Jabbour v Sherwood

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FEDERAL COURT OF AUSTRALIA

Jabbour v Sherwood [2003] FCA 529

BANKRUPTCY – prior transfer of property – husband to wife – transfer of house property – sale of business and forgiveness of two thirds of sale price – application to set aside notice before Federal Magistrate’s Court – cross-application for declarations that transfers void as against trustees – application dismissed – appeal against Federal Magistrate’s decision – challenges to fact findings – claim of equitable interest in house property – no finding by magistrate – appeal allowed in relation to failure of magistrate to make finding on claim for equitable interest.

Bankruptcy Act 1966 (Cth) s 139ZQ, s 120, s 121, s 139ZS

Muschinski v Dodds (1986) 160 CLR 583
Baumgartner v Baumgartner (1987) 164 CLR 137
McVeigh v Zanella [2002] FCA 1890
Parsons v McBain (2001) 109 FCR 120
Re Osborn (1989) 25 FCR 547
Giumelli v Giumelli  (1999) 196 CLR 101
La Rosa Ex parte: Norgard v Rocom Pty Ltd (1990) 21 FCR 270
Re Ward; Official Trustee v Dabnas Pty Ltd (1984) 3 FCR 112
Re Ocean Downes (1989) 1 Qd R 648
Qiugley v Cockburn (1993) 11 ACLC 424

MARIE-VONE JABBOUR v JOHN SHERWOOD (OFFICIAL RECEIVER IN BANKRUPTCY) and CHARLES PHILIPPE LOUIS NILANT and OREN ZOHAR (JOINT AND SEVERAL TRUSTEES)
W230 of 2002

FRENCH J
28 MAY 2003
PERTH


IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

W230 OF 2002

BETWEEN:

MARIE-VONE JABBOUR
APPELLANT

AND:

JOHN SHERWOOD (OFFICIAL RECEIVER IN BANKRUPTCY)
FIRST RESPONDENT

CHARLES PHILIPPE LOUIS NILANT and OREN ZOHAR (JOINT AND SEVERAL TRUSTEES)
SECOND RESPONDENTS

JUDGE:

FRENCH J

DATE OF ORDER:

28 MAY 2003

WHERE MADE:

PERTH

THE COURT ORDERS THAT:

1.        The appeal is allowed.

2.Paragraphs 1, 4 and 5 of the orders made by the learned magistrate on 26 June 2002 and the whole of the orders made on 5 September 2002 are set aside.

3.The matter is remitted to the learned magistrate to consider and make findings of all necessary facts going to the existence of any equitable interest to which the appellant was entitled in the house and land at 4 Fawk Corner, Ballajura and, depending upon those findings, to make appropriate orders including orders relating to the sums payable by her to the second respondents and the appropriate costs orders in relation to the proceedings before the learned magistrate in the light of those findings.

4.The appellant is to pay two-thirds of the respondents’ costs of the appeal.

5.In the event that either party seeks a variation of the order relating to the costs of the appeal, the party is to file written submissions in respect of any such variation within seven days.

6.The parties are at liberty within seven days to apply for any further order which may be necessary to give effect to the reasons for judgment.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

W230 OF

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Details
Case
[2003] FCA 529
Decision Date

CaseChat Overview and Summary

The case of Jabbour v Sherwood involved the appellant, who had been ordered by the Magistrates Court to pay sums to the respondents, appealing against that order. The dispute centred around the validity of a property transfer and whether the appellant had an equitable interest in the property. The court was required to determine whether the property transfer was made with the intent to defeat creditors, and if the appellant had discharged the onus of proving that the transferor was solvent at the time of the transfer. The learned magistrate found that the property was transferred for an amount less than market value, and there was insufficient evidence to establish the source of income used to pay off debts. The magistrate concluded that the appellant had not discharged the onus of proving the solvency of the transferor at the time of the transfer, thereby finding the cross application by the respondents under s 120 of the Bankruptcy Act to be established.

The appeal was allowed, and the orders made by the magistrate were set aside. The matter was remitted to the magistrate to consider and make findings on the existence of any equitable interest to which the appellant was entitled in the property. Depending on those findings, appropriate orders were to be made, including those relating to the sums payable by the appellant to the respondents and the appropriate costs orders. The appellant was also ordered to pay two-thirds of the respondents' costs of the appeal. The parties were given the liberty to apply for any further orders necessary to give effect to the judgment within seven days. If either party sought a variation of the order relating to the costs of the appeal, written submissions were to be filed within the same period.

Orders

Orders of the court

1. The appeal is allowed.

2. Paragraphs 1, 4 and 5 of the orders made by the learned magistrate on 26 June 2002 and the whole of the orders made on 5 September 2002 are set aside.

3. The matter is remitted to the learned magistrate to consider and make findings of all necessary facts going to the existence of any equitable interest to which the appellant was entitled in the house and land at 4 Fawk Corner, Ballajura and, depending upon those findings, to make appropriate orders including orders relating to the sums payable by her to the second respondents and the appropriate costs orders in relation to the proceedings before the learned magistrate in the light of those findings.

4. The appellant is to pay two-thirds of the respondents’ costs of the appeal.

5. In the event that either party seeks a variation of the order relating to the costs of the appeal, the party is to file written submissions in respect of any such variation within seven days.

6. The parties are at liberty within seven days to apply for any further order which may be necessary to give effect to the reasons for judgment.

Background

Background to the litigation

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Evidence

Evidence Before The Court

Under s 139ZT a person who refuses or fails to comply with a notice under s 139ZQ is guilty of an offence punishable upon conviction by imprisonment for a period not exceeding six months. The Magistrate’s Reasons for Decision – Review of the Evidence The learned magistrate, after reciting the procedural background, found there was no dispute that the property at 4 Fawk Corner, Ballajura was registered in the appellant’s name by a transfer registered on 27 November 1997 and that the payment of $1 for the transfer of the property did not represent market value. He also found that the business of the Malaga Pantry was transferred by Jabbour to the appellant on 20 February 1998 for a purchase price fixed, by agreement on that date, at $60,000. He also noted that it was agreed by the parties that only $20,000 was paid by the appellant to Jabbour as consideration for the Malaga Pantry and that the amount of $40,000 was forgiven by the bankrupt in March 1998. He then referred to evidence given by a number of witnesses, the first of which was the appellant herself. In that evidence the appellant said that in or about July 1997 her husband decided that the house property at 4 Fawk Corner, Ballajura should be transferred into her name. She said that the primary reason for the transfer was that if anything should happen to him the property would already be in her name and it would enable her to look after their children without any worries. She asserted there was no other reason for the transfer of the property and that Khoury witnessed the transfer. The appellant said that she and Jabbour did not have any substantial debts and paid approximately $1,000 a month in mortgage repayments. She had been receiving $884.60 social security payments per month and produced bank statements showing regular withdrawals of $500 fortnightly which she relied upon as evidence that she and Jabbour had made payments of approximately $1,000 per month against the mortgage. She also said that at the time the property was transferred Jabbour was involved with the Malaga Pantry business and was earning about $2,000 a month from it. She disputed the notice and in particular disputed any intention by Jabbour to defeat creditors. She said she held no suspicion that Jabbour was insolvent or about to become insolvent at the time. The appellant disputed the value of the property and said it was worth $110,000 rather than the amount of $120,000 claimed by the trustees. She had made contributions of about $15,000 to $20,000 towards the mortgage. As to the Malaga Pantry the appellant said she had purchased it from Jabbour on or about 20 February 1998 for $60,000 of which she paid $15,000 on 23 February 1998 and $5,000 on 27 March 1998. She said the balance was forgiven by her husband because he wanted her to use that sum to provide for their children. She also claimed that at his request she paid legal fees and provisional tax of approximately $40,084.40 from December 1998 to September 2000 and other amounts since that date bringing the total to $50,684.40. She said that the transfer price for the Malaga Pantry was market value. In cross-examination she said that until the transfer of the Malaga Pantry her husband ran the business. After the transfer she ran the business without his assistance. She said she did not know what he did at the Malaga Pantry and did not know what he had done since transferring the business to her.

Decision

Reasons for decision

FRENCH J
After reviewing the evidence the learned magistrate then referred to the respective submissions of the parties in detail.The Magistrate’s Reasons - Conclusions In his reasons for judgment the learned magistrate found that the transfer of the property occurred for an amount which was less than market value. He found there was a delay of some months in registration of the transfer for which no satisfactory reason was given. There was, in his view, sufficient evidence to regard the transfer of the property as a transfer which came within the meaning of s 120 of the Bankruptcy Act. The real issue was whether, at the time of transfer, the bankrupt was solvent. For the purpose of applying s 120 he accepted that the time of transfer was 24 July 1997. His Honour referred to the onus on the appellant to prove the solvency of Jabbour at the time of the transfer. He found that the Malaga Pantry had made a net loss of $16,124 for the year ending 30 June 1997 and a net loss of $531 in the previous year. He accepted that on the material before him the business was a significant part of the business conducted by Rosemist Holdings, the company in which Jabbour had an interest. He then said: ‘I further find that although a detailed analysis was made of payments by the bankrupt and the applicant out of a MasterCard account, there is a significant deficiency in the evidence which would enable me to make a finding in relation to the source of income which was applied to the MasterCard account to ensure that the monthly balance was paid when due.”This I take to be a finding that the evidence did not enable him to make any finding about the source of income for payments of the MasterCard account. He said that mere evidence of payments did not in itself provide evidence of solvency unless it were demonstrated that they had been made by Jabbour along with payment of other debts when they became due from Jabbour’s own money or resources. He found it was clear that by February 1998, upon entering into the Deed with Khoury, both Jabbour and the company did not then have an ability to pay their debts. Although this post-dated the date of the transfer of the property it provided him with a sufficient doubt about the financial circumstances of Jabbour to find as a matter of fact that the appellant had not discharged the onus of establishing that in July 1997 Jabbour was solvent. The learned magistrate noted that Jabbour’s taxable gross income was $20,351 for the financial year ended 30 June 1998. A significant portion of that was derived from the company which itself was the subject of the appointment of a receiver in January 1998. He said: ‘The financial difficulties of the company coupled with the acknowledged indebtedness in the Deed by the company and the bankrupt to Mr Khoury in February 1998 provides further material to support the conclusion that the applicant has failed to establish to the satisfaction of the court that the bankrupt was solvent at the time of the transfer which occurred albeit some months earlier in July 1997.’On this basis he found that the cross application by the respondents relying upon s 120 of the Bankruptcy Act had been established.

Ratio Decidendi

Legal Principle Established

Established by: FRENCH J

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