Lane v Oakley

Case [2019] FCA 107

FEDERAL COURT OF AUSTRALIA

Lane v Oakley [2019] FCA 107

File number: QUD 325 of 2017
Judge: RANGIAH J
Date of judgment: 14 February 2019
Catchwords: BANKRUPTCY AND INSOLVENCY – ss 120 and 121 of the Bankruptcy Act 1966 (Cth) – whether registered and equitable mortgages are undervalued transactions – whether transactions made for the purpose of defeating creditors – whether consideration given for mortgages
Legislation:

Bankruptcy Act 1966 (Cth) ss 3, 5, 5(2), 6, 58, 116, 120, 120(1), 120(3), 121, 121(1), 121(2), 121(4)(b) and 121(4)(c)

Corporations Act 2001 (Cth)
Cases cited:

Commercial Union Assurance Co of Australasia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389

Frost v Sheahan [2012] FCAFC 46

Gomez v Carrafa (Trustee) [2018] FCA 201

Jones v Dunkel (1959) 101 CLR 298

Lo Pilato (Trustee) v Kamy Saeedi Lawyers Pty Ltd (2017) 249 FCR 69

Marchesi v Apostolou [2007] FCA 986

Official Trustee in Bankruptcy v Lopatinsky (2003) 129 FCR 234

Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217

Official Trustee v Pastro [1999] FCA 1631

Pastro v Official Trustee in Bankruptcy [2000] FCA 744

Re Jury; Ashton v Prentice (1999) 92 FCR 68

Sandell v Porter (1966) 115 CLR 666
Date of hearing: 18 and 19 June 2018
Registry: Queensland
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Category: Catchwords
Number of paragraphs: 154
Counsel for the Applicant: Mr SM Gerber
Solicitor for the Applicant: Griffiths Parry
Counsel for the Respondent: The Respondent appeared in person

QUD 325 of 2017

IN THE MATTER OF THE BANKRUPT ESTATE OF ANN VIVIEN OAKLEY

BETWEEN:

MORGAN GERARD JAMES LANE AND PAUL ERIC NOGUEIRA AS TRUSTEES IN BANKRUPTCY OF THE BANKRUPT ESTATE OF ANN VIVIEN OAKLEY

Applicant
AND:

TANIA MICHELE OAKLEY AS TRUSTEE FOR THE OAKLEY TRUST

Respondent

REASONS FOR JUDGMENT

RANGIAH J:

  1. The applicants are the trustees in bankruptcy of the estate of Ann Vivien Oakley.  The property formerly owned by the bankrupt and now vested in the applicants includes a residential property at 8 Capri Court, Noosa Heads, Queensland (the Property).  The Property is subject to a registered mortgage and an equitable mortgage in favour of the respondent.  The respondent is the bankrupt’s daughter.

  2. The applicants allege that the mortgages are undervalued transactions under s 120 of the Bankruptcy Act 1966 (Cth) (the Act) and transactions made for the purpose of defeating creditors under s 121 of the Act. They seek, inter alia, declarations that the mortgages do not secure any debt and are void transfers of property.

  3. The respondent denies the applicants’ allegations and contends that the mortgages secure debts genuinely owed to the respondent and that full consideration was provided for the mortgages.

  4. The proceeding requires examination of payments of money and other transactions made over a period of some eight years. It is necessary to describe the chronology and circumstances of the transactions and the entities involved in them in some detail. 

    The persons and entities involved in the transactions

  5. There…

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AGLC
Lane v Oakley [2019] FCA 107
Case
[2019] FCA 107
Decision Date

CaseChat Overview and Summary

In the case of Lane v Oakley, the applicants sought orders to have certain transactions set aside as undervalued transactions and preferences under the Bankruptcy Act 1966 (Cth). The respondents, including Tania, Ann, and others, defended the transactions, claiming they were valid mortgages secured by loans made to Ann. The central dispute centred around whether these transactions were made for the purpose of defeating creditors and whether the mortgages were backed by proper consideration.

The key legal issues before the court were whether the registered and equitable mortgages were indeed undervalued transactions and preferences under sections 120 and 121 of the Bankruptcy Act. Additionally, the court needed to determine if there was valid consideration for the mortgages and whether the transactions were made with the intention of defrauding creditors. The court also considered the credibility of the evidence provided by the respondents, particularly Tania, in light of her criminal convictions.

The court found that the mortgages in question did not secure any actual advances of money. The Registered Mortgage referred to a non-existent Loan Agreement and an advance that was never made. As a result, there was no consideration given by Tania for the mortgages, rendering them ineffective. Furthermore, the court concluded that the transactions were made for the purpose of defeating creditors, as they were designed to give Tania priority over other creditors without proper consideration. The court also noted that Tania's credibility was significantly impaired due to her criminal convictions, which involved dishonesty and deceit in a financial context.

Consequently, the court ordered that the registered and equitable mortgages be set aside as preferences under section 121 of the Bankruptcy Act, and that the transfers of property be voided as undervalued transactions under section 120. The court's decision aimed to restore the fairness and integrity of the bankruptcy proceedings by ensuring that creditors were not unfairly disadvantaged by the respondents' actions.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

The substance of Tania’s defence is that The Oakley Trust lent amounts totalling $452,418 to Ann. Tania alleges that those amounts were paid to the RL & AV Oakley partnership, Leeann Pty Ltd, Meagan and Ms Pradella at Ann’s request. Tania’s case is that those debts are secured under the registered mortgage and the equitable mortgage granted by Ann over the Property.The evidence The applicants rely upon an affidavit of the second-named applicant, Paul Eric Nogueira, which annexes a number of relevant documents. Tania did not object to its admission and, in fact, also relies upon the affidavit. Mr Nogueira was required for cross-examination. In her defence, Tania admitted a number of facts alleged in the statement of claim. She filed her own affidavit. She was cross-examined. Her credit is very much in issue. After Tania had given evidence, the applicants objected to the admissibility of some parts of her affidavit. After I suggested that the objections had been taken too late, they were withdrawn. Tania relied upon the affidavit of Anthony Paul George. He has passed away since giving the affidavit. His affidavit was admitted into evidence without objection. Ronald gave evidence and was cross-examined. Neither Ann, nor Meagan, gave evidence.Tania’s convictions On 3 September 2012, Tania was convicted in the District Court of Queensland of three offences against the Corporations Act 2001 (Cth), having previously entered pleas of guilty. The offences involved:(1)carrying on a financial services business without holding an Australian financial services licence; (2)directly or indirectly gaining an advantage for herself;(3)engaging in dishonest conduct in relation to a financial product or financial service while carrying on a financial services business. The offences took place between 2007 and 2009. The first offence involved Tania carrying on a financial services business without a licence through Tanoak. The second offence was that Tania gained a financial advantage for herself by using approximately $766,900 from funds that investors had provided to Tanoak to purchase a house (it appears that those funds were at least substantially repaid). The third offence involved issuing false statements to about ten investors to cover-up losses that she had made from investing their funds. Tania was sentenced to three concurrent terms of imprisonment, the longest of which was for two years. The offences are relevant both to the credibility of Tania’s evidence and to why, on the applicants’ case, Ms Pradella made the loans to Ann.The Pradella loans Ms Pradella lent $300,000 to Ann on 6 February 2010, a further $230,000 on 8 March 2010 and $50,000 on 11 June 2013, totalling $580,000. Some interest was repaid, but Ann did not repay any of the principal loan. Ms Pradella commenced proceedings against Ann in the District Court of Queensland and then applied for summary judgment. The summary judgment application was part heard on 23 September 2016, but was adjourned to allow Ann time to file further material.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

The transfers of property plainly occurred within five years of the date of bankruptcy.Whether Tania gave any consideration for the Registered Mortgage and the Mortgage Agreement It is necessary to begin by considering whether the advances or loans that the Registered Mortgage and the Mortgage Agreement purport to secure were in fact made. If not, then there was no consideration given by Tania. The Registered Mortgage is expressed to secure an advance of $151,000 to Ann by Tania as trustee of The Oakley Family Trust pursuant to the terms of a Loan Agreement. The applicants submit that there was no Loan Agreement and no advance of $151,000 to Ann. Under cl 2.1 of the Registered Mortgage, Ann acknowledges that Tania, as trustee of The Oakley Trust, “has advanced the sum of $151,000 to [Ann] pursuant to the terms of the Loan Agreement”. The “Loan Agreement” is defined in cl 1.1 to mean “the agreement…dated on or about the date of this Mortgage”. The date of the Registered Mortgage was 29 September 2016. Under cl 2.3 of the Registered Mortgage, the mortgage secures “the due and punctual payment of the secured money”. The term “secured money” is defined as “money secured by or payable under the Loan Agreement by the Mortgagor to or at the direction of the Mortgagee”. These clauses contemplate that, firstly, there is in existence a written Loan Agreement bearing a date of about 29 September 2016 and, secondly, that Tania has advanced $151,000 to Ann pursuant to the terms of that Loan Agreement. In fact, there is no written Loan Agreement dated about 29 September 2016. Tania relies on cl 1.2 of the Registered Mortgage, which provides that “The Loan Agreement will be deemed to be incorporated into and form part of this Mortgage as if it were set out in the Mortgage in full”. She argues that the effect of this clause is that the Loan Agreement and the Registered Mortgage are one and the same, and that made it unnecessary for there to be a separate Loan Agreement. However, cll 1.1, 2.2 and 2.3 demonstrate that the parties intended that there would be a separate written Loan Agreement (that is because such agreement was to be “dated” about 29 September 2016). Clause 1.2 would have incorporated the terms of the Loan Agreement into the Mortgage if the Loan Agreement had been made. But, as no Loan Agreement was made, there was nothing to incorporate. Clause 1.2 does not have the effect that Tania contends for. The Registered Mortgage refers to a Loan Agreement that does not exist and to an advance to Ann pursuant to the terms of the Loan Agreement that was not made. As there is no Loan Agreement, Tania could not have advanced any sum to Ann “pursuant to the terms of the Loan Agreement”. Further, Tania did not in fact advance $151,000 to Ann on or about 29 September 2016. As there is no Loan Agreement, there is no “secured money”. Tania asserts the figure of $151,000 came from the equity that would remain in the Property following a complicated series of transactions involving the sale of the Property, a payment from the sale proceeds to the purchaser and discharge of the reverse mortgage to Commonwealth Bank. The mortgage was apparently executed and registered in anticipation that the contract for the sale of the Property would be completed. However, the contract was not completed. No amount of $151,000 was paid to Ann, nor has the Commonwealth Bank’s reverse mortgage been paid out. The uncompleted transaction for the sale of the Property does not provide any consideration for entry into the Registered Mortgage.