Gomez v Carrafa (Trustee)

Case [2018] FCA 201


FEDERAL COURT OF AUSTRALIA

Gomez v Carrafa (Trustee) [2018] FCA 201

Appeal from:

Carrafa v Gomez & Anor (No 2) [2016] FCCA 1511

Carrafa v Gomez & Anor (No 3) [2016] FCCA 3139

File number: VID 1492 of 2016
Judge: MOSHINSKY J
Date of judgment: 2 March 2018
Catchwords: BANKRUPTCY – appeal from Federal Circuit Court of Australia – where trustee in bankruptcy of the wife’s estate sought declarations that transfers of two properties to the husband and a payment of money to a company associated with their son were void against the trustee pursuant to s 120 of the Bankruptcy Act 1966 (Cth) – where equity of exoneration raised as a defence – where primary judge held that the defence was not made out – whether primary judge erred in so holding – appeal dismissed
Legislation:

Bankruptcy Act 1966 (Cth), ss 120, 121

Evidence Act 1995 (Cth), ss 48, 58, 59, 69, 135

Cases cited:

Armstrong v Onyearu [2017] 3 WLR 1304; [2017] EWCA Civ 268

Currie v Dempsey (1967) 69 SR (NSW) 116

Day v Shaw [2014] EWHC 36 (Ch)

Farrugia v Official Receiver in Bankruptcy (1982) 58 FLR 474; 43 ALR 700

Ierino v Gutta (2012) 43 WAR 372

In Re Pittortou (A Bankrupt) [1985] 1 WLR 58

Offıcial Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116

Parsons v McBain (2001) 109 FCR 120

Re Berry [1978] 2 NZLR 373

Date of hearing: 25 and 26 September 2017
Date of last submissions: 3 October 2017
Registry: Victoria
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Category: Catchwords
Number of paragraphs: 165
Counsel for the Appellants: Mr N Gomez appeared with leave on behalf of the appellants
Counsel for the Respondent: Mr TJ Sowden
Solicitor for the Respondent: Zervos Lawyers

ORDERS

VID 1492 of 2016
BETWEEN:

IRWIN GOMEZ

First Appellant

JNGO PTY LTD (ACN 168 239 781)

Second Appellant

AND:

MICHAEL CARRAFA (AS TRUSTEE OF THE BANKRUPT ESTATE OF KALAISELVI GOMEZ)

Respondent

JUDGE:

MOSHINSKY J

DATE OF ORDER:

2 MARCH 2018

THE COURT ORDERS THAT:

1.The appeal be dismissed.

2.The appellants pay the respondent’s costs of the appeal, to be taxed if not agreed.

3.If any party wishes to seek a variation of paragraph 2, it may within seven days file and serve an outline of submissions (of no more than two pages).  In that event, the opposing party may within a further seven days file and serve an outline of submissions in response (of no more than two pages).

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


REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

  1. The respondent (Mr Carrafa), who was the applicant below, is the trustee in bankruptcy of the estate of Kalaiselvi Gomez (Mrs Gomez), who is also known as Selvi Gomez.  The first appellant, Irwin Gomez (Mr Gomez), is her husband.  The second appellant, JNGO Pty Ltd (JNGO),…

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AGLC
Gomez v Carrafa (Trustee) [2018] FCA 201
Case
[2018] FCA 201
Decision Date

CaseChat Overview and Summary

In this case, the appellants, Mr. and Mrs. Gomez, appealed against the decision of the Federal Circuit Court of Australia, which had ruled that certain transfers of properties and a payment made by the appellants were void against the trustee in bankruptcy of Mrs. Gomez’s estate. The respondents, represented by the trustee in bankruptcy, Mr. Carrafa, sought declarations that these transactions were void pursuant to section 120 of the Bankruptcy Act 1966 (Cth). The primary legal issues before the court were whether the primary judge had erred in dismissing the defence of equity of exoneration and in denying an adjournment application by Mr. Gomez. The court had to determine if the primary judge's findings and conclusions were correct and if there was any procedural error in the handling of the case.

The court examined the grounds of appeal, including claims of procedural unfairness, misapplication of equitable doctrines, and errors in factual findings. The court found that the appellants had not demonstrated any error in the primary judge’s factual findings or overall conclusions. The primary judge had adequately addressed the evidence and the applicable law, particularly concerning the equity of exoneration and the guarantees provided by Mr. Gomez. The court also considered the doctrine of subrogation but found that it did not assist the appellants' case. The court concluded that the primary judge did not err in law or fact and that there was no basis to grant an adjournment. Therefore, the appeal was dismissed.

In its decision, the court confirmed the primary judge's declarations and orders, voiding the transfers of certain properties and the payment to a company associated with the appellants' son. The court also ordered that the appellants pay the respondents' costs of the appeal. The court noted that if any party wished to seek a variation of the costs order, they could file an outline of submissions within a specified timeframe.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellants pay the respondent’s costs of the appeal, to be taxed if not agreed.

3. If any party wishes to seek a variation of paragraph 2, it may within seven days file and serve an outline of submissions (of no more than two pages). In that event, the opposing party may within a further seven days file and serve an outline of submissions in response (of no more than two pages).

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

Background

Background to the litigation

For the reasons set out below, the appellants have not established that the primary judge erred in relation to the factual findings or the overall conclusion. Further, no error is shown in the refusal of the adjournment. It follows that the appeal is to be dismissed.Background facts The primary judge relevantly gave two sets of reasons: ex tempore reasons for refusing Mr Gomez’s application for an adjournment: Carrafa v Gomez & Anor (No 2) [2016] FCCA 1511 (the Adjournment Reasons); and reasons for judgment following the trial of the proceeding, handed down on 7 December 2016: Carrafa v Gomez & Anor (No 3) [2016] FCCA 3139 (the Reasons). The following statement of the background facts is drawn largely from the Reasons. Mr and Mrs Gomez are computer analysts. They were employed by Nathans Solutions before that company was deregistered on 27 January 2013. Mr Gomez was a director and the company secretary of Nathans Solutions. He held 50 per cent of the shares in that company. It was unclear who held the remaining shares. On an unknown date, the Hallam Property was registered in the names of Mr and Mrs Gomez. The Hallam Property was and is the home of Mr and Mrs Gomez, Nathan Gomez and his sister. The property was the subject of a mortgage to the Australia and New Zealand Banking Group Ltd (ANZ). On 2 September 1999, Mr and Mrs Gomez became the registered proprietors of an investment property at 20 Coles Terrace, Richmond (the Richmond Property). The property was subject to a mortgage to the NRMA Building Society (NRMA) of $294,600. On 18 December 2000, another investment property, Lot 55 The Waterways, Braeside (the Waterways Property), was transferred to Mr and Mrs Gomez for $163,000. This property was subject to a mortgage of $130,400 to ANZ. In about May 2001, Mr and Mrs Gomez refinanced the Hallam and Richmond Properties, with ANZ, to enable them to buy further investment properties at Units 1, 2 and 3 at 460 Kemp Street, Lavington (the Lavington Property), and Units 1, 2, 3 and 4 at 190 Kiewa Street, Albury (the Albury Property). The mortgage over the Richmond Property to NRMA was discharged and was replaced with a mortgage to ANZ. Mr and Mrs Gomez were joint mortgagors and joint proprietors of the Hallam, Richmond, Lavington and Albury Properties. As a result of the refinancing, on about 8 May 2001, they borrowed $280,000 secured against the Richmond Property, $120,000 secured against the Hallam Property, $86,800 secured against the Lavington Property and $58,975 secured against the Albury Property. On about 12 July 2001, Mr and Mrs Gomez borrowed a further $112,000 from ANZ to purchase the Altona Property, which was another investment property. An ANZ file note dated November 2001 stated that:(a)Mr and Mrs Gomez were existing ANZ customers with five properties financed by ANZ;(b)the Hallam Property had a valuation of $150,000, a mortgage of $120,000 and was occupied by the owners;(c)the Waterways Property had a valuation of $180,000, a mortgage of $112,000 and was to be the site of a future owner-occupied home;(d)the Richmond Property had a valuation of $410,000, a mortgage of $280,000, was an investment property and was to be refinanced with a loan of $328,000;(e)the Albury Property had a valuation of $84,250 and a mortgage of $58,975;(f)the Lavington Property had a valuation of $124,000 and a mortgage of $86,800; and(g)the Altona Property had a valuation of $140,000 and a mortgage of $112,000.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The grounds of appeal also refer to the doctrine of subrogation and include a contention that the primary judge did “not seem to understand the law nor how guarantees operate in financial institutions”. Insofar as JNGO sought to rely on guarantees given by Mr Gomez, the primary judge dealt with this at [228]-[229] of the Reasons. Her Honour’s key reason for rejecting this aspect of the defence was that there was no evidence that there was any call on Mr Gomez as guarantor. The appellants have not demonstrated that this finding was in error. In any event, it is not clear how the appellants seek to rely on the guarantees and how it is said that this assists their case beyond the equity of exoneration contention. Further, it is difficult to see how the doctrine of subrogation (which would potentially give Mr Gomez rights against J Renee) assists the appellants. Accordingly, I reject this ground of appeal.Conclusion For the reasons set out above, the appeal is to be dismissed. There is no apparent reason why costs should not follow the event. Accordingly, I will also order that the appellants pay Mr Carrafa’s costs of the appeal. However, as there were no submissions on costs, I will give each party a short period of time in which to seek a variation of this costs order.

Ratio Decidendi

Legal Principle Established

For these reasons, the primary judge rejected the equity of exoneration contention.The declarations and orders On 7 December 2016, the primary judge made declarations and orders. The declarations were as follows:1.The transfer of the bankrupt’s interest in the property situated at … Hinrichsen Drive, Hallam in the State of Victoria (certificate of title volume 09970 folio 306), to the first respondent registered on or about 23 May 2014, is void pursuant to s.120 of the Bankruptcy Act 1966.2.The transfer of the bankrupt’s interest in the property situated at 2 Hatherley Grove, Altona North in the State of Victoria (certificate of title volume 05218 folio 573), to the first respondent registered on or about 23 May 2014, is void pursuant to s.120 of the Bankruptcy Act 1966.3.The transfer of $171,100 from the bankrupt’s Commonwealth Bank of Australia (ACN 123 123 124) bank account no. 10821202 on 27 February 2014 to JNGO Pty Ltd (“JNGO”) is void against the applicant, pursuant to s.120 the Bankruptcy Act 1966.4.The funds held in Rabobank (ACN 001 621 129) (“Rabobank”) bank account no. 142-201-3587482-21 in the name of JNGO with a current balance of $123,139.01 are the property of the bankrupt. The primary judge made an order to the effect that Rabobank pay the sum of $123,139.01, held in JNGO’s account, to Mr Carrafa.The appeal The appellants (who are not legally represented) initially filed an application for leave to appeal from the orders of the primary judge. However, at a case management hearing in relation to the appeal, I raised with the parties whether leave to appeal was required. Counsel for Mr Carrafa expressed the view that the decision below was final and, accordingly, leave to appeal was not required. In these circumstances, I made an order granting the appellants an extension of time in which to file a notice of appeal. They subsequently filed a notice of appeal in accordance with that leave. One of the grounds of appeal related to the refusal of Mr Gomez’s application for an adjournment. I gave Mr Gomez leave to appeal from that decision. The appellants appeal from the orders made by the primary judge on 7 December 2016. The grounds of appeal also challenge the refusal of Mr Gomez’s adjournment application on 14 June 2016. The appellants contend that the primary judge erred on the following grounds:1. Erred in Law by denial of procedural fairness and a fair triala. Assets FrozenThe trial judge had refused to allow for funds for the defence although several repeated requests have been made before and during the trial. The appellant’s defence during the trial has been compromised substantially due to these actions.b.The trial judge erred in law by compelling the first appellant to go unrepresented before and during the trial.c.The trial judge erred in law and fact by not allowing funds to have the accounts prepared for court using an expert but instead had chosen to state paragraph 51.d.Instilling and imparting false confidence and not adhering to assurances made.i.The trial judge had erred in law by instilling false confidence and not adhering to assurances made to the appellants before and during the trial.ii.The trial judge had erred in law by misleading the appellants that the court had the ability and the capacity to follow large volumes of complex company and personal accounts.e.Erred in law by allowing stereotypical questions to be asked by during cross-examination and relying on these for the judgment.f.Erred in law and fact by dismissing the application made by the first appellant to adjourn the hearing for 3 months due to his serious illness. The trial judge erred in law by assuming that she had medical expertise to make determinations.g.The trial judge erred in law by making unethical decisions giving more weightage to court timetable rather than a person’s health.h.Erred in law by forcing the appellants to do and present complex accounts and related paperwork to court which they are not capable of or do not possess adequate skills for.i. Erred in law by exercising bias:i.By allowing a hearsay document that were objected to during the trial and into the judgement – the so called “NAB Memorandum”.ii.Allowing the respondent’s counsel’s objections to pass without proper reasoning, and aiding counsel with his objections.iii.But dismissing the appellant’s objections to the hearsay document without giving proper reasoning.2. Erred in law and fact by making a multitude of erroneous assumptionsa.Trying to discredit witness testimony relying on erroneous assumptions with no evidence.b.Deriving erroneous assumptions from third-party representations that no-one testified for, or which were testified by witness to be untrue.c.The use of something “may have happened’ but no evidence showing that it ‘did happen”.d.In Paragraph 219, the trial judge had relied on the respondent’s allegation “who got the money, is that they both did”. No evidence of any money or “how much it was?”, that the first appellant received, was ever shown by the respondent.e.Neglecting to understand the facts of matters correctly.f.Multiple payments refuted as unaccountable using erroneous assumptions.3.Erred in law and fact by not considering or understanding key evidential informationa.Neglecting to consider or understand key evidential information provided by the appellant.b.Neglecting to address the fact that no evidence has been provided by the respondent to refute the evidence provided by the appellants.c.In paragraph 51, the trial judge states that there are gaps in the evidence, but fails to state what the gaps are.d.Erred in law by contradicting her own judgement/judicial opinion.e.Erred in fact by not doing the calculations accurately.f.Erred in law and fact by not addressing the calculations, figures and detail of flow of funds in the appellant’s submissions particularly after requesting for it.g.Erred in law and fact by giving very little consideration to the respondent’s submission.4.Erred in law by not giving due consideration to the lack of legal incapacity of the appellant during the trial:a.Not allowing for cross-examination of the respondent.b.Not allowing for proper questioning of the witness due to constant interruptions and objections by respondent’s counsel and by the court. Aiding the respondent’s counsel with his objections but dismissing my objections without proper reasoning.c.Not allowing for legal representation when requested, to assist being able to understand the legal arguments and implications that were transpiring during the trial.d.Erred in law by allowing legal contentions during the trial without warning or explanation.5.Erred in law and fact by throwing in a whole lot of past cases with no or very little reference made in support of the judgement.6.Erred in law and fact by not clearly distinguishing or understanding the difference in functions of the different entities involved in the proceeding.7.Erred in law and fact by allowing inadmissible third-party hearsay documents as evidence in the case.8.Erred in law and fact by relying on incorrect statements, tendering incorrect and statements the witness testified against.9.Erred in law and fact by not correctly applying the equitable doctrine of exoneration:a.No tangible benefit received was ever shown by the respondent.b.Merging of company and personal finances into one. Not a single bank statement was shown to support this.c.The case used in paragraph 23 in support of the judgement depicts a dissimilar scenario to the present one. Careful consideration was not given to the significant differences.10.Erred in law and fact by not correctly applying the equitable doctrine of subrogation.a.The trial judge does not seem to understand the law nor how guarantees operate in financial institutions.(Errors in original.)