Fodor v Simudvarac
[2016] VCC 1304
•25 August 2016
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-14-03647
| Mira Fodor | Plaintiff |
| v | |
| Rizika Simudvarac & Ors | Defendants |
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JUDGE: | Her Honour Judge Davis | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 and 28 July 2016 | |
DATE OF JUDGMENT: | 25 August 2016 | |
CASE MAY BE CITED AS: | Fodor v Simudvarac & Ors | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 1304 | |
REASONS FOR JUDGMENT
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Clarke | Hentys Lawyers |
| For the Defendants | No Appearance | N/A |
HER HONOUR:
1 This proceeding concerns the property of the late Jelka Simudvarac (Jelka) who died on 1 August 2012. Jelka had two daughters, Mrs Mira Fodor (Mira), the executor of Jelka’s estate and the plaintiff in this proceeding, and Ms Ruzica Simudvarac (Rose), the first defendant in this proceeding. The second defendant is Mr Joseph Crnogorac (Joseph). The plaintiff contends that Joseph is the defacto husband of Rose and has been since December 2007. The fourth defendant is Mr Peter Crnogorac (Peter), who is the son of Joseph and Rose.
2 The first defendant did not file a defence. The second defendant filed a defence dated 8 May 2015. The plaintiff prepared a Notice to Admit Facts dated 15 June 2016 and served this Notice on the first, second and fourth defendants on 22 June 2016. The plaintiff received no Notice of Dispute in response.
3 On the first day of the hearing the plaintiff and fifth defendant reached a settlement with respect to the plaintiff’s claims against the fifth defendant and consent orders were made by this Court in relation to that part of the proceeding. The first, second and fourth defendants did not appear at the hearing and the matter proceeded undefended.
4 The plaintiff provided a consolidated chronology of events and statement of relevant issues to the court, as well as comprehensive written submissions. The plaintiff also tendered three volumes of court books (Volumes A, B and C) which were referred to throughout the hearing. I have considered all of the material provided by the plaintiff.
Summary of Facts
5 Jelka lived with Rose between 2004 and August 2012.[1]
[1] CB C1, C2, C3, C5 and C97(C)
6 In 2004, Jelka made a will[2] in which she left the whole of her property to Rose, and specifically excluded Mira as a beneficiary. Jelka’s husband pre-deceased her.
[2] CB C1-C2.
7 In 2006, the Victorian Civil and Administrative Tribunal (VCAT) appointed the State Trustees as administrator of Jelka’s affairs.[3]
[3] A copy of the VCAT order is at CB C16.
8 On 17 December 2007, VCAT appointed Rose as administrator[4] of Jelka’s affairs. Within a few days of that order, Jelka became the sole proprietor of a property at 1 Kings Domain, Caroline Springs (the Caroline Springs Property), which, according to the transfer dated 14 December 2007, was purchased for $290,000.[5] Paragraph 3 of the VCAT order prohibited disposal of the Caroline Springs Property by the administrator without prior approval of the Tribunal.
[4] A copy of the VCAT order is at CB C26-C27.
[5] A copy of the Transfer is at CB C22-C25.
9 On 24 July 2008, while Rose was still the administrator of Jelka’s affairs, there was a transfer by Jelka of part of the Caroline Springs Property from Jelka to Rose and Joseph[6] (the first transfer). Jelka retained six of eight equal shares in the Caroline Springs Property. Rose received one share and Joseph also received one share. The consideration for that transfer was stated to be as follows:
"$50,000 due and owing by the transferor to the Ruzica Simudvarac and Joseph Crnogorac and the said Ruzica Simudvarac and Joseph Crnogorac agreeing to accept the land in full satisfaction of such debt."
[6] A copy of the Transfer is at CB C35-C38.
10 On 27 February 2009, there was a further transfer of the Caroline Springs Property (the second transfer) by which the remaining shares held by Jelka were transferred to Rose and to Joseph resulting in Rose holding seven of the eight shares, and Joseph holding one share in the Caroline Springs Property.[7] The consideration stated on the transfer form was a desire to make a gift. Rose did not obtain VCAT’s approval for the first or second transfers, which were executed by Jelka, a person who was subject to an administration order.
[7] A copy of the Transfer is at CB C41-C44.
11 On 4 May 2009, VCAT appointed State Trustees as administrator of Jelka’s affairs.[8] State Trustees lodged a caveat against the title on the Caroline Springs Property.
[8] A copy of the VCAT order is at CB C48.
12 VCAT made an order on 19 September 2011[9] requiring Rose to account for financial and property transactions, and there was a further VCAT order in the same terms made on 16 April 2012.[10] It appears that no such account was ever given.
[9] A copy of the VCAT order is at CB C72.
[10] A copy of the VCAT order is at CB C85.
13 In 2012, Jelka died. VCAT ceased to have jurisdiction in relation to her affairs.
14 Although Jelka’s will made Rose the sole beneficiary, she has not obtained probate of that will. However, on 31 January 2013 Rose was able to withdraw the caveat which had been lodged by State Trustees over the Caroline Springs Property.[11]
[11] A copy of the Withdrawal of Caveat is at CB C99-C100.
15 Joseph rented out the Caroline Springs Property from 4 May 2009 to 14 November 2014 in the amount of $1,452 gross per month and received all of the rent paid.
16 In August 2013, Mira commenced proceedings in the Supreme Court. Her intention was to make a claim for provision out of Jelka’s estate and, as part of that process, to obtain orders against Rose relative to Rose’s administration of Jelka’s affairs in the period concerned.
17 On 21 December 2013, Joseph and Rose obtained a loan in the amount of $300,000 secured by a mortgage over the Caroline Springs Property which was executed on 23 December 2013. The loan funds were deposited into their joint account. Joseph withdrew the entirety of the loan funds to renovate houses he owned at 10 Correa Street, Point Cook; 5 Sandygate Court, Cairnlea and 1 Summit Rise, Maribyrnong.
18 The Supreme Court proceeding lodged by Mira came on for hearing before McMillan J. At the time of the hearing, Mira was not aware that Rose and Joseph had mortgaged the Caroline Springs Property as described in the previous paragraph. On 23 May 2014, McMillan J. appointed Mira as administrator ad litem of Jelka’s estate. In making that order, her Honour contemplated that Mira would bring the proceeding which is now before this court.[12]
[12] A copy of the Honourable Justice McMillan’s reasons for judgment is at CB C130-C140B.
19 On 7 September 2014, Rose and Joseph signed a contract of sale to sell the Caroline Springs Property for the sum of $395,000.[13] After discharge of the mortgage, and excluding the deposit, Joseph received the sum of $6,741.76 from the proceeds of the sale. Rose received the sum of $47,192.32.
[13] A copy of the contract of sale is at CB C1401.-C140.38; statement of adjustments for the sale at CB C 140.54; and Transfer at CB C141-C142.
20 On 23 January 2015 Mira lodged caveats over Joseph’s properties at 10 Correa Street, Point Cook; 1 Summit Rise Maribyrnong, and 5 Sandygate Court, Cairnlea.
21 In 2015, an ex parte application was made on Mira’s behalf in the County Court and a freezing order was made upon the usual undertakings, which extended to the assets of Rose and Joseph up to a total amount of $550,000. This figure represented the price they obtained for the Caroline Springs Property ($395,000), an amount of $27,000, which was said to represent the costs of the hearing in the Supreme Court to obtain the Letters of Administration ad litem, and a further amount said to relate to a claim for rental relative to the Caroline Springs Property.
22 The matter came back before His Honour Judge Macnamara on 27 March 2015 to consider whether having heard both sides, the freezing order should be continued.[14] Rose gave evidence but was self-represented. Joseph also gave evidence and was represented by Mr Uke of counsel. His Honour Judge Macnamara refused to deal with Joseph’s complaints about Mira’s caveats unless and until an application for removal of the caveats was brought under the Transfer of Land Act 1958 (Vic).
[14] A copy of the Order dated 1 April 2015 is at CB A109-A112
23 On 1 April 2015, His Honour delivered reasons for judgment.[15] His Honour found that the freezing order should be continued with respect solely to the face value of the Caroline Springs Property and the costs of the proceeding in the Supreme Court but not in respect of the claim for loss of rental income. This was due to a lack of evidence presented to His Honour concerning the rental income derived by Rose and Joseph with respect to the Caroline Springs Property. The freezing order extended to the assets of Rose up to a total of $422,000 and to the assets of Joseph up to a total amount of $327,000.
[15] A copy of the Reasons for Judgment is at CB B121-B132.
24 On 16 September 2015, Anita Khoder, solicitor from Zindilis Lawyers, who were acting for Joseph, attended the Titles Office and, falsely representing herself as the solicitor for the caveator, signed Withdrawals of Caveat for the Point Cook, Maribyrnong and Cairnlea properties.
25 On 28 October 2015, knowing that the freezing order made by Judge Macnamara on 1 April 2015 was in place, Joseph transferred the title to four properties he owned (10 Correa Street, Point Cook; 5 Sandygate Court, Cairnlea; and 1 Summit Rise, Maribyrnong; 50 Dover Street, St Albans) to his son Peter, as a gift. The first three of these properties were ones over which Mira had lodged caveats. Peter did not make any payment to Joseph in consideration of the transfer of those three properties. Upon making these transfers, Joseph has no assets to meet any order to pay any money that may be made against him in these proceedings. [16]
[16] A copy of the affidavit of assets of Joseph Crnogorac sworn 26 March 2015 is at CB A88-A90.
Legal Principles
26 The relationship between Rose and Jelka was one of adult daughter and elderly mother, in which Rose was her mother’s attorney under a Power of Attorney and the administrator of her affairs pursuant to the Guardianship and Administration Act 1986 (Vic).
27 In determining whether the relationship gave rise to a fiduciary duty it is necessary for the plaintiff, Mira, to show either:
a) the relationship falls within one of the established or well recognised categories of fiduciary relationships – a relationship of trust or loyalty, or one of guardian and ward;[17] or
b) that the first defendant undertook or agreed “to act for or on behalf of or in the interests of Jelka in the exercise of a power or discretion which will affect Jelka’s interests in a legal or practical sense” such that she had a “special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of [her] position.”[18]
[17]Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41, at 96-7, per Mason J
[18] Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41, Cameron v McMahon [2009] VSC 277 at [53], per Davies J
28 In relation to the second defendant, Joseph, the plaintiff relies on both limbs of the principles enunciated by Lord Selbourne in Barnes v Addy.[19] The first limb concerns third parties who receive and become chargeable with some part of trust property. Liability is generated by mere receipt of the property, and no “knowledge” by the recipient is required. The second limb is concerned with third parties who knowingly assist or participate in the breach of duty by a fiduciary. Such third parties, knowing what honest conduct would require in the circumstances in which they find themselves, may be jointly liable with the fiduciary in respect of any pecuniary liability to the beneficiary as a result of the breach[20] even though they are not a trustee and have not have received any trust property.[21] The acts comprising assistance or participation must not be things of minimal importance.
[19] (1874) LR 9 Ch App 244
[20] United States Surgical Corporation v Hospital Products International [1982] 2 NSWLR 766, at p 817 per McLelland J,
[21]Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
29 On the authorities, a fiduciary who profits from breach of duty is liable to account for the profit made within the scope and ambit of the duty.[22]
[22] Warman International Ltd v Dwyer (1995) 182 CLR 544 at 559; 128 ALR 201 at 210; BC9506414
30 The remedy, like any equitable remedy, must to be fashioned to meet the needs of the case. The method of calculation of monetary compensation will vary according to the nature of the fiduciary obligation whose breach is to be addressed, and must be moulded to satisfy the demands of justice and good conscience in the particular case.[23] If restitution remains possible, a transaction which, in breach of his duty, a fiduciary entered into with his principal may be rescinded.[24]
[23]United States Surgical Corporation v Hospital Products International [1982] 2 NSWLR 766 at 812
[24]Haywood v Roadknight [1927] VLR 512
31 I turn briefly to the claim under s 172 of the Property Law Act 1958 (Vic).
32 Section 172 of the Property Law Act provides as follows:
“Voluntary conveyances to defraud creditors
(1)Save as provided in this section, every alienation of property made, whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.
(2)This section shall not affect the operation of a disentailing assurance, or the law of bankruptcy or insolvency for the time being in force.
(3)This section shall not extend to any estate or interest in property alienated for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the alienation, notice of the intent to defraud creditors”.
33 The relevant test under this provision is set out in Jew v Holloway (2013) 43 VR 243, where the Court of Appeal held that, for a transaction to be voidable, the intention to defraud need not be the sole purpose of the debtor. Real or actual intent to defraud, defeat or delay creditors could be inferred where the necessary result of the dealing was to put the property beyond the reach of creditors. Moreover, where the transfer of property was voluntary, an inference of fraudulent intent may be more easily drawn where a necessary consequence of the transaction was the defeat or delay of creditors.
34 In Jew,[25] there was evidence (that as a result of the transfer the respondent had no assets) from which a compelling inference arose that one of the purposes in transferring the property was to defeat any potential claim for damages or compensation that the appellant may make.
[25]Jew v Holloway (2013) 43 VR 243
Submissions
35 In relation to the Caroline Springs Property, the plaintiff’s contention, so far as Rose is concerned, is that being administrator of the financial affairs of her mother, she owed fiduciary duties and, in taking a transfer of the interest previously held by her mother, and being instrumental in a part of those interests being transferred to Joseph, she was in default of her obligations as a fiduciary.
36 As far as Joseph is concerned it is contended that he was knowingly involved in those breaches.
37 In relation to the claims under section 172 of the Property Law Act, the plaintiff contends that Joseph transferred the properties to Peter with the intention of defeating or delaying the plaintiff as a creditor where the result of such dealing is to put the properties beyond the reach of creditors. In these circumstances, the plaintiff submits that the transfers (as gifts) of the properties are voidable transactions and should be set aside.
38 In relation to the quantification of monetary compensation owed to Jelka’s estate, the plaintiff says, first, that the first and second defendants have jointly obtained the benefit of the whole of the value of the Caroline Springs Property, which they sold for $395,000.00 in 2015.[26] Alternatively, they sought jointly and obtained the proceeds of a mortgage over the Caroline Springs Property in the amount of $300,000.00.[27]
[26] A copy of the Transfer is at CB C141-C142.
[27] A copy of the Finance Application is at CB C197-C210, and a copy of the mortgage is at CB C120-C123.
39 Secondly, the subpoenaed documents establish that rental income has been received and would have continued to have been received by the deceased and subsequently by the estate had the Caroline Springs Property not been sold by Rose and Joseph.
40 The amount claimable in respect of loss of rental income is calculated as follows:[28]
[28] See Exhibit B
Rent Received
04/05/2009 – 14/09/2009 (133 days = 19 weeks)
19 x $320 per week ($1,387 per month) $6,080.0015/09/2009 – 14/09/2010
52 weeks x $320 per week ($1,387 per month) $16,640.0015/09/2010 – 14/08/2011
11 months @ $1,452 per month $15,972.0015/08/2011 – 15/01/2015
(41 months @ $1,452 per month) $59,532.00SUB-TOTAL $98,224.00
ADD:
LOSS OF OPPORTUNITY TO EARN RENTAL15/01/2015 – 15/07/2016
(18 months @ $1,452 per month) $26,136.00GRAND TOTAL $124,361.00
41 In relation to the costs of the Supreme Court proceeding S CI 2013 04514, these have been assessed at $27,552.00.[29]
[29] See Exhibit F
42 The plaintiff also seeks indemnity costs against Rose, Joseph and Peter.
Findings and Reasons
43 The first, second and fourth defendants failed to dispute the Notice to Admit Facts dated 15 June 2016 which was duly served on them by the plaintiff. I was taken by the plaintiff’s counsel to all the relevant documents referred to in the Notice to Admit, and I treat the matters the subject of the Notice as admitted.
44 I have considered the evidence and the submissions.
45 I am satisfied that Rose breached her fiduciary duty to Jelka in the manner alleged by the plaintiff, and that Joseph was knowingly involved in the breaches by Rose and liable for the property he received on the basis of that knowing assistance. I consider that both Rose and Joseph are liable to compensate Jelka’s estate for the losses attributable to their conduct. As Rose and Joseph jointly obtained the benefit of the whole of the value of the Caroline Springs Property, which they sold for $395,000, I consider that the capital sum to be compensated is that amount. Secondly, I am satisfied on the evidence that, had the Caroline Springs Property not been sold by them, Jelka and her estate would have received rental between 4 May 2009 and 15 July 2016 totalling $124,361.00.
46 I note the costs of the Supreme Court proceedings SCI 2013 04514 have been assessed at $27,552.00.
47 Given the fact that the transfers by Joseph to Peter occurred in the aftermath of the damaging findings made by Judge Macnamara in the context of the freezing order application brought by Mira, and that the transfers resulted in Joseph having no assets to which a future creditor could have recourse, I am satisfied on the evidence that Joseph transferred the properties described at paragraph 26 above to his son Peter with the intention of defeating or delaying the plaintiff as a creditor where the result of such dealing is put to the properties beyond the reach of creditors. For this reason, I consider that the transfers (as gifts) of the properties by Joseph to Peter are voidable transactions which should be set aside under s.172 of the Property Law Act 1958 (Vic).
48 The plaintiff has sought clarification from the Titles Office as to the form of some of the proposed orders and has submitted draft orders, which include orders as to costs.
49 The plaintiff seeks indemnity costs of and incidental to this proceeding against Rose, Joseph and Peter. In relation to Peter, the costs are limited to the period commencing when he was joined to the proceeding. The plaintiff also seeks that counsel’s fees be allowed at the rate of $5,000.00 per day and $500.00 per hour.
50 Indemnity costs against Joseph and Rose are sought on the basis of their conduct comprising four acts: the first and second transfer; then, when the Supreme Court proceedings were on foot, the raising of a $300,000 loan against the Caroline Springs Property; and, finally, disposal of the Caroline Springs Property. At all material times, they were both aware of Jelka’s disability and inability to make decisions concerning her financial affairs; and the so-called $50,000 “loan” relied upon as the basis of the first transfer was alleged to have occurred decades earlier and would be statute-barred.
51 The plaintiff also relied on the extraordinary conduct of Ms Khoder of Zindilis Lawyers, who was acting for Joseph, in attending the Titles Office on 16 September 2015, and signing three Withdrawal of Caveats as solicitor for the caveator, when in fact it was the plaintiff who was the caveator.
52 Finally, the plaintiff relied on the conduct of Rose and Joseph in flouting VCAT orders. Jelka executed the first and second transfers at a time when she was a represented person under an administration order and was thereby deemed incapable of dealing with, transferring or alienating her property or any part thereof under the control of her administrator without an order of the Tribunal or the written consent of her administrator. The terms of the administration order dated 17 December 2007 required that the Caroline Springs Property not be disposed of without the Tribunal’s approval. Neither the first not the second transfer was approved by the Tribunal. I also note that Rose has failed to obtain probate of Jelka’s will and I am satisfied on the material before me that since Jelka’s death on 1 August 2012 and until the hearing date, she has converted to her own use, whether on her own account or as personal representative of the deceased, the assets of Jelka’s estate, including all rents and profits from the Caroline Springs Property.
53 I accept the submissions made by the plaintiff and consider that, in the circumstances of this case, given the conduct of Rose and Joseph which has been outlined above, it is appropriate that they pay the plaintiff’s costs of the proceeding on an indemnity basis. I also consider that it is appropriate that Peter pay the plaintiff’s costs on an indemnity basis from the time of his joinder to the proceeding.
54 I propose to make orders in the terms of the draft orders submitted by the plaintiff’s counsel.
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