FEDERAL COURT OF AUSTRALIA
De Santis v Aravanis [2014] FCA 1243
Citation: De Santis v Aravanis [2014] FCA 1243 Appeal from: De Santis & De Santis [2012] FMCAfam 866 Parties: LORRAINE JUNE DE SANTIS v ANDREW ARAVANIS and GEOFFREY PETER DE SANTIS File number: NSD 1658 of 2012 Judge: FARRELL J Date of judgment: 21 November 2014 Catchwords: BANKRUPTCY – after-acquired property – bankrupt trustee of express trust – bankrupt entitled to indemnification from trust assets for payments on mortgage – time at which right of indemnity arose – nature of interest in trust property – whether right of indemnity vested in trustee in bankruptcy – payments made on mortgage by bankrupt with after-acquired income – whether proprietary interests after-acquired property – bankrupt also engaged in conduct in breach of trust – clear accounts rule
TRUSTS – whether trust agreement was a sham – intention of parties entering into trust agreement – whether subsequent behaviour inconsistent with existence of trust – “emerging sham” – whether renunciation of interest required
Legislation: Bankruptcy Act 1966 (Cth)
Family Law Act 1975 (Cth)Cases cited: Adsett v Berlouis (1992) 37 FCR 201
Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26
Australian Securities and Investments Commission v Letten (No 17) (2011) 286 ALR 346
Barwick v Goodridge [2011] NSWSC 1233
Baumgartner v Baumgartner (1987) 76 ALR 75
Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226
Coates v McInerney (1992) 7 WAR 537
Coulton v Holcome (1986) 162 CLR 1
De Santis & De Santis [2012] FMCAfam 866
De Santis v Aravanis (No 2) [2012] FMCAfam 1488
Dimos v Dikeakos Nominees Pty Ltd (1996) 68 FCR 39
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471
Re Condon; Ex parte James (1874) LR 9 Ch App 609
Ferella v Official Trustee in Bankruptcy (No 2) [2011] FCA 619
Jennings v Mather [1902] 1 KB 1
Keach v Keach [2011] FamCA 192
Kitson v Hardwick (1872) LR 7 CP 473
Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550
Lewis v Condon (2013) 85 NSWLR 99
Meriton Apartments Pty Ltd v Industrial Court of New South Wales (2008) 171 FCR 380
Metwally v University of Wollongong (1985) 60 ALR 68
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360
Official Assignee of O'Neill v O'Neill (1898) 16 NZLR 628
Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516
Re Gillies; Ex parte Official Trustee In Bankruptcy v Gillies (1993) 42 FCR 571
Re Reynolds; Official Assignee v Wilson [2008] BCL 585
Re Suco Gold Pty Ltd (In liq) (1983) 33 SASR 99
Rodway v White (2009) 233 FLR 262
Savage v Union Bank of Australia Ltd (1906) 3 CLR 1170
Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449
Sheahan v O’Brien [2002] FMCA 25
Snook v London & West Riding Investments Ltd [1967] 2 QB 786
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- AGLC
- De Santis v Aravanis [2014] FCA 1243
- Case
- [2014] FCA 1243
- Decision Date
CaseChat Overview and Summary
In the case of De Santis v Aravanis, the dispute revolved around the rights of a bankrupt, Mr De Santis, in relation to after-acquired property held in trust by Mr Aravanis. Mrs De Santis sought a declaration that Mr Aravanis holds the property on trust for her, while Mr Aravanis argued that he was entitled to recoup certain payments made on mortgage from the trust assets. The primary legal issues before the court were the timing of the right of indemnity for the mortgage payments and whether the bankrupt's interest in the trust property vested in the trustee in bankruptcy.
The court examined the nature of the interest held by the bankrupt in the trust property and determined that the right of indemnity for mortgage payments arose at the time of the payments themselves. It held that the bankrupt was entitled to indemnification from the trust assets for the payments made on the mortgage. The court further found that the bankrupt's conduct in breaching the trust did not negate his entitlement to the indemnity, as the clear accounts rule applied. Additionally, the court addressed the issue of whether the trust agreement was a sham and concluded that there was no evidence to support such a claim.
In conclusion, Mrs De Santis is entitled to a declaration that Mr Aravanis holds the property on trust for her, and Mr Aravanis is entitled to a charge over the property for the amount of the mortgage payments made on behalf of the bankrupt estate. Mr De Santis is required to compensate for the unauthorised borrowing and any post-bankruptcy mortgage payments. The court set aside certain orders of the primary judge and directed the parties to confer on the appropriate time period for establishing the exact amount of the charge and for payment to Mr Aravanis. The court also directed that Mrs De Santis should be entitled to any surplus after the secured lenders and Mr Aravanis have been satisfied.
The court examined the nature of the interest held by the bankrupt in the trust property and determined that the right of indemnity for mortgage payments arose at the time of the payments themselves. It held that the bankrupt was entitled to indemnification from the trust assets for the payments made on the mortgage. The court further found that the bankrupt's conduct in breaching the trust did not negate his entitlement to the indemnity, as the clear accounts rule applied. Additionally, the court addressed the issue of whether the trust agreement was a sham and concluded that there was no evidence to support such a claim.
In conclusion, Mrs De Santis is entitled to a declaration that Mr Aravanis holds the property on trust for her, and Mr Aravanis is entitled to a charge over the property for the amount of the mortgage payments made on behalf of the bankrupt estate. Mr De Santis is required to compensate for the unauthorised borrowing and any post-bankruptcy mortgage payments. The court set aside certain orders of the primary judge and directed the parties to confer on the appropriate time period for establishing the exact amount of the charge and for payment to Mr Aravanis. The court also directed that Mrs De Santis should be entitled to any surplus after the secured lenders and Mr Aravanis have been satisfied.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
I will accord the parties an opportunity to provide submissions as to the appropriate costs order on the appeal having regard to my reasons and the proposed orders.CONCLUSION Mrs De Santis is entitled to a declaration that Mr Aravanis holds the Property on trust for her and accordingly Orders 1 and 2 of the primary judge’s orders should be set aside. Mr Aravanis should be taken to have a charge over the Property for the aggregate amount of $137,465 comprising $37,728 relating to pre-bankruptcy mortgage payments and $99,737 in post-bankruptcy mortgage payments which he is entitled to recoup on behalf of Mr De Santis’ bankrupt estate, subject to Mr De Santis’ obligation to make good the amounts referred to at [117]-[118] below. Mr De Santis is required to make good $71,240 comprising $59,000 (the principal amount of unauthorised borrowing), together with $12,240, being the amount Mrs De Santis should be taken to have contributed to mortgage payments on the unauthorised borrowing in the post-bankruptcy period. Mr De Santis would also be required to make good any interest and charges accrued and unpaid by Mr De Santis on the unauthorised loan since March 2012, the last date to which statements have been provided. The primary judge’s reasons indicate that Mr and Mrs De Santis stopped making payments on the loans, but there is no evidence relating to this issue. Subject to evidence of the accrued unpaid amount on the unauthorised borrowing, it appears that Mr Aravanis would, on a balance of accounts, have a charge on the Property for $66,225. He is entitled to a declaration to that effect, subject to final quantification as envisaged below. As a matter of justice having regard to the balance of accounts, Mr Aravanis should have liberty to raise any payment on the loans since March 2012 made by Mr De Santis or by Mr Aravanis as trustee which should be taken into account consistent with these reasons. If the balance of account indicates that Mr De Santis’ obligation to make good loss to the trust estate attributable to his default has been satisfied and there remain moneys payable to Mr Aravanis, Mr Aravanis is entitled to an order for sale of the Property to enforce his charge on the Property. However, Mrs De Santis should first be given the opportunity to fund the amount of the charge. I will ask the parties to confer as to an appropriate time period to be allowed to establish the exact amount of the charge having regard to Mr De Santis’ obligation to make good the amount of any accrued but unpaid interest on the unauthorised loan and then for payment of the amount of the charge in favour of Mr Aravanis. Orders 3 to 9 of the primary judge’s orders should be set aside and new machinery orders made in lieu. They should include an order that Mrs De Santis is entitled to any surplus after the secured lenders have been satisfied and any lien of Mr Aravanis as trustee of Mr De Santis’ bankrupt estate has been satisfied after a clean account for any breach of trust by Mr De Santis has been made.
Ratio Decidendi
Legal Principle Established
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