Cole v Borg - [2011] FMCA 152

FEDERAL MAGISTRATES COURT OF AUSTRALIA

COLE v BORG

[2011] FMCA 152

BANKRUPTCY – Trustee’s claim for moneys paid to bankrupt’s daughter within 5 years of sequestration order – daughter argued that consideration given by provision of accommodation, both past and future – no consideration – gift of money void as against the trustee – declarations made as sought.

Bankruptcy Act 1966, ss.120 and 139A

McVeigh (Trustee of the Bankrupt Estate of Zanella) v Zanella [2000] FCA 1890

Applicant:

ROBERT MOLESWORTH HOBILL COLE (AS TRUSTEE OF THE BANKRUPT ESTATE OF JUDITH PATRICIA WATSON)

Respondent:

NAOMI REBECCA BORG (ALSO KNOWN AS NAOMI REBECCA WATSON)

File Number:

MLG 1256 of 2010

Judgment of:

O’Dwyer FM

Hearing date:

14 December 2010

Date of Last Submission:

14 December 2010

Delivered at:

Melbourne

Delivered on:

15 March 2011

REPRESENTATION

Solicitors for the Applicant:

Mr Broberg
Irlicht and Broberg Lawyers

The Respondent:

In person

THE COURT DECLARES THAT:

A payment of $50,000 by Judith Patricia Watson to the Respondent and Paul Alexis Borg in or about May 2007 is void against the Applicant by virtue of s120 of the Bankruptcy Act 1966 (the Act).
The Applicant is entitled, pursuant to s139A of the Act, to the $50,000 from the proceeds presently held by the Applicant’s solicitors in respect of the sale of the property at 11 Cowan Parkway, Point Cook in the State of Victoria.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

MLG 1256 of 2010

ROBERT MOLESWORTH HOBILL COLE (AS TRUSTEE OF THE BANKRUPT ESTATE OF JUDITH PATRICIA WATSON)

Applicant

And

NAOMI REBECCA BORG (ALSO KNOWN AS NAOMI REBECCA WATSON)

Respondent

REASONS FOR JUDGMENT

Introduction

By this proceeding the Applicant, who is the trustee in bankruptcy of the estate of Judith Patricia Watson (the bankrupt) seeks pursuant to s120 of the Bankruptcy Act 1966 (the Act), a declaration that a payment of $50,000 by the bankrupt to the Respondent and Paul Alexis Borg in or about May 2007 is void against the Applicant. Further, the Applicant seeks a declaration that he is entitled pursuant to s139A of the Act to the net proceeds of sale of the property at 11 Cowan Parkway, Point Cook (the property).
The Respondent opposes the application on the grounds that:
i)The payment of $50,000 to her by the bankrupt was a gift to her and her then husband, Paul Alexis Borg; and
ii)The claim by the Applicant is unconscionable and has no legal or factual basis.
In addition to her formal grounds in opposition to the application, the Respondent also argued that the gift by the bankrupt was in consideration, for market value, for past and future accommodation provided by her and her then husband to the bankrupt.
The Respondent sought orders to the effect that the net proceeds of the sale of the property be released to her, together with interest calculated from the date of settlement of the sale of the property to date.
The Applicant relies upon two affidavits, one being that of the Applicant sworn on 1 September 2010 and the other being that of Antonia Mary Gulli sworn 12 October 2010. The Respondent relies on two affidavits sworn by her on 29 September 2010 and 3 December 2010.
Hereafter, a statement of fact is to be taken as a finding of fact unless the context suggests otherwise.

Background

The Respondent is the daughter of the bankrupt and Paul Alexis Borg is the former husband of the Respondent.
I am satisfied on the evidence presented that the bankrupt was made bankrupt pursuant to a sequestration order made on 4 September 2009 and that the Applicant was appointed trustee of her estate on that day.
In compliance with her obligation under the Act the bankrupt completed and submitted a Statement of Affairs on 28 August 2009, in which statement she declares that she contributed $60,000 towards the purchase of the property which was registered in the name of the Respondent and the Respondent’s then husband.
That gift, I am satisfied, was made in or about May 2007, which is within a period of less than five years prior to the sequestration order being made. The source of the $60,000, I am satisfied, to the extent of $50,000, can be traced to funds provided to the bankrupt from either CGU in relation to a WorkSafe payment of $61,020 or from her superannuation entitlement from HESTA. The sum of $50,000 is traceable to the purchase of the property, and confirmed, by “a declaration of gift” made by the bankrupt dated 11 June 2007 that states:
That the $50,000 (fifty thousand dollars) Australian, is gifted to my daughter, Naomi Rebecca Borg, and her husband, Paul Alexis Borg, to be used towards the purchase of a house.
Further evidence of this is confirmed in correspondence from the bankrupt to the Applicant dated 27 February 2010 in which the bankrupt makes the following statement:
The money I gave my daughter and son-in-law as a deposit for the house was my super from HESTA which I must have received as a cheque and my daughter took it after I signed the back and used it as the deposit for 11 Cowan Parkway, Point Cook (claimed financial hardship to access same).
After the purchase of the property the relationship between the Respondent and her husband deteriorated leading to a separation and orders being made in this Court on 19 January 2010 in respect of the property. Under those final orders the property was to be sold and after the payment of the usual expenses of sale and encumbrances secured thereon, the balance was to be paid to the wife. The Applicant had lodged a caveat on the property and in order for the sale to proceed the caveat was withdrawn on condition that the proceeds otherwise payable to the wife were to be held in trust by the Applicant’s solicitors pending the outcome of this proceeding. The amount held in trust is $51,530.87.
In her affidavit sworn 29 September 2010 at [8] the Respondent clearly and unequivocally admits that she received a gift of $50,000 from the bankrupt to help effect the purchase of the property. Although the Respondent refers to the gift being applied towards the payment of costs for purchase and stamp duty, I am more than satisfied that the gift is properly traceable to the purchase of the property and the moneys presently held on trust are moneys that come within the scope of an application under s120 of the Act to the extent of $50,000.
The Respondent in her affidavit sworn 29 September 2010 at [18.(c)] makes the following statement, which statement is pertinent to the question under s120 about whether there was consideration given by the Respondent to the bankrupt which was at least as valuable as the value of the gift:
While the Respondent is grateful for this past help, it was neither expected by the Respondent nor was it in any way a condition for her [the bankrupt]to continue living rent free with full free access to all facilities and utilities with the Respondent and her family.
The bankrupt had lived with the Respondent and her family prior to the gift and any suggestion that the gift was recompense for that is clearly, on the evidence of the Respondent herself, an unsustainable argument. Be that as it may, in [19] of her affidavit, the Respondent did construct an argument to the effect that the gift could be rationalised on the basis of the five years that the bankrupt previously lived with her and in anticipation of her continuing to live with her in the property.

In response the Applicant submitted in respect of the argument about past consideration (that is, the five years of rent-free accommodation prior to the gift) that such is not consideration for the purpose of s.120 of the Act. In support of that contention the Applicant relies upon McVeigh (Trustee of the Bankrupt Estate of Zanella) v Zanella [2000] FCA 1890. In that case his Honour Weinberg J at [37] stated:
I cannot accept the Respondents’ submission that the consideration given in the form of free rent to the bankrupt and his family constitutes consideration “of market value” within the meaning of s120(1)(b) of the Act. Even if I am wrong about this, and the rent-free accommodation were to be taken as consideration, that consideration must properly be characterised as past consideration, and cannot be characterised as consideration for the transfer as required by s120(1)(b) of the Act. In these circumstances, and considering that the stated consideration for the transfer was “for love and affection”, I find that no consideration was given by the Respondents for the bankrupt’s quarter share of the property.
In like fashion, in this case I am satisfied that the payment of $50,000 was made as a gift as acknowledged in the declaration. There is also no evidence of an agreement, only perhaps of an expectation, that the money being paid by way of gift was to secure future accommodation for the bankrupt. I reiterate the Respondent’s comments in [18.(c)] where she said that the gift was not in any way a condition for her to continue living rent free. In my view, the bankrupt’s continued living with the Respondent reflects more of the “love and affection” between mother and daughter than a real consideration for the gift.
In response to the submissions made by the Applicant, the Respondent, in addition to arguing consideration in relation to the provision of rent-free accommodation, which as stated above I do not accept as an answer to the application, also constructed an argument based upon the costs of living, which she has documented, that can be attributed to her mother’s presence in the household. Again, this construct was in support of the contention that there was a proper consideration for the gift. For all the same reasons as alluded to above in relation to the provision of free accommodation, I do not accept this argument.

Conclusion 5

Unhappily, the Respondent has found herself, as she describes it, as “an innocent party” in this process, and it has caused, and continues to cause, her great distress and financial embarrassment as she has her own debts to pay for which she was relying upon the proceeds from the former matrimonial home to satisfy. Whilst I have considerable sympathy for the Respondent, I am left, in my view, with no alternative but to make the declarations sought by the Applicant as I am satisfied that there was no consideration given for the gift and as a consequence, pursuant to s.120 of the Act, the gift to the Respondent by the bankrupt is void against the Applicant. There is, incidentally, no basis for the contention that the Applicant’s application was unconscionable and has no legal or factual basis.

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of O’Dwyer FM

Date: 15 March 2011