Diamond and Inspector-General in Bankruptcy
[2024] AATA 2135
•28 June 2024
Diamond and Inspector-General in Bankruptcy [2024] AATA 2135 (28 June 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2021/8713
Re:Graeme Diamond
APPLICANT
AndInspector-General in Bankruptcy
RESPONDENT
DECISION
Tribunal:Professor Ann O'Connell, Senior Member
Date:28 June 2024
Place:Melbourne
The Tribunal affirms the decision of the Respondent on Grounds 2 and 3. The Tribunal sets aside the decision of the Respondent and cancels the objection on Ground 1.
................................[SGD]........................................
Professor Ann O'Connell, Senior Member
Catchwords
BANKRUPTCY – Objection to discharge – where bankruptcy trustee filed a notice to objection to the Applicant’s discharge from bankruptcy –– decision under review affirmed on Grounds 2 and 3 – Special Grounds – decision under review set aside on non-special grounds – failure of trustee in bankruptcy to specify reasons
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Bankruptcy Act 1966 (Cth)
Bankruptcy Legislation Amendment Act 2002 (Cth)Cases
Australian Securities and Investment Commission (In the Matter of Richstar Pty Ltd) v Carey (No 6) (2006) 153 FCR 509
Cannane v Cannane Pty Ltd (in liquidation) [1998] HCA 6
Inspector-General in Bankruptcy v Nelson [1998] FCA 684
Kennon v Spry (2008) 238 CLR 366
Mallett and Inspector General in Bankruptcy [2018] AATA 3739
Pascoe v Inspector-General in Bankruptcy [2006] AATA 665
Phillips and Inspector-General in Bankruptcy [2012] AATA 788
Prentice v Wood [2002] FCAFC 48
Re Ansett; Ex parte Ansett v Pattison (1995) 56 FCR 526Smith v Trustee of the Property of Richard John Smith (a Bankrupt) [2023] FCA 300
Secondary Materials
Australian Rules of Racing, Racing Australia
Constitution, Racing Australia
Explanatory Memorandum, Bankruptcy Legislation Amendment Bill 2002 (Cth)REASONS FOR DECISION
Professor Ann O'Connell, Senior Member
28 June 2024
INTRODUCTION
The Applicant, Mr Graeme Diamond, became bankrupt on 14 August 2018 and in the normal course of events would have been discharged from bankruptcy on 14 August 2021. However, on 20 October 2020, the Trustee in Bankruptcy lodged an objection to discharge extending the period of bankruptcy from 3 to 8 years i.e., until 14 August 2026.
This application is made pursuant to section 149Q(a) of the Bankruptcy Act1966 (Cth) (‘the Act’) and section 25(1) Administrative Appeals Tribunal Act 1975 (Cth), for a review of the decision made by the Inspector-General in Bankruptcy (‘Inspector-General’) on 18 October 2021 confirming the notice of objection to the Applicant’s discharge from bankruptcy.
BACKGROUND
The Applicant became bankrupt on 14 August 2018 upon acceptance by the Official Receiver of his debtor’s petition for bankruptcy under section 57B of the Act. Stephen Dixon was appointed trustee of the bankrupt estate (the former Trustee).
On 1 July 2019, Darryl Kirk (‘the Trustee’) was appointed Trustee of the bankrupt estate pursuant to section 181A of the Act.
On 2 October 2020, the Trustee filed a notice of objection to the discharge from bankruptcy.
On 30 November 2020, the Inspector-General received an application seeking a review of the notice of objection. On 27 January 2021, the Inspector-General made a decision not to conduct a review of the notice of objection on the basis that the reasons for requesting a review did not appear to justify conducting a review. The Applicant made an application to the Administrative Appeals Tribunal (‘the Tribunal’) dated 24 February 2021 for a review of the decision of the Inspector-General not to conduct a review of the notice of objection. During the course of the application in the Tribunal, further information was made available to the Inspector-General. On 17 August 2021, the Inspector-General made a decision to carry out an own-initiative review of the notice of objection under section 149K(1)(a) of the Act.
On 18 October 2021, the Inspector-General (the Respondent) determined to confirm the Trustee’s decision objecting to the Applicant’s discharge from bankruptcy. The Applicant now seeks a review of that decision.
LEGISLATIVE FRAMEWORK
Section 149 of the Act provides that the bankrupt is, by operation of law, discharged from bankruptcy at the end of the period of three years from the date on which the bankrupt filed his or her statement of affairs.
Section 149A provides that bankruptcy is extended when an objection is made, unless the objection is withdrawn or cancelled.
Section 149B provides that at any time before the bankruptcy ends, the trustee in bankruptcy may file a written notice of objection.
Section 149C provides for the form of a notice of objection. The requirements differ depending on the ground(s). It provides:
(1) A notice of objection must:
(a) set out the ground or each of the grounds of objection, being a ground or grounds set out in subsection 149D(1) … and
(b) refer to the evidence or other material that, in the opinion of the trustee, establishes that ground or each of those grounds; and
(c) state the reasons of the trustee for objecting to the discharge on that ground or those grounds.
(1A) Paragraph (1)(c) does not apply to a ground specified in para 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (ia), (k) or (ma).
Section 149D(1) sets out the grounds of objection. The grounds relied on by the Trustee in Bankruptcy in this case are:
(da) after the date of the bankruptcy, the bankrupt intentionally provided false or misleading information to the trustee;
(ma) the bankrupt intentionally failed to disclose to the trustee the bankrupt's beneficial interest in any property; and
(n) the bankrupt failed, whether intentionally or not, to disclose to the trustee the bankrupt's beneficial interest in any property.
Section 149K provides for ‘internal review’ by the Inspector-General.
The jurisdiction of the Tribunal is to be found in section 149Q of the Act and the decision being reviewed or re-made is the decision of the Inspector-General, not the decision of the trustee.[1] Therefore, the decision of this Tribunal must be made within the parameters of section 149N.
[1] Phillips and Inspector-General in Bankruptcy [2012] AATA 788.
The Tribunal must cancel the objection if it is satisfied that for each of the grounds of objection raised by the Trustee, one of the four paragraphs of subsection 149N(1) applies.
Section 149N(1) provides as follows:
(1) On a review of a decision, if the Inspector-General is satisfied that:
(a) the ground or grounds on which the objection was made was not a ground or were not grounds specified in subsection 149D(1); or
(b) there is insufficient evidence to support the existence of the ground or grounds of objection; or
(c) the reasons given for objecting on that ground or those grounds do not justify the making of the objection; or
(d) a previous objection that was made on that ground or those grounds, or on grounds that included that ground or those grounds, was cancelled;
the Inspector-General must cancel the objection.
[emphasis added]Where there is at least one ‘special ground’ within the meaning of that term as defined in section 149N(1A) of the Act, the effect of section 149N(1) is modified. Section 149N(1A) provides:
(1A) An objection must not be cancelled under subsection (1) if:
(a) the objection specifies at least one special ground; and
(b) there is sufficient evidence to support the existence of at least one special ground specified in the objection; and
(c) the bankrupt fails to establish that the bankrupt had a reasonable excuse for the conduct or failure that constituted the special ground
For this purpose, special ground means a ground specified in paragraphs 149D(1)(ab), (d), (da), (e),(f), (g), (h), (ha), (ia), (k), or (ma).
[emphasis added]Thus, where the Tribunal would otherwise have to cancel the objection under section 149N(1), it must not do so if it is satisfied that there is sufficient evidence to support the existence of any of the grounds raised and that the bankrupt did not have a reasonable excuse for his conduct or failures which constituted the special grounds: paragraphs 149N(1A)(b) and (c).
The notion of ‘special grounds’ was introduced into the Act by the Bankruptcy Legislation Amendment Act 2002 (Cth). The Explanatory Memorandum of the Bill stated the rationale for the introduction of ‘special grounds’ as follows:
47 In practice, trustees often have found it difficult to maintain objections. Frequently, objections have been cancelled on review by the Inspector-General, the Administrative Appeals Tribunal (AAT) or the Federal Court. The reasons for cancellation vary. Some trustees have found it difficult to differentiate clearly the ground(s) of an objection and the reason for filing the objection. Moreover, on occasions, the AAT has upheld a bankrupt’s challenge to an objection simply because, either during an AAT hearing or just before it occurs, the bankrupt eventually has provided information long sought by the trustee and the non-supply of which information was the ground of the trustee’s objection. Such decisions undermine a prime purpose of the objection regime which is to induce a bankrupt to cooperate, promptly, with the trustee of the bankrupt estate.
48 The Full Federal Court decision in Inspector-General in Bankruptcy v Nelson (1998) 168 ALR 340 establishes that a sufficient reason for filing an objection under the current provisions is that doing so will advance the trustee’s administration of the bankrupt estate. However, conversely, punishment of the bankrupt for failure to cooperate was found to be an impermissible reason for filing an objection.
49 To address these deficiencies in the present law which have hampered a trustee’s capacity to elicit cooperation from some bankrupts, and to strengthen the trustee’s hand, the Bill proposes a tougher objection-to-discharge regime under which it is expected that more objections will withstand the review process.
50 It is proposed that trustee objections will fall into one of two groups, namely, those which specify at least one ‘special ground’ and those which specify none. In the first group, the trustee’s notice of objection still will have to set out the ground(s) of objection and the evidence relied on to establish it or them, but need not state the reasons for filing an objection to the bankrupt’s discharge from bankruptcy. For objections which contain no ‘special ground’, the trustee will be obliged, as now, to provide in the notice the trustee’s reasons for filing an objection.
51 The existing objection grounds in paragraphs 149D(1)(d) to (h) inclusive will now constitute special grounds, as will those in proposed new paragraphs 149D(1)(ab), (da), (ha) and (ma). The existing objection grounds in paragraphs 149D(1)(a), (b) and (h) to (n) inclusive will constitute other grounds, as will the ground in proposed new paragraph 149D(1)(aa). Special grounds are directed at deliberate actions by the bankrupt to defeat creditors or to hinder the trustee’s administration. The bankrupt’s pre-objection conduct, rather than the trustee’s capacity to show that an objection will advance the conduct of the administration, will determine whether any notice of objection will have to state the reason(s) why it has been lodged. Examples of special grounds that may be listed in an objection notice and regarding which no reasons are required include:
(a) any transfer is void against the trustee in the bankruptcy because of section 121 (ie, the section which deals with property transfers to defeat creditors) (proposed new paragraph 149D(1)(ab)); and
(b) after the date of the bankruptcy, the bankrupt intentionally provided false or misleading information to the trustee (proposed new paragraph 149D(1)(da)) .52 Proposed new subsection 149N(1A) identifies the special ground paragraphs. As noted, they relate to deliberate actions which can disrupt a trustee’s administration or which are intended to defeat creditors. While it can be difficult to infer intention, in each instance the burden of proof which the trustee will bear if an objection is challenged is the civil onus, ie, proof on the balance of probabilities.
53 Further, by proposed subsection 149N(1B), a reviewer will not be able to cancel an objection by taking into account any conduct of the bankrupt after the time when the ground first commenced to exist. Objections on special grounds will be reviewable only as to whether the ground(s) and evidence are made out, unless the reviewer is satisfied by the bankrupt that the facts supporting the objection arose without any fault on the bankrupt’s part.
54 While a trustee’s hand is strengthened greatly by the proposed new provisions, it remains the case that a trustee does not have to file an objection unless subsection 149B(2) applies, and a trustee can cease to object on a particular ground (section 149H) or withdraw an objection at any time (section 149J).In Mallett and Inspector-General in Bankruptcy,[2] DP Hanger described the task as follows:
The focus of the Tribunal’s inquiry must be on the Objection, as examined through the lens of section 149N. Two of the three grounds noted above are ‘special grounds’ for the purposes of s 149N. This means that, even if a reason for cancelling the objection as provided in s 149N(1) exists, the objection cannot be cancelled if there is sufficient evidence to support the existence of a special ground: paragraph 149N(1A)(b). This effectively imposes the minimum threshold before an objection on a special ground can be cancelled of being satisfied that there is insufficient evidence to support the existence of that special ground.
[2] [2018] AATA 3739 at [16].
ISSUE TO BE DETERMINED
The issue in dispute in relation to each of the Grounds is whether the Applicant had an interest in racehorses and failed to disclose that interest to the Trustee. The Respondent contends that the Applicant owned 29 horses either in his own name or through a syndicate: the Storm Creek Racing and Breeding Syndicate (‘the Syndicate’). The Applicant contends that a number of the horses were given away and that the remaining horses were owned by Storm Creek Racing and Breeding Pty Ltd (‘the Company’) as trustee for the Storm Creek Trust (‘the Trust’).
The Syndicate was registered with Queensland Racing and Integrity Commission (‘QRIC’) on 5 December 2016. The Applicant is the syndicate manager and sole member of the Syndicate. The Applicant accepts that any property owned by the Syndicate is owned by him.
The Company was incorporated on 3 February 2016. The Applicant was a director from 20 November 2017 to 18 July 2018. The Applicant previously held 60 out of 120 ordinary shares in the Company. The Applicant’s son is currently the sole director and sole shareholder of the Company. The Company is the trustee of the Trust.
The Trust was established on 3 February 2016 by deed. The Trust is a discretionary trust. The Applicant is an appointor and primary beneficiary (with his wife) of the Trust.
The Horses
The Trustee identified 29 horses as being owned by the Applicant.[3] Those horses are:
[3] The Trustee identified 30 horses, but subsequently noted that no claim was made in relation to one of the horses (Outback Jewel).
1.Able Mabel
2.Aviemore
3.Fiorente Star
4.I Am Impinge
5.My Delilah
6.Perfect Angel
7.Oracle Miss
8.Belle du Sud
9.Angel’s Boy
10.Burning Sails
11.Delcosta Diamond
12.Dolphus
13.Lady Lou
14.Miss Kindilan
15.Mobile
16.Moet Miss
17.Outback Dream
18.Outback Paradise
19.Outback Spirit
20.Scarborough
21.Showus Ya Diamonds
22.Tamariz
23.Cruze
24.Doss
25.Flybridge
26.Great Keppell
27.Seize Her
28.Slave
29.Skytrek
In determining ownership of the horses, and whether the Applicant failed to disclose ownership, it is necessary to consider when the horses were acquired. In this regard, 4 time periods can be identified:
·The period before February 2016: as the Company and Trust were formed in February 2016, any horses acquired before that date must have been owned by the Applicant and he concedes that this is the case (Group 1 horses);
·The period from February 2016 to the date of bankruptcy on 14 August 2018: any horses owned or acquired by the Applicant should have been disclosed on his Statement of Affairs (Group 2 horses);
·The period from 14 August 2018 to 8 October 2019 (the date of the Applicant’s meeting with the Trustee): any horses owned or acquired by the Applicant should have been disclosed at the meeting with the Trustee on 8 October 2019 (Group 3 horses); and
·The period after October 2019: any horses acquired after this date should have been disclosed to the Trustee (Group 4 horses).
Group 1 horses
As noted above, the Company and Trust were established in February 2016. It follows that any horses acquired before that date would not be owned by the Trust, unless there had been a subsequent transfer to it. The horses in Group 1, the date the Applicant accepts the horse was acquired, and the status as recorded by Racing Australia in a report dated June 2020 (‘the Racing Australia report’), are set out below:
Date purchased Status
- Outback Paradise
20 January 2011 Retired
- Outback Spirit
20 January 2011 Retired
- Delcosta Diamond
11 August 2011 Retired
- Outback Dream
08 December 2011 Retired
- Dolphus
07 June 2013 Retired
- Burning Sails
14 October 2013 Retired
- Oracle Miss
04 December 2013 Breeder
- Lady Lou
18 December 2013 Retired
- Scarborough
01 June 2014 Retired
- Tamariz
06 December 2014 Retired
In respect of these 10 horses, the Applicant did not produce any evidence of purchase but accepts that they were purchased by him and held in his own name. His argument in relation to these horses is that they were all given away, and therefore not owned by him at the date of his bankruptcy or at the meeting with the Trustee. However, he has produced no evidence to demonstrate that this is indeed what happened. The argument about gifting of horses is considered below.
The Applicant also contended that each of these horses had nil value and therefore did not need to be disclosed. The argument about value is considered below.
Group 2 horses
Horses acquired after 2016 could have been acquired by the Applicant in his own name, via the Syndicate or by the Company as trustee for the Trust. The significance of this group of horses is that if any horses were owned by the Applicant they should have been disclosed at the date of his bankruptcy and at the meeting with the Trustee. The horses in Group 2, the date the Applicant accepts the horse was acquired, whether there is any proof of purchase, the date of any disposal, the value of the horse (if known) and status as set out in the Racing Australia report (R = retired; S = spelling; A = active; E = exported) are set out below:
Date purchased
Proof of purchase
Disposed of?
Value in 2019
1. Moet Miss
02 February 2017
No
R
2. Cruze
08 March 2017
No
$15,000[4]
S
3. My Delilah
08 March 2017
No
30 November 2019[5]
$8,000[6]
A
4. Doss
29 November 2017
No
Deceased?[7]
$25,000[8] (2018)
S
5. Showus Ya Diamonds
04 December 2017
No
$15,000[9]
R
6. Miss Kindilan
08 January 2018
No
$12,500[10]
R
7. Skytrek
11 January 2018
No
Transferred[11]
$8,000[12]
S
8. Slave
28 February 2018
Yes[13]
Transferred[14]
S
9. Mobile
22 March 2018
No
R
10. Great Keppell
20 April 2018
No
$7,000[15]
S
11. Belle du Sud
01 May 2018
No
Exported?[16]
E
12. Angel’s Boy
01 May 2018
No
$5,000[17]
R
[4] As estimated by Applicant, see Annexure to A1, p 496 (The Applicant submitted a bundle of documents totalling 1202 pages annexed to his witness statement of 4 April 2023 (‘Annexure to A1')).
[5] The only evidence of transfer is the letter from Barry Lockwood dated 24 December 2021 stating that the horse was ‘transferred out of my stable’ on that date, see Annexure to A1, p 357.
[6] See Barry Lockwood letter dated 24 December 2021, Annexure to A1, p 357.
[7] Racing Queensland lists this horse as ‘deceased’ but no date or other details are provided, R1, p 124.
[8] As estimated by Applicant, see Annexure to A1, p 495.
[9] Barry Lockwood letter dated 24 December 2021, Annexure to A1, p 357.
[10] Ibid.
[11] The transfer of ownership form dated 10 May 2020 lists the new owner as ‘Storm Creek Racing and Breeding’ and is signed by the Applicant as ‘owner’, see R1, pp 99-100.
[12] Ibid.
[13] The transfer of ownership form dated 5 May 2020 lists the new owner as ‘Storm Creek Racing and Breeding’ and the form is signed by the Applicant as ‘owner’: see R1, p 107.
[14] The transfer of ownership form dated 17 April 2020 lists the owner as Storm Creek Racing and Breeding is signed by the Applicant as ‘owner’, see R1, pp 99-100.
[15] Mitchell Livestock letter dated 6 May 2021, Annexure to A1, p 1.
[16] Racing Queensland lists this horse as exported: R1, 124, but the Applicant gave evidence that he had never exported a horse: see Transcript of interview 20 April 2021, R1, p 343.
[17] Ibid.
In respect of the Group 2 horses, the Applicant argued that these horses had been purchased by the Company as trustee for the Trust rather than the Syndicate. This argument is addressed below.
Group 3 horses
Horses acquired after the date of bankruptcy but before the meeting with the Trustee in October 2019 could have been acquired by the Applicant, the Syndicate or by the Company as trustee for the Trust. The horses in Group 3 showing the date the Applicant accepts the horse was acquired, whether there is proof of purchase, when disposed of, possible value and the status as contained in the Racing Australia report are set out below:
Date purchased
Proof of purchase
Disposed of?
Value in 2019
Status
1. Flybridge
04 October 2018
Yes?[18]
Transferred[19]
$1000[20]
S
2. Fiorente Star
13 December 2018
No
$2,000[21]
A
3. Able Mabel
12 June 2019
No
Transferred?[22]
$4,000[23]
A
[18] The only evidence of purchase provided was a bank statement relating to the Trust with a debit entry dated 29 March 2019, 6 months after the purchase date, for $19,212.60 with a hand-written notation saying ‘Flybridge’, see Annexure to A1, p 4.
[19] The transfer of ownership form dated 30 November 2019 lists the owner as Storm Creek Racing and Breeding and is signed by the Applicant as ‘owner’, see R1, p 90.
[20] Mitchell Bloodstock letter dated 6 May 2021, Annexure to A1, p 1.
[21] Ibid.
[22] The Applicant claimed that the Racing Australia report listed the hoses as being disposed of on 20 March 2020, but in fact it is still listed as currently owned: R1, p 329.
[23] Mitchell Bloodstock letter dated 6 May 2021, Annexure to A1, p 1.
In respect of the Group 3 horses, the Applicant contended that they were purchased by the Company as trustee for the Trust. This argument is considered below.
Group 4 horses
Horses acquired after the meeting with Trustee could have been acquired by the Applicant personally, by the Syndicate or by the Company as trustee for the Trust. The horses in Group 4 showing date of purchase, whether there is any proof of purchase, whether disposed of, the value and status as contained in the Racing Australia report are as follows:
Date purchased
Proof of purchase
Disposed of?
Value in 2019
Status
1. Seize Her
30 October 2019
Yes?[24]
$3000[25]
S
2. Aviemore
18 December 2019
No
$25,000[26]
A
3. I Am Impinge
30 March 2020
No
Deceased?[27]
$1,000[28]
A
4. Perfect Angel
01 May 2020
Yes?[29]
Deceased?[30]
$350[31]
A
[24] The only evidence of purchase provided was a bank statement relating to the Trust with a debit entry dated 29 March 2019, 7 months before the purchase, for $19,212.60 with a hand-written notation saying ‘Seize Her’, see A1, p 9. This is the same debit that was said to relate to Flybridge, see n 17.
[25] Mitchell Bloodstock letter dated 6 May 2021, Annexure to A1, p 1.
[26] Ibid.
[27] The Applicant asserts in his witness statement that this horse is deceased but there is no evidence to support this, A1, p 7.
[28] Mitchell Bloodstock letter dated 6 May 2021, Annexure to A1, p 1.
[29] The transfer of ownership form dated 30 November 2019 lists the owner as Storm Creek Racing and Breeding and is signed by the Applicant as ‘owner’, see R1, p 92.
[30] The Applicant asserts in the witness statement that this horse is deceased but there is no evidence to support this, A1, p 7.
[31] Mitchell Bloodstock letter dated 6 May 2021, Annexure to A1, p 1.
The Group 4 horses are not relevant to determining whether the Applicant provided false or misleading information at the time of his bankruptcy or at the meeting with the Trustee but should nevertheless have been disclosed to the Trustee.
Evidence about ownership of horses
The Applicant and the Respondent produced a range of evidence that they argued demonstrated ownership of the horses.
Evidence for the Respondent
According to the Trustee, the evidence relating to ownership was said to be:
·a report from Racing Australia dated 11 June 2020 identifying ‘Horses owned by Graeme Diamond’ on the Register of Racehorses (the Racing Australia report);
·a response to summons from Racing Queensland to produce information relating to ‘Storm Creek Racing and Breeding Pty Ltd and Storm Creek Trust’ dated 7 June 2021 which provides information that refers to the ‘Storm Creek Racing and Breeding’ (Racing Queensland records);
·4 transfer of ownership forms dated 1 August 2019 (re Slave), 1 December 2019 (re Flybridge), 30 April 2020 (re Skytrek) and 1 May 2020 (re Perfect Angel);
·an application to QRIC for renewal of registration of a syndicate dated 13 August 2018 and a certificate of registration of a syndicate dated 15 August 2018 for SCR&B;
·an email to the Applicant from Mr Murray Kilpin, Walsh & Walsh Accountants, advising of the establishment of the Company and Trust dated 4 February 2016.
The Racing Australia Report
The report from Racing Australia dated 11 June 2020 was requested by the Trustee and provides details of ‘Horses owned by Graeme Diamond – current and past ownership records’.
Racing Australia was formed in 2015 as the result of amalgamations of various bodies. According to its Constitution, the primary object of Racing Australia is:
‘the encouragement and promotion of horse races, including by, amongst other things… maintaining information regarding the ownership and identity of thoroughbred race horses for racing in Australia … including by acting as Registrar of Racehorses contemplated by the Australian Rules of Racing’.[32] [emphasis added]
[32] Constitution, Racing Australia Ltd (at 20 April 2021) cl 2.1(d).
The Registrar of Racehorses, a division of Racing Australia, records the original registration of thoroughbred racehorses and works with Principal Racing Authorities (PRAs) in each State (and Territory) that are responsible for subsequent changes in ownership.[33] The designated PRA for Queensland under the Australian Rules of Racing is Racing Queensland (RQ)[34] but since 2016, the Queensland Racing Integrity Commission (QRIC) also undertakes some tasks concerning ownership of racehorses and other matters.[35]
[33] ‘Registrar of Racehorses’, Racing Australia (Web Page), < Australian Rules of Racing, Racing Australia Ltd (at 1 May 2024) Part 1, div 2 Dictionary definition of ‘Principal Racing Authority’.
[35] ‘About us’, QRIC (Web Page), <
The Racing Australia report lists 33 horses as owned by ‘Graeme Diamond’ with ownership being ‘current’, although 3 of those are listed as ‘deceased’. The 30 remaining horses correspond to the horses identified by the Trustee.[36] The report has a column for ‘Syndicate Name’. Eleven horses are listed as having no syndicate – and the Applicant accepts that these horses were purchased by him and held in his name. For each of the remaining horses, the syndicate is listed as ‘Storm Creek Racing and Breeding’. The report also contains additional information about some, but not all, of the horses listed as current, including contact details and in some cases, a reference to an Australian Business Number (ABN), which it is accepted is the ABN for the Trust. The significance of the ABN is considered below.
[36] Including Outback Jewel that the Trustee makes no claim about.
Although it is clear that the Racing Australia report is not definitive proof of title, the reference to ‘horses owned by GD’ and the designation of ‘Storm Creek Racing and Breeding’ as the Syndicate, is prima facie evidence of ownership by the Applicant through the Syndicate, or in relation to the 11 horses listed as having no syndicate, direct ownership by the Applicant.
Racing Queensland records
The second piece of evidence relating to ownership of the horses relied on by the Respondent is a response to a summons from Racing Queensland issued by the Applicant dated 26 May 2021. Racing Queensland was asked to provide information in relation to ‘The Trustee for Storm Creek Trust and Storm Creek Racing and Breeding Pty Ltd’. In the response to the summons dated 7 June 2021, Racing Queensland provided:
·A complete listing of the racehorses registered in the name ‘Storm Creek Racing and Breeding’, both currently and formerly (Attachment 1); and
·A complete listing of all payments made by RQ in respect of ‘Storm Creek Racing’s account’ (Attachment 2).
Attachment 1 lists 22 horses, including 3 that are not subject to the Objection and one that is listed as ‘deceased’ (Doss). It does not refer to the 11 horses owned by the Applicant under his own name. Of the 18 horses listed, 9 are described as ‘active’, 7 as ‘retired’, one as ‘spelling’ and one as ‘exported’.
Attachment 2 contains 26 pages of statements listing payment of prize money to ‘Storm Creek Racing and Breeding’ from 3 May 2017 to 26 May 2021 totalling more than $150,000.
The Respondent contends that these records are probative of ownership of the horses by the Syndicate.
The Tribunal finds that the Racing Queensland records are inconclusive about ownership. On the one hand, Racing Queensland was asked to provide information about the Company and the Trust, on the other hand, the information provided is about Storm Creek Racing and Breeding, which could be the Syndicate.
Transfer of ownership forms
The third piece of evidence relied on by the Respondent relates to specific change of ownership forms relating to 4 horses. They are transfer of ownership forms for Flybridge dated 1 December 2019,[37] Perfect Angel dated 1 May 2020,[38] Skytrek dated 30 April 2020,[39] and Slave dated 5 May 2020,[40] all which list the owner as ‘Storm Creek Racing and Breeding’ and are signed by the Applicant as ‘owner’. The Applicant on his own evidence was not authorised to act on behalf of the Company. This is a very strong indicator that horses which the Applicant claimed were owned by the Company, were in fact owned by the Syndicate.
[37] Flybridge, R1, pp 88-90.
[38] Perfect Angel, R1, pp 91-5.
[39] Skytrek, R1, pp 98-100.
[40] Slave, R1, pp 101-13.
Three of these transfer of ownership forms are discussed further below.
Registration of Syndicate
The fourth piece of evidence relied on by the Respondent is the application for renewal of registration of the Syndicate with QRIC by the Applicant on 13 August 2018 i.e., the same day as he filed for bankruptcy. The registration was valid to 31 July 2021. The Applicant was listed as a sole member of the Syndicate, and he accepts that any horses owned by the syndicate are in effect owned by him. The Applicant gave oral testimony that the initial reason for establishing the Syndicate in 2016 was to enable others to acquire an interest in a racehorse through membership of the Syndicate. He also stated that this never happened. He did not offer any reason for renewing the registration in August 2018.
The registration of the Syndicate at this time does not prove ownership but does indicate that ownership of racehorses by the Syndicate was viewed as possible by the Applicant in August 2018.
Email from accountant
The fifth piece of evidence relied on by the Respondent is an email to the Applicant from his accountant in February 2016, advising of the establishment of the Company and the Trust. The correspondence advises that any horses that were to be raced should continue to be owned by the Applicant (or his wife) ‘for tax purposes’, presumably to make the argument that any winnings were not derived in carrying on a business and were therefore not part of their assessable income. The accountant also advised that it was likely that the full legal name of the Company would probably not be used.
This evidence does not prove ownership of the horses but does indicate that confusion between the Company and the Syndicate was a possibility and likely intended.
Evidence for the Applicant
The Applicant argued that the horses identified by the Trustee were either owned by the Trust, or had been given away, or were deceased prior to the Applicant preparing his Statement of Affairs.
In relation to the argument that horses were owned by the Company as trustee for the Trust rather than the Syndicate or by the Applicant personally, the Applicant asked the Tribunal to consider a range of evidence. This included:
·The Racing Australia report that listed the Australian Business Number (ABN) of the Trust;
·The inconclusive nature of the Racing Australia report since it refers to ‘Storm Creek Racing and Breeding’ which the Applicant argues could be a reference to either the Syndicate or the Company;
·Various financial statements which the Applicant contends prove that the horses were owned by the Company. This included:
oInvoices from Barry Lockwood, trainer, to the Company;
oFinancial statements, Tax Returns and BAS statements for the Trust from 2016 to 2020; and
oAn extract (275 pages) from the Financial Ledger for the Trustee for the Storm Creek from 8 February 2016 to 2020;
·Transfer and registration forms for various horses which the Applicant contends show that the horses were transferred/registered under the ABN of the Trust;
·Racing Queensland records that the Applicant contends show that the horses are listed in the name of the Trust; and
·QRIC records that the Applicant contends show that the horses are listed in the name of the Trust by reference to the Trust’s ABN.
Racing Australia report and the Trust’s ABN
The Racing Australia report, relied on by the Respondent, was also relied on by the Applicant. In addition to the summary document that lists ‘Horses Owned by Graeme Diamond, Current and past ownership records’, there are additional Horse Owner records for 20 of the horses. Each of these records lists the owner as ‘Storm Creek Racing and Breeding’. The Applicant relies on the fact that 9 of the records list an ABN; which is accepted as the ABN of the Trust, and an additional 6 records list a partial ABN which appear to be that of the Trust.
The Tribunal accepts that a number of records in the Racing Australia report include the ABN of the Trust. However, it is necessary to consider whether this is probative of ownership of the horses by the Trust.
Importantly, the inclusion of an ABN when registering a horse is at the discretion of the person registering the horse. The Racing Australia form for registration of a racehorse provides:
Declaring your GST Status
Owners are required to indicate their GST status in relation to their horse racing activity for tax purposes. If a declaration is not made, withholding tax will be deducted from the total prize money paid to the owner.
When do I supply an ABN?
If an owner’s horse racing activities are conducted as an enterprise and the enterprise is registered for GST the owner can quote the ABN of that enterprise. If an owner’s horse racing activity is conducted as a private recreational pursuit or hobby, an ABN cannot be provided and the owner must declare themselves as a hobbyist. An owner can only quote an ABN if the ABN is for an enterprise that is racing horses as part of that enterprise. Individual members of a registered syndicate must not provide their own personal or business ABN. The syndicate must be registered for GST and provide an ABN.
What happens if owners provide an ABN for a business that is not involved in horse racing activities?
If an owner provides an ABN for an enterprise whose activities do not include racing horses, the owner will be making a false or misleading statement which is an offence under tax law. If incorrect ABN information has been provided on a previous horse registration application, an owner should contact the PRA/RIB in their state or territory.
The inclusion of an ABN means that the person registering declares that they are registered for GST. This means that payment of prize money will not have any withholding tax deducted. The prize money won will be subject to GST when received, and if the entity receiving the prize money is registered for GST, they will be able to claim for any GST paid on inputs (input tax credits). In this regard, the Business Activity Statements (BAS) lodged by the Trust for the period 2016 to 2020 indicate that although the Trust paid $44,263 in GST, it received refunds of $76,215. There was a clear tax advantage if a person registering declared that they were carrying on an enterprise and included an ABN.
The fact that the ABN of the Trust was included on the forms submitted to Racing Australia and subsequently included in the Register, does not provide any independent evidence of ownership of the horses.
Racing Australia records inconclusive
A second argument for the Applicant relating to the Racing Australia report is that the reference to ‘Storm Creek Racing and Breeding’ is inconclusive, as the Syndicate and the Company name are essentially the same. Indeed, based on the email from the accountant to the Applicant, this appears to be the very reason for choosing the company name initially. The Tribunal accepts that the reference to ‘Storm Creek Racing and Breeding’ in the Racing Australia report is not conclusive evidence that either the Syndicate or the Company is the owner of the horses. However, the fact that the Racing Australia report refers to there being a Syndicate in some cases but not in others does indicate that at some point the person registering the horses provided details of the Syndicate.
Financial records
A third argument for the Applicant is that there are a number of financial records that have probative value. The Applicant urged the Tribunal to give great weight to these records. There are three types of records that need to be considered separately.
(i) Invoices from Barry Lockwood addressed to the Company
The Applicant produced more than 300 pages of invoices from Barry Lockwood Racing Stables, addressed to the Company for the period 30 November 2018 to 30 November 2020.[41] Barry Lockwood is referred to in the Racing Queensland records as ‘trainer’ of a number of the horses.[42] He also appears to be a part-owner of some of the horses in dispute,[43] with it later emerging in the Applicant’s interview with the Trustee in 2021 that he is the brother of Pam Abra,[44] who was for a period, director of the Company.[45] This indicates that he may not have been an arm’s length supplier. In any event, it seems likely that a supplier would invoice whoever he or she was asked to invoice. Notably, the invoices start after the bankruptcy commences i.e., they relate to the period when the Applicant was supposedly unable to own racehorses. The invoices (some of which are duplicated) suggest that some of the horses were indeed active during the Applicant’s bankruptcy. However, the fact that a non-arm’s length supplier of services, or indeed any supplier, invoices the Company, does not prove that the Company owns the racehorses.
[41] See Annexure to A1, attachment pp 11-356.
[42] See R1, p 124.
[43] See, for example, Witness Statement of Darryl Kirk (R2): Able Mabel at [31]; Aviemore at [35]; Doss at [46]; Fiorente Star at [55]; Flybridge at [60]; Mobile at [69]; Perfect Angel at [79]; Seize Her at [83], Showus Ya Diamonds at [84]; Skytrek at [86]; Slave at [87].
[44] See R1, p 372.
[45] See ibid 303.
(ii) Financial statements and tax returns
The Applicant produced financial statements for the Trust for the years 2016 to 2020 prepared by Walsh & Walsh, Income Tax Returns[46] and BAS Statements[47] for the Trust for the same period.
[46] See Annexure to A1, attachment pp 385-498 (and repeated at pp 818-1129).
[47] See ibid 775-812 (and repeated at pp 1168-73).
The financial statements refer to ‘stock on hand’[48] but do not identify any horses. Even if the horses listed were treated by the Trust as ‘stock on hand’, this does not prove ownership.
[48] See ibid 467-74 (2016), 485-97 (2017), 397-407 (2018), 420-32 (2019) and 446-57 (2020).
In relation to the tax returns, the Trust declared a taxable loss of $135,839 in 2016,[49] a taxable loss of $105,223 in 2017,[50] no taxable income in 2018,[51] a taxable loss of $490 in 2019,[52] and a taxable loss of $32,691 in 2020.[53] There are no specific references to any particular horse in the returns. There is a listing of horses immediately after the Income Tax Returns in 2016[54] and 2017,[55] but this does not appear to be part of the return or prove that the Trust owned the horses.
[49] See ibid 467.
[50] See ibid 487.
[51] See ibid 397.
[52] See ibid 423.
[53] See ibid 449.
[54] See ibid 474.
[55] See ibid 497.
The Income Tax Returns for the Trust claim various expenses presumably related to some racehorses, but these are not itemised, and no evidence was tendered as to what the expenses relate to. The Tribunal accepts that during the relevant period, the Trust claimed income tax deductions for expenses related to horses. However, the fact of expenditure in relation to horses, even if they were identified, does not prove ownership.
As noted above, the BAS statements for the Trust show that it paid $44,263 in GST and received credits resulting in refunds of $76,215 in the period 2016 to 2020. This does not prove ownership of any horses.
(iii) Payments by the Company
The Applicant produced 275 pages of a document headed ‘General Ledger Trustee for the Storm Creek Trust’.[56] The Applicant contended that this proved that the Company had paid the expenses for the horses and that this was probative of ownership.[57] The ledger commences in February 2016 and lists hundreds of entries for a wide range of items, most of them general in nature and not clearly linked to particular horses. However, there are some specific references to certain horses. For example, there are 40 references to the horse ‘My Delilah’.[58] The Tribunal accepts on the basis of this evidence that the Company did pay some of the expenses associated with the horses in the relevant period. However, once again this does not prove ownership of the horses.
[56] See Annexure to A1 pp 499-774 (and repeated at pp 854-1129).
[57] Applicant’s submissions dated 16 April 2024, p 14.
[58] See Annexure to A1, pp 499-774 (and repeated at pp 854-1129).
Transfer and registration forms
A fourth argument for the Applicant was that transfer and registration forms for a number of horses show that the horses were transferred/registered with the ABN of the Trust. According to the evidence produced by the Applicant, there are 4 horses for which evidence is available. Three horses are the same as the horses identified by the Respondent[59] and are discussed above.[60]
[59] The horses are Slave, Flybridge and Perfect Angel.
[60] See para 48 above.
The first horse is ‘Slave’. The form provided is a Transfer of Ownership form. It describes the outgoing owner as Barry Lockwood and under ‘Surname of Owner/Registered Syndicate Name/Company Name/Stud Name’ is written Storm Creek Racing and Breeding. Under ‘Given name of Owner/Full Name of Syndicate Manager/Company Representative/Stud Representative’ is written ‘Graeme Diamond’. Under ‘Bank Account Name’ is written ‘Trustee for the Storm Creek Trust’. Importantly, the form is signed by the Applicant ‘as owner’. The Applicant contends that the reference to the Trust’s bank account is probative of ownership. As discussed previously, using a bank account on a registration form does not signify ownership.
The second horse is ‘Flybridge’. The evidence provided by the Applicant is a bank statement of the Trust showing a debit to ‘Inglis’ from the Trust on 29 March 2019 for $19,212.60.[61] There is a hand-written notation on the bank statement that says ‘Flybridge’.[62] The fact that the payment is 5 months after the acquisition and that the Applicant simply asserts that the payment relates to this horse is not probative of ownership. Furthermore, there is a transfer of ownership form dated 30 November 2019 that is signed by the Applicant as ‘owner’.[63]
[61] See Annexure to A1, attachment 4.
[62] See Annexure to A1, attachment 5.
[63] See R1, pp 88-90.
The third horse is ‘Perfect Angel’. The form provided is a transfer of ownership form dated 1 May 2020.[64] The form includes a Managing Owner’s Declaration signed by the Applicant, with the outgoing owner listed as ‘Storm Creek Racing and Breeding’.[65] Under ‘New Managing Owner’ is written ‘Storm Creek Racing and Breeding’ and under ‘Given Names’ is written ‘Graeme Diamond’.[66] The bank account details are those for the Trust and the Trust’s ABN is included under ‘Declare your GST status’.[67] Importantly, the Applicant signs the form as ‘owner’.[68] It is difficult to know what to make of this form as Storm Creek Racing and Breeding is listed as both the outgoing and new owner. The fact that the Trust’s bank account and ABN are used is not probative of ownership.
[64] See ibid 91.
[65] Ibid, 92.
[66] Ibid.
[67] Ibid.
[68] Ibid.
The fourth horse is ‘Seize Her’. The evidence here is a bank statement for the Trust showing a payment to ‘Inglis’ on 29 March 2019 for $19,212.60[69] – the same entry provided for ‘Flybridge’,[70] only there is now a hand-written notation stating ‘Seize Her’. This evidence does not prove ownership.
[69] See Annexure to A1, attachment 9.
[70] See Annexure to A1, attachment 4.
Overall, the transfer forms and bank statements referred to by the Applicant do not prove ownership by the Trust.
The transfer forms for Slave, Flybridge, Perfect Angel and Skytrek do provide strong evidence that the horses were acquired by the Syndicate, based on the fact that the Applicant signed as ‘owner’.
Racing Queensland records
Both parties rely on the documents provided by Racing Queensland. As noted above, the Respondent notes that Racing Queensland’s response refers to a complete listing of racehorses registered in the name ‘Storm Creek Racing and Breeding’ and argues that this is probative of ownership of the horses by the Syndicate.[71]
[71] Paras [43]-[47] above.
The Applicant contends that as the summons clearly asked about the Company and the Trust, the listing of 22 horses is evidence that those horses are owned by the Trust.[72] Racing Queensland also provided a list of payments (prize money) made by Racing Queensland ‘in respect of Storm Creek Racing’s account’.[73] Those statements are addressed to Storm Creek Racing and Breeding which could be either the Syndicate or the Company.
[72] The Applicant’s submissions 16 April 2024, [73]-[80].
[73] See R1, 125-50.
The Tribunal finds that the records of Racing Queensland are inconclusive i.e., they do not prove ownership by the Syndicate or the Trust.
The records of Queensland Integrity Racing Commission
The Applicant contended that there was evidence from QRIC that showed ‘that the relevant horses were listed in the name of the Trust by reference to the Trust’s ABN’.[74] The Applicant contended that there were 6 horses with QRIC records:[75]
· Able Mabel;[76]
· Angel’s Boy;[77]
· Aviemore;[78]
· Flybridge;[79]
· Great Keppell;[80] and
· Seize Her.[81]
[74] The Applicant’s submissions 16 April 2024, [81]-[82].
[75] See Applicant’s spreadsheet provided to the Tribunal on 4 March 2024.
[76] The evidence referred to is in Witness Statement of Darryl Kirk, p 100.
[77] Ibid, 98.
[78] Ibid, 101.
[79] The evidence referred to is in Annexure to A1, p 8.
[80] The evidence referred to is in Witness Statement of Darryl Kirk, p 99.
[81] Ibid, 102.
The documents referred to by the Applicant are notifications of prize money, and all appear to be from Racing Queensland rather than QRIC. Those documents do refer to the owner as ‘Storm Creek Racing and Breeding’ and do include the Trust’s ABN but as noted previously this does not prove ownership. No other evidence was provided from QRIC about ownership of the horses.
The only documents produced by the parties from QRIC is the application for renewal and the certificate of registration of the Syndicate[82] discussed above.
[82] See R1, pp 82-5.
Other arguments for the Applicant
The Applicant contended that a number of the horses historically owned by him were ‘either retired or dead, and had been transferred or given away by [him] prior to signing his Statement of Affairs’.[83]
[83] The Applicant’s submissions 16 April 2024, [32].
Retired
Several horses are listed by Racing Australia and Racing Queensland as ‘retired’.[84] The fact that a horse is retired from racing does not mean that it ceased to be property of the owner.
[84] See R1, pp 329-32 (Racing Australia) and 124 (Racing Queensland).
Dead
The Tribunal accepts that if a horse was dead at the time of bankruptcy, or during the course of the bankruptcy, it was not owned by the Applicant. In his witness statement the Applicant contended that 3 horses are deceased:
·I Am Impinge;[85]
·Perfect Angel;[86] and
·Doss.[87]
[85]A1, [32].
[86] Ibid.
[87] See R1, p 124.
Impinge and Perfect Angel are both listed as ‘Active’ in the Racing Australia report.[88] The Racing Queensland records list Doss as ‘deceased’ but no date is provided. In the absence of any independent evidence, the Tribunal does not accept that Impinge and Perfect Angel are dead. The Tribunal does accept that Doss is deceased, but it is not clear if this occurred before or after the meeting with the Trustee.
[88] See R1, pp 329-32.
Given away
The Applicant contended that a number of horses had been given away for no consideration.[89] The only evidence in support of this contention is the assertion by the Applicant and a hand-written letter from Barry Lockwood. Mr Lockwood was not called as a witness and therefore could not have his evidence tested. The horses said to have been given away are:
·Oracle Miss;[90]
·Burning Sails;[91]
·Delcosta Diamond;[92]
·Outback Dream.[93]
·Outback Paradise;[94]
·Outback Spirit;[95] and
·Tamariz.[96]
[89] A1, [32].
[90] Ibid. The Racing Australia report lists the current status of this horse as ‘Breeder’: R1, p 331.
[91] Ibid. In a letter dated 20 July 2021, Barry Lockwood states that the horse was ‘given to a young person in a pony club’: see Annexure to A1, pp 380-3.
[92] Letter from Barry Lockwood dated 20 July 2021 states that this horse was sold in 2014: Annexure to A1, pp 380-3.
[93] Letter from Barry Lockwood dated 20 July 2021 states that this horse was ‘transferred to another trainer for last start’: Annexure to A1, pp 380-3.
[94] Letter from Barry Lockwood dated 20 July 2021 states that this horse was given to an equestrian ‘for showing purposes’: Annexure to A1, pp 380-3.
[95] Letter from Barry Lockwood dated 20 July 2021 states that this horse was ‘retired on a property and is used as a pleasure horse by his owners’: Annexure to A1, pp 380-3.
[96] Letter from Barry Lockwood dated 20 July 2021 states that this horse was ‘retired in 2016 and then given to an eventer’: Annexure to A1, pp 380-3.
It is difficult to believe that horses that cost thousands of dollars would be given away, and that no records would be made available in the 5 years since the matter was raised, with no effort having been made to verify where the horses had gone. The Tribunal finds that there is insufficient evidence that these horses were given away for no consideration.
Transferred
The Applicant contended that a number of horses had been transferred and were no longer owned by the Applicant or the Trust. The horses that are said to have been transferred are:
·Able Mabel;[97]
·My Delilah;[98]
·Flybridge;[99]
·Slave;[100] and
·Skytrek.[101]
[97] The Applicant stated that this horse was transferred on 20 March 2020: Spreadsheet, xx The Racing Australia report lists this horse as ‘Current’: R1, p 329.
[98] Letter from Barry Lockwood dated 24 December 2021 states that this horse was ‘transferred out of stable’ on 30 November 2019: Annexure to A1, p 357.
[99] The transfer of ownership form dated 1 December 2019 shows ‘Storm Creek Racing and Breeding’ as the incoming owner and is signed by Graeme Diamond as ‘owner’: R1, pp 88-90.
[100] The transfer of ownership form dated 5 May 2020 shows ‘Storm Creek Racing and Breeding’ as the incoming owner and is signed by Graeme Diamond as ‘owner’: R1, p 107.
[101]The transfer of ownership form dated 10 May 2020 shows ‘Storm Creek Racing and Breeding’ as the incoming owner and is signed by Graeme Diamond as ‘owner’: R1, p 99.
Each of these transfers are after the date of the meeting with the Trustee in October 2019. There is no evidence of transfer of ownership for any horses before the bankruptcy or before the date of the meeting with the Trustee.
Conclusion on ownership of the Horses
Having considered the evidence advanced by the Applicant, including the financial records, the Tribunal is satisfied that none of this evidence is definitive proof of ownership. The only definitive proof would be evidence of purchase of each of the horses – it is somewhat surprising that the Applicant was not able to produce evidence of acquisition five years after the Trustee raised the issue of ownership. The 4 transfer of ownership forms that are available indicate that the Applicant signed those forms as ‘owner’. In the absence of evidence about the purchase of each of the other horses by the Company, the Tribunal finds that, based on the transfer of ownership forms and the Racing Australia report which clearly refers to the Syndicate, that there was sufficient evidence for the Trustee to find that 10 horses (Group 1) were owned by the Applicant in his own name, 12 horses were owned by the Syndicate at the date of bankruptcy (Group 2), a further 3 horses were owned by the Syndicate at the date of the meeting with the Trustee in October 2019 (Group 3). The remaining 4 horses were acquired by the Syndicate after the meeting with the Trustee but before the Objection was filed on 2 October 2020 (Group 4).
Another argument that was not the subject of submissions by the parties is whether, if the horses were acquired by the Company as trustee for the Trust, the Applicant could nevertheless be said to have a proprietary interest or beneficial interest. It is generally understood that a beneficiary of a discretionary trust does not have a proprietary interest in the assets of the trust, but rather has an ‘expectancy’ i.e., a right to be considered. However, there are cases where the statutory context has been held to give rise to a proprietary or beneficial interest in the beneficiaries of a discretionary trust. For example, in the context of corporate insolvency, in Australian Securities and Investments Commission, In the Matter of Richstar Pty Ltd v Carey (No 6)[102] French J held that the beneficiary who effectively controls the trustee’s power of selection because he is the trustee or one of them and/or has the power to appoint a new trustee, has something approaching a general power and the ownership of the trust property.[103] French J described the trustee as effectively the ‘alter ego’ of the relevant beneficiary.[104] In the context of what constitutes matrimonial property, the High Court in Kennon v Spry[105] held that, in part because of the husband’s power of appointment, the assets of the discretionary trust should be viewed as property of the parties to the marriage.[106]
[102] (2006) 153 FCR 509.
[103] Ibid, [37].
[104] Ibid.
[105] (2008) 238 CLR 366 [60],[62].
[106] Ibid, [60] and [62] per French CJ and [137] per Gummow and Hayne JJ.
In this case, the Applicant is the appointor of the Trust, one of the primary beneficiaries and directs who is appointed as director of the Company. It could be argued that he has a beneficial ownership of the assets of the Trust. However, as the Tribunal finds that there is sufficient evidence that the horses are owned by the Applicant either personally or through the Syndicate, it is not necessary to consider this alternative argument.
GROUNDS OF OBJECTION
In relation to the non-special ground, it is necessary to consider whether there is sufficient evidence to support the existence of the ground and whether the reasons given for objecting on those grounds justify the making of the objection. In relation to each of the special grounds, it is necessary to consider whether there is sufficient evidence to support the existence of the ground, and whether or not the bankrupt had a reasonable excuse for the conduct or failure specified on the special ground.
Ground 1
Ground 1 is that the Applicant failed, whether intentionally or not, to disclose to the trustee his beneficial interest in any property: paragraph 149D(1)(n) of the Act. The Tribunal must be satisfied that there is sufficient evidence that the Applicant had a beneficial interest in property and failed to disclose it, and that the reasons given by the Trustee justify the making of the objection.
Beneficial interest in property
The evidence relied on by the Respondent and by the Applicant relating to the ownership of a number of horses is set out above. The Tribunal has found that there is sufficient evidence that the Applicant had a beneficial interest in the horses.
Failure to disclose
In considering whether the Applicant failed to disclose that beneficial interest, it is necessary to consider what the Applicant said in his Statement of Affairs in August 2018 and at the meeting with the Trustee in October 2019.
Statement of affairs
The Applicant lodged his Statement of Affairs on 13 August 2018. In response to the question: ‘What do you believe is the main cause of your insolvency?’ he wrote ‘ATO debt’. The Applicant provided a list of unsecured creditors that included credit card debts, 12 personal loans (each being for $500), accounting and legal fees, and the ATO, for a debt said to be incurred in March 2018 regarding personal income tax but with the amount listed as ‘unknown’.
Information about the debt owed to the ATO was included in materials filed with the Tribunal. In 2017, the Australian Taxation Office (ATO) carried out an audit of the Applicant’s tax affairs and made adjustments to income, tax, penalty and interest payable for the years 2007-2014, resulting in tax payable of $2,761,852.[107] The ATO noted that ‘analysis of third party data indicates that your lifestyle is not commensurate with ‘nil’ taxable income … for the years 2007 to 2012 or the minimal amounts declared in 2013 and 2014. For example, you have purchased multiple racehorses and you have resided, until recently, in a beachfront property located in a prestigious location on the Gold Coast while declaring minimal or no income.’[108]
[107] Australian Taxation Office, Statement of Reasons, 23 October 2017, R1, pp 174-256.
[108] Ibid, 179.
In his Statement of Affairs, in response to the question: ‘Have you been a director or had a management role in a company at any time in the last 5 years?’ the Applicant listed 26 companies, but that list does not include Storm Creek Racing and Breeding Pty Ltd of which he was a director from 20 November 2017 to 18 July 2018.[109]
[109] Statement of Affairs of Graeme Diamond dated 13 August 2018, R1, pp 76-7.
In response to the question: ‘Have you been a unit holder or beneficiary of a trust in the last 5 years; or transferred any assets to a trust in the last 5 years?’ the Applicant listed the ‘Diamond Family Investment Trust’ as a discretionary trust, with the principal activity listed as ‘property owner’. In response to the question: ‘Are there any assets owned by the trust?’, the Applicant wrote '31 Heritage Dve, Mt Nathan Queensland’ (a property where the Applicant and his wife lived or had lived).[110] There is no reference in the Statement of Affairs to the Trust of which he was and is a primary beneficiary of.
[110] Ibid, 78.
In relation to questions about assets, including: ‘Other than your general household furniture, do you own any other assets or items of value?’, the Applicant responded ‘No’.[111] There is no reference in the Statement of Affairs to ownership of racehorses in the period before bankruptcy (or afterwards).
[111] Ibid, 65-9.
Section 77C interview
On 8 October 2019, the Applicant attended an interview with his Trustee that appears to have been held under section 77C of the Act.[112] In that meeting, the Applicant was asked about ownership of the 29 horses, he responded: ‘gave them all away. They all broke down and couldn’t afford it anymore.’[113] When asked about paperwork, he responded: ‘all verbal agreements to take shares. Last horse owned would have been late 2016. She broke down and did a tendon so gave her away for share of debt. Don’t have horses anymore.’[114]
[112] Witness Statement of Darryl Kirk dated 7 September 2023, DEK 4, pp 91-6.
[113] Ibid, 93.
[114] Ibid.
The Applicant has continued to maintain that he does not own any racehorses.[115] In relation to 10 horses (Group 1) he contends that they are ‘retired or dead … transferred or given away’.[116] In respect of the remaining horses, he contends they are owned by the Company as trustee for the Trust.[117]
[115] The Applicant’s submissions 16 April 2024, [30]-[32].
[116] Ibid, [32].
[117] Ibid, [30].
The Tribunal finds that there is sufficient evidence that the Applicant had a beneficial interest in the 29 racehorses and that he failed to disclose that interest in his Statement of Affairs and subsequently to the Trustee.
Do the reasons provided by the Trustee justify the making of the objection?
As paragraph 149D(1)(n) of the Act sets out a non-special ground of objection, it was necessary for the Trustee to give reasons for objecting on this ground.
The reasons provided by the Trustee for making the objection under paragraph 149D(1)(n) were set out as follows:
‘Based on the information provided, the Bankrupt appears to have intentionally failed to disclose his interest in the SCRB Syndicate and the 29 racehorses to the former and current T of his bankrupt estate. Failure to disclose the ownership interest by the B in his statement of affairs was material omission which appears to have been intentional given that he renewed the licence for the SCRB Syndicate the day after his date of bankruptcy.’
In 1995, Olney J in Re Ansett; Ex parte Ansett v Pattison[118]noted what was required of the trustee in bankruptcy in this context:
The legislative policy seems to be clear enough. Section 149D(1) sets out some 14 grounds upon which an objection may be based. The mere existence of an available ground does not automatically give rise to an extension of the bankruptcy. To achieve that end the trustee must give notice setting out the ground he relies upon, the evidence which establishes that ground and the reason why he objects to the discharge on that ground. The latter requirement suggests that the trustee must address the relevance of the bankrupt's conduct in relation to the ground of objection in the context of the administration of the estate and to make a judgment as to whether that conduct provides a basis or reason for the bankruptcy to be extended. Further, the trustee is required to expose his reasoning in the notice.
[emphasis added]
[118] (1995) 56 FCR 526 at 530.
In Inspector-General in Bankruptcy v Nelson,[119] the Full Federal Court said that ‘in order to ‘keep a person bankrupt’ beyond the ordinary period, a trustee would need to have reasons directed to achievement of a purpose of the law of bankruptcy.’[120]
[119] [1998] FCA 684.
[120] Ibid, 17.
In Prentice v Wood,[121] the Full Federal Court said:
Section 149C(1)(c) is not a requirement that the Trustee state the reason or reasons for objecting to a bankrupt's discharge; rather it specifies the more particular requirement that the Trustee give the reason or reasons for objecting to the discharge of the bankrupt on the ground or grounds set out in the notice. The mandatory requirement of s 149C(1)(c) is to enable the bankrupt to know the answer to the question "why are you objecting on this ground to my discharge?"
[emphasis added]
[121] [2002] FCAFC 48, [24].
In Pascoe v Inspector-General in Bankruptcy,[122] Senior Member Allen noted that the reasons must enable ‘the bankrupt to understand why the objection was made and on what particular bases’.[123]
[122] [2006] AATA 665.
[123] Ibid, [20].
In Smith v Trustee of the Property of Richard John Smith (a Bankrupt),[124] Collier J found that the ‘reasons’ provided by the trustee for the Objection were ‘fundamentally, a replication of the ground itself on which the trustee relies’[125] and disallowed the Objection.
[124] [2023] FCA 300.
[125] Ibid, [47].
The Respondent stated in his review decision that the reason given by the Trustee for objecting to discharge on the ground under paragraph 149D(1)(n) was that the failure to disclose an interest in the Syndicate and racehorses to the Trustee has ‘hindered its realisation for the benefit of unsecured creditors of the bankrupt estate’.[126] If that reason had been provided it would have been a valid reason under paragraph 149D(1)(n). However, that reason does not appear in the Objection Notice.
[126] The Respondent’s review decision dated 18 October 2021, R1, p 44.
Although The Tribunal is satisfied that the Applicant failed to disclose to the Trustee his beneficial interest in property, the Trustee did not provide reasons for objecting to the Applicant’s discharge on the ground under paragraph 149D(1)(n) of the Act. On that basis, the Tribunal cancels the Objection under Ground 1.
Ground 2
Ground 2 is that after the date of the bankruptcy, the Applicant intentionally provided false or misleading information to the Trustee under paragraph 149D(1)(da) of the Act. This is a special ground, and the Trustee is not required to provide reasons. To set aside this ground, the Applicant must show there is insufficient evidence to support the existence of the special ground, or that the Applicant had a reasonable excuse for the conduct or failure.
Is there sufficient evidence that A provided false or misleading information after the date of the bankruptcy?
Based on the finding that the horses were owned by the Applicant, the Tribunal finds that there was sufficient evidence that the Applicant provided false or misleading information to the Trustee when he stated at the meeting with the Trustee in October 2019 that he did not own any horses.
Was the provision of false information intentional?
The difficulty of determining intention in the context of bankruptcy cases was considered by the High Court of Australia in Cannane v Cannane Pty Ltd (in liquidation).[127] Kirby J noted:
Proof of the intention of a person presents notorious difficulties in every area of the law where it is encountered. Even when the distinction between intention and motive is kept in mind, knowledge of subjective intention will ordinarily, or often, be reserved to the person whose interests may be so affected that an assertion, one way or the other, cannot necessarily be accepted at face value. That is why, at least in a provision such as [former s 121 dealing with transfers to defeat creditors], it is not necessary to establish that the transferor of the property in question actually had in mind an intention to defraud creditors if the effect of what that person did would reasonably be expected to have such a consequence. Courts will therefore infer the intention in issue, deciding it as a question of fact. This does not mean that the intention so derived is one imputed by the law. It is not a fiction. It is the real intention of the transferor decided objectively rather than upon protestations of innocence on the part of the debtor or outraged accusations on the part of suspicious creditors.
In order to decide whether the requisite intent existed at the relevant time, and whether the disposition was made with that intent, the decision-maker must look at all the circumstances surrounding the impugned transaction.[128] (citations omitted)
Brennan CJ and McHugh JJ also noted that intent can be inferred from circumstances.[129]
[127] [1998] HCA 6.
[128] Ibid, [92].
[129] Ibid, [12].
The Explanatory Memorandum of the Bill introducing special grounds for objections to discharge, the Bankruptcy Legislation Amendment Bill 2002, discussed ‘intention’:
52 Proposed new subsection 149N(1A) identifies the special ground paragraphs. As noted, they relate to deliberate actions which can disrupt a trustee’s administration or which are intended to defeat creditors. While it can be difficult to infer intention, in each instance the burden of proof which the trustee will bear if an objection is challenged is the civil onus, ie, proof on the balance of probabilities.
In determining whether the Applicant intended to provide false or misleading information to the Trustee, it is relevant that the Applicant has a history of being less than truthful in his dealings with the Trustee. His Statement of Affairs did not mention that he had been a director of the Company or that he was a beneficiary of the Trust. When asked about the 29 horses at a meeting with his Trustee in October 2019, he answered ‘gave them all away’.
It is also relevant that the Applicant has been found in the context of his personal tax affairs to have engaged in tax evasion by not declaring taxable income over several years.[130]
[130] Australian Tax Office, Reasons for Decision 23 October 2017, R1, pp 174-256.
In those circumstances, the Tribunal finds that the Applicant intentionally provided false information to the Trustee after the date of the bankruptcy by denying ownership of the horses.
Did the Applicant have a reasonable excuse for the conduct?
The argument for the Applicant on this issue appears to be that there is at least an argument that the horses were owned by the Company as trustee for the Trust. The Applicant’s position was stated as being that the ‘volume and depth of the evidence supporting the Applicant’s position cannot be ignored. There is at least a contest of ownership (as between the Trustee and the Trust)’.[131]
[131] The Applicant’s submissions 16 April 2024, p 21.
The Tribunal rejects this argument. Any confusion between the Syndicate and the Company name appears to be intentional. The Applicant signed various forms as owner of the horses but used the Trust as a means of paying expenses which had advantageous tax outcomes. The only real evidence about ownership is proof of purchase and surprisingly the Applicant has not been able to produce any such evidence. The Tribunal finds that the Applicant did not have a reasonable excuse for his conduct.
Conclusion on Ground 2
The Tribunal affirms the decision of the Respondent on Ground 2.
Ground 3
Ground 3 is that the Applicant intentionally failed to disclose to the Trustee his beneficial interest in any property: para 149D(1)(ma). This is a special ground so there is no need for the Trustee to provide reasons. It is necessary to consider whether the Applicant failed to disclose a beneficial interest in property, whether that was intentional and whether the Applicant had a reasonable excuse for the failure.
Is there sufficient evidence that the Applicant failed to disclose his beneficial interest in property?
Based on the finding that the horses were owned by the Applicant, and that he denied ownership of the horses, the Tribunal finds that there was sufficient evidence that the Applicant failed to disclose his beneficial interest in the horses to the Trustee at the time of bankruptcy, at the meeting with the Trustee in October 2019 and subsequently.
Was the failure to disclose intentional?
Based on the finding in respect of Ground 2, that the Applicant intentionally provided false information to the Trustee concerning his beneficial interest in the horses, the Tribunal finds that he intentionally failed to disclose his beneficial interest in the horses.
Did the Applicant have a reasonable excuse for the conduct?
Based on the finding in respect of Ground 2 that the Applicant did not have reasonable grounds for providing false information to the Trustee, the Tribunal finds that the Applicant did not have a reasonable excuse for failing to disclose his beneficial interest in the horses.
Conclusion on Ground 3
The Tribunal affirms the decision of the Respondent on Ground 3.
DECISION
The Tribunal affirms the objection to discharge from bankruptcy made under s149(1)(da) and (ma) of the Bankruptcy Act 1966 but cancels the objection to discharge from bankruptcy made under s 149D(1)(n).
I certify that the preceding 130 (one-hundred and thirty) paragraphs are a true copy of the reasons for the decision herein of Senior Member Professor Ann O’Connell
....................[SGD]........................
AssociateDated: 28 June 2024
Date of hearing: 4 March 2024
Counsel for the Applicant: Mr Patrick Miller
Solicitor for the Applicant: NOH Legal
Counsel for the Respondent: Mr Joe Giacco
Solicitors for the Respondent: McInnes Wilson Lawyers
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