Combis v De Andrade
[2022] ACTSC 220
•26 August 2022
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Combis v De Andrade |
Citation: | [2022] ACTSC 220 |
Hearing Dates: | 22-24 February, 3 March and 6 May 2022 |
DecisionDate: | 26 August 2022 |
Before: | Mossop J |
Decision: | See [168] |
Catchwords: | EQUITY – TRUSTS – Bankruptcy – trustee of bankrupt estate seeks declaration that first defendant has no right or interest in a residential property and an order that it be sold – whether property held on express, resulting or constructive trust for first defendant – consideration of estoppel – unreliable financial records and oral evidence – no equitable interest established – consideration of human rights claim not to have home unlawfully or arbitrarily interfered with – no cause of action to prevent or delay the sale – first defendant’s caveat to be removed and property to be sold by the plaintiff |
Legislation Cited: | Australian Human Rights Commission Act 1986 (Cth), Sch 2 Bankruptcy Act 1966 (Cth), ss 77C(1), 116(2)(a) |
Cases Cited: | Allen v Snyder [297] 2 NSWLR 685 Barca v Mears [2004] EWHC 2170 McGrath v McGrath [2018] ACTSC 148 |
Texts Cited: | Convention for the Protection of Human Rights and Fundamental Freedoms, opened for signature 4 November 1950, 213 UNTS 221 (entered into force 3 September 1953) International Covenant on Civil and Political Rights, opened for signature 16 December 1966, 999 UNTS 171 (entered into force 23 March 1976) J D Heydon and M J Leeming, Jacobs’ Law of Trusts (Lexis Nexis Butterworths, 2016, 8th ed) |
Parties: | Nick Jim Combis in his capacity as Trustee for the Bankrupt Estate of Roubi De Andrade ( Plaintiff) Bernardo Jose Poege Rebello De Andrade ( First Defendant) Registrar-General of the Australian Capital Territory (Second Defendant) |
Representation: | Counsel G Blank ( Plaintiff) D Hassall (First Defendant) |
| Solicitors Chamberlains ( Plaintiff) Capital Lawyers (First Defendant) | |
File Number: | SC 222 of 2020 |
MOSSOP J:
Introduction
The plaintiff is the trustee of the bankrupt estate of Ms Roubi De Andrade. The first defendant is Ms De Andrade’s husband, Mr Bernardo Rebello De Andrade. The second defendant is the Registrar-General of the Australian Capital Territory (ACT).
By Amended Originating Application filed 17 August 2020, the plaintiff sought a declaration that first defendant has “no rights or interest in” a residential property in Griffith (the Griffith property). Alternatively, he sought a declaration that the plaintiff and first defendant have an interest in the property in a ratio determined by the court. He also sought an order that the property be sold and, if necessary, an order appointing the plaintiff as trustee for sale and consequential orders relating to the conduct of the sale, removal of a caveat placed by the first defendant over the property and vacant possession of the property.
The proceedings are defended and the first defendant claims, on a variety of bases, that the beneficial interest in the property is in fact his.
For convenience and without intending any disrespect, in these reasons I will refer to Ms De Andrade as Roubi and the first defendant as Bernardo.
The pleaded claim
The grounds for the relief sought by the plaintiff are set out in his Amended Originating Application. In summary they are as follows. Roubi was made a bankrupt on 26 October 2018. At the date of her bankruptcy Roubi was the sole registered proprietor of the Griffith property. On 6 May 2019 Bernardo lodged a caveat on the property describing the interest as “matrimonial interest created pursuant to the provisions of the Family Law Act 1975 [Cth]”. The plaintiff took the view that Roubi and Bernardo failed to substantiate that interest. On 3 February 2020 a transmission application completed by the plaintiff was registered and, as a consequence, the plaintiff became the registered proprietor of the property. He wishes to sell the property in order to satisfy the creditors of the bankrupt estate.
As a result of orders of the court made on 7 December 2020, Bernardo was required to file points of claim. Those points of claim outline what is, in effect both a defence and counterclaim. In those points of claim, Bernardo asserts that he and his wife were married in April 1997. He says that in 1997 or 1998 he and his wife entered an agreement in writing, the terms of which were:
(a)Bernardo and Roubi would keep their assets separate; and
(b)in relation to any real property or other assets acquired by them or either of them during their relationship, whichever of them provided the funds to purchase any particular real property or other asset would be the beneficial owner thereof regardless of which of them held legal title to any such real property or other asset.
The points of claim assert that the document containing that agreement has not been found.
Prior to the marriage Roubi owned an apartment in Dickson (the Dickson property).
Bernardo says that in January 2003 he arranged the acquisition of a property in Farrer (the Farrer property). It was registered in the name of Roubi but Bernardo provided the funds to pay the St George bank loan secured by a mortgage over the Farrer property. There was a written agreement on about 1 March 2003 in which Bernardo and Roubi agreed that the Farrer property would be regarded by them as belonging to Bernardo and the Dickson property was to be regarded as belonging to Roubi.
Bernardo then pleads that there were several other agreements in writing to similar effect as the agreement entered in 1997 or 1998 but that, with the exception of the 2003 agreement, they have not been located.
He also says that there were, from time to time, oral agreements to the same effect in the period from 1997 or 1998.
The written agreements and oral agreements are said to give rise to a “Common Intention and Arrangement” to the effect of the 1997 or 1998 agreement.
It is then alleged that, as a result of the Common Intention and Arrangement, Roubi and Bernardo are both estopped from denying that “any real property or other assets acquired by them (or by either of them) during their relationship would be regarded by them as owned beneficially by such of them as provided the funds to pay for the particular real property or other assets so acquired”.
In relation to the Farrer property, Bernardo pleads that between February 2003 and June 2013 he made payments towards the loan secured by the mortgage over the property in the sum of $831,999.
He pleads that in July 2010 he redrew $100,000 from that home loan (which was in Roubi’s name) and used it as a deposit to acquire the Griffith property.
He pleads that the Griffith property was subject to the written agreements, the oral agreements and the pleaded estoppel. In relation to that property, he pleaded that the acquisition of that property was arranged by him, the deposit provided by him and not Roubi and the funds to repay the loan secured by the mortgage over the property were provided by him.
It is specifically alleged that Bernardo provided the whole of the funds to pay for the Griffith property:
(a)$100,000 as the deposit in 2010;
(b)$296,654.94 between 2010 and 2014;
(c)$743,961.10 between 2014 and 2018; and
(d)$756,403.66 between 2018 and 2020.
It is also alleged that Bernardo provided the funds to meet utilities and rates for the property.
Bernardo pleads that:
(a)Roubi was and is estopped from denying that she held the Griffith property on trust for the first defendant and not for herself;
(b)an express trust arose from the written and oral agreements and the common intention which they manifested;
(c)an implied trust arose from the written and oral agreements and the common intention which they manifested;
(d)a resulting trust arose; and
(e)a constructive trust should be imposed by a declaration that Roubi held the Griffith property upon trust for the benefit of Bernardo as sole beneficiary of 100 percent of beneficial interest in the property.
Paragraph 35 of the pleading alleges:
By reason of the facts stated above in these Points of Claim, the First Respondent, both for himself and as representing his children, who are all resident in the Griffith Property as their home are entitled by virtue of section 12 of the Human Rights Act 2004 (ACT) and Articles 2, 12 and 17 of the International Covenant on Civil and Political Rights … to the right not to have his and their home, interfered with by the Applicant; and First Respondent is entitled to a Declaration thus.
The plaintiff filed a reply to Bernardo’s points of claim. In that reply, the plaintiff admits that the sum of $100,000 was withdrawn from the home loan account relating to the Farrer property but denies that the amount belonged to Bernardo. In response to the claim of an express trust in relation to the Griffith or Farrer properties, the plaintiff also pleads that there is no evidence of the trust in writing to comply with s 201 of the Civil Law (Property) Act 2006 (ACT). He denies the existence of an implied, resulting or constructive trust. To the extent there were payments made by Bernardo in relation to the Griffith property, he pleads that the presumption of advancement applies.
Facts
Roubi and Bernardo met in 1996. They were married in April 1997. At that time, they were living in a unit in Leahy Close Narrabundah. In 2000 Bernardo sold his interest in a business in Manuka called La Grange Boutique & Brasserie for $35,000 and started the Lisboa Café with his brother in Woden. The respective interests of Bernardo and his brother in the business are not disclosed by the evidence.
In 2003 Roubi became the registered proprietor of the Farrer property. She was also the borrower of the funds from St George Bank used to purchase the property. A document signed on 1 March 2003 by Bernardo and Roubi provided:
The following is an agreement between two parties.
Bernardo Rebello de Andrade and Rubie Marhaba de Andrade.
The agreement is pertaining to properties purchased by each of the parties.
The owner of the property at 61 Spafford Crescent Farrer and any financial costs associated with it including mortgage repayments will be Bernardo Rebello de Andrade
The owner of the property at 242 Northbourne Avenue Dickson ACT and any associated costs with it will be Rubie Marhaba de Andrade.
Any other items of contention will be decided at the appropriate time by both parties. These items include furniture cars and all household appliance.
Signed on this Date 1/03/2003
signed Bernardo Rebello de Andrade
(Roube) Rubie Marhaba de Andrade [signatures of each]
On 4 May 2006 Marhabade Pty Ltd (Marhabade) was incorporated. Bernardo was a director from 2006 up until 2012. Roubi was a director from 2006 until 2015. Bernardo became a director again in 2015 until the deregistration of the company in September 2016. The shares in the company were initially held by Bernardo and Roubi but in 2015 Bernardo’s share was transferred to Roubi, who held it on trust for Bernardo or someone else. Marhabade acted as the trustee for the Sobhi Family Trust (the Trust). It is not clear when this trust was established or the terms of the trust deed. Marhabade traded through the Trust, running a café at the Campbell shops under the name “Hello Café”.
At some point in 2007 Bernardo sold the Lisboa Café.
On 17 July 2010 Roubi entered a contract to purchase the Griffith property for $1,025,000. The deposit of $100,000 was obtained by a redraw from the loan account associated with the Farrer property although it is not clear from whose account it was paid. Settlement of the Griffith purchase occurred on 23 August 2010. Roubi became the sole registered proprietor on 28 September 2010. She was the sole borrower on the loan of $922,035 from the National Australia Bank (NAB). Security was provided over the Farrer property.
In May 2013 she signed a project management agreement with Da Vesi Construction Group Pty Ltd (Da Vesi) for the purposes of the redevelopment of the Griffith property. That redevelopment involved the demolition of the existing house and the building of a new one.
Bridjsz Pty Ltd (Bridjsz) was registered on 18 February 2014. Bernardo was the sole director, secretary and shareholder.
On 12 March 2014 the accountancy firm Papandrea Partners finalised tax returns for Roubi and the Trust for the financial years ending (FYE) 30 June 2012 and 2013. The 2012 tax returns showed taxable income for Roubi of $224,575. The Trust tax return for that year showed distributions to Roubi of $213,075 which was the whole of the net income of the Trust.
The 2013 tax return showed taxable income for Roubi of $245,868. The tax return for the Trust showed a distribution of $221,600 to Roubi, the whole of the net income of the Trust.
On 31 March 2014 Roubi applied to refinance the Griffith property with Westpac Bank through RAMS Financial Group with a loan of $1.7 million. This included an amount of approximately $867,000 to fund the construction of a new house on the property. The bank’s offer of a loan was accepted on 19 June 2014. The mortgage was registered on 28 January 2015.
A dispute arose with Da Vesi. In about July 2014 it made a claim in the ACT Magistrates Court for an amount of money.
In September 2015 the Farrer property was sold for approximately $670,000. $244,548 was paid to the RAMS loan account on 22 September 2015. $423,353 was paid to Roubi’s NAB account on 18 September 2015 from which loan repayments were made.
On 1 December 2015 Roubi resigned as a director of Marhabade. Bernardo became a director of the company and was the sole director.
In 2015 a bookkeeper who had been doing the books for the Hello Café for Roubi declined to continue performing that function. In June 2016, she wrote to Papandrea Partners asking them to help her find a new bookkeeper, saying:
I am unable to do her bookkeeping for various reasons including that I am unable to validate the integrity of the figures she tells me – ie with regards to income and payroll as I only ever saw bank statements and no z reads and she very [rarely] had any staff according to information I was given.
On 26 September 2016 Marhabade was deregistered pursuant to s 601AB of the Corporations Act 2001 (Cth). This was an administrative act. The registration was never reinstated. Notwithstanding that, for most purposes, the accountants treated Marhabade as remaining in existence as the trustee of the Trust.
In December 2016 Michael Papandrea, the accountant for Bridjsz, wrote a letter of support to a migration agent indicating that the business had an expected turnover of about $488,679 in the 2017 financial year and that the business was able to meet the sponsorship requirements of a café manager. This was based upon projections of future revenue. In fact, the turnover in the 2017 financial year was $344,211. The obtaining of the letter and, I infer, the projections underlying it, was arranged by Roubi in December 2016.
On 22 June 2017 Papandrea Partners provided to Roubi a summary of the tax position for the Trust (business activity statements 2015-March 2017), Roubi (tax returns 2013‑2016) and Bernardo (tax returns 2014-2016).
In mid-2016 Roubi had a car accident. By mid-2017 the construction at the Griffith property was finished and Bernardo and the children moved into the new home.
At some point between mid-2016 and mid-2017 Roubi and Bernardo separated. The nature of the separation and the extent to which they cooperated in relation to their financial affairs and their five children was not made clear. There had been previous periods of separation in their relationship. The evidence of each was vague as to when these had occurred. Some of them were longer than “a few months”.
In November 2017 there was a hearing of Da Vesi’s claim in the Magistrates Court. On 24 January 2019 judgment was given in favour of Da Vesi in the sum of $194,435.
On 3 April 2018 Bridjsz commenced making payments to the RAMS Home loan.
On 26 October 2018 a sequestration order was made in the Federal Court against Roubi because of the failure to pay a judgment in the sum of $5191 owing to Da Vesi as a result of an order of the Magistrates Court on 6 September 2017.
In December 2018 Bernardo registered Bridjsz for goods and services tax (GST) backdated with effect from 15 January 2018.
On 21 March 2019 Roubi signed her Statement of Affairs (in the form required by the Bankruptcy Act 1966 (Cth)) for her trustee in bankruptcy.
On 23 April 2019 Robertson J refused an extension of time to Roubi to apply for a review of the sequestration order made on 26 October 2018.
On 6 May 2019 Bernardo lodged a caveat over the Griffith property claiming that his interest in the property was “Matrimonial interest created pursuant to the provisions of the Family Law Act 1975”. There was no reference to the property being held on trust for him.
On 16 July 2019 the plaintiff requested that Bernardo pay rent for his occupancy of the Griffith property. Based upon an appraisal this was estimated at between $1500 and $1600 per week. Bernardo has failed to make any rental payments to the plaintiff.
On 6 September 2019 a notice under s 77C(1) of the Bankruptcy Act was issued to Papandrea Partners, as accountants who acted on behalf of Roubi, Bernardo and their companies.
On 27 November 2019 an application for transmission of the registered title into the name of the plaintiff was lodged along with a notice to lapse Bernardo’s caveat. The transmission to the plaintiff was registered on 3 February 2020.
On 30 January 2020 Bernardo commenced proceedings to review the conduct of the Registrar-General to lapse Bernardo’s caveat so as to permit the transmission application to be made. These proceedings were subsequently discontinued.
On 6 February 2020 the plaintiff sent a letter to Bernardo asking him to remove the caveat on the property. That prompted an email from Bernardo on 7 February 2020 which asserted that he owned the property, that he made every single mortgage repayment towards the property and his wife was only put on the title out of convenience in order to obtain a loan. He said: “Perhaps I may have been naive at the time but never in my wildest dreams did I ever think this would become an issue.”
In April 2020 the plaintiff sought information from Papandrea Partners enquiring how the repeat $2000 payments shown in a bank account were dealt with in the financial accounts of the Trust or Bridjsz.
On 20 November 2020 a certificate of costs assessment was issued in in the Magistrates Court proceedings in the sum of $224,665 in relation to Da Vesi’s costs.
On 17 August 2021 Thawley J of the Federal Court made a sequestration order arising from the Da Vesi costs certificate and Aaron Torline was appointed trustee in bankruptcy. The act of bankruptcy was identified as occurring on 12 March 2021.
On 18 and 20 February 2022 Bernardo and Roubi executed a binding financial agreement pursuant to s 90C of the Family Law Act 1975 (Cth) which became Exhibit 5 in the proceedings. The hearing of these proceedings was due to commence on 21 February 2022 and commenced the next day on 22 February. The binding financial agreement had some unusual features which are discussed further below.
As at 19 June 2020 when the proceedings were commenced, Roubi’s property at Narrabundah had been sold but the net proceeds of that sale were insufficient to pay out the creditors of the estate. The admitted proofs of unsecured creditors amounted to $252,162. Dividends of $118,516.14 had been paid leaving a remaining admitted amount of $133,645.86.
As at the date of the hearing the amount required to pay out all of the debts of the bankrupt estate that the plaintiff was administering was approximately $495,000. In the second bankruptcy, the amount owing to creditors was approximately $230,000. Other costs, including legal costs of the sequestration order and the cost of the trustee were in addition to that amount.
The likely sale price of the Griffith property was assessed by two different real estate agents in February 2022 to be in the range of $3.8 to $4.1 million or in the range $4.2 to $4.6 million. A further “curbside appraisal” put the value at $4 million.
The witnesses
Three witnesses gave oral evidence. The credibility of the two witnesses called by the first defendant, Bernardo and Roubi, is significant in determining the merits of the first defendant’s claims. That is because Bernardo’s submissions were almost universally premised upon the acceptance of their evidence. Unfortunately, that premise was not established.
Nick Jim Combis
Mr Combis is a chartered accountant and insolvency practitioner. He is the trustee of Roubi’s bankrupt estate. He has been a registered trustee in bankruptcy and an official liquidator for more than 20 years. His affidavits were dated 19 June 2020 and 21 October 2020. His affidavit evidence was largely limited to the procedural history of the administration of Roubi’s bankrupt estate and the documents that he had obtained during the course of that process. He identified that the Griffith property was the only remaining asset of Roubi’s bankrupt estate.
Neither the content of the evidence nor the manner in which it was given provided any reason to doubt the reliability of that evidence. I accept his evidence.
Bernardo De Andrade
Bernardo swore three affidavits dated 2 October 2020, 4 December 2020 and 7 May 2021. He was cross-examined.
He was very vague about his understanding of financial arrangements. He understood that Bridjsz had been established in 2014. He did not know whether there was a unit trust associated with it. While he was very unclear about some details, he was adamant that all payments for the Griffith property came from him.
The picture presented of his financial affairs was incomplete. Schedules of payments made to the loan account associated with the Griffith property which he asserted were made by him showed substantial payments to Roubi’s bank account which was then used to make loan repayments. Where this money came from or how it became his money was never adequately explained. The unreliability of the records of the business from which income was generated is dealt with in more detail below.
The evidence that he gave as to why the Griffith property was put in Roubi’s name was inadequate. It is suggested that it occurred largely by chance rather than because of a prudent arrangement of assets to avoid exposing those assets to liabilities incurred through business activities.
His evidence about entry into the financial agreement was not credible. This issue is dealt with below.
Overall, I was left with the impression that the evidence that Bernardo gave was unreliable and that his explanation of why the Griffith property was put in his wife’s name was unreliable, being affected by his desire to avoid the consequences of her bankruptcy for his and her financial benefit.
Similarly, the extensive variety of anomalous matters that were not explained about his financial affairs were such that I could not find on the balance of probabilities that the money that was paid towards the Griffith property loan was his money.
Roubi De Andrade
Roubi swore an affidavit dated 2 October 2020. She was an unreliable witness. She had a tendency to ask counter questions seeking proof before she committed to an answer. She sought to give unresponsive answers. She had a tendency to seek refuge in deliberately vague answers or the assertion that she could not remember. On occasions, the manner in which she gave evidence indicated an unusual approach to facts. Her evidence involved obvious attempts to advance her own position and included evidence which was clearly implausible. Her demeanour in the witness box tended to further emphasise the unreliability of her evidence.
Examples of matters which indicated the unreliability of her evidence were as follows. Some of them are addressed in more detail later in these reasons.
(a)She denied knowledge of the Trust.
(b)She gave vague answers in relation to her separations from Bernardo and her receipt of the single parenting payment.
(c)She refused to accept the obvious error in accounts for the Trust which were stated to be for 30 June 2009 but included figures for 2011 through to 2015.
(d)She was adamant about some matters which were plainly inconsistent with the documents that she was shown. For example, she insisted that the original Griffith loan was a continuation of the Farrer loan when the documents which she was shown were inconsistent with that.
(e)She refused to accept obvious inferences to be drawn from other documents involving her communications. For example, she did not accept that she had, in 2015, had a conversation for 35 minutes with an employee of her accountants in circumstances where there was a contemporaneous email saying precisely that.
(f)When pointed to clear evidence that her 2012 individual tax return had been filed, she asserted that it was only a draft but then retreated from that unsupportable statement.
(g)She denied responsibility for the affidavit which she had sworn saying “the solicitors were making sure that the contents were accurate”. She then denied one of the facts stated in that affidavit.
(h)She declined to take responsibility for what had been said in her Statement of Affairs, putting responsibility upon the solicitor who prepared it for any departure from the truth, notwithstanding having signed the declaration at the end of the document.
(i)She denied knowledge that in the years 2015, 2016 and 2017 she had been involved with Marharbade and had been trading via a company or trust despite documentary evidence to the contrary.
(j)Notwithstanding the documentary records showing her dealings with the accountant, she denied knowing whether or not, in the five years prior to 2019, she operated a business via a company or a trust.
(k)She denied the correctness of her statement in the Statement of Affairs that she had approximately $100,000 in cash. She suggested that the solicitor had just “plucked that from somewhere”. Notwithstanding that, she subsequently gave evidence that there was a proper basis for the inclusion of the $100,000 figure.
(l)She, quite bizarrely, sought to assert that the application for the RAMS Home loan of $1.7 million had more than one person named in the application and that the loan was not in the name of one person. That was only because of the inclusion of “De Andrade” at the end of the name Ms Roubi Marharba De Andrade. Later she denied that she was the applicant at all.
(m)She denied the accuracy of the statements made in the RAMS loan application which she had signed, particularly insofar as it asserted that she owned the Griffith property. She also denied the accuracy of the statement on the application that she owned the Farrer property. She put responsibility for the terms of the document on the loan officer rather than herself.
(n)She denied that a letter which she had signed and provided to RAMS home loans was accurate when it referred to the Narrabundah property. She said, notwithstanding the terms of the letter, that it should have referred to her Dickson property. In the context of the letter, that would have made no sense because the Dickson property had previously been disclosed to RAMS. Her evidence was incredible and reflected only a very limited commitment to reality.
Her evidence was so generally unreliable that her explanation of the Griffith property transaction and the source of funds to make the payments towards the home loan demonstrated in the bank accounts could not be relied upon.
2003 agreement
Bernardo gave evidence that it was almost accidental that the Farrer property ended up in Roubi’s name notwithstanding that he was contributing all the money. He said this was the fault of his accountant who had failed to line up a loan with the St George bank in his name. Notwithstanding that Roubi at the time was not working and had no income and he was the only one who had the capacity to make repayments, he said that NAB had given her a loan. He denied knowledge of how the loan application was made. He said he assumed that she had based it on collateral assets from her and her family. He did not know why it could not have been a joint loan. He recognised the possibility that the house was held in her name in case there were issues with his business and there were creditors chasing him.
He denied that the loan was put in his wife’s name so that his creditors could not get access to it.
Income levels 2011 – 2019
The evidence about the income generated by the Trust and the income levels of Bernardo and Roubi was patchy. In some significant cases, the evidence was dramatically inconsistent. A summary of the evidence by each FYE is in the table below. A hyphen in the table below indicates that there is no relevant evidence on the issue to which the cell relates.
| FYE | Total Trust distribution | Roubi taxable income | Single parenting payment | Roubi Trust distribution | Bernardo taxable income | Bernardo Trust distribution | Bernardo Bridjsz income |
| 2011 | $31,881 | - | - | $15,216 | - | $0 | - |
| 2012 | $30,437 or $213, 074 | $224,575 (tax return) | - | $28,357 or $213,074 | - | $0 | - |
| 2013 | $7995 or $221,600 tax return | $10,183 (Assessment) or $245,868 (2013 tax return) | $11,273 | $5915 or $221,600 | - | $0 | - |
| 2014 | $48,868 | $22,537 | $18,180 | $4258 | $34,968 | $43,201 or $42,530 | $0 |
| 2015 | $43,539 | $22,851 | $18,715 | $4362 | $30,815 | $37,097 | $0 |
| 2016 | $46,401 | $20,529 | $16,062 | $4310 | $16,880 | $22,030 or $22,227 | $0 |
| 2017 | $49,043 or $54,444 | $26,803 | - | $26,390 | $38,358 | $32,576 or $26,390 | $0 |
| 2018 | $0 | $0 | - | $0 | $32,331 | $0 | $30,631 |
| 2019 | - | - | - | $0 | $47,007 | $0 | $45,948 |
The most dramatic uncertainties are as to the distributions made by the Trust in 2012 and 2013. The high figures are taken from tax returns apparently prepared in 2014 which were within Exhibit 3 and Exhibit 4. However, subsequent financial statements for the Trust (which themselves contained an obvious error: see [71(c)]) recorded distributions of the Trust at the lower level. Other evidence indicates that the 2012 tax return showing the high level of income to Roubi was filed, because she subsequently corresponded with the accountant about the possibility of amending this return. There is no reference to any subsequent amendment of the 2013 return and her notice of assessment is inconsistent with that return having been filed. There is, however, a reference in correspondence from the accountants to an instruction having been given by Roubi that the 2013 returns were not to be filed at the time when all the other outstanding years were lodged. That would be consistent with the deployment of the return for the purposes of obtaining the bank loan but a reluctance to lodge the return in a way that would give rise to a taxation liability.
The entries relating to single parenting payment are included because of the vagueness of the evidence about when Roubi might have been separated from Bernardo prior to 2016 and the reference in the s 90C financial agreement to the last period of separation prior to 2016 being in 2012.
Except in relation to the years of 2012 and 2013 where the evidence is conflicting, the evidence only discloses modest income from the business distributed to either of Bernardo and Roubi. It does not disclose any coherent picture of the source of funds to make repayments of the Griffith NAB home loan or the Griffith RAMS Home loan, let alone doing that in addition to raising five children.
Unreliability of the records
The financial affairs of the couple and the evidence that they gave about them involve a series of anomalies. Those anomalies have led to my conclusion that there is no reliable explanation of the source of the funds paid into Roubi’s bank account which were subsequently used to pay the Griffith loans. They also feed into my conclusion that the evidence of Roubi and Bernardo about their intentions at the time of purchasing the Griffth property and subsequently, was unreliable and self-serving.
There is no adequate explanation as to why the Griffith property was solely in Roubi’s name
The explanation given by Bernardo was that it was largely by chance that the property was acquired in Roubi’s name.
Bernardo’s explanation in oral evidence was:
I felt that this would facilitate the ability to get a loan, to acquire a loan without creating too many complications. And it had been smooth sailing with the Farrer loan, so we may as well just adopt the same strategy for the Griffith [loan]. So it was very much a question of expediency, and it - we’d achieved one loan. Why not do it the same with the other loan?
There was no written agreement in evidence that would indicate some arrangement which would put the beneficial ownership other than with the legal ownership of the Griffith property. The assertion that there was such an agreement and that this agreement had been lost was not made out.
That explanation given by Bernardo was less plausible than that the property was put in her name as part of a prudent method of family asset protection in circumstances where Bernardo was and had been for a long time, involved in hospitality-related small business. This was something that Bernardo denied, but I do not accept his denial. In reaching this conclusion, I have been careful to attempt to avoid stereotypes about the likely arrangements of assets by a couple. I accept that, as the evidence of Roubi and Bernardo indicated, their relationship was at times a rocky one and not entirely conventional. However, even with this caution, the unreliability of their evidence means it is not possible to conclude to the relevant standard that the arrangement was as each of them said it was.
While Bernardo might never have contemplated that the asset would be lost because Roubi became a bankrupt, that does not demonstrate that when the property was acquired, the beneficial interest was not with Roubi. Indeed, it is likely to be true that matters did not turn out in a way that they were expected to turn out. However, that they did not turn out as expected does not indicate that the arrangement was as contended for by Bernardo.
Roubi’s income in 2012 and 2013
The tax records show that the whole of the 2012 and 2013 financial year income from the business run by the Trust was distributed to Roubi. Bernardo received no income in those years from the business. The accounts for the business were done on 12 March 2014, close to the date when the application was made for the RAMS loan.
The fact that Roubi was the sole income earner from the business is inconsistent with Bernardo’s evidence that he was the sole source of payments of the first Griffith loan in this period.
The RAMS Home loan application
The application for the RAMS Home loan identified the following matters:
(a)Roubi was employed at Hello Café and her occupation was “General Manager”;
(b)she owned the Griffith property as well as other properties worth $350,000 and $750,000 (which were the Dickson property and the Farrer property respectively);
(c)she was identified as having $300,000 in cash, home contents worth $150,000 and a motor vehicle worth $80,000;
(d)the Griffith property and the Dickson property were offered as security; and
(e)her income was identified as $221,600.
She signed the application and by doing so “confirm[ed] that all statements made in this application are true and are made for the purposes of obtaining a loan”.
She said that someone else filled the application out for her and, notwithstanding her signature on the document, that she was not responsible for the contents.
The application for the loan asserts substantial income on Roubi’s part and her ownership of various properties including the Griffith property. The arrangement of the affairs of the Trust so as to disclose that income in the way that it was shortly prior to the application for the loan, along with the terms of the loan application itself, allow the inference to be drawn that this was part of a deliberate strategy on the part of Bernardo and Roubi to demonstrate to a lender sufficient security and income to justify the making of a loan of the magnitude sought.
That this arrangement of the trust distributions was a means of arranging their affairs so as to achieve that goal is demonstrated by the balance of the records for the Trust, which are targeted at minimising tax liability rather than maximising the distribution of income in the way shown in 2012 and 2013.
It reflects an intention on their joint part to improve the property using the income generated by the Trust. The representations made for the purposes of that exercise were inconsistent with the beneficial ownership of the property lying other than with Roubi.
No staff employed by the business
Roubi gave evidence that the café business run by the Trust had a number of employees. Bernardo’s evidence was that as at 2021 there was a regular staff of four plus his children when he needed them. There was a reference to the suspicions of the bookkeeper for the business about the absence of payments to employees when the bookkeeper told the accountants of her resignation: see [35] above.
Notwithstanding references in the evidence to the fact that multiple staff were employed in the business, the accounts of the business and the tax returns do not reflect the employment of staff. The amount shown in the records that were in evidence for turnover of the Trust and wages as an expense of the Trust were as follows:
FYE Turnover Wages Amount 2011 $306,752 $19,303 2012 $288,288 $18,000 2013 $267,787 $12,360 2014 $275,493 $5,150 2015 $307,249 $0 2016 $308,227 $0 2017 $344,211 $0 2018 $196,478 $0
Alternative figures for the FYE 2011 and 2012 are provided in the accounts of the Trust prepared in 2014 just before the RAMS Home loan was applied for. These are the accounts which were used to show a distribution of $213,074 to Roubi, which was used as the basis for the loan application. These accounts show revenue of $353,355 and $569,985 respectively. Wage costs in FYE 2011 and 2012 were shown as being $14,675 and $68,098 respectively. The significant discrepancies between these figures and the subsequently recorded figures shown in the table above were not explained by the evidence.
This absence of wages expenditure was not explained in the evidence. Bernardo insisted that all cash in the business was put through the books and disclosed to the Australian Tax Office (ATO). Yet in other parts of his evidence, he relied upon it being normal for there to be lots of cash transactions in his industry. In those circumstances, the absence of expenditure on staff remained an anomaly which suggests that the books and records of the business were unreliable.
Marhabade was deregistered.
Marhabade was deregistered on 26 September 2016. As a result, any assets of the company held on trust became assets of the Commonwealth: Corporations Act s 601AD(1A). Notwithstanding that deregistration, the 2017 financial statements for the Trust prepared in 2019 show Marhabade as acting as the trustee of the Trust. How or why this occurred was not explained.
Transfer of the business to Bridjsz
It was never explained how assets legally owned by the Commonwealth as a result of the deregistration of Marhabade, were transferred to Bridjsz. There was no evidence of any payment for the transfer of the café business and no sale of business agreement. There was no documentation to demonstrate how Marhabade ceased to be trustee of the Trust and how Bridjsz came to be trustee of the Trust. There was no evidence explaining how the deregistration of Marharbade was overcome in a way that permitted the assets it had owned to become assets of Bridjsz.
Bernardo’s evidence was that no money had been paid by Bridjsz to Marhabade for the acquisition of the Hello Café business. He said, implausibly, “it really wasn’t - really wasn’t worth anything. We just transferred it.” No valuation of the business was obtained at the time. The evidence was as follows:
Counsel for the plaintiff: So effectively what you have just done in March 2018 is transfer to yourself, away from any interest your wife had, the business?
Bernardo: Yes.
Counsel for the plaintiff: So your wife now has no business, no income, no house to live in, even though it was in her name and she had the loan?
Bernardo: Yes.
Notwithstanding his evidence about the value of the business when it came to signing the financial agreement, the business was given an estimated value of $100,000.
The situation is further confused by the fact that in December 2016 Mr Papandrea, upon Roubi’s request, provided the letter containing projections of Bridjsz income from the Hello Café business: see [37]. That was a time more than a year prior to Bridjsz actually becoming registered for GST and taking over the business. The document was accompanied by or based upon projections containing figures for the operation of the business in 2016 which were recorded as “Bridjsz Pty Ltd Trading as Hello Cafe”. Bernardo could not explain why the accountant would have created a spreadsheet in the name of Bridjsz when he knew that Marhabade was trading, unless he had been asked to do so. He sought to shift the burden of responsibility to the accountant:
Well, I mean, the evidence, I was going on by what - I mean, you obviously have it written there, but I can only [confirm] these kind of things with my accountant. I don’t - I don’t have a head for dates, numbers. I can’t remember when these things happened. You know, I’m very, very busy throughout the day, and everything gets a bit muddle[d] in your head after a while. That’s why I have an accountant that takes care of these things.
Notwithstanding the oral evidence of Bernardo, which was self-serving, the business of the Hello Café which was taken over by Bridjsz had some value. The 2017 balance sheet for the Trust showed total assets of $192,937 including the depreciated value of plant and equipment of $19,671 Even though, for reasons explained below, the binding financial agreement is not a reliable source of evidence, it is notable that it discloses the value of the business at $100,000. How the business was transferred from one entity to another was never adequately explained.
Anomalously large payments by Bridjsz
After Bridjsz commenced making payments towards the Griffith RAMS home loan, those payments were more than could have been justified by the income of the business.
From February 2018 the payments were made by Bridjsz directly. From April 2018 the payments were consistently made in amounts of $2000. The very limited records available do not demonstrate how the substantial payments made by Bridjsz to the loan account (FYE 2018: $31,433; FYE 2019: $94,000; FYE 2020: $114,000) were generated by the company in addition to the amounts paid to Bernardo as director’s fees.
Bernardo’s evidence was that these payments had been treated in the records of Bridjsz as a loan. He agreed that he had not provided any document to that effect and said: “No, because this was - this was something that was early organised about - say three months ago when I realised that the accountant - well informed me that would be the better way to do it.” He agreed that he had put on no evidence about having taken this up with the accountant. This evidence suggests that the money was paid by Bridjsz, but that years after the payments were made and shortly before the hearing, a decision had been made in order to recharacterise the payments as payments by him and to treat them, in the books of Bridjsz, as a loan from Bridjsz.
The accounting records were not sufficient to explain how these amounts might have been generated by or borrowed from the business.
When Bernardo was taken to accounts which did not appear to be consistent with him having drawn money from the business, he asserted that he may have had other sources of money. While his evidence was vague, he asserted that he “always had a lot of cash around me” and that he had been given money by his father. He asserted that this was a case of “not crossing my Ts and dotting my Is in some respects” or that he “could have done better in regards to documentation”.
Despite the issuing of a notice to produce, Bernardo never produced his banking records to the court or the plaintiff so that his sources of funds might be examined. The evidence was inadequate to explain any other source of funds that might have allowed those payments to be made. While Bernardo asserted that it was his money that was paid by Bridjsz, that has not been demonstrated.
Loan accounts
The accounts for the Trust for the years 2016 (which include the figures for 2011 to 2015) show substantial amounts owed by Roubi to the Trust. The reasons for the loans were not explained. The amounts attributed to Roubi as loans may have been the source of deposits to the Griffiths RAMS Home loan. Loans to Bernardo that might have allowed him to make payments of the Griffith RAMS home loan are not shown in those accounts.
The available records show loans as follows:
FYE Roubi director loan Bernardo director loan 2011 $70,827 $0 2012 $44,568 $0 2013 $59,719 $0 2014 $94,224 $0 2015 $136,360 $0 2016 $228,767 or $234,867 $0 2017 $0 $0 2018 $0 $0
The evidence does not disclose how the very substantial liability owed by Roubi to the Trust disappeared between 2016 and 2017.
That is particularly unusual in circumstances where ledger records show that “Owners Drawings” in the 2017 financial year were $127,375. The ledger showed a starting balance of $306,635 and an ending balance of $433,911. The records show that a number of those drawings were applied to the bankrupt’s account from which the mortgage was paid. It is not clear how Bernardo contends that payments made from the Trust (via a deregistered company) to Roubi’s account and then to the home loan, were payments by him. It is at least equally plausible that they were treated as loans to Roubi who then paid off the loan, or by some undisclosed means had that loan forgiven.
The records are simply inadequate to determine whether loans from the Trust to Roubi were used to pay the Griffith loan repayments. The accounts for subsequent years were not in evidence.
The Statement of Affairs
The Statement of Affairs was prepared for the purposes of the administration of Roubi’s bankrupt estate in March 2019. It was signed by Roubi on 21 March 2019. In relation to the Griffith property, it identified that there were no other owners. She also denied having been a director or a having management role in a company at any time in the last five years. This statement was false, as she had been a director of Marhabade up until 1 December 2015. She denied that she had been a beneficiary of a trust in the last five years. This statement was false, because she had been a beneficiary of the Trust in 2014, 2015, 2016 and 2017: see table at [75]. In cross‑examination, she said that her solicitor had filled this document out and that she had been told to sign it and had acted as directed. I considered that evidence to be unreliable and designed to deflect responsibility from her for being willing to make false statements on a document that was significant for the administration of her bankrupt estate. The terms of the document were consistent with the unreliability of her evidence.
Bernardo’s tax returns
Prior to the trial, Bernardo was given a notice to produce (dated 25 November 2020) his tax returns for FYE 2014 through to 2020.
Bernardo’s evidence at trial was that tax returns had not been lodged since 2016. However, after his cross-examination was concluded, tax returns and assessments were in fact produced. They identify that the 2014 to 2017 returns were prepared in July 2017 and the 2018 return prepared in 2019. There was no explanation given as to why they were not produced to the plaintiff earlier. They show taxable income as set out in the table above.
The source of income in FYE 2014, 2015 and 2016 is identified as the Trust. The 2017 report is not complete but shows income from a trust. In 2018 and 2019 the income is identified as being “allowances, earnings, tips, directors fees, etc” from Bridjsz.
The level of income shown as having been derived from the Trust is not sufficient to explain how during those years he (or anyone else relying upon the income from the Trust) could have made the payments on the Griffith property shown in the bank records. That does not prove that the money paid was not his, but it does raise a significant question about where the money came from and hence whether or not it belonged to him or some other entity.
Who made the payments to the Griffith loan?
In relation to the Griffith NAB home loan which was in place between 2010 and 2014, amounts were paid in relation to that loan by Marhabade between August 2010 and February 2011. Payments were also made by a tenant who was renting the property. There were then also cash deposits which were the most substantial source of payments against that loan. Bernardo’s evidence in relation to this was “I might have a bad recollection for dates and numbers and all that but there is only one source of income and it all came from me.” However he then conceded that a number of payments had been made by Marhabade and that amounts had been paid by the tenant.
He said he had nothing to do with the establishment of the RAMS home loan. He agreed that until Bridjsz started paying the second loan, every payment towards that loan had come from Roubi’s bank account. He said that he provided the money into her account so that she could make those repayments. The transcript records the cross-examination in relation to this arrangement:
You say that you made payments and references to cash into her account are payments that you made?‑‑‑Yes.
But you have provided no evidence, other than that statement, of where the cash came from, have you?‑‑‑Well I earnt it.
Well you say that but you have not produced any documentary support for that, have you?‑‑‑Look, I should have - - -
Well yes or no, sir. You have not provided, have you?‑‑‑Well it's hard to document cash. It's hard to document cash. I mean, I've had a – in my industry years ago it was normal in that people in hospitality, everything was cash. It was normal for people to have money, loads of cash for a rainy day or whatever it may be, that was normal. That was just standard practice.
Was it standard practice – was it your practice to have lots of cash and then not declare it to the tax office?‑‑‑No, no, it was declared. No, it was declared.
Well you would have tax records then, wouldn't you?‑‑‑I suppose but everything – my accountant would have – so it's like anything else, you declare what you're given.
But you have not produced any tax records in these proceedings for that period, have you?‑‑‑No.
No. When is the last tax return that you have – what was the date of the last ‑ what year was the last tax return you filed?‑‑‑I don't know, I'm probably a little bit behind.
Well - - -?‑‑‑Which is another normal thing in my industry.
Okay, well when you say a little bit behind, how behind are we talking?‑‑‑I have no idea.
Have you filed a tax return in your own personal name since 2016?‑‑‑Possibly not.
The money that you say you put across from Marhabade, which you said was for wages, have you declared that money to the tax office - - -?‑‑‑Well my - - -
- - - or was it because – and a reason that I say it is, that Marhabade documents shows the bank account, and I will take you to it if we need to, shows a direct amount of that amount going straight to your wife's bank account. Has it been recorded as income to you at any point?‑‑‑No, I thought at the time that it was okay to do. It was only later that my accountant made me aware that that's not the right way to do it and unfortunately they told me much later. But the – so what they've done is they've put me in the situation where I'm actually loaning from the business so it doesn't become my income.
Right, so that money would be recorded in the Marhabade books and records as a loan to you?‑‑‑Probably not back then but it certainly does during the Bridjsz. At the time I didn't realise that wasn't permissible.
Right. Have you taken any steps to correct those financial records, historically, and declare that income to the tax office?‑‑‑Not historically but I have had meetings with my accountants and they put everything that I've borrowed from Bridjsz and we still have to go back, I still have to organise a meeting with them but it's been done.
Sorry, what has been done?‑‑‑We're looking back at all our records to see how far back we have to go.
Right, but at the date of you giving this evidence, you have not gone back and corrected what you say are the true records?‑‑‑I have for Bridjsz, yes.
Right, and you have not produced any tax returns for Bridjsz in this case, have you?‑‑‑I think Bridjsz is up to date.
You have not produced any to the court though, have you?‑‑‑No.
You have not produced any financial statements for Bridjsz?‑‑‑No.
You say that your accountant has – sorry, that you – it has been treated as loans?‑‑‑Yes.
I presume that would be a division 7A of the Income Tax Assessment Act loan?‑‑‑I wouldn't know.
All right. But there would be a formal documentation that you have to sign in order for it to be treated as a loan?‑‑‑When I – if that's what you say, yes. I have signed something but, yes, I don't know the name of the document.
But you certainly do not [know] whether it is one of those documents at all, do you? You just know you have signed something?‑‑‑Yes, that's right.
In summary this evidence was:
(a)the amounts paid into Roubi’s bank account were paid with undocumented cash;
(b)this was a standard practice;
(c)this cash had been declared to the ATO;
(d)but Bernardo had not produced any tax records in these proceedings for that period;
(e)he was “a little bit behind” with his tax returns;
(f)that was normal in his industry;
(g)he had no idea how behind he was and it was possible he had not filed a tax return in his name since 2016;
(h)the money was actually a loan from the business rather than his own income which may not be recorded in the Marhabade books but would be recorded in the Bridjsz books;
(i)he had meetings with the accountants about the issue and the records for Bridjsz had been corrected;
(j)Bridjsz tax records and financial statements were up-to-date but he had not produced any to the court; and
(k)he had signed some documentation about this but he did not know what it was.
He was asked about the amounts he claimed to have paid to the account in Roubi’s name from which loan repayments were made. The following exchange occurred:
Is it your case that it is only the payments that went to the RAMS house mortgage account that you are claiming relate to the mortgage?‑‑‑It's going to be very difficult for me to answer anything with definitiveness because this is such a long time ago, and I'm probably numerically dyslexic, and I don't really understand the question. …
In relation to the schedule of payments which he claimed had been made by him, he said:
I'm asking what your claim is as to what you have contributed which gives you the right to say you own the house?‑‑‑I – I think I've tried to make it clear that at the time these matters were being handled, I was working, and Roubi was my conduit to getting things done. I didn't oversee everything she was doing, but when I realised there were payments that needed to be done I would just make them. It's really the most I can do. I don't know the ins and outs that she did because I never checked her work, but the money came from me.
The financial agreement was not genuine
The s 90C Family Law Act agreement was made in circumstances where:
(a)the parties had been married since 1997;
(b)they had five children together; and
(c)as a result of a car accident, Roubi contends that she is unable to work and has been unable to do so since 2016.
The agreement was prepared by the solicitors for Bernardo. It states that it is a financial agreement pursuant to s 90C of the Family Law Act. It is quite lengthy and detailed. It is clear that it has been based on a template that has been inadequately edited. While it refers to Bernardo and Roubi, it also makes reference to “Vicki” and “Philip” and “Hayley” and “Jason”. The central provisions are those which deal with the identification of the asset pool and the division of assets. The following points are of significance:
(a)In identifying the net asset pool of $701,190.51, the Griffith property is valued at $1.9 million in circumstances where the current appraisals of the value of that property were between $3.8 and $4.6 million. The evidence was that neither Roubi or Bernardo obtained any valuation or appraisal prior to entry into the agreement. In the agreement, the house is identified as being Bernardo’s property.
(b)Bernardo is identified as having superannuation worth $292,000. Roubi is identified as having superannuation worth $912. Under the agreement, Bernardo retained the whole of the value of his superannuation.
(c)Under the agreement, the whole of the Griffith property goes to Bernardo. He is identified as obtaining property with a net value estimated at $1,084,502. On the other hand, Roubi is identified as obtaining property with a value of ‑$371,792. As a result, Bernardo achieves an outcome which gives him 150.23 percent of the value of the net pool of assets and Roubi achieves ‑52.32 percent of the net pool of assets. Had the Griffith property been valued at an amount consistent with its recent appraisal, the disparity between the outcomes for the members of the couple would be even greater.
Both members of the couple are recorded as having received independent legal advice prior to entry into the agreement. The answers given by Roubi in cross-examination as to why she entered the agreement were not credible.
Bernardo agreed that between their separation and 2016 and 2022 no property settlement documents had been signed. No application for Family Court orders had been made by him or his wife. He said that the signing of the agreement was prompted by something that McWilliam AJ said during a prior court appearance.
He said he signed it “because there was a request from the judge and so it was under recommendation from the judge we do this, so I just signed it.” He said: “Well, if a judge tells you to do something, you do it.” Notwithstanding having signed it only a few days before, he had very little understanding of what it did other than to deny Roubi an interest in the Griffith property. He could not remember whether he had received advice about the possibility of making an application to the Family Court or whether he had been advised about other alternatives. He couldn’t recall whether he had disclosed in the agreement the existence of superannuation (a sum of $292,000). He agreed that no valuation of the Griffith property or even a real estate agent’s appraisal was obtained before the document was signed.
The financial agreement disclosed bank accounts in Bernardo’s name which had been the subject of a previously issued notice to produce but in relation to which nothing had been produced.
Roubi appeared to have little understanding of the agreement and could not explain the rationale for it. Bizarrely, she described it as: “So he won’t be able to come after me for anything… And I am protected.”
Roubi said that she had based the figure for the value of the Griffith property on the bank valuation that was done on completion of the building. That occurred in 2017 but she said “maybe 2018, 19”. She had no idea how the estimated value of the Hello Café was arrived at. When asked about what it meant for Bernardo to keep 150 percent of the property, the transcript was as follows:
What does that mean?---A hundred and fifty per cent of the property.
Well, property is normally 100 per cent, so how does he get to 150?---I'm not sure. I'm not a solicitor.
Well, you saw a solicitor about this and you looked at this before you signed it, didn't you?---Yes.
Wouldn't it have raised the question in your mind what does 150 per cent mean?---No.
Why is that?---I trust in solicitors.
Sorry?---I trust in solicitors.
A clause in the agreement stated that the agreement was intended to operate as a financial agreement within the meaning of s 90D of the Family Law Act. It was only to have effect after the couple’s divorce. However, neither party had applied for a divorce.
The existence of the financial agreement entered into at the last moment before the trial, for reasons which were unexplained and in terms which were dramatically contrary to Roubi’s interests and which would not have effect until after a divorce which was not being sought, is consistent with the couple having cooperated in an attempt to defeat the claim being made by the plaintiff. In my view, the agreement was a contrivance not reflecting any genuine division of assets but entered into by each with an intention to defeat the claim of the plaintiff.
Conclusion
The factual matters referred to above combined with my impressions of Roubi and Bernardo when giving oral evidence have led me to the conclusion that their evidence about the arrangements between them is unreliable and self-serving.
Evidence of their financial affairs might have provided a degree of corroboration of their evidence about their intentions in relation to the acquisition of and payment for the Griffith property. However, that evidence did the opposite. It demonstrated a pattern of non‑disclosure, inconsistencies and delayed accounting which was consistent with the complete unreliability of their oral evidence. No attempt was made to address their asserted ignorance or naïvete about their financial affairs by expert accounting evidence in order to explain the anomalies or provide a coherent picture of their finances and sources of funds.
I do not accept that either Roubi or Bernardo were as ignorant or naïve as they attempted to portray themselves. Rather, the evidence as a whole tends to indicate a clear understanding of how, through financial means, to advance their own self‑interest. The current relationship between them was unclear. They are said to be separated but no steps have been taken to divorce. They described a history of a rocky relationship but one which involved raising five children and cooperating in the running of the family business. I infer that each is well aware that they have an interest in defeating the claim brought by the plaintiff and hence protecting the principal asset that they have acquired during their marriage, which has been a very successful property investment. It is that interest which has motivated them to characterise the arrangement in relation to the Griffith property in the way that they did. I have no doubt that if the circumstances had been different and Bernardo been bankrupted as a result, for example, of being a guarantor of a retail lease held by Marhabade or Bridjsz, each would have asserted that Roubi’s legal interest in the Griffith property reflected the beneficial interest and that all payments were made by or for the benefit of Roubi.
It is in light of these rather unfortunate findings that the specific claims made by Bernarndo must be considered.
The claimed written agreements
The pleaded claim asserted written agreements in addition to the 1 March 2003 document. The pleading appeared to assert agreements both before and after the 2003 document. The evidence does not establish that those agreements exist or ever existed.
In relation to the 2003 agreement, that plainly exists and was signed by the parties. Although I consider the evidence of both to be unreliable, given the existence and terms of the 2003 agreement, I accept that it was made and that at the time that it was made it was intended to be binding.
While the existence of the 2003 agreement does provide some basis upon which Bernardo can assert that money derived from the sale of that property was his, it is not sufficient of itself to establish that there was any similar agreement in relation to the Griffith property.
Equitable claims
It is uncontroversial that “property held by a bankrupt on trust for another person will not vest in the bankrupt’s trustee in bankruptcy if the bankrupt does not have any interest in the property”: Boensch v Pascoe [2019] HCA 49; 268 CLR 593 (Boensch) at [87] (Emphasis in original). Further, a bankruptcy trustee who is registered on the title holds the estate or interest subject to the equities to which it was subject in the hands of the bankrupt: Boensch at [91], [94].
Bernardo submitted that if:
[Roubi] held the property on trust for Bernardo to some lesser extent as a beneficiary … The [plaintiff’s] case must still fail … Because the property was and is a single unit of property. It was held as a single unit, by [Roubi] and it was held by her ‘on trust for another’ and the plain words of s 116(2)(a) [of the Bankruptcy Act] mean that it is not available for creditors.
I do not accept this submission. The reference in s 116(2)(a) of the Bankruptcy Act to “on trust for another” does not prevent property, part of which was held on trust for another, from being divisible among creditors. Rather, that part of the property which was beneficially owned by the bankrupt becomes divisible among creditors and the property which is beneficially owned by another person is not: Boensch at [94]. To hold otherwise would produce the unsatisfactory result that if the bankrupt beneficially owned 99 percent of a piece of real estate and another person one percent, then the 99 percent would never become property divisible among creditors.
In relation to the acquisition of the Griffith property, the starting point is that it is registered in Roubi’s name. That is because the presumption is that “prima facie the beneficial ownership of real property is commensurate with the legal title”: Currie v Hamilton [1984] 1 NSWLR 687 at 690. Bernardo therefore bears the onus of establishing that he has an equitable interest in that property (and hence that the plaintiff took his interest subject to a previously existing equitable interest).
Express trust
The pleaded claim was of an express trust. That was said to have arisen as a result of the written agreements and oral agreements to the same effect. For the reasons given above, Bernardo has not established that any written agreement other than the 2003 agreement exists. Having regard to the unreliability of the evidence of both Bernardo and Roubi, to the extent to which they assert the existence of an oral agreement, I am not satisfied that there was any such agreement which would affect the ownership of the Griffith property.
In those circumstances, it is unnecessary to consider the plaintiff’s argument that s 201 of the Civil Law (Property) Act precludes the existence of an express trust in circumstances where it is not recorded in writing. As a consequence, it is unnecessary to consider Bernardo’s submission that affidavits prepared for the purposes of the proceedings may provide the relevant writing.
Implied trust
Bernardo’s submissions also referred to the possibility of an implied trust based upon all the circumstances. It referred to the decision in James v Holmes (1862) 45 ER 1266. As J D Heydon and M J Leeming’s Jacobs’ Law of Trusts (Lexis Nexis Butterworths, 8th ed, 2016) at [3-07] points out, implied trusts are better put in the categories of express or resulting trusts depending on how their existence comes to be implied. In the circumstances of this case, whether or not a trust might be implied depends upon the same circumstances as would need to be shown in order to displace a presumption of advancement in relation to a resulting trust. For the reasons given below, the circumstances are not such as to displace a presumption of advancement and hence no trust can be implied.
Resulting trust
A resulting trust is presumed to arise from payment of the purchase price by someone other than the registered owner. The relevant principles are summarised in McGrath v McGrath [2018] ACTSC 148 (McGrath) at [39]-[59] and it is not necessary to repeat them here.
The date for the assessment of contributions to the purchase of a property is the date of purchase: Calverley v Green (1984) 155 CLR 242 (Calverley) at 252-253. In the present case, the deposit was paid from funds redrawn from the bank NAB bank loan in Roubi’s name. The balance of the funds were provided by a bank loan to Roubi secured by a mortgage over the property.
To the extent to which Bernardo provided the deposit for the purchase of Griffith, he was at that time married to Roubi and, as a consequence, the presumption of advancement applies. The presumption of advancement is a presumption that a contribution by one person to the acquisition of property by another is, by reason of the relationship, one intended to advance the other person. As a consequence, the existence of the presumption rebuts the existence of a resulting trust unless it is displaced: McGrath at [54]; Calverley at 250-251.
The presumption of advancement is not displaced in the present case because I do not accept that the evidence of agreements between the parties or of their intentions is reliable. Bernardo has not proved that is more likely than not that such agreement or intention existed at the time of purchase. Their evidence appeared to me to be self‑serving and affected by their joint desire to avoid losing any of the value of the property to Roubi’s creditors.
Estoppel
Bernardo asserted the existence of estoppel based upon the existence of a common intention between Roubi and Bernardo that Bernardo would own the Griffith property notwithstanding that legal title was in Roubi’s name. For the reasons given earlier, I do not consider that the documentary evidence or the oral evidence of Roubi and Bernardo establish such a common intention.
Constructive Trust
Bernardo asserted the existence of a remedial constructive trust. Such a trust may be appropriate where the failure to recognise that a member of a married couple has a proprietary interest in the family home is so contrary to justice and good conscience that a trust or other equitable obligation should be imposed: Allen v Snyder [1977] 2 NSWLR 685 at 706; Baumgartner v Baumgartner (1987) 164 CLR 137 at 147.
The explanation given for the decision to acquire the property in Roubi’s name was, as pointed out above, unconvincing. Bernardo’s description was that it was almost by chance that it occurred that way. It was consistent with an arrangement that would protect the family’s assets in the event that Bernardo, who was running the family business, was exposed to liability. Subsequently, the parties engaged in what appeared to be an arrangement of the joint affairs designed to procure the Griffith RAMS Home loan to fund the redevelopment of the property. The source of funds used to make repayments of the loan remains uncertain as a result of the unreliability of Bernardo and Roubi’s evidence and the failure to provide documentary records which would explain the source of those funds. So far as the payments made by Bridjsz are concerned, the financial records are inadequate to determine the source of these funds or what character they bore at the time that they were made. So far as contributions made since Roubi became bankrupt, it has not been established that those contributions exceed what would be a reasonable occupation fee for the premises.
In summary, because of the unreliability of Bernardo and Roubi’s evidence and the inadequacy of the documentary records, I do not consider that a constructive trust needs to be imposed in order to avoid any inequitable outcome.
That means that it is not necessary to consider the plaintiff’s alternative submission that a remedy short of a constructive trust such as an equitable accounting would be appropriate, or the question of whether or not such an equitable accounting should be conditional upon all taxation liabilities being ascertained and paid up to date.
Human rights claims
In relation to the operation of the Human Rights Act 2004 (ACT), Bernardo’s points of claim are as follows:
By reason of the facts stated above in these Points of Claim, the First Respondent, both for himself and as representing his children, who are all resident in the Griffith Property as their home, are entitled, by virtue of section 12 of the Human Rights Act 2004 (ACT) and Articles 2 12 and 17 of the International Covenant on Civil and Political Rights done and opened for signature at New York on 19 December 1966, to which Covenant and Articles the Commonwealth of Australia has acceded as a State Party, and as set out in Schedule 2 of the Australian Human Rights Commission Act 1986 (Commonwealth) and as referred to in section 3 of that 1986 Act, to the right not to have his and their home, interfered with by the Applicant; and the First Respondent is entitled to a Declaration thus.
The International Covenant on Civil and Political Rights, opened for signature 16 December 1966, 999 UNTS 171 (entered into force 23 March 1976) (ICCPR) by itself gives rise to no cause of action in domestic law. The inclusion of the ICCPR in Sch 2 of the Australian Human Rights Commission Act 1986 (Cth) does not give Bernardo a cause of action.
Section 12 of the Human Rights Act provides:
12 Privacy and reputation
Everyone has the right –
(a) not to have his or her privacy, family, home or correspondence interfered with unlawfully or arbitrarily; and
(b) not to have his or her reputation unlawfully attacked.
Bernardo relies upon s 12(a).
Parts 4, 5 and 5A of the Human Rights Act describe the consequences of the statements of rights in Pt 3 of the Act. Those parts of the Act do not provide a basis for any relief against a trustee in bankruptcy operating under Commonwealth legislation such as the Bankruptcy Act.
Further, in circumstances where Bernardo has not established any equitable interest in the subject property, there would be nothing unlawful or arbitrary about a trustee in bankruptcy obtaining possession of the property.
There is no basis for granting relief to Bernardo as a result of the human rights related pleadings.
Sale of property
In circumstances where the plaintiff did not take the property subject to any relevant equitable obligation, he is entitled to sell the property and apply the proceeds to the creditors of Roubi’s estate.
I do not accept the submission based upon the decisions in In re Citro (a bankrupt) [1991] Ch 142 (re Citro) and Barca v Mears [2004] EWHC 2170 (Barca) that the consequences of the sale of the family home for Bernardo and the couple’s children provides an appropriate basis upon which to not make such an order or to postpone the making of such an order. In re Citro, the Court of Appeal held that unless the circumstances were exceptional, there was no basis for an order for sale of property part owned by a spouse to be postponed for a substantial period: [156], [160] and [162]. In Barca some doubt was cast on re Citro as a result of the operation of the Convention for the Protection of Human Rights and Fundamental Freedoms, opened for signature 4 November 1950, 213 UNTS 221 (entered into force 3 September 1953) (commonly referred to as the European Convention on Human Rights) upon a particular statutory provision in that case. However, it was not necessary to reach a final conclusion as to the ongoing accuracy of re Citro for the purposes of the Insolvency Act 1986 (UK).
It is sufficient to dispose of this issue to say that there was no evidence of any particular hardship which would warrant any substantial delay to a grant of possession to the plaintiff.
Further, I do not accept the submission made on behalf of Bernardo that relief should be refused because the sale of the property worth up to $4.6 million was disproportionate to the amounts outstanding to creditors as a result of Roubi’s bankruptcy. There was no challenge to the evidence of the plaintiff that the total amount owing to creditors as well as the fees owing to the plaintiff amounted to $495,000 and that in Roubi’s second bankruptcy the amount owing to creditors was approximately $230,000. These amounts may seem large in light of the fact that Roubi’s property at Narrabundah had already been sold. However, it was not demonstrated that these figures were inaccurate. It is easy to see how the combination of interest and the fees owing to a trustee will become substantial as a result of contests over interests in property and the need for investigation of dispersed, incomplete and inconsistent financial records.
There is no need to appoint a trustee for sale because Bernardo does not have an interest in the property for which the appointment of a trustee would be necessary. Further, it will be necessary to make an order for the removal of the caveat lodged by Bernardo. Given that Bernardo is still in possession of the property, it will be necessary to make an order giving possession of the property to the plaintiff and any consequential order necessary to ensure compliance with that order.
Orders
The orders of the Court are:
1.The plaintiff is directed to file and serve draft orders to give effect to these reasons by Wednesday, 31 August 2022.
2.The proceedings are listed for the making of final orders on Friday, 2 September 2022 at 9:30am.
| I certify that the preceding one-hundred and sixty-eight [168] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop Associate: Date: 26 August 2022 |
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