2643, being J Renee’s NAB Portsmouth interest account: CB 1284.
On 1 July 2011, the bankrupt and Irwin Gomez borrowed about $220,000 from Winsec Savings & Loans: CB1408.
On 25 November 2011, the bankrupt and Irwin Gomez discharged in full their joint loan from Winsec Savings & Loans in the sum of $220,713: CB1409.
On 2 April 2012, $78,000 was paid into J Renee’s account number 083-266-16-536-3221, which was subtitled “NAB CHOICE H/LOAN INTEREST ONLY IN ARREARS PORTSMOUTH”: CB1276. Prior to that deposit, the outstanding balance on account number 083-266-16-536-3221 was $995,000. The $78,000 came from J Renee’s account number 89-474-2643.
On 3 April 2012, J Renee paid down in full its NAB account number 083-266-89-435-0957 with a payment of $520,282.51 and the account was closed: CB1285. The payment appears to have been from J Renee’s sale of the Portsmouth Street property.
Also on 3 April 2012, $48,020.65 was paid into the Westpac joint account number 037-140 24-2596 in the names of the bankrupt and Irwin Gomez. The description for that deposit was, “DEPOSIT MPL 1 27 Portsmouth”, suggesting that the funds were derived from J Renee’s sale of the Portsmouth Street property: CB1374.
On 1 June 2012, J Renee drew down a further sum of $73,250 from account number 083-266-16-536-3221 and paid it to J Renee’s account number 89-474-2643: CB1277.
On 5 June 2012, $54,000 was deposited into the Westpac joint account of the bankrupt and Irwin Gomez number 037-140-24-2596: CB1376. The description for that deposit was, “DEPOSIT ALTONA NORTH”, suggesting that the funds were derived from the sale by the bankrupt and Irwin Gomez of their jointly held property in Altona North.
On 26 August 2013, there was $48,497.50 deposited into the joint Westpac account number 037-140-24-2596 of the bankrupt and Irwin Gomez: CB1386. The description for that deposit on the bank statement was “Deposit Richmond South VIC”. Presumably, that was part of the proceeds of sale of Richmond, which had been owned by the bankrupt and Irwin Gomez jointly.
On 16 September 2013, the transfer of Richmond, from the bankrupt and Irwin Gomez to a purchaser was registered at the Titles Office: CB462. The sale price was $685,000: CB464. A settlement statement dated 13 September 2013 indicated that the balance of the purchase monies was $612,787.37: CB473.
On 17 September 2013, the sum of $612,000, described in the bank statement as “Settlement Funds”, and on 18 September 2013, the sum of $174.39, described in the bank statement as “Settlement Funds Surplus”, were paid into J Renee’s NAB account number 083-266-16-536-3221, titled, “NAB CHOICE H/LOAN INTEREST ONLY IN ARREARS PORTSMOUTH”: CB474.
On 15 January 2014, J Renee transferred to a purchaser Surf Beach with a consideration of $650,000: CB545. The settlement statement for that transfer shows that $591,820.19 was due to the purchaser: CB277-8. The bank statement for J Renee’s Portsmouth interest account number 083-266 89-474-2643 shows a deposit of $584,289.72 on 15 January 2014. The same bank statement shows $424,004.61 being withdrawn the same day and paid to account number 165 36 3221 (which is in the name of J Renee), and a further $144,039.33 being withdrawn on 20 January 2014 and paid to “Selvi Gomez”, the bankrupt: CB279.
Also, on 15 January 2014, the bank statement for the bank account of the bankrupt and Irwin Gomez with the Westpac Bank account number 733-046 61-2529 shows a credit of $48,600, with the description, “ALEX SCOTT AND STA 182 THE ESPLANADE”: CB281. That indicates that the proceeds of J Renee’s sale of Surf Beach were paid, in part, to the bankrupt and J Renee.
On 25 June 2014, Hallam and Altona North were transferred from the bankrupt and Irwin Gomez to Irwin Gomez alone.
The respondents’ case
As mentioned above, J Renee was incorporated on 15 March 2004. The bankrupt was its sole director and shareholder: CB164-7. J Renee conducted property development. It was deregistered by ASIC on 17 August 2014: SCB2 and CB164.
The first respondent swore affidavits on 19 March 2015 and 4 December 2015, when he was represented by his first solicitors, and on 12 May 2016, when he was represented by his second solicitors. He was not available for cross-examination on those affidavits. However, the second respondent sought to rely on them. Subject to weight, that course was permitted.
Irwin Gomez said in affidavit evidence that:
a)the bankrupt was the sole director and shareholder J Renee;
b)Irwin Gomez had no interest in J Renee and was not involved with the management of it;
c)J Renee conducted property development;
d)Irwin Gomez and the bankrupt owned several properties, namely:
i)Richmond;
ii)Waterways;
iii)Lavington;
iv)Hallam; and
v)Altona North;
e)those properties were used as security for advances made to J Renee;
f)the bankrupt and Irwin Gomez provided personal guarantees and mortgages over the jointly owned properties as security for advances made by NAB in favour of J Renee;
g)about $600,000 equity in Richmond, Lavington and Waterways was lost by reason of the failure of J Renee;
h)J Renee relied on the financial support of the bankrupt and Irwin Gomez to develop properties owned by J Renee and to service the NAB loans; and
i)that financial support was provided by drawdowns on Westpac loan account number 24-2596, which was in the joint names of the bankrupt and Irwin Gomez and was secured against the Hallam and Altona properties owned by them.
The bankrupt said in her affidavit evidence that (SCB2-3):
a)she and Irwin Gomez owned several properties jointly which were used as security for borrowings by J Renee from the NAB;
b)she and Irwin Gomez also provided personal guarantees for the borrowings of J Renee;
c)because of the failure of J Renee, about $600,000 of the equity in properties jointly owned by the bankrupt and Irwin Gomez was lost;
d)half of that lost equity ($300,000) was attributable to Irwin Gomez’s interest in the jointly owned properties;
e)about $400,000 was withdrawn from a Westpac loan account number 037-140 24 2596 which was in the joint names of the bankrupt and Irwin Gomez for the benefit of J Renee; and
f)Irwin Gomez has an equity of exoneration to the extent of about $600,000 in the Hallam and Altona properties that had been jointly owned by the bankrupt and Irwin Gomez but which the bankrupt transferred to Irwin Gomez alone.
A. The NAB mortgages
In support of his claims, Irwin Gomez exhibited to his affidavit sworn on 19 March 2015 a number of bank records in respect of the monies said to be advanced from NAB “in favour of” J Renee (CB185-205), and a purported summary of those records created by the bankrupt: CB184.
The NAB records showed that:
a)on 12 September 2006, NAB advanced $480,000[1] to J Renee on the security of:
[1] $479,840.60 was delivered to an account of J Renee on 21 September 2006: NAB 083-352 86-306-3429: CB1127.
i)a mortgage over J Renee’s property at, Surf Beach;
ii)a guarantee and indemnity given by the bankrupt and Irwin Gomez (the bankrupt’s summary did not mention the guarantee and indemnity);
iii)mortgages over Richmond and Waterways, both of which were jointly owned by the bankrupt and Irwin Gomez;
(the bankrupt’s summary said this loan was borrowed for the purposes of Surf Beach, which was owned by J Renee)
b)on 22 September 2006, NAB advanced $780,000[2] to the bankrupt and Irwin Gomez on the security of mortgages over Richmond and Waterways, both of which were jointly owned by the bankrupt and Irwin Gomez;
[2] $763,361.31 was debited to an account in the name of the bankrupt and Irwin Gomez on17 November 2006: NAB 083-352 86-445-5619: CB1116.
(the bankrupt’s summary said this loan was borrowed for the purposes of 1 Dorgan Street, Mt Waverley, which was owned by J Renee)
c)on 9 August 2007, NAB advanced $1,180,000 to Irwin Gomez, Kalaiselvi Gomez and J Renee Nominees Pty Ltd via account numbers 79-954-3259 and 79-948-4623 on the security of:
i)mortgages over Richmond and, Waterways, which were jointly owned by the bankrupt and Irwin Gomez; and
ii)a mortgage over 3 of 2 Dorgan Street, Mt Waverley, which was owned by J Renee;
with the credit fees and charges to be taken from J Renee’s NAB account number 79-954-3259;
(the bankrupt’s summary said this loan was borrowed for the purposes of Surf Beach, which was owned by J Renee)
d)on 9 August 2007, NAB advanced $416,000 to J Renee on the security of:
i)mortgages over J Renee’s properties at Surf Beach and unit 3 of 2 Dorgan Street, Mt Waverley;
ii)a set-off over a term deposit;
iii)a guarantee and indemnity given by the bankrupt, Irwin Gomez and Nathans Solutions, supported by the following:
(1)mortgages over Richmond and Waterways, which were jointly owned by the bankrupt and Irwin Gomez;
(2)a mortgage over Glen Waverley, which was owned by Nathans Solutions;
(the bankrupt’s summary said this loan was for $480,000, and did not mention the security over J Renee’s property at Surf Beach or Nathans Solutions’ property at Glen Waverley.)
(the bankrupt’s summary said this loan was borrowed for the purposes of Surf Beach, which was owned by J Renee)
e)on 11 May 2009, NAB advanced $920,000 and $595,000[3] (totalling $1,515,000) to J Renee on the security of:
[3] $595,000 was debited to an account in the name of J Renee on 29 May 2009: NAB 083-266 89-354-0193, and a further $111,837.50 was drawn on 2 November 2009: CB1268.
i)mortgages over Portsmouth and Surf Beach, both of which were owned by J Renee; and
ii)guarantees and indemnities given by the bankrupt and Irwin Gomez for $515,000;
(the bankrupt’s summary only referred to the $920,000 loan and not the $595,000 loan and said it was secured against Mt Waverley, Surf Beach and unit 3 of 2 Dorgan Street, and did not say it was also secured by a guarantee and indemnity of $515,000.)
(the bankrupt’s summary said this loan was borrowed for the purposes of Portsmouth, which was owned by J Renee)
f)on 11 May 2009, NAB advanced $995,000 to J Renee on the security of:
i)mortgages over J Renee’s properties at 27 Portsmouth Street Mt Waverley and Surf Beach; and
ii)guarantees and indemnities of $1,915,000 from the bankrupt and Irwin Gomez;
(the bankrupt’s summary said this loan was borrowed for the purposes of 27 Portsmouth Street, Mt Waverley, which was owned by J Renee)
g)on 6 September 2010, NAB advanced $970,000 to J Renee on the security of:
i)mortgages over J Renee’s properties at 27 Portsmouth Street, Mt Waverley, and Surf Beach;
ii)guarantees and indemnities of $1,965,000 from the bankrupt, Irwin Gomez and Nathans Solutions; and
iii)a mortgage over Richmond, which was owned by the bankrupt and Irwin Gomez.
(the bankrupt’s summary said this loan was borrowed for the purposes of 27 Portsmouth Street, Mt Waverley, which was owned by J Renee)
The bankrupt clarified in oral evidence that the NAB mortgages were each rolled into the next one, rather than being cumulative.
B. The Westpac mortgage
In addition to the NAB loans, the respondents’ principal argument was that an equity of exoneration arose from the drawdowns from Westpac account number 037-140 242596. The bank statements for that account are at SCB62 to SCB191. The respondents prepared a list of the drawdowns from that account that are numbered from 1 to 87: SCB216-217. There is a photocopy cheque butt in respect of each drawdown.
Clearly, a cheque butt alone is not solid evidence that a particular payment was made to the person stated on it or for the purpose stated on it, because cheques can be made out to someone different to the entity shown on the cheque butt, and the description on the cheque butt can be added or altered after the event. Better evidence consists of the actual cheque, receipts and entries in bank statements.
In the present case, there are supporting documents that show what some but not all of the drawdowns were for. I will deal with them in order.
Item 1 is a cheque butt dated 17 May 2005 for $5,000 and marked “Transfer to NAB”. That sum was paid into the NAB joint account of the bankrupt and Irwin Gomez, being account number 083-937 57-978-9388. It is possible that the $5,000 paid into that account was subsequently used for the benefit of J Renee or the bankrupt alone. However, the evidence did not demonstrate that. In the circumstances, there is no reason to treat this payment to a joint account as being for the benefit of J Renee or the bankrupt alone.
Item 2 is a cheque butt for $1,000 dated 17 May 2005 and marked “Homelodge Deposit Building Cont”. It is supported by a receipt dated 17 May 2005 indicating that $1,000 was received from Nathan’s Solutions for “Initial dep on NHBO on 2 Dorgan St Mt Waverley”. It was common ground that 2 Dorgan Street was owned by J Renee. However, no one was able to explain what “NHBO” means. The respondents said that, because 2 Dorgan Street was owned by J Renee, any payment connected with 2 Dorgan Street must have been for the benefit of J Renee. However, that does not follow. Nathans Solutions, a building company, may have had a contract to do something at 2 Dorgan Street, and the payment was for that service. There is no reason to conclude that the payment of $1,000 was for the benefit of J Renee, when the receipt was in the name of Nathans Solutions.
It is noteworthy that Nathan Gomez said, in connection with item 2, that:
Nathan Solutions was originally just put on the invoices. It’s just a name that was put on them but the actual owner of the actual property itself was J Renee.
Item 3 is a cheque butt dated 25 May 2005 for $1,518 and marked “Jeff Bennet, 182 The Esplanade”. The invoice connected with this payment is from Jeff Bennett to Nathans Solutions. The invoice is for planning services, consisting of representation at VCAT, in relation to 182 The Esplanade. J Renee owned that property. However, the invoice is to Nathans Solutions. There is no reason to not accept that invoice at face value, and infer that there was a contract for Nathans Solutions to do something at that property. There is no reason to conclude that the payment of $1,000 was for the benefit of J Renee, when the invoice was in the name of Nathans Solutions.
Item 4 is a cheque butt dated 18 July 2005 for $4,000 and marked “I and K Gomez Transfer to NAB”. The document connected with this cheque butt is an NAB bank statement for account number 083-937 57-978-9388 in the joint names of the bankrupt and Irwin Gomez, showing the deposit on the same date of $4,000. These funds went to the joint account of the bankrupt and Irwin Gomez. It has not been demonstrated that they were then used for the benefit of J Renee or the bankrupt alone.
Item 5 is a cheque butt dated 28 July 2005 for a payment of $3,282.92 and marked “Dardanis and Assoc, Ong matter”. There were no documents provided to the court in connection with this matter. The respondents claimed that the payment was for the sole benefit of the bankrupt, as she had been personally sued by Mr Ong. However, in the absence of any supporting documentation, I am unable to be satisfied that this money was used for the stated purpose or for any purpose of J Renee or the bankrupt alone.
Item 6 is a cheque butt dated 19 August 2005 for $4,000 and marked “I and K Gomez Loan repayment”. The supporting document is an NAB bank statement for account number 083-937 57-978-9388 in the joint names of the bankrupt and Irwin Gomez showing a credit of $4,000 on the same date. These funds went to the joint account of the bankrupt and Irwin Gomez. It has not been demonstrated that they were then used for the benefit of J Renee, or, for that matter, the bankrupt alone.
Item 7 is a cheque butt dated 11 August 2005 for $600 and marked “David Hindle Tax Ret”. The respondents said this was for the preparation of a tax return for Nathans Solutions. There is no reason to conclude that this payment was for the benefit of J Renee, or the bankrupt alone.
Item 8 is a cheque butt dated 1 September 2009 for $825 and marked “Hay Property Consultants”. There is no supporting documentation in connection with this item. The respondents claim the payment was made in connection with the financing of Dorgan Street, which was owned by J Renee. However, in the absence of any supporting documentation, I am unable to be satisfied that the payment was made for the benefit of J Renee, or the bankrupt alone.
Item 9 is a cheque butt 1 September 2009 for $7,810 and marked “DB Design 182 The Esplanade”. There are two invoices connected with this payment totalling $7,810 from Darren Brown Design. However, the invoices are addressed to Nathans Solutions. In these circumstances, although J Renee owned 182 The Esplanade, there is no reason to suppose that the payment was for the benefit of J Renee or the bankrupt alone. It may be that Nathans Solutions had a contract to do something at that site, and the payment was made for its benefit, or it may be that the bankrupt and Irwin Gomez did not treat J Renee and Nathans Solutions as distinct entities.
Item 10 is a cheque butt dated 8 September 2005 and marked “Newhouse Engineering, 6 Henderson Court”. There are no supporting documents in connection with this cheque butt. 6 Henderson Court was owned by Nathans Solutions. The respondents claimed that Irwin Gomez had resigned as a director of Nathans Solutions at the time of this payment. However, I do not accept that, as it does not accord with the 2007 file note of the NAB set out above, which stated that Irwin Gomez was then a director of Nathans Solutions. The applicant disputed that, claiming that Irwin Gomez was a director of Nathans Solutions from 3 September 1997 to 17 August 2008 and from 15 April 2010 to 23 February 2011. However, a company search of Nathans Solutions was not provided to the court. In any event, a more important issue would be who owned the shares in Nathans Solutions. The applicant claimed that Irwin Gomez at all material times was the secretary of Nathan’s Solutions and held 50 per cent of its shares. As the matter stands, I am unable to be satisfied that this payment was for the benefit of J Renee or the bankrupt alone.
Item 11 is a cheque butt dated 16 September 2005 for a payment of $2,000 and marked “K Gomez transfer to NAB”. This is supported by an extract of an NAB bank statement showing a $2,000 deposit on the same date. However, the extract from the bank statement does not indicate the account number or the name of the account holders. In view of the clear evidence that various NAB accounts were held in the joint names of the bankrupt and Irwin Gomez, and the absence of any NAB bank statements solely in the bankrupt’s name, I am not satisfied that this payment was solely for the benefit of the bankrupt. Also, from the balance of the NAB account into which the $2,000 was deposited, it appears to have been credited to account number 083-937 57-978-9388, which was a joint account in the names of the bankrupt and Irwin Gomez. It has not been demonstrated that the funds were then used for the benefit of J Renee, or, for that matter, the bankrupt alone.
Item 12 is a cheque butt dated 6 October 2005 for $1,650 and marked “Dardanis Henderson Court”. There are no supporting documents in relation to this item. Henderson Court was owned by Nathans Solutions. There is no reason to suppose this payment was for the benefit of J Renee or the bankrupt alone.
Item 13 is a cheque butt dated 6 October 2005 for $1,628.65 and marked “Dardanis and Associates”. There is no supporting documentation for this item. The respondents said this money was paid for “a personal matter” for the bankrupt alone regarding Mr Ong. However, in the schedule at SCB216, this payment was said to be for J Renee. In the absence of supporting documents, I am not satisfied that this payment was for the benefit of J Renee or the bankrupt alone.
Item 14 is a cheque butt dated 16 October 2005 and marked “Orix Aust Deposit”. The document said to be in support of this item is an invoice dated 6 February 2006 from McKean Park to J Renee for preparing mortgage documents for a loan from Orix. The first difficulty with this item is that the cheque butt is dated four months before the invoice to which it is said to relate. Additionally, the cheque butt indicates that a deposit was paid to Orix whereas the invoice indicates that a payment for services was made to McKean Park. Also, the cheque butt is for $2,400 and the invoice is for $2,332.34. In these circumstances, I am not satisfied that the $2,400 was paid on behalf of J Renee or the bankrupt alone. While someone probably paid the invoice to J Renee from McKean Park, that may well have been J Renee from its own resources. There is no reason to suppose that invoice supports an equity of exoneration.
Item 15 is a cheque butt dated 31 October 2005 for $700 and marked “K Gomez”. The supporting document for this item is an NAB bank statement for account number 083-937 57-978-9388 in the joint names of the bankrupt and Irwin Gomez showing a deposit of $700. It has not been demonstrated that the funds were then used for the benefit of J Renee or the bankrupt alone.
Item 16 is a cheque butt dated 1 November 2005 marked “David Novak 2 Dorgan St”. The document in support of this item is an invoice from David Novak and Associates dated 3 March 2005. It is marked in handwriting, “3/10/05 This account is still owing.” It says it is for design work at Dorgan Street, which was owned by J Renee, but it is addressed to Nathans Solutions. For the reasons discussed previously, I am not satisfied that this item was for the benefit of J Renee or the bankrupt alone.
Items 17 and 18 are cheque butts dated 18 November 2005 and 30 January 2006, for $3,000 and $4,000, respectively. They are both marked “I and K Gomez” and are both supported by NAB bank statements for joint account number 083-937 57-978-9388 held in the names of the bankrupt and Irwin Gomez showing deposits of those amounts. It has not been demonstrated that the funds were then used for the benefit of J Renee or the bankrupt alone.
Item 19 is a cheque butt dated 1 February 2006 for $10,841 and marked “Placemark”. There are no documents in support of this item. The respondents claim that this item was architects’ fees for Dorgan Street, which was owned by J Renee. However, in the absence of any supporting documentation, I am not satisfied that this item was for the benefit of J Renee or the bankrupt alone.
Item 20 is a cheque butt dated 1 February 2006 for $3,410 and marked “Marek Tomen Pty Ltd”. The document in support of this item is an invoice from Marek Tomen for structural design addressed to Renee Nominees Pty Ltd. That can be assumed to be J Renee. However, it is in respect of 6 Henderson Court, which was owned by Nathans Solutions. It was not explained to the court how that payment could have been for the benefit of J Renee or the bankrupt personally. It appears to reflect a payment by the bankrupt and Irwin Gomez, as it was drawn from their account, for a debt incurred by J Renee possibly on behalf of Nathans Solutions. Further documents to explain the context would have been helpful. However, I am prepared to accept that the $3,100 was drawn down from the joint Westpac account for a debt incurred by J Renee as the invoice was made out to J Renee.
Item 21 is a cheque butt dated 1 February 2006 for $3,500 and marked “Dardanis and Associates Invoice”. There is no supporting documentation for this item. Nathan Gomez told the court it was for a personal matter of the bankrupt. The schedule at CB216 says it was for J Renee. In the absence of supporting documentation, I am not satisfied of that it was for either of them.
Item 22 is a cheque butt dated 17 February 2006 for $2,200 and marked “NAB I + K”. The supporting documentation shows that that sum was paid into NAB account number 083-937 57-978-9388 held jointly by the bankrupt and Irwin Gomez. It has not been demonstrated that the funds were then used for the benefit of J Renee or the bankrupt alone.
Item 23 is a cheque butt dated 20 February 2006 for $310 and marked “Winsec valuation”. There were no documents in support of it. Nathan Gomez told the court it was for a valuation of the Lavington property, which was owned by the bankrupt and Irwin Gomez. That is, funds were drawn down from the jointly held Westpac account for an expense associate with a jointly held property. In the circumstances, I am not satisfied that this item was for the benefit of J Renee or the bankrupt alone.
Item 24 is a cheque butt dated 28 February 2006 for $5,000 and marked “I + K Gomez”. The supporting documentation shows that sum was paid into NAB account number 083-937 57-978-9388 held jointly by the bankrupt and Irwin Gomez. It has not been demonstrated that the funds were then used for the benefit of J Renee or the bankrupt alone.
Item 25 is a cheque butt dated 3 March 2006 for $10,000 and marked “G + F Bruinsma”. It is supported by a letter and a receipt from G + F Bruinsma. The receipt is made out to J Renee Nominees PL saying that the payment was the deposit for the units at Dorgan Street, which was owned by J Renee. I am satisfied that this item reflects a payment of $10,000 drawn down from the joint Westpac account for a debt incurred by J Renee.
Item 26 is a cheque butt dated 8 March 2006 for $595 and marked “Better Mortgage for Esplanade”. There was no supporting documentation for this item. Nathan Gomez told the court it was for The Esplanade, which was owned by J Renee. However, in the absence of documentation, I am not satisfied who incurred the $595 expense or for what purpose.
Items 27, 28 and 29 are cheque butts dated 17 March 2006, 20 March 2006 and 30 March 2006 respectively, for $1,800, $2,400 and $3,200 respectively and marked “transfer to NAB” in the first case and “I + K Gomez Transfer to NAB” in the second and third cases. The supporting documentation for these items shows that the amounts were paid into the NAB account number 083-937 57-978-9388 held jointly by the bankrupt and Irwin Gomez. It has not been demonstrated that the funds were then used for the benefit of J Renee or the bankrupt alone.
Item 30 is a cheque butt dated 21 March 2006 for $1,980 and marked “Owen Law Mortgage Managers QS”. Nathan Gomez told the court that QS stood for quantity surveyor. This item is said to be supported by a statement of account dated 18 May 2006, which was about two months later. The statement of account (SCB268) is addressed to the bankrupt at J Renee. It sets out various amounts associated with J Renee’s mortgage of Dorgan Street, and says in respect of some of them that there is an attached invoice. Those invoices were not provided to the court and they were not for $1,980. That figure was mentioned in the statement, but not as an invoiced amount. However, it seems that the $1,980 might have been paid prior to the date of the statement and the statement reflects that earlier payment. I am satisfied that this item reflects a payment of $1,980 drawn down from the joint Westpac account for a debt incurred by J Renee.
Item 31 is a cheque butt dated 23 March 2006 for $1,650 and marked “Marketline valuation 2 Dorgan St”. It is supported by a tax invoice from Marketline made out to J Renee Nominees Pty Ltd saying that the payment was for professional valuation services in respect of 2 Dorgan Street, which was owned by J Renee. I am satisfied that this item reflects a payment of $1,650 drawn down from the joint Westpac account for a debt incurred by J Renee.
Item 32 is a cheque butt dated 3 April 2006 for $400 and marked “I + K Gomez NAB”. The supporting documentation shows that sum was paid into NAB account number 083-937 57-978-9388 held jointly by the bankrupt and Irwin Gomez. It has not been demonstrated that the funds were then used for the benefit of J Renee or the bankrupt alone.
Item 33 is a cheque butt dated 30 March 2007 for $2,000 and marked “I + K Gomez NAB”. There is no supporting documentation for this item. There was no explanation for why the relevant bank statement was not produced, when so many other NAB bank statements were produced. In any event, the cheque butt itself indicates that the money was paid into a joint account held by the bankrupt and Irwin Gomez. It has not been demonstrated that the funds were then used for the benefit of J Renee or the bankrupt alone.
Item 34 is a cheque butt dated 30 July 2007 for $1,400 and marked “I + K Gomez NAB”. The supporting documentation shows that sum was paid into NAB account number 083-352 79-948-4623 held jointly by the bankrupt and Irwin Gomez. It has not been demonstrated that the funds were then used for the benefit of J Renee or the bankrupt alone.
Item 35 is a cheque butt dated 3 August 2007 for $2,517.35 and marked “G + F Bruinsma 1/2 Dorgan St”. There is no supporting documentation for this item. However, in view of the other documents supporting a debt incurred by J Renee to G + F Bruinsma, I accept that the $2,517.35 was drawn down from the joint Westpac account for a debt incurred by J Renee.
Item 36 is a cheque butt dated 21 August 2008 for $1,800 and marked “Home Design + Construction Deposit for Drawing 27 Portsmouth Rd”. The document in support of this item is an invoice addressed to the bankrupt. Portsmouth Road was owned by J Renee. I am satisfied that this item reflects a payment of $1,800 drawn down from the joint Westpac account for a debt incurred by the bankrupt alone, possibly on behalf of J Renee.
Item 37 is a cheque butt dated 26 June 2009 for $21,395 and marked “Design + Construction 27 Portsmouth Aux Deposit”. The document in support of this item is an invoice addressed to the bankrupt. Portsmouth Road was owned by J Renee. I am satisfied that this item reflects a payment of $21,395 drawn down from the joint Westpac account for a debt incurred by the bankrupt alone, possibly on behalf of J Renee.
Item 38 is a cheque butt dated 11 August 2009 for $12,800 marked “Home DC Portsmouth”. This item is supported by an invoice addressed to the bankrupt for Portsmouth drawings (exhibit 2, 12 July 2016). I am satisfied that this item reflects a payment of $1,800 drawn down from the joint Westpac account for a debt incurred by the bankrupt alone, possibly on behalf of J Renee.
Item 39 is a cheque butt dated 12 August 2009 for $1,432 and marked “Home DC Appliances”. There is no supporting documentation for this item. However, in view of the other records relating to Home Design and Construction, I accept that the payment of $1,432 was drawn down from the joint Westpac account for a debt incurred by J Renee.
Item 40 is a cheque butt dated 16 September 2009 for $584 and marked “Monash City Council for tree removal penalty”. The document in support of this item is a letter from the City of Monash addressed to the bankrupt at J Renee. Portsmouth Road was owned by J Renee. I am satisfied that this item reflects a payment of $584 drawn down from the joint Westpac account for a debt incurred by J Renee.
Items 41 and 42 are cheque butts dated for $770 and $550 respectively, and marked “Laminate Traders”. Nathan Gomez told the court that these expenses were for cabinets for the Portsmouth Road property, which J Renee owned. There is no supporting documentation for these items. I am not satisfied the payments were for expenses incurred by J Renee.
Item 43 is a cheque butt dated 4 November 2009 for $997.92 and marked “Registrar of Titles for Esplanade”. There is no supporting documentation for this item. The Esplanade was owned by J Renee. The schedule at CB216 says the item was in respect of Portsmouth, which J Renee also owned. However, in the absence of supporting documentation, and in view of the conflicting evidence about which property it was for, I am not satisfied that this drawdown was actually used for Titles Office fees incurred by J Renee.
Item 44 is a cheque butt dated 26 November 2009 for $1,540 and marked “James W Mann”. There is no invoice for this item. However, Nathan Gomez said it was for the preparation of financial statements for J Renee. Those statements appear at SCB20. However, in the absence of an invoice stating the purpose of the $1,540, I am not satisfied that the drawdown of $1,540 was for J Renee. Presumably, someone paid James W Mann for J Renee’s financial statements, but in the absence of evidence, it could have been J Renee from its own funds.
Item 45 is a cheque butt dated 17 March 2010 for $4,500 and marked “Dardanis and Associates”. No supporting documentation was provided for this item. Nathan Gomez told the court the sum was incurred for J Renee and the bankrupt personally. The schedule at SCB216 indicates it was for J Renee only. In the absence of supporting documentation, and in view of the discrepancy in who it was incurred by, I am not satisfied who this expense was incurred by or that it was drawn down for the benefit of J Renee or the bankrupt.
Items 46 and 48 are cheque butts 29 June 2010 and 11 August 2010, for $2,000 and $8,450, respectively marked “Melwyn Garden Supplies for Portsmouth”. There is an invoice from Melwyn Garden Supplies for $10,650, which is $200 over the amount apparently paid. The invoice was addressed to Selvi, which is the bankrupt’s diminutive, and is said to be in respect of 27 Portsmouth Street, which was owned by J Renee. I am satisfied that these items reflect payments totalling $10,450 drawn down from the joint Westpac account for a debt incurred by J Renee.
Item 47 is a cheque butt dated 2 August 2010 for $1,398 and marked “Final inspection Portsmouth Council”. There is no documentation in support of this item. However, Portsmouth was owned by J Renee and it seems likely that it needed to have a final inspection. I accept that this item reflects a drawdown for an expense incurred by J Renee.
Item 49 is a cheque butt dated 30 August 2010 for $526 and marked “City of Monash ASAP 27 Portsmouth St”. There is no documentation in support of this item. It is unclear what it was for or who incurred it. Given the intermingling of finances and obligations between the various entities involved in this case, I am not satisfied who incurred this expense or that the sum was drawn down for the benefit of J Renee or the bankrupt.
Item 50 is a cheque butt dated 31 August 2010 for $220 and marked “SW Carpentry Services Portsmouth”. There is no documentation in support of this item. It is unclear what it was for or who incurred it. Given the intermingling of finances and obligations between the various entities involved in this case, I am not satisfied who incurred this expense or that the sum was drawn down for the benefit of J Renee or the bankrupt.
Item 51 is a cheque butt dated 6 September 2010 for $800 and marked “Tim [illegible] Carpentry at Portsmouth”. There is no documentation in support of this item. It is unclear what it was for or who incurred it. Given the intermingling of finances and obligations between the various entities involved in this case, I am not satisfied who incurred this expense or that the sum was drawn down for the benefit of J Renee or the bankrupt alone.
Item 52 is a cheque butt dated 1 November 2010 for $3,000 and marked “K Gomez Transfer to credit card for GFT funding”. There is no documentation in support of this item. As it was ostensibly a transfer to a credit card in 2010, it could be expected that there would be a corresponding credit card statement showing the deposit. In the absence of such evidence, I am not satisfied that the sum was drawn down for the benefit of J Renee or the bankrupt alone.
Item 53 is a cheque butt dated 26 November 2010 for $10,000 marked “J Renee Nominees Transfer back to NAB”. This item is supported by an NAB bank statement for account number 083-266 89-474-2643 in the name of J Renee showing a deposit of $10,000. I am satisfied that $10,000 was drawn down from the joint Westpac account and transferred to J Renee.
Item 54 is a cheque butt dated 16 December 2010 for $2,508 and marked “Nilsson Noel 27 Portsmouth St”. This item is supported by an invoice from “[Illegible] Noel & Holmes (Surveyors) P/L” for $2,508 for work at 27 Portsmouth Street addressed to Selvi Gomez. I am satisfied that $10,000 was drawn down from the joint Westpac account and paid for an expense incurred by the bankrupt.
Item 55 is a cheque butt dated 29 December 2010 for $8,000. It is marked “J Renee Nominees Transfer for loan”. There is no document in support of this item. The court was taken to a bank statement for J Renee showing a deposit of $10,000 on the same date, being 29 December 2010. However, the amounts are different. Additionally, the $10,000 deposit was the same deposit referred to in item 54. This appears to be an attempt at double counting. Moreover, the cheque butt has a line through the words “transfer for loan”, suggested that the withdrawal was not for the stated purpose. Having said that, the Westpac account does show $8,000 being withdrawn by cheque on 29 December 2010: SCB143. In the absence of documentary evidence showing where that $8,000 went, I am not satisfied that it was transferred to J Renee or the bankrupt alone.
Item 56 is a cheque butt dated 30 June 2011 for $250 and marked “JPH electrical wiring”. There is no documentation in support of this item. It is unclear what it was for or who incurred it. Given the intermingling of finances and obligations between the various entities involved in this case, I am not satisfied who incurred this expense or that the sum was drawn down for the benefit of J Renee or the bankrupt alone.
Item 57 is a cheque butt dated 30 November 2011 for $30,693.93 and marked “I + K Gomez NAB transfer”. This item is supported by an NAB bank statement for account number 083-266 89-474-2643 held in the name of J Renee showing a deposit of that amount on the same date. The reference on the cheque butt to “I + K Gomez” appears to be inaccurate. This highlights the intermingling of the finances in this case. In any event, I accept that the $30,693.93 was drawn down from the joint Westpac account and transferred to J Renee.
Item 58 is a cheque butt dated 13 December 2011 for $9,400 and marked “Ray White Albury”. This item is supported by an invoice for $9,410 from Ray White addressed to I & K Gomez in respect of the property at Lavington. That property was jointly owned by the applicant and Irwin Gomez. It has not been demonstrated that this amount was incurred for the sole benefit of J Renee or the bankrupt.
Item 59 is a cheque butt dated 30 December 2011 for $9,000 and marked “I + K Gomez transfer to NAB”. This item is supported by an NAB bank statement for account number 083-266 89-474-2643 held in the name of J Renee showing a deposit of that amount on the same date. The reference on the cheque butt to “I + K Gomez” appears to be inaccurate. This highlights the intermingling of the finances in this case. In any event, I accept that the $9,000 was drawn down from the joint Westpac account and transferred to J Renee.
Item 60 is a cheque butt dated 31 January 2012 for $8,450 and marked “I + K Gomez transfer to NAB”. This item is supported by an NAB bank statement for account number 083-266 89-474-2643 held in the name of J Renee showing a deposit of that amount on the same date. The reference on the cheque butt to “I + K Gomez” appears to be inaccurate. This highlights the intermingling of the finances in this case. In any event, I accept that the $9,000 was drawn down from the joint Westpac account and transferred to J Renee.
Item 61 is a cheque butt dated 9 February 2012 for $5,000 and marked “Hayton Kosky Trust Account”. This item was supported by a table of payments that Nathan Gomez said had been given to his mother by PCL Lawyers in respect of a proceeding in the County Court in which the bankrupt and J Renee were plaintiffs. Part of the County Court judgment is before the court. It shows that the plaintiff was J Renee and its solicitors were PCL Lawyers. The table is exhibit 3, 12 July 2016. The table is not on a letterhead but someone has written on it by hand, “PCL Lawyers”. The table could have been prepared by anyone at any time. It suggests that a payment of $5,000 was received from Hayton Lawyers on 7 June 2012, well after the date of the cheque butt. In view of the dubious provenance of the table, and the discrepancy in the dates, I am not satisfied that this document shows that the $5,000 was drawn down for the benefit of J Renee or the bankrupt alone.
Item 62 is a cheque butt dated 29 February 2012 for $7,880 and marked “Transfer to NAB”. It is supported by a page of a bank statement which I accept is a continuation of the J Renee bank statement for NAB account number 083-266 89-474-2643 in support of item 60. That bank statement shows a deposit of $7,880 in J Renee’s account. I accept that sum was drawn down from the Westpac joint account and transferred to J Renee’s account.
Item 63 is a cheque butt dated 29 June 2012 for $5,500 and marked “J Renee Nominees Loan Repayment”. It is supported by an NAB bank statement for account number 083-266 89-474-2643 held in the name of J Renee showing that deposit. I accept that sum was drawn down from the Westpac joint account and transferred to J Renee’s account.
Item 64 is a cheque butt dated 31 July 2012 for $4,388 and marked “J Renee NAB”. It is supported by an NAB bank statement for account number 083-266 89-474-2643 held in the name of J Renee showing that deposit. I accept that sum was drawn down from the Westpac joint account and transferred to J Renee’s account.
Item 65 is a cheque butt dated 31 August 2012 for $5,137 and marked “J Renee Mortgage payment NAB”. It is supported by a page of a bank statement which I accept is a continuation of the J Renee bank statement for NAB account number 083-266 89-474-2643 in support of item 64. That bank statement shows a deposit of $5,137 in J Renee’s account. I accept that sum was drawn down from the Westpac joint account and transferred to J Renee’s account.
Item 66 is a cheque butt dated 6 September 2012 for $10,000 and marked “PCL Lawyers Law Practice Trust Account”. It is supported by a PCL trust account statement addressed to J Renee for County Court Litigation. It shows $10,000 was received from “Selvi on behalf of J Renee”. I accept that sum was drawn down from the Westpac joint account and used to pay an expense incurred by J Renee.
Item 67 is a cheque butt dated 1 October 2012 for $4,641 and marked “NAB Account”. It is supported by a page of a bank statement which the applicant accepted was part of J Renee bank statement for NAB account number 083-266 89-474-2643. That bank statement shows a deposit of $4,641 in J Renee’s account on the same date. I accept that sum was drawn down from the Westpac joint account and transferred to J Renee’s account.
Item 68 is a cheque butt dated 31 October 2012 for $5,751 and marked “J Renee NAB Loan Repayment”. It is supported by an NAB bank statement for account number 083-266 89-474-2643 held in the name of J Renee showing that deposit. I accept that sum was drawn down from the Westpac joint account and transferred to J Renee’s account.
Item 69 is a cheque butt dated 14 November 2012 for $10,363 and marked “PCL Lawyers Law Practice Trust Account”. It is supported by a PCL trust account statement addressed to J Renee for County Court Litigation. It shows $10,363 was received from J Renee. I accept that sum was drawn down from the Westpac joint account and used to pay an expense incurred by J Renee.
Item 70 is a cheque butt dated 30 November 2012 for $4,810 and marked “NAB Loan Repayment”. It is supported by an NAB bank statement for account number 083-266 89-474-2643 held in the name of J Renee showing that deposit. I accept that sum was drawn down from the Westpac joint account and transferred to J Renee’s account.
Item 71 is a cheque butt dated 31 December 2012 for $4,853 and marked “NAB”. It is supported by an NAB bank statement for account number 083-266 89-474-2643 held in the name of J Renee showing that deposit. I accept that sum was drawn down from the Westpac joint account and transferred to J Renee’s account.
Item 72 is a cheque butt dated 28 January 2013 for $220 and marked “Phillip Island plumbing replace hot water”. There is no documentation in support of it. It is unclear what it was for or who incurred it. Given the intermingling of finances and obligations between the various entities involved in this case, I am not satisfied who incurred this expense or that the sum was drawn down for the benefit of J Renee or the bankrupt.
Item 73 is a cheque butt dated 31 January 2013 for $4,800 and marked “J Renee Nominees NAB”. It is supported by an NAB bank statement for account number 083-266 89-474-2643 held in the name of J Renee showing that deposit. I accept that sum was drawn down from the Westpac joint account and transferred to J Renee’s account.
Items 74 and 75 are cheque butts dated 12 March 2013 and 2 April 2013, for $780 and $5,000, respectively and both marked “PCL Lawyer Trust Account”. They are supported by PCL trust account statements addressed to J Renee for County Court Litigation. They show those sums were received from J Renee. I accept that those sums were drawn down from the Westpac joint account and used to pay expenses incurred by J Renee.
Item 76 is a cheque butt dated 30 April 2013 for $2,400 and marked “J Renee Nominees P/L”. It is supported by a page of a bank statement which I accept is a continuation of the J Renee bank statement for NAB account number 083-266 89-474-2643 in support of item 73. I accept that sum was drawn down from the Westpac joint account and transferred to J Renee’s account.
Item 77 is a cheque butt dated 28 May 2013 for $205 and marked “J Renee Nominees NAB”. It is supported by an NAB bank statement for account number 083-266 89-474-2643 held in the name of J Renee showing that deposit. I accept that sum was drawn down from the Westpac joint account and transferred to J Renee’s account.
Item 78 is a cheque butt dated 26 August 2013 for $15,953.14 and marked “Crown + Gleeson”. It is supported by an extract of an NAB bank statement, which I accept is for account number 083-266 89-474-2643 held in the name of J Renee, showing $11,000 credited to that account in separate parcels of $4,000, $6,000 and $1,000, with the notation “Crown and Gleeson Bu” and a reference to a CBA account. I am not satisfied this evidence shows that $15,953.14 was drawn down from the joint Westpac account and paid into J Renee’s account, as the amounts do not coincide.
Item 79 is a cheque butt dated 29 August 2013 for $18,000 and marked “John Stanley Kelly Trust Account Barrister”. This item is supported by invoices from a barrister’s clerk in respect of litigation involving J Renee. I accept that $18,000 was drawn down from the Westpac joint account to pay expenses incurred by J Renee.
Item 80 is a cheque butt dated 29 August 2013 for $6,120 and marked “PCL Lawyers Trust Account”. It is supported by a PCL trust account statement saying that sum was received from J Renee. I accept that sum was drawn down from the Westpac joint account and used to pay an expense incurred by J Renee.
Item 81 is a cheque butt 29 August 2013 for $3,000 and marked “PCL Lawyers”. There is no documentation in support of this item. I am not satisfied it was drawn down from the Westpac joint account for the benefit of J Renee.
Item 82 is a cheque butt dated 30 October 2013 for $1,200 and marked “John Stanley Kelly Trust”. It is supported by a PCL trust account statement saying that sum was received from J Renee. I accept that sum was drawn down from the Westpac joint account and used to pay an expense incurred by J Renee.
Items 83 to 85 are a series of La Trobe Home Loan account statements in the name of J Renee, for the periods 1 July 2005 to 30 September 2005, 1 October 2005 to 31 December 2005 and 1 January 2006 to 31 March 2006, respectively, showing seven payments of $2,873, totalling $20,111. I am satisfied that these amounts were drawn down from the joint Westpac account for expenses incurred by J Renee.
Item 86 is a La Trobe Financial loan activity statement for the bankrupt as guarantor for J Renee, for the periods 1 April 2006 to 30 June 2006. It shows payments of $2,873, $2,918 and $500, totalling $6,291. I am satisfied that these amounts were drawn down from the joint Westpac account for expenses incurred by J Renee.
Item 87 is a La Trobe Financial loan activity statement for J Renee, for the period 1 July 2006 to 21 September 2006, showing payments of $2,921, $500 and $3,418, totalling $6,839. I am satisfied that these amounts were drawn down from the joint Westpac account for expenses incurred by J Renee.
By my calculation, the above list of items indicates that amounts totalling $262,629 were drawn down from the Westpac joint account held by the bankrupt and Irwin Gomez for expenses incurred by J Renee or the bankrupt alone.
The applicant’s response
The applicant submitted that, even if some of the drawdowns from the Westpac account were used for the purposes of J Renee or the bankrupt alone, an equity of exoneration did not arise.
The first reason that the applicant said an equity of exoneration did not arise in this case was that, while some money may have been drawn down from the Westpac account in the name of the bankrupt and Irwin Gomez and used ostensibly for J Renee’s or the bankrupt’s purposes, other funds went from J Renee or the bankrupt back to the joint accounts of the bankrupt and Irwin Gomez. In other words, much of the money drawn down from the Westpac joint account ostensibly for J Renee’s or the bankrupt’s purposes was repaid.
From the chronology above, it can be seen that:
a)on 3 April 2012, $48,020.65 was paid into the Westpac joint account number 037-140 242596 in the names of the bankrupt and Irwin Gomez from the sale of the Portsmouth Street property which had been in the name of J Renee; and
b)on 15 January 2014, $48,600, being part of the proceeds of sale of The Esplanade, which had been owned by J Renee, was paid into a bank account of the bankrupt and Irwin Gomez being Westpac Bank account number 733-046 61-2529.
In addition, the Westpac Bank account number 037-140 242596 in the names of the bankrupt and Irwin Gomez shows that rental payments from the Portsmouth Street property, which was owned by J Renee, were paid into that account between October 2011 and February 2012. Those rental payments totalled $9,123: SCB151ff.
While the respondents claim that substantial amounts of money from Westpac account number 037-140 242596 were used for the purposes of J Renee, earnings of the bankrupt were also put into that account. Between December 2011 and August 2012, payments totalling $17,340.10 from Novotech were paid into that account. The money from Novotech was the bankrupt’s earnings as a computer programmer.
Between December 2013 and April 2014, Westpac account number 037-140 242596 shows internet transfers totalling $17,307.28. The bankrupt initially said in cross examination that she did not know the source of those funds. However, she soon claimed that they had been made by Irwin Gomez.
I find that claim to be completely implausible. The bankrupt claimed at that time that Irwin Gomez was working limited hours at Masters as a casual storeman. One of the transfers was of $5,000 and another was of $8,500. It beggars belief that Irwin Gomez could have been the source of those payments. I found the bankrupt’s demeanour when giving this evidence to entirely lack credibility. She seemed to be making up her evidence as she went. I consider it to be likely that the internet transfers were the bankrupt’s earnings from sources such as foreign exchange transactions or computer programming and find accordingly.
On 25 October 2010, $25,000 was paid into the joint Westpac account number 037-140 242596. The bankrupt said in oral evidence that the $25,000 was from Irwin Gomez’s savings in Singapore before he came to Australia as a young man. The bankrupt said that Irwin Gomez paid the money in cash into the bank.
I find that evidence to be completely implausible. The idea that Irwin Gomez, as a young man, would have been able to save $25,000 and then emigrate and leave the $25,000 behind beggars belief. That he would have brought that money in cash to Australia in 2010, rather than bringing it to Australia by a telegraphic transfer, also beggars belief. Again, the bankrupt appeared to be making up this evidence as she went. I consider it likely that the $25,000 came from the bankrupt’s own earnings, and I find accordingly.
The various payments mentioned above that have been credited to the joint Westpac accounts of the bankrupt and Irwin Gomez total about $110,000. As the above analysis shows, more money went the other way, $262,629 in fact. That suggests that approximately $150,000 more went from the joint Westpac accounts for expenses incurred by J Renee or the bankrupt alone than went back into those accounts from J Renee or the bankrupt’s earnings. As some of the drawdowns were in effect repaid, I do not accept that there could be an equity of exoneration for more than approximately $150,000.
The second reason given by the applicant for saying that no equity of exoneration arose was that J Renee was the trustee for the J Renee Family Trust, and, therefore, anything J Renee did was for the benefit of the beneficiaries of that trust, who were, presumably, the bankrupt, Irwin Gomez, Nathan Gomez and his sister, Jacintha. Nathan Gomez argued that J Renee did not function as a trustee company.
The evidence in support of J Renee being a trustee company is not clear. In her statement of affairs, the bankrupt said at page 18 that J Renee was not a trustee company: CB62. However, at page 19 of her statement of affairs (CB63), the bankrupt said that:
a)J Renee was the trustee of the J Renee Family Trust of which she was a beneficiary;
b)the trust was discretionary;
c)the trust owed $350,000+ for GST to the ATO; and
d)the accountant had lost the trust deed.
In cross examination (Tr.12.7.2016, p.286, l.34), the bankrupt agreed that certain funds were used for J Renee, “the trustee company”. In re-examination, the bankrupt acknowledged that the J Renee Family Trust had been established but said that it was never used (Tr.20.7.16, p.361, l.29).
In all the circumstances, I am not satisfied that J Renee held any assets on trust or functioned in reality as a trustee company. That appears to me to be plausible, and there is no substantial evidence to the contrary. I note that, in a proceeding in the County Court of Victoria involving J Renee, it appears to have been accepted that J Renee was a trustee company, but the evidence leading to that acceptance was not provided to this court. Findings made in one court are not, of course, binding on another court.
The third reason the applicant gave for saying no equity of exoneration arose in this case was that Irwin Gomez did not come to the court with clean hands. That was said to be because he accepted a transfer of land of the Hallam and Altona properties at a significant undervalue, and thereby avoided the appropriate amount of stamp duty (CB43).
However, the transfer is marked by the State Revenue Office “Exempt: section 43-3”. Subsection 43(3) of the Duties Act 2000 (Vic) exempts from stamp duty transfers between spouses, such as the present transfers were. Consequently, Irwin Gomez did not avoid any stamp duty by accepting a transfer at an undervalue. Irwin Gomez cannot be said to not have clean hands for this reason.
The fourth reason the applicant gave for saying no equity of exoneration arose in this case was the principle that joint bank accounts can be wholly drawn down by one of the joint account holders. That is so, but in an appropriate case, that would not override an equity of exoneration.
The fifth reason that the applicant said that no equity of exoneration arose in all the circumstances of this case was that J Renee was part of a group of borrowers that consisted of J Renee, the bankrupt and Irwin Gomez, so J Renee’s purposes were not separate and distinct from those of the bankrupt and Irwin Gomez. This argument is based on the NAB memorandum at CB1128-1130, which referred to J Renee, the bankrupt and Irwin Gomez as the Gomez Group. However, that situation, in principle, is no different from a husband and wife together borrowing money for the husband’s purposes, and an equity of exoneration thereby arising.
Nevertheless, although the fact of J Renee, the bankrupt and Irwin Gomez functioning as a group in relation to the NAB borrowings is not in itself fatal to the equity of exoneration claim, the history of the transactions set out above indicates that the purposes of the bankrupt were not distinct from those of her husband, Irwin Gomez. That is, the answer to the question, who got the money, is that they both did. The reasons in support of that conclusion are as follows.
The bankrupt and Irwin Gomez bought numerous investment properties together before J Renee was incorporated. That is, they were in the business of property investment together. There is nothing to show that the borrowings by the bankrupt and Irwin Gomez for the purposes of their investments in Richmond, Waterways, Lavington, Albury and Altona North, which all occurred before J Renee was incorporated, were for anything other than their joint benefit. In all of the circumstances of this case, including for the reasons that follow, I infer that the further investments and property development after J Renee was incorporated were also for their joint benefit.
The NAB memorandum set out at [80] explains that the NAB mortgage the subject of that memorandum was to discharge an existing liability of the bankrupt and Irwin Gomez, and add J Renee as a mortgagor. Therefore, at least part of the benefit of that mortgage was for Irwin Gomez, as his existing liability was discharged.
The balance of the NAB mortgage the subject of the memorandum could, in theory, have given rise to an equity of exoneration. However, the respondents did not show the court how or when that mortgage was drawn down, or for what precise purpose. In the absence of such evidence, it is not possible to accept that the balance of the NAB mortgage the subject of that memorandum was for the sole benefit of J Renee or the bankrupt.
Indeed, the respondents did not demonstrate to the court how or when any of the NAB mortgages were drawn down and exactly where the money the subject of those mortgages went. I do not accept the respondents’ unsubstantiated assertions that the NAB money was used for the purposes of J Renee, when the court was not shown a document trail, when the bankrupt made the implausible claims to the court described above which cannot be accepted and which reflect poorly on her credibility, when Irwin Gomez was not available for cross-examination and when the many of the respondents’ claims about the drawdowns from the Westpac mortgage did not survive close examination. Moreover, the bulk of the respondents’ case was not that the NAB mortgages gave rise to an equity of exoneration, but that the Westpac mortgage did. It was only in relation to the Westpac mortgage that the respondents attempted to show that the drawdowns were for the benefit of J Renee or the bankrupt.
The bankrupt and Irwin Gomez presented to the NAB as a group, consisting of themselves, J Renee and Nathans Solutions, of which Irwin Gomez was a director and 50 per cent shareholder. J Renee was described as the property investment arm of the group and Nathans Solutions was described as the building company of the group. I infer from those facts that J Renee and Nathans Solutions were incorporated for the mutual benefit of the bankrupt and Irwin Gomez, to better achieve their joint property investment and property development goals. Consequently, things done ostensibly for the benefit of J Renee cannot be regarded as not for the benefit of Irwin Gomez also.
It is clear that the bankrupt, Irwin Gomez, J Renee and Nathans Solutions were not treated by each other as separate and distinct entities. For example, Nathan Gomez said in relation to item 2 in the drawdowns discussed above that the name Nathans Solutions was “just put” on some invoices for no particular reason: Tr.11.7.16, p.161, l.9. There were numerous examples of drawdowns that the respondents claimed were for the benefit of J Renee that, on closer examination, were clearly for the bankrupt and Irwin Gomez jointly, or that were for Nathans Solutions. There were also numerous examples of a simple intermingling of finances.
In these circumstances, I do not accept that the claim for an equity of exoneration can be maintained. It simply has not been established that things done ostensibly for the purposes of J Renee or the bankrupt were not also done for the benefit of Irwin Gomez directly, or indirectly via Nathans Solutions.
The respondents, in fact, have only shown snippets of the whole story. To establish an equity of exoneration, they would have needed to produce complete financial records and trace the various payments right through to the ultimate beneficiary, and provide sufficient information to show whether any money was repaid. That has not been done.
Claims under the guarantees
The respondents also argued that Irwin Gomez had a right to recover against the bankrupt because he was a guarantor of various loans. However, there is no evidence that there was any call on Irwin Gomez as a guarantor. Consequently, this claim must fail.
It may be that the NAB recovered against certain properties that had been owned and mortgaged by Irwin Gomez and in respect of which he also provided a personal guarantee. However, in the absence of any evidence of a call on the guarantees, I can only conclude that the NAB acted pursuant to its rights as a mortgagee, not its rights under the guarantees.
Funds transferred to JNGO
Nathan Gomez swore an affidavit on 1 December 2015, when he was represented by solicitors. He said that:
a)he was the sole director and secretary of JNGO;
b)JNGO was a trustee company
c)the beneficiaries of the trust were himself, his sister and JNGO;
d)JNGO was established to undertake foreign exchange (“FOREX”) trading;
e)his mother, the bankrupt, was a signatory on JNGO’s accounts for convenience and she does not have authority to undertake transactions on the accounts without his consent;
f)the payment of $171,480 to JNGO on 27 February 2014 was a loan from his father, Irwin Gomez, to JNGO to enable JNGO to undertake FOREX trading;
g)the loan was repayable on demand on 30 days’ notice; and
h)Irwin Gomez gave JNGO $14,559.95 on 15 August 2014.
It was alleged that the funds transferred by the bankrupt to JNGO were actually funds owned by Irwin Gomez that he lent to JNGO. It was alleged that the bankrupt owed Irwin Gomez money, pursuant to the equity of exoneration, and he directed the bankrupt to pay that money to JNGO as a loan from Irwin Gomez to JNGO.
The bank records described above show clearly that the proceeds of sale of J Renee’s property at Surf Beach went to J Renee’s account, then to a joint account of the bankrupt and Irwin Gomez, then to the bankrupt’s own account, then to another of her own accounts and then to JNGO. There is no document linking this money to Irwin Gomez, except that the proceeds of sale of a property owned by J Renee were held briefly in an account of which Irwin Gomez was a joint account holder. That is not a material circumstance. There was no written agreement regarding a debt owed by the bankrupt to Irwin Gomez or a loan between Irwin Gomez and JNGO. There was no equity of exoneration that led to the bankrupt owing money to Irwin Gomez.
I do not accept the claims of the Gomez family that the transfer from the bankrupt to JNGO was in reality a loan from Irwin Gomez to JNGO. Having observed them in the witness box, I did not find the bankrupt and Nathan Gomez to be credible witnesses in this regard. It has not been demonstrated that the transfer to JNGO was anything other than a transfer of the bankrupt’s money to JNGO. As such, it is voidable under s.120 of the Act.
Conclusion
For these reasons, I am not satisfied that the respondents have a viable defence to the claim. Consequently, there will be orders as sought by the applicant.
I certify that the preceding two hundred and thirty-four (234) paragraphs are a true copy of the reasons for judgment of Judge Riley.
Date: 7 December 2016
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