Conlan v Stone

Case [2012] FCA 1359

FEDERAL COURT OF AUSTRALIA

Conlan v Stone [2012] FCA 1359

Citation: Conlan v Stone [2012] FCA 1359
Parties: MARK ANTHONY CONLAN IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATES OF PETAH JOHN STONE AND VALERIE KAYE STONE v PETAH JOHN STONE AND VALERIE KAYE STONE and CARL DESMOND STONE, KIM NOEL STONE, CRAIG VERNON STONE AND STRATHMORE FARMS PTY LTD (ACN 146 817 192)
File number: WAD 98 of 2012
Judge: MCKERRACHER J
Date of judgment: 30 November 2012
Catchwords:

BANKRUPTCY – application by trustee in bankruptcy for delivery up of farming plant, machinery and equipment and declarations that transfers of plant, machinery and equipment between family members were void – consideration of nature and effect of Deed executed in 1992 between the bankrupt parents and their sons in relation to a schedule of plant and machinery – whether Deed was void under the Bankruptcy Act 1966 (Cth) for its intention to defeat third party creditors – whether Deed created a security interest in favour of the sons over subsequent replacement items of plant and machinery acquired by the farming partnership – identity of ownership of the claimed equipment – transfer of certain of the equipment – whether transfers void

EQUITY – consideration of whether the sons had any equitable claim to the property – whether the sons had foregone their entitlement to proper wages for farm work in reliance on assurances given by the parents and the Deed – whether the sons had knowledge of the debts owed by their parents’ farming partnership – whether granting equitable relief to the sons would give them unfair priority over third party creditors – no evidence of notice given to third party creditors of the sons’ claimed interest in the plant and equipment – whether trustee entitled to an account of profits

Legislation: Bankruptcy Act 1966 (Cth) ss 120, 121, 122, 129
Cases cited: Frost v Sheahan as Trustee of the Bankrupt Estate of Allen Gordon Frost [2012] FCAFC 46
Giumelli v Giumelli (1999) 196 CLR 101
Maugham v Sharpe (1864) 17 C.B.(N.S.) 443
Tailby v Official Receiver (1888) 13 App Cas 523
Date of hearing: 27 - 28 August 2012
Place: Perth
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 135
Counsel for the Applicant: Mr GD Cobby
Solicitor for the Applicant: Jackson McDonald
Counsel for the Respondents: The Respondents appeared in person

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 98 of 2012
BETWEEN:

MARK ANTHONY CONLAN IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATES OF PETAH JOHN STONE AND VALERIE KAYE STONE
Applicants
AND:

PETAH JOHN STONE AND VALERIE KAYE STONE
First Respondents

CARL DESMOND STONE, KIM NOEL STONE, CRAIG VERNON STONE AND STRATHMORE FARMS PTY LTD (ACN 146 817 192)
Second Respondents

JUDGE:

MCKERRACHER J

DATE OF ORDER:

30 NOVEMBER 2012

WHERE MADE:

PERTH

THE COURT ORDERS THAT:

1.Leave be granted for the applicant to amend the application filed on 13 April 2012 to include the following final orders:

(a)‘3. An…

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Conlan v Stone [2012] FCA 1359
Case
[2012] FCA 1359
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CaseChat Overview and Summary

In the case of Conlan v Stone, the Trustee in bankruptcy sought the delivery up of farming plant, machinery, and equipment, along with declarations regarding the validity of transfers of such assets between the bankrupt parents and their sons. The dispute centred on the interpretation of a Deed executed in 1992, which detailed a schedule of plant and machinery, and whether it was void under the Bankruptcy Act 1966 (Cth) for intending to defeat third-party creditors. The court had to determine whether the Deed created a security interest in favour of the sons over subsequent replacement items of plant and machinery acquired by the farming partnership, and whether the transfers of certain equipment were void.

The court examined the nature and effect of the Deed, assessing whether it was intended to defraud creditors and whether it created a security interest in favour of the sons. The court considered the sons' claims to the property, specifically whether they had foregone their entitlement to proper wages in reliance on the assurances given by the parents and the Deed, and if they had knowledge of the debts owed by their parents’ farming partnership. The court also evaluated whether granting equitable relief to the sons would unfairly prioritise them over third-party creditors, and if the Trustee was entitled to an account of profits.

The court found that the Trustee was entitled to the relief originally claimed, and that it was an appropriate case for an account of profits. The Deed was deemed invalid against the Trustee, meaning the sons had wrongly taken possession of the unencumbered assets of the bankrupts and used them in their farming business. The court ordered the sons to deliver up the specified farming equipment, declared the transfers of certain property items void, and ordered an account of profits to be taken. The sons were also ordered to pay the Trustee any moneys found to be due upon the taking of that account. Additionally, the court granted liberty to apply in relation to the taking of the account and generally, and ordered the sons to pay the costs of the application.

The final orders included leave for the applicant to amend the application to include specific final orders, such as an order for an account of profits and payment by the respondents. The respondents were ordered to deliver up the specified property within 7 days of the making of the order, and the court declared certain transfers void. An account of profits was ordered to be taken, and the respondents were ordered to pay any moneys due to the Trustee. The second respondents were ordered to pay the costs of the application, while the applicant’s costs were to be paid out of the bankrupt estates of the first respondents, to the extent not recovered from or paid by the second respondents.

Orders

Orders of the court

1. Leave be granted for the applicant to amend the application filed on 13 April 2012 to include the following final orders:

(a) ‘3. An order that an account be taken of all profits received by the respondents arising out of the use of any of the property specified in the schedule attached and marked ‘A’ from 16 May 2011 to the date that such property is delivered up to the applicant.’ and

(b) ‘4. An order that the respondents pay to the applicant such moneys as may be found to be due to the applicant upon the taking of that account.’

2. The respondents deliver up to the applicant the property specified in the schedule attached and marked ‘A’ within 7 days of the making of this order.

3. The Court declares that the transfer of the property items specified in the schedule attached and marked ‘B’ by the first respondents to any or all of the second respondents are transfers that are void.

4. An order that an account be taken of all profits received by the respondents arising out of the use of any of the property specified in the schedule attached and marked ‘A’ from 16 May 2011 to the date that such property is delivered up to the applicant.

5. An order that the respondents pay to the applicant such moneys as may be found to be due to the applicant upon the taking of that account.

6. There be liberty to apply in relation to the taking of the account, and generally.

7. The second respondents pay the costs of the application, including all reserved costs, to be taxed if not agreed.

8. The applicant’s costs be paid out of the bankrupt estates of the first respondents, insofar as those costs are not recovered from or paid by the second respondents.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

Background

Background to the litigation

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Evidence

Evidence Before The Court

Most of the evidence in the trial was by affidavit but each of the Trustee and the Stones was cross-examined. Much of the cross-examination of the Trustee was directed to the manner in which he had advised the Stones initially and the manner in which he carried out his role as Trustee. Very little of this cross-examination was relevant to the issues under consideration and although one can be sympathetic to the plight of the Stones, particularly the sons, there is no room for any credible suggestion at all that the Trustee should have discharged his obligations in any other way. On the material before me it is clear that the Trustee has acted conscientiously and professionally and in accordance with his statutory duties. 5.2 The evidence for the Trustee The Trustee relies upon an affidavit of Mr Conlan of 4 April 2012, a supplementary affidavit of Mr Conlan of 22 June 2012, an affidavit of Clare Hayman of 16 April 2012, an affidavit of Corey Edward Turner of 12 April 2012, an affidavit of Paul Thomas Ward of 13 August 2012 and of Rikki William Phillip Reid of 10 August 2012. In his short affidavit sworn on 13 August 2012, Mr Paul Thomas Ward, a senior manager, valuer and accredited senior appraiser with Gregsons Auctioneers and Valuers Pty Ltd, describes his extensive experience in auctioning and valuing agricultural and transport equipment. At the request of the Trustee he attended the Farm on 21 February 2011 to inspect items of agricultural plant, machinery and equipment. The following day, he prepared an itemised valuation report stating that the gross auction value of the plant and equipment was $932,450 and the gross market value was $1,390,900. In this report, Mr Ward listed 4 items that he was unable to inspect (a 2001 John Deere Harvester, a 1999 John Deere Harvester, a 2006 Nissan Navara and a 2008 Infratech Grain Analyser) as he was told by Mr Stone that the items were in Queensland and belonged to his sons. Therefore, in his report, Mr Ward assigned these items an indicative value only. Mr Ward also conducted a further inspection at the request of the Trustee on 14 April 2011. On 15 April 2011 he prepared an itemised valuation report stating that the gross auction value of the machinery and equipment as at that date was $798,865 while the gross market value was $1,212,770. Mr Ward conducted a third inspection on 29 June 2011 at the request of the Trustee and prepared an itemised report the following day. In this report, he stated that he noticed that some major pieces of equipment included in his previous report were absent from the property. The report recounts a conversation Mr Ward had with Carl on 29 June 2011, who told him that he and his brother through their lawyer ‘had put an injunction on the Estate for $600,000 owed to them and had removed all the unencumbered equipment off site’. Carl did not allow Mr Ward access to the farming equipment. (There was no evidence to support the existence of any injunction in any convention sense.)

Decision

Reasons for decision

As indicated, the Trustee is entitled to the relief originally claimed. It also appears to me that this is an appropriate case for an account of profits. From the time the Trustee was appointed demand was made for the return of assets. There has been abundant correspondence on that topic. The failure of the Deed and its invalidity as against the Trustee means that the sons have wrongly taken possession of the unencumbered assets of the bankrupts and have maintained them and carried on their farming business using them. The assets of the estate, it seems, may have been used to generate profit by the sons. If this is not the case, then an account of profit would not yield any claim to the Trustee. If the equipment has not been put to profit making use then the sons suffer no further detriment if an account of profits is ordered. 11. CONCLUSION For the foregoing reasons, the Trustee has succeeded in his claim. Regrettably, the Deed and the actions or absence of action taken by the Stones pursuant to the Deed does not achieve that for which the Stones had hoped. Shortly prior to the delivery of judgment I invited the parties to stipulate precisely the relief sought if they were to succeed. The respondents provided a minute seeking the following orders:1.Adhere to the clauses set out in the Bill of Sale Deed dated 19th March 1992.2.All unencumbered plant be returned to the control of the rightful owners being Carl, Kim, and Craig Stone.3.All monies owing to the Stone brothers for their twenty-eight years of work on the farm be settled out of P & V Stone’s estate, as two of these properties have already been sold at an undisclosed value by RSM Bird. 4.RSM Bird be obliged to disclose the sum value of these properties per hectare as a guide for the remaining value of the properties outstanding.5.All monies owed to the Stone brothers be settled with land to the value set out by Barton Consultancy including the interest accrued at 12 per cent per annum up to the date of release.6.All court costs incurred are to be paid by the applicants who brought the matter before the Court. In light of the findings made, the relief sought by the respondents will not be granted. The Trustee also produced a minute which I have reviewed and compared with the findings made. I am satisfied that relief should be granted in accordance with that minute, with the alternative of relief under s 121 of the Act as the most appropriate ground. The following orders are made:1.Leave be granted for the applicant to amend the application filed on 13 April 2012 to include the following final orders:(a)‘3. An order that an account be taken of all profits received by the respondents arising out of the use of any of the property specified in the schedule attached and marked ‘A’ from 16 May 2011 to the date that such property is delivered up to the applicant.’ and(b)‘4. An order that the respondents pay to the applicant such moneys as may be found to be due to the applicant upon the taking of that account.’2.The respondents deliver up to the applicant the property specified in the schedule attached and marked ‘A’ within 7 days of the making of this order.3.The Court declares that the transfer of the property items specified in the schedule attached and marked ‘B’ by the first respondents to any or all of the second respondents are transfers that are void.4.An order that an account be taken of all profits received by the respondents arising out of the use of any of the property specified in the schedule attached and marked ‘A’ from 16 May 2011 to the date that such property is delivered up to the applicant.5.An order that the respondents pay to the applicant such moneys as may be found to be due to the applicant upon the taking of that account.6.There be liberty to apply in relation to the taking of the account, and generally.7.The second respondents pay the costs of the application, including all reserved costs, to be taxed if not agreed.8.The applicant’s costs be paid out of the bankrupt estates of the first respondents, insofar as those costs are not recovered from or paid by the second respondents.

Ratio Decidendi

Legal Principle Established

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