Holden v Santosa
[2011] FMCA 251
•21 April 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HOLDEN v SANTOSA | [2011] FMCA 251 |
| BANKRUPTCY – Transfer of property prior to bankruptcy from one joint registered proprietor to another for ‘natural love and affection’ – whether transferor was solvent at the time of transfer – whether creditor was contingent creditor at the time of transfer and status of creditor – transfer declared void against trustee pursuant to ss.120 and 121 of the Bankruptcy Act 1966. |
| Bankruptcy Act 1966, ss.120, 121 |
| Bell Group (in liq) v Westpac Banking Corp (No.6) (2006) WASC 54 Calverley v Green (1984) 155 CLR 242 Sui Mei Huen v Official Receiver for Official trustee in Bankruptcy (2008) FCAFC 117 Trustees of the Property of Cummins (a bankrupt) v Cummins (2006) 224 ALR 280 |
| Applicant: | TIMOTHY MARK SHUTTLEWORTH HOLDEN |
| Respondent: | AUGUSTINI SANTOSA |
| File Number: | MLG 1164 of 2007 |
| Judgment of: | Hartnett FM |
| Hearing dates: | 9, 10, 17 December 2010 |
| Delivered at: | Melbourne |
| Delivered on: | 21 April 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr Galvin |
| Solicitors for the Applicant: | Wisewould Mahony Lawyers |
| Counsel for the Respondent: | Mr Randall |
| Solicitors for the Respondent: | Hopkins Lawyers |
THE COURT DECLARES THAT:
Pursuant to s.120 of the Bankruptcy Act 1966 (‘the Act’) the transfer on 28 October 2002, as registered on 30 June 2003, of the interest held by Alexus Benetton (aka Sulia Sulia, aka Tan Kun Hiong Sulia) (‘the bankrupt’) to the respondent in the property located at 25 Halley Avenue Camberwell in the State of Victoria, being the property more particularly described in Certificate of Title Volume 8162 Folio 151 (‘the property’) is void against the applicant on the grounds that:
(a)the transfer of the interest in the property of the bankrupt to the respondent was a transfer of property which took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b)the respondent gave no consideration for the transfer of the bankrupt’s interest in the property or gave consideration of less value than half of the market value of the property.
Pursuant to s.121 of the Act the transfer of the bankrupt’s interest in the property is void against the applicant on the grounds that:
(a)the bankrupt’s interest in the property would probably have become part of the bankrupt’s estate or would probably have been available to creditors of the bankrupt if the property had not been transferred; and
(b)the bankrupt’s main purpose in transferring his interest in the property was:
(i)to prevent his interest in the property from becoming divisible among the bankrupt’s creditors; or
(ii)to hinder or delay the process of making the property available for division among the bankrupt’s creditors.
THE COURT ORDERS THAT:
The respondent do all such acts and things and sign all such documentation necessary to transfer the bankrupt’s former interest in the property located at 25 Halley Avenue Camberwell in the State of Victoria, being the property more particularly described in Certificate of Title Volume 8162 Folio 151 to the applicant such that the applicant and the respondent are registered on title as tenants in common in equal shares.
The costs of the applicant’s application for substitution be costs in the bankrupt estate.
The applicant’s costs of the proceedings be paid out of the bankrupt estate.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1164 of 2007
In the matter of the Bankrupt estate of ALEXUS BENETTON (aka SULIA SULIA, aka TAN KUN HIONG SULIA)
Between
| TIMOTHY MARK SHUTTLEWORTH HOLDEN |
Applicant
And
| AUGUSTINI SANTOSA |
Respondent
REASONS FOR JUDGMENT
On 23 May 2006, a Sequestration Order was made against the estate of Alexus Benetton. Mr Dean Royston McVeigh was appointed Trustee of the bankrupt estate of Alexus Benetton (also known as Sulia Sulia, also known as Tan Kun Hiong Sulia) (‘the bankrupt’). The date of the act of bankruptcy was 29 November 2005. The petitioning creditor was Maurice Blackburn Cashman Proprietary Limited (hereafter MBC). Since the making of the Sequestration Order, Mr McVeigh has died. The applicant Mr Holden was appointed the Trustee of the bankrupt estate of the bankrupt on 29 August 2010. On 24 September 2010, an Order was made in the proceedings substituting Mr Holden as the applicant. The costs of the proceeding upon substitution shall be costs in the proceedings.
The bankrupt filed his Statement of Affairs with the Insolvency Trustee Service of Australia on 25 August 2006. He disclosed income derived from a disability pension and stated he had no spouse or partner albeit he resided at 25 Halley Avenue Camberwell being the residence also of the respondent and their children. He claimed to have no secured creditors and only one unsecured creditor namely Maurice Blackburn Cashman. He claimed to first have difficulty paying his debts in December 1998. He claimed to own no real estate and said the only asset transferred by him in the preceding five years was a motor vehicle which was sold for the sum of $1,500.
Prior to the making of the Sequestration Order and as registered on 4 March 1999 the bankrupt and his then de facto wife, the respondent in these proceedings, purchased as joint proprietors a property contained in Certificate of Title Volume 8162 Folio 151 and situate at 25 Halley Avenue Camberwell in the State of Victoria (‘the Camberwell property’). The Camberwell property was purchased in or around October 1998 for $340,000. The respondent claims the contract was initially in her name but that she subsequently, because of banking requirements, altered the contract to add the name of the bankrupt as a joint proprietor. A deposit of $34,000 was paid by borrowings from the Commonwealth Bank of Australia with that bank securing a second mortgage over a property at Roxburgh Park it being real property, the legal title to which was owned jointly by the respondent and the bankrupt. The borrowings were joint. A further loan from the Commonwealth Bank of Australia was obtained in March 1999 which combined secured debt over Roxburgh Park of approximately $100,000 and the balance of the purchase price of the Camberwell property plus stamp duty. A mortgage to the Commonwealth Bank of Australia was registered on the title with this mortgage being paid out on 4 December 2002 as a result of a refinancing application by the respondent solely in the sum of approximately $106,435.56. On 28 October 2002, the bankrupt and the respondent had signed a Transfer of Land form which transferred the bankrupt’s interest in the Camberwell property to the respondent for the consideration of ‘natural love and affection’. Instructions were provided by the respondent, as claimed by her, to Mr Michael Johnson to attend to the transfer on 26 September 2002. Mr Johnson was not called to give evidence in the proceedings. The evidence that was before the Court with respect to this transfer contained no reference to an agreement between the bankrupt and the respondent as to property settlement nor the payment of any consideration, a matter to which I shall return. On 26 June 2003, the Transfer of Land form was lodged with the Victorian Land Titles Office and the transfer was registered on 30 June 2003 with the resulting proprietorship being a registering of the respondent with legal title as the sole proprietor of the Camberwell property subject to a mortgage encumbrance. The transfer of the Camberwell property into the respondent’s name solely was done to “complete an agreement reached with (the bankrupt) several years earlier”, said the respondent.
These proceedings were commenced by Mr McVeigh in relation to the transfer described above. The Trustee of the bankrupt estate argued that the transfer was void in taking place in the period beginning five years before the commencement of the bankruptcy and ending on the date of the bankruptcy and that the transfer of the bankrupt’s interest in the Camberwell property to the respondent was for no consideration (s.120(5)(d) of the Bankruptcy Act 1966 (‘the Act’)). Further, the Trustee argued that the transfer was void pursuant to s.121 of the Act in that at the time of the transfer of his interest in the property to the respondent the bankrupt was, or was about to become, insolvent, and that his main purpose in transferring his interest in the Camberwell property was to prevent it from becoming divisible amongst his creditors. Further, that at the time of the transfer MBC was a potential creditor of the bankrupt and Lion Finance Pty Ltd (on an assignment of debt from 2001 from the ANZ and in the sum of $2,499.77) was an actual creditor.
Prior to the purchase of the Camberwell property and in 1993, the bankrupt and the respondent purchased jointly a block of vacant land in Roxburgh Park for the sum of $49,000. They borrowed monies jointly (from the National Australia Bank) and built a house on the land. They intended for this property to be their family home. They had commenced their de facto relationship prior to this first home purchase and in about September 1992, after undergoing an informal marriage ceremony in Indonesia. Their first daughter Katherine was born during their occupation of Roxburgh Park and in April 1995. Their second daughter Olivia would be born in March 2001 following their purchase of the Camberwell property. The respondent claimed that she alone funded the payment of the deposit for the purchase of the land in Roxburgh Park and subsequently the total purchase costs. This evidence was unsupported and I can make no finding as to its accuracy. It differs from the evidence given by the bankrupt in earlier proceedings in which he was involved in the County Court of Victoria. Thereafter the respondent claimed the bankrupt “did not contribute towards the cost of construction” of the home. In fact, joint borrowings were applied to the costs of construction. Mortgage instalments were paid from the savings account of the respondent. Other expenses of the household were met by the bankrupt who was at the time in employment, although in what quantum cannot be determined. Both the respondent and bankrupt shared the care of their daughter. The respondent gave evidence that she had subsequently paid to the bankrupt monies representing his share in the Roxburgh Park property by giving him two lump sums of $20,000 which she said was acknowledged by the bankrupt as extinguishing any claim he may have had to an interest in the Roxburgh Park property. That evidence was not supported by the bankrupt and was contrary to her further evidence that such monies were paid by her to the bankrupt to assist him in the establishment of a business and to stop him asking her for further monies. Her evidence in addition was that after making these payments to the bankrupt in early 1998, she was thereafter not willing to, and in fact did not advance any further funds to the bankrupt. She claimed the bankrupt was aware of her intention to make no further financial payments to him.
The bankrupt ceased working in 1998 and commenced to receive Centrelink benefits (becoming ultimately a disability pension from July 1999), continuing to receive such benefits whilst residing in the Camberwell property. The bankrupt did not disclose his residential address accurately to Centrelink leading Fagan J in the Victorian County Court, in proceedings where the bankrupt was a plaintiff in August 2003 to conclude that the bankrupt’s receipt of the pension had “all the hallmarks of having been contrived.” The bankrupt also at this time attempted to earn income from operating a business and the respondent’s evidence, with which the bankrupt agreed, was that she loaned small amounts of $1,000 to $2,000 to the bankrupt to assist him, before advancing the two sums of $20,000 each as referred to in the preceding paragraph some four weeks apart. The payment of $40,000 by the respondent to the bankrupt in or around early 1998 is not pleaded or referred to in her Defence dated 8 February 2008. However, it was referred to in her Affidavit of 31 August 2010. It was also relied on in her Counsel’s submissions dated 8 December 2010. The respondent’s evidence was that the first $20,000 of the $40,000 paid to the bankrupt came from cash she kept in a bag in a wardrobe at home being monies provided to her by her family. The evidence of the respondent in its totality as to her acquisition of such funds was implausible and not supported by any other evidence. I do not accept it. Likewise, the evidence given by the bankrupt was implausible and his demeanour in the witness box was suggestive of a lack of truth in his answering of questions put to him in relation to this. No plausible evidence was given by either as to the application of such funds. I cannot find that any lump sum amount of $20,000 in cash was provided to the bankrupt by the respondent. The second amount of $20,000 was drawn down from the home loan, and was therefore a sum jointly borrowed by the respondent and the bankrupt. Contrary to what the respondent asserted, the bankrupt’s evidence did not support her claim that either of the payments of $20,000 (as claimed) was made in consideration for his abandonment, sale or transfer of his interest in the Roxburgh Park property and nor did he support the respondent’s claim that he agreed to give up his interest in the Roxburgh Park property. This was consistent with the consideration stated in the Transfer of Land being “natural love and affection” with no reference to any agreement or monetary consideration given at that time. Indeed, the monies drawn down against the home loan were provided by the bankrupt and the respondent to the bankrupt to enable him to establish a business from which he could provide income for the family.
After the draw down referred to in the preceding paragraph, the respondent sought to sell the Roxburgh Park property. The process took approximately 12 months requiring bridging finance to be obtained to secure the settlement of the purchase of the Camberwell property. The respondent claimed this circumstance alone led to the bankrupt being a joint registered proprietor and borrower of the monies used in the purchase of the Camberwell property. She however, under cross-examination acknowledged that the Camberwell property was purchased as a matrimonial home for herself and the bankrupt which indeed their earlier property had been. Once the Roxburgh Park property was settled and monies applied to the debt secured over the Camberwell property a balance of $240,000 in mortgage debt remained secured against that property.
The respondent and bankrupt moved into the Camberwell property with their daughter, residing together for some months before, on their evidence they ceased to be in a de facto relationship. However, the parties then attempted to reconcile their relationship and in mid 2000 the respondent became pregnant. Olivia was born in March 2001. Thereafter, although the bankrupt has periodically resided in the home as stated by both he and the respondent their evidence is that they were no longer in a de facto relationship and that he did not continually live there until after his release from prison in 2008 when he again took up continual residence in the home. He remains residing with the family unit and assisting in the care of his and the respondent’s daughters.
MBC
Mr David Halstead gave evidence on behalf of the applicant. He is a solicitor and Senior Executive – Client Liaison at MBC. MBC acted for the bankrupt in relation to a workcover claim, a serious injury claim and a superannuation disability claim for the period from November 1997 to August 2003. During this time the firm Maurice Blackburn Cashman became incorporated with MBC being registered on 24 July 2003. MBC was the major creditor in the bankrupt’s estate in the sum of $98,710.11. This debt was calculated as follows:
a)Judgment debt for serious injury application/ workcover claim
$52,525.27
b)Judgment debt for superannuation claim
$5,079.12
c)Penalty interest from date of judgments
$37,858.25
d)Petitioning creditor’s costs
$3,247.47
TOTAL DEBT DUE $98,710.11
During the period when MBC was acting on his behalf in relation to the workcover claim, the serious injury application and the superannuation claim, the bankrupt was aware that MBC was acting on a no-win no-fee basis. However, the crucial conditions which the bankrupt was required to abide by in respect of the no-win no-fee agreements were to ensure that (a) he provided full and frank instructions; (b) co-operate in the preparation of his claim and do all that was reasonably asked of him; (c) accept and follow reasonable advice given to him and (d) continue to instruct MBC. If he breached those conditions, MBC reserved the right to render an account for legal services rendered in the matters. Otherwise the bankrupt was liable to pay Counsel’s fees and in the event his application was unsuccessful he was advised he may be liable to pay the other side’s costs. On 23 July 1998, MBC sent the bankrupt the terms of its engagement in relation to the workcover and damages claims. The bankrupt signed and retained a copy of the letter on 31 July 1998.
Under cover of a letter dated 19 October 1999, MBC asked the bankrupt to sign another fee agreement and asked him to make an appointment to discuss his instructions in relation to the bringing of a common law claim. Again, the retainer provided that the firm would not claim professional costs (estimated to be in the range of $40,000-$50,000), but the firm reserved the right to claim payment of those fees in the event that the bankrupt should (inter alia) fail to provide them with full and frank instructions. Counsel’s fees were estimated to be between $5,000 and $15,000. In the event that the claim was unsuccessful, costs which would be payable to the other side were estimated to be between $10,000 and $25,000. A further fee agreement setting out the same terms and dated 22 January 1999 had been forwarded to the bankrupt in respect of the superannuation claim.
At a meeting with Mr Halstead on 7 August 2000, the bankrupt confirmed that he wished to apply to the County Court for a serious injury finding, which would enable him to proceed with a common law claim against his employer. On 8 August 2000, MBC wrote to the bankrupt to confirm his instructions to apply to the Victorian County Court for a serious injury determination and that Maurice Blackburn would be acting on a “no win-no fee” basis in that “if you follow our reasonable advice, continue to instruct us and provide frank instructions” the firm would not charge the bankrupt. The bankrupt was advised of his liability for the insurer’s costs in the event the application were unsuccessful. On 9 August 2000, an Originating Motion was filed by MBC on behalf of the bankrupt as plaintiff and on 16 July 2002 the matter was set down for trial on 1 August 2003.
On 29 June 2001, Mr Halstead wrote a file note in relation to a discussion which was conducted between he and Mr Chancellor of Counsel. The firm engaged Geoffrey Chancellor of Counsel to act in the common law proceeding in about December 1999. Mr Chancellor informed him that he believed the bankrupt’s instructions were dishonest and this was confirmed by documents produced in the other side’s discovery regarding the bankrupt’s employment history.
On 5 July 2001, Mr Chancellor provided a memo to MBC confirming that he had to see the bankrupt on two occasions because of the bankrupt’s inability or unwillingness to provide relevant information. Mr Chancellor advised that he had lost confidence in the bankrupt and would not act for him in the hearing of the matter as his ability to act had been compromised. Mr Chancellor noted the bankrupt’s admission in conference that he had been resident in Western Australia from mid-1986 to March 1990 and that he had misled Counsel over his previous employment and training history. Mr Chancellor indicated he expected to be paid a brief fee. Mr Chancellor ultimately did appear at the hearing of the serious injury application with Mr Stanley Spittle SC of Counsel. Mr Chancellor did not recall in his evidence why he agreed to appear and the basis upon which he agreed to be remunerated. Counsel however were not engaged on a no-win no-fee basis, and were in fact paid, notwithstanding the failure of the application as evidenced by the detailed bill of costs in taxable form.
Sometime in early 2002, it was discovered that the 19 October 1999 engagement letter had not been signed by the bankrupt. Therefore, to ensure completeness and to confirm the bankrupt’s understanding of the costs risks involved in the matter, the 6 March 2002 engagement letter was sent to him. The bankrupt signed the engagement letter on 8 April 2002 regarding the conditions of engagement which were as set out in the October 1999 document.
On 16 April 2002, a further letter was sent to the bankrupt. It warned him that his employer might have film of his activities which could show that he had been conducting his affairs in a manner inconsistent with the history he had given. He was advised that this could significantly affect his credibility. The letter confirmed that the serious injury application was fixed for hearing and requested that the bankrupt confirm his instructions to proceed. He was advised that he may have to cover the costs of disbursements which would likely be in the order of $5,000 to $10,000 and he would also be ordered to pay the Defendant’s costs if he were unsuccessful. A letter was signed by the bankrupt on 2 June 2002 giving instructions for MBC to proceed with the serious injury application and acknowledging that he understood the costs risks involved.
On 12 May 2003, MBC briefed Mr Stan Spittle SC of Counsel to provide advice on evidence and prepare any necessary affidavit material in relation to the serious injury application. The memo states that the bankrupt has been advised of the cost risks involved in continuing with proceedings.
On 22 August 2003, the serious injury application in the Victorian County Court was dismissed with costs payable by the bankrupt to the Defendant, Austrim Textiles Pty Ltd, to be taxed on County Court Scale D. Fagan J made findings against the bankrupt’s credit regarding his activities at the Crown Casino, his alleged separation from the respondent and his employment at the time of the loan to purchase the Camberwell property. Essentially the bankrupt’s evidence was not accepted.
On 28 August 2003, MBC wrote to the bankrupt stating, among other things, that a bill in respect of their professional costs and disbursements was currently being drawn and the letter referred to the conditions of engagement which required him to provide full and frank instructions. Furthermore, he was reminded that despite the costs risks involved, he instructed them to continue acting on his behalf by agreement obtained on 2 June 2002.
On 15 September 2003, MBC rendered a bill of costs being an estimate to the bankrupt for professional costs and disbursements totalling $24,931.75 in respect of the serious injury application. In a subsequent letter the bankrupt was advised this amount could be considerably higher when taxed.
On 7 October 2003, MBC wrote to the bankrupt stating, among other things, that the bankrupt had failed to provide full and frank instructions as set out in the conditions of engagement contained in the engagement letter signed 8 April 2002. The letter indicated that the bankrupt had been untruthful and failed to provide full and frank instructions at all times and as such, he had contravened the “no win/ no fee” arrangement. The letter also indicated that if payment of the bill dated 15 September 2003 was not made within seven days, the file would be costed and recovery proceedings would be commenced against him.
In November 2003, MBC obtained a bill in taxable form in relation to the workcover claim and the serious injury application for the total sum of $51,061.45 which related to work undertaken for the period 24 February 1998 to 22 August 2003. The bill in taxable form was sent to the bankrupt on 2 December 2003.
On 19 January 2004, MBC wrote to the bankrupt enclosing a Notice of Intention to Institute Legal Proceedings in relation to his failure to pay their account.
On 26 May 2004, MBC rendered their bill of costs in relation to the superannuation claim for the total sum of $4,293.87 which was for work undertaken in the period 24 February 1998 to 22 August 2003. The bill was enclosed with a letter dated 28 May 2004 in which MBC stated that the bankrupt was in breach of condition 2 of the costs agreement letter dated 22 January1999 by failing to provide further instructions with respect to his claim.
On 12 May 2004, MBC issued Victorian County Court proceedings against the bankrupt seeking recovery of the sum of $52,525.27 for work which was undertaken on behalf of the bankrupt in the workcover claim and the serious injury application and set out in the bill in taxable form. A default judgment was obtained on 10 August 2004.
On 28 September 2004, MBC issued Magistrates’ Court proceedings against the bankrupt seeking recovery of the sum of $5,079.12 in relation to the superannuation claim. On 23 November 2004, MBC obtained a default judgment against the bankrupt.
Consideration
The bankrupt claims that he was not aware of his potential liabilities to MBC and that such liabilities were not reasonably anticipated at the time of his transfer of the Camberwell property in October 2002. I reject the evidence of the bankrupt that he was not informed of the MBC potential liabilities and that he did not receive the correspondence referred to earlier in these reasons informing him of it. He was clearly informed and understood the risks associated with the litigation. Following the letter received by him on 16 April 2002 and before the trial in August 2003 he took the action of transferring his legal and beneficial interest in the Camberwell property to the respondent. He did so intentionally and voluntarily whether or not requested to do so by the respondent. His main purpose in doing so which can be reasonably inferred from all the circumstances at that time, was to prevent his interest in the Camberwell property from becoming divisible among his creditors and potential creditors. Nothing in the evidence of the respondent nor bankrupt establishes the bankrupt as being solvent at the time of the transfer. His solvency is a question of fact to be determined in accordance with the evidence. Was he able to pay his debts as and when they fell due? As a matter of commercial reality (see Owen J in Bell Group (in liq) v Westpac Banking Corp (No.6) (2006) WASC 54 at [101]-[107]) I find he was not.
The claims of the creditors in their totality were actual (Counsel’s fee and the Lion Finance Pty Ltd debt) and otherwise could be reasonably anticipated by the bankrupt and contingent. The bankrupt had breached his costs agreement with MBC and was subject to a claim by the firm for its fees. He was also potentially liable to pay costs orders made against him. The transfer of land executed by him can be set aside even though MBC was not an actual creditor at the time of the transfer as summarised by the High Court in Trustees of the Property of Cummins (a bankrupt) v Cummins (2006) 224 ALR 280 at (30)-(31) and as referred to by Counsel for the applicant in his closing submissions as follows:
“[30] The question then arises whether the creditor or creditors spoken of in the section [s.121] must have that status at the time of the transfer. In PT Garuda Indonesia Ltd v Grellman [(1992) 35 FCR 515 at 526], … the Full Court if the Federal Court rejected a submission that the class of creditors referred to is limited to those who at the time of the disposition in question have claims of a nature which then would be susceptible to proof under s.82 of the Act [cf Coventry v Charter Pacifici Corporation Ltd (2005) 222 ALR 202].
[31] in R v Dunwoody… McPherson JA said [at (2004) 212 ALR 103 at 132]:
It is true that statutory enactments of this kind consistently referred to the fraud in order seething “creditors”; but the course of judicial decision over the centuries shows that this expression is not to be confined to its limited and technical sense of a person to whom that it is presently due and owing.
Section 40(1)(c) stipulates as an act of bankruptcy the departure from all remaining out of Australia of a person ‘with intention to defeat or delay his creditors”. Of that expression, in Barton v Deputy Federal Commissioner of Taxation [(1974) 131 CLR 370 at 374], Stephen J treated as sufficient for the commission of that act of bankruptcy “awareness of an impending liability” or “some impending indebtedness”.
At the time of the transfer Lion Finance was a creditor for an ANZ Visa Card debt of $2,502.26. A HECS debt to the Australia Taxation Office also existed. MBC was not an actual creditor but a potential creditor who became subsequently an actual creditor. The bankrupt at the time of the transfer knew the risks of costs orders being made against him and knew of his liability to meet disbursements and also legal costs, the latter if he breached the conditions of engagement. He had knowledge of such breach by him. The bankrupt himself had disclosed in his Statement of Affairs, having difficulty paying his debts from December 1998. He was in receipt of a disability support pension and incurring gambling losses. The bankrupt was living in the Camberwell property to a far greater extent than conceded by he and the respondent, with the respondent and their two children. Indeed Fagan J found that “the separation was far from complete in August 2003”. He said:
“the plaintiff claimed that he only stayed at Camberwell three or four nights per week and otherwise slept on a couch at the Casino or at friend’s places. He claimed that he was required by his wife to leave Halley Avenue in three weeks’ time. I do not think I can comfortably accept this evidence. Again, there is no support for it. The only thing is that the Plaintiff transferred his interest in Halley Avenue to his wife. He says this happened in 2000. The transfer as registered 30 June 2003, but the fact of the transfer is equivocal. A child was born to the plaintiff and his wife on 1 May 2001. The plaintiff claimed this was a mistake. The fact, however, is that the separation was far from complete. The videos bear on this issue. They show the plaintiff delivering the children to and from school at least from time to time, and driving his wife to work. It is plain they were in at least some degree of cooperation. The plaintiff admitted that he and his wife, from time to time went shopping together.”
The respondent however had made clear to the bankrupt that she would not advance further monies to him. The only means by which the bankrupt could attempt to pay his debts was by realising his legal and beneficial interest in the Camberwell property. He did not do that but rather transferred his interest to the respondent rendering him unable to pay his actual and contingent creditors. His purpose was to achieve that outcome. In doing so he also became insolvent.
The respondent gave evidence that the sole reason for the transfer was “to complete an agreement reached with Alex several years earlier.” She claimed that she and the bankrupt “had reached an informal settlement relating to property prior to me purchasing Halley Avenue.” Despite this evidence being given by her, her Defence did not plead or refer to such an agreement, and as referred to elsewhere in these reasons I find no such agreement or settlement of property was ever effected between the bankrupt and respondent.
Regardless of who paid the mortgage instalments, which does not alone give rise to a constructive trust, the Camberwell property was purchased in the joint names of the parties with jointly borrowed funds, and subsequently with the net proceeds of sale of their earlier jointly held property in relation to which the bankrupt had not extinguished his interest. It was purchased as a matrimonial home in which they would reside. They and their children continue to reside in the property despite the respondent’s evidence that she gave the bankrupt two years to find other accommodation after his release from imprisonment in early 2008. Both the respondent and bankrupt claim their earlier de facto relationship not to be subsisting but that cannot be concluded as a finding of fact on the balance of probabilities on the evidence before this Court and nor could it in the Victorian County Court in 2003. The bankrupt claims they separated in 1998. The respondent claims separation to have been in mid 1999 and after purchase of the Camberwell property. A child was born to them in March 2001. Fagan J in the Victorian County Court proceeding found the separation ‘far from complete’ in August 2003. Certainly they care for their children in the household as a joint endeavour and the bankrupt’s occupation of the property has been I find effectively continuous since the time of purchase. No independent evidence as to his residence elsewhere at times as alleged by either the respondent or the bankrupt is before the Court. It could easily have been and their claim is unsupported. I do not accept that the primary residence of the bankrupt has not been the Camberwell property throughout.
The respondent claims that by reason of a resulting trust, alternatively a constructive trust or an express trust the bankrupt at no time acquired a beneficial interest in the Camberwell property. I find no reason for concluding any trust has arisen in the circumstances of this case. The respondent and bankrupt jointly applied to the Commonwealth Bank of Australia on 15 January 1999 for a loan of approximately $375,000. The bankrupt was dishonest in that application in that he claimed to be employed by Austrindo Pty Ltd when he was not. The deposit payment had itself been a joint borrowing. There is no evidence of an unequal contribution by them to the purchase price. Rather their contribution is treated as a joint one to that purchase price (Calverley v Green (1984) 155 CLR 242 at 257-8 (per Mason & Brennan JJ). There is no evidence to support the finding of an express trust in favor of the respondent. I do not find the bankrupt held his legal interest in the Camberwell property subject to a constructive trust in favor of the respondent on the basis that she solely made the mortgage repayments and paid the costs of other outgoings. Whether a constructive trust exists is assessed by circumstances existing at the time when the property is acquired though events after its acquisition are not irrelevant (see Sui Mei Huen v Official Receiver for Official trustee in Bankruptcy (2008) FCAFC 117 at [78] per Ryan, Moore and Tamberlin JJ). At the time of purchase the respondent and bankrupt sought to secure a residence as their home. The Camberwell property was purchased as a joint tenancy legally and beneficially with the prospect of survivorship and a common intention by the respondent and bankrupt that it be their family home. The respondent’s evidence is preferred over the bankrupt’s in that regard. They sought to and did acquire property legally and beneficially as joint tenants. The respondent’s evidence that the bankrupt was a joint proprietor and borrower as a mere formality requested by the lending Bank is not accepted nor is it supported by other independent evidence from the Bank nor all of the circumstances at the time. The bankrupt and respondent were in a de facto relationship at the time operating their household and caring for their child jointly. They were making the transition from one family home to another and purchased the Camberwell property entirely with joint borrowings. It is not possible to conclude that the ownership of the Camberwell property as joint tenants was subject to a beneficial ownership established by trust law. It was intended by the de facto spouses that each would have a one-half interest in the Camberwell property upon them becoming joint proprietors regardless of the manner of funding that acquisition and attending to the mortgage repayments and the respondent’s claim to the contrary is rejected.
Ordinarily costs will follow the event. In these proceedings the costs should come out of the bankrupt’s estate where there should be sufficient funds to meet such a payment, and not from the respondent who is a party to the proceedings as a result of the bankrupt’s conduct.
I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of Hartnett FM
Date: 21 April 2011
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