Doyle v Cronan and Van Der Velde as Trustees of the Bankrupt Estate of Doyle

[2017] FCCA 876

FEDERAL CIRCUIT COURT OF AUSTRALIA

DOYLE v CRONAN AND VAN DER VELDE AS TRUSTEES OF THE BANKRUPT ESTATE OF DOYLE [2017] FCCA 876

CATCHWORDS:
BANKRUPTCY – Trustee Rejection Of Proof Of Debt – Hearing De Novo – Intention Of Parties To Enter Into Legal Relations – Application Dismissed.

Legislation:

Bankruptcy Act 1966, ss.104, 102

Cases cited:

Jones v Dunkel (1959) 101 CLR 298

Applicant: MICHELLE CORALIE DOYLE

Respondent: JASON CRONAN AND TERRY VAN DER VELDE AS TRUSTEES OF THE BANKRUPT ESTATE OF PHILLIP JOHN DOYLE

File Number: BRG 164 of 2017

Judgment of: Judge Vasta

Hearing date: 24 April 2017

Date of Last Submission: 2 May 2017

Delivered at: Brisbane

Delivered on: 5 May 2017

REPRESENTATION

Counsel for the Applicant: Mr Lee

Solicitors for the Applicant: Bendeichs Solicitors

Counsel for the Respondent: Mr Lane

Solicitors for the Respondent: Rostron Carlyle Lawyers

ORDERS

1. The Application filed on 23 February 2017 be dismissed.

2. The Respondent’s costs be taxed in accordance with the Federal Court Rules 2011 and paid by the Applicant.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

BRG 164 of 2017

MICHELLE CORALIE DOYLE

Applicant

And

JASON CRONAN AND TERRY VAN DER VELDE AS TRUSTEES OF THE BANKRUPT ESTATE OF PHILLIP JOHN DOYLE

Respondent

REASONS FOR JUDGMENT

Introduction

1. This is an application pursuant to s.104 of the Bankruptcy Act 1966 (Cth) (“the Act”), for this Court to review a decision of the trustees in bankruptcy to reject a proof of debt.

2. Such an application before this Court is heard de novo and is not an appeal against the decision of the trustees. The Court must put itself in the shoes of the trustee and look at all of the evidence before it and make a decision whether or not to admit the proof of debt. The burden of proof, however, lies upon the Applicant to prove that the Court should admit the proof of debt.

The Bankruptcy Act

1. Section 102 of the Act relevantly states:

   “102 Admission or rejection of proofs

   (1)The trustee shall examine each proof of debt and the grounds of the debt sought to be proved and, subject to the power of the Court to extend the time, shall, not later than 14 days after the expiration of the period specified in the notice of intention to declare a dividend as the period within which creditors may lodge their proofs of debt, either:

   (a) admit the proof of debt in whole;

   (b) admit it in part and reject it in part;

   (c) reject it in whole; or

   (d)require further evidence in support of it.

   (2) Where the trustee rejects a proof of debt in whole or in part, he or she shall inform the creditor by whom it was lodged, in writing, of the grounds of the rejection.

   (3) Where the trustee considers that a proof of debt has been wrongly admitted, he or she may:

   (a) revoke the decision to admit the proof of debt and reject it in whole; or

   (b) amend the decision to admit the proof of debt by increasing or reducing the amount of the admitted debt.

   (4) Where the trustee considers that a proof of debt has been wrongly rejected in whole, he or she may:

   (a)revoke the decision to reject the proof of debt; and

   (b) admit the proof of debt in whole or admit the proof of debt in part and reject it in part…”

2. In this case, the trustees have rejected the proof of debt lodged by the Applicant.

3. Section 104 of the Act relevantly states:

   “104Appeal against decision of trustee in respect of proof

   (1) A creditor, or the bankrupt, may apply to the Court for review of a decision of the trustee under subsection 102(1), (3) or (4) in respect of a proof of debt.

   (2) The Court may, upon the application, confirm, reverse or vary the decision of the trustee…”

The “Agreement” and its Background

1. The Applicant in this case is Michelle Coralie Doyle. She is the daughter of Philip John Doyle (the bankrupt) whose estate the trustees are administering. The Applicant has given two affidavits as well as oral evidence before me.

2. The Applicant testified that she finished school in 2003. At that time she was living in the Gold Coast area with her parents. There was a discussion between her and her parents as to what the Applicant would do upon completion of her secondary school studies. The Applicant had expressed a desire to study law.

3. The Applicant testified that she had “offers” to study law at Griffith University and at Bond University. If the Applicant studied at Griffith University, she would be studying in Brisbane but the cost of the degree would be a cost that was manageable. If the Applicant studied at Bond University, she would be closer to home but the cost of the degree was far more expensive.

4. The Applicant said that her parents told her that they would pay all of the fees associated with her law degree whether she studied at Griffith University or at Bond University. The Applicant said that because of this promise, she decided that she would study at Bond University.

5. The Applicant began her studies in 2004. She was studying a combined Bachelor of Commerce and Bachelor of Law degree. From 2004 to the middle of 2005, the Applicant lived at home with her parents. From mid-2005 to late 2007, she resided in a unit at Surfers Paradise which was paid for by her parents.

6. The Applicant testified that her parents paid the first year of her studies which was approximately $22,000.00. She said that in 2005, Bond University made her aware of the HELP scheme. That scheme was a government scheme that, in effect, provided student loans. If the Applicant agreed to be liable under this scheme, the government would pay her tuition and she would repay that tuition at a very low rate of interest.

7. The Applicant testified that her parents asked her to apply for the HELP scheme and they would assume her responsibility for the debt, or, more properly, indemnify her for the debt that she incurred. The reasoning for this was that the interest component under the HELP scheme was significantly less than the interest that the parents were paying upon their line of credit which they were utilising to meet the fees.

8. The Applicant said that upon the parents requesting this of her, she applied under the HELP scheme and was happy to do so because it was saving her parents money.

9. The Applicant graduated with her Bachelors’ degrees at the end of 2007. She testified that she had reached her HELP limit (which she thought was about $80,000.00) but she still wanted to do her Master’s degree in law. She said that her father (the bankrupt) agreed to pay for the LLM and he did so. She graduated from that degree at the end of 2008. For that period of her study, the Applicant was living at home according to her testimony.

The Separation of the Parents

1. In her oral testimony, the Applicant stated that her parents separated in 2007, about the time that she was finishing her two Bachelor’s degrees. The Applicant testified that she was told that her father (the bankrupt) would assume the payments for her educational expenses. She inferred that this was her understanding because her father subsequently paid for the whole of her tuition fees for the Master’s degree.

2. The Applicant relied upon a statutory declaration by her father (the bankrupt) which was exhibited to her affidavit. The declaration is to the effect that the parents had come to the following arrangement:

   “15. The final paragraph of the settlement terms states that in respect of the daughter Michelle Doyle, Phillip Doyle will meet all of Michelle’s expenses prior to settlement and that all expenses in regards to Michelle, including FEE-HELP and monies owed on Michelle’s car will be met by Phillip Doyle, after settlement, if Mary and Phil are not in agreement to equally share and pay for this expense. As Mary did not agree to equally share in this expense I was solely responsible and liable to meet it.”

3. The statutory declaration then purports to exhibit the draft of that arrangement. There are a number of problems with this evidence.

4. Firstly, the father (the bankrupt) has not made an affidavit in these proceedings and has not been made available for cross examination. I do note the submissions of both parties on the effect of Jones v Dunkel (1959) 101 CLR 298. The fact is that the Applicant did not obtain an affidavit from her father (the bankrupt) for these proceedings. An affidavit from both parents should have been obtained if it was sought that the Court should rely upon the truth of the contents of the statutory declarations.

5. The statutory declarations that were appended to the affidavit of the Applicant have no evidentiary value other than the fact that they were made and were considered by the trustees.  It is trite to say that if they were supposed to be before the Court as evidence of the truth of their contents, they should have been sworn or affirmed in the form of an affidavit.

6. I reject the submission of the Applicant that the trustees could have called the bankrupt in these proceedings.  It is the Applicant who is relying upon what she says that the bankrupt told her.  It is therefore a matter for the Applicant as to whether they wish to obtain an affidavit from the bankrupt or to call the bankrupt.

7. Secondly, there is no evidence as to when such a document was produced.  It was not dated or signed.

8. Thirdly, if it were that this paragraph is the agreement between the father (the bankrupt) and the mother, the paragraph clearly states that “all expenses in regards to Michelle shall be met by Phillip Doyle, prior to settlement”. At settlement, the Applicant owed the remainder of her fees for the two degrees.  It is clear on the evidence that the father (the bankrupt) did not meet all expenses in regards to the Applicant before settlement; in fact, he still hasn’t met those expenses.

9. Curiously, this “paragraph” did not make it into the final consent orders made by the Family Court. The Applicant claims that she was told by her parents that the lawyers they had engaged had advised them that such a paragraph could not be contained because the Applicant was now over the age of 18 years.

10. What the father (the bankrupt) has recounted in his affidavit is at paragraphs 18, 19 and 20 which are reproduced below:

    “18. During Mary and my dealings and discussions with KRG Lawyers, the lawyer handling the matter for us informed us that it was unwise to include reference in the proposed consent order to my being responsible for payment of Michelle’s fees and ongoing educational expenses because at that time, in May 2007, Michelle was already 19 years of age so she was no longer a child. KRG Lawyers told us both that these matters should be dealt with in a separate document and should not form part of that consent order.

    19. Mary was adamant however that my liability to make payment of Michelle’s fees, expenses and FEE-HELP should be included in the consent order and she told me and KRG Lawyers so.

    20. KRG Lawyers went onto prepare the consent order and when it was ready to be submitted to the court, Mary told me that KRG Lawyers had left out reference in the consent order to my being solely liable to pay all of Michelle’s fees, expenses and FEE-HELP and that KRG Lawyers had advised her in the circumstances to seek separate and independent legal advice regarding its fairness, validity and the reasons for their omitting from the consent order the settlement terms which recorded my sole responsibility and liability to pay and meet all of Michelle’s educational costs, fees and FEE-HELP.

11. Despite what the father (the bankrupt) has written in his affidavit, there is no evidence that there was any further advice sought or given about the issue of payment of the tuition fees. But more importantly, as will become evident later in these reasons, the manner in which the issue of the fees were treated illustrates the intentions of the parties.

The Deed

1. The Applicant gave evidence that at least from the time that she graduated with her Bachelors’ degrees, she was of the view that it was her father (the bankrupt) that was going to be responsible for the payment of her fees. This was despite any form of written agreement between the parents that the father (the bankrupt) would indemnify the mother for her liability for the fees.

2. In her oral testimony, the Applicant said that she met with her father (the bankrupt) and his lawyer some time in 2009. She said that she was told that it would be the best way to acknowledge that her father owed her a debt, and that her mother was not responsible for that debt, for there to be a deed drawn up. The Applicant said that she just went along with the advice given by the lawyer.

3. The Applicant testified that it was the idea of either her father (the bankrupt) or the lawyer that the deed would be secured by mortgage. She said that this was not her idea. During her testimony, she agreed that the idea of securing the agreement to pay her university fees by mortgage was “extreme”.

4. This was somewhat different to her original affidavit, where the Applicant swore that:

   “In 2009, in order to protect my mother from any suggestion that she was jointly with my father liable to repay the HELP debt to me, I arranged to have the existing obligations formally recorded in a deed, and for a mortgage to be given to me to protect my rights under the deed”.

5. This was also different to the subsequent affidavit given by the Applicant on 19 April 2017 where she said at paragraphs 37, 38 and 39, the following:

   “37. In 2009, my father and I had a meeting with Mr Justin Geddes of Pilgrim Geddes Lawyers to get advice to clarify my position and to protect my mother from any suggestion that she was jointly liable to my father to repay the Debt to me. At this meeting I accepted the advice of Mr Geddes to have the existing agreement and obligations formally recorded in a Deed, and for a mortgage to be given to me to protect my rights under the Deed.

   38. My mother wanted my father’s legal obligation to repay the Debt properly documented because she told me, and I verily believe, that her Lawyer’s legal advice to her was that they were unable to include a term in the Family Court Orders stating that my father was solely responsible to repay the Debt to me since I was over the age of 18 years.

   39. As a result, the Deed was drawn up and a mortgage prepared by Pilgrim Geddes Lawyers and my father. I then met with Mr Justin Geddes at Pilgrim Geddes offices at Nerang on 11 June 2009 to sign the documents. At this meeting were my father, Mr Geddes and myself. Mr Geddes briefly explained the documents to me and my father and he explained that the reason a mortgage was prepared was to further protect me and secure my rights arising out of the original agreement. My father and I then signed the documents and Mr Geddes witnessed our signatures to the documents on 11 June 209. I was pleased that the matter was being treated seriously.

6. It is very strange that the mother would be trying to use the daughter to legally clarify the situation two years after the mother had been given advice to ensure that the clarification about fees was done. If the Applicant were having these discussions with her father (the bankrupt) because of a concern that the mother has, it would seem that, until that point, the parties believed that the mother was also liable for the payment of the fees.

7. This is just one in a number of totally unsatisfactory aspects of the evidence put before the Court by the Applicant. There is no explanation as to why the father (the bankrupt), the mother, the lawyer who settled the family law consent orders or the lawyer who drew up the deed, did not provide affidavits or were not made available for cross examination.

8. I find, consistent with her evidence before me, that the Applicant was not the person responsible for the deed and the mortgage coming into existence; rather, it was a device used by the lawyer to “protect” the Applicant. However, it is a very “extreme” measure and reeks of overkill. There is no apparent reason on the material put forward by the Applicant as to why there was a need for such overkill.

The Financial Situation of the Father (the bankrupt) at the Time of the Deed

1. The Respondent trustees have put before me the financial situation of the father (the bankrupt) that obtained at the time of the entering into of the deed. Such is gleaned from not only the material in possession of the trustees but by the “statement of affairs” filled out by the father (the bankrupt) himself. It reveals the following:

   “e. the bankrupt, in his Statement of Affairs, has noted the following debts incurred in 2008 (and which were still outstanding as at the date of the Statement of Affairs and therefore outstanding at the time the Deed was entered into):

   i. $1,228.28 – Sheetmetal Solutions (Aust) Pty Ltd;

   ii. $1,200.00 –Marshall Street Centre;

   iii.$158,624.64 – Queensland Building Services Authority;

   iv. $22,314.66- American Express;

   v. $8,581.23 – ANZ Banking Group (credit card);

   vi. $20,196.04 – GE Finance (credit card);

   f. the total of the debts referred to in e. above is $212,144.85;

   g. the bankrupt’s company, Topline Home Improvements Pty Ltd (Company), went into liquidation on 23 January 2009;

   h. the bankrupt was an excluded individual with the Queensland Building Services Authority from 23 January 2009 to 23 January 2014 because the Company went into liquidation on 23 January 2009;

   i. the bankrupt has stated that it was the liquidation of the Company that caused his bankruptcy.

2. When one takes into consideration the context that obtained at the time of entering into the deed, the overkill is readily explained. It is quite apparent that the father (the bankrupt), and his lawyer, wanted to ensure that the Applicant had the status of “secured creditor” when the inevitable bankruptcy occurred. There is no other explanation that could explain why a parent would go to such incredible lengths as has been done in this case.

The Intention of the Parties

1. It is trite to say that there is a presumption that agreements between family members are not intended to be contractually binding. There is a long line of authorities on this point. It is a presumption that can be rebutted; however, in this case, one simply has to look at the history.

2. As alluded to earlier, the manner in which the father (the bankrupt) and the mother treated this agreement to pay the university fees, is quite instructive. If the parties intended this agreement to be a legally binding debt, it is a matter that needed to be part of the adjustment of property when the parents separated. If the parties intended the agreement to be legally binding, there needed to be some account of this in the final orders. It was, after all, a debt of the marriage.

3. If the situation is as the father (the bankrupt) has explained (and the Applicant has adopted), it is beyond belief that any family lawyer would not have included this aspect in the consent orders.

4. However, if the situation here is that this was simply an agreement between the parents and the Applicant which was not meant to be legally binding, the manner in which the lawyers have apparently dealt with this aspect is in keeping with its true nature.

5. And that true nature is that it was not a legally binding debt but rather an agreement between family members.

Findings

1. I find that there was an agreement by both parents of the Applicant to pay the university fees of the Applicant. I find that this was an obligation placed on the parents but it was never a true liability. There was never any intention by the parents and the Applicant to enter into legal arrangements over this agreement.

2. This is illustrated by the manner in which the lawyers for the parents dealt with this agreement in the adjustment of property between the parents after their separation.

3. The only reason that the deed came into existence was that the father (the bankrupt) knew that his becoming personally bankrupt was only a matter of time. The fact that it took nearly 5 years to come to pass is not to the point.

4. To assist his daughter, a deed, with the security of a mortgage, was drawn up as a device to protect the daughter as best as the father (the bankrupt) could do at that time.

1. I do not find that there was any complicity by the Applicant in this arrangement. In any event, there was nothing legally wrong in such an arrangement. There was never any transfer of money under this deed and therefore s.121 of the Act has no application.

2. As it was not a true legal liability, the proof of debt is properly rejected.

Conclusion

1. I am not satisfied that I should allow this proof of debt for those reasons.

2. I dismiss the application with costs.

I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Judge Vasta

Date: 5 May 2017