Leroy as trustee of the Bankrupt Estate of Mogilevsky v Mogilevsky (No.2)
[2016] FCCA 1967
•1 August 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| LEROY AS TRUSTEE OF THE BANKRUPT ESTATE OF MOGILEVSKY v MOGILEVSKY (No.2) | [2016] FCCA 1967 |
| Catchwords: BANKRUPTCY – Application for summary judgment – void transaction – transfer of bankrupt’s interest in real property within five year period before bankruptcy – transfer for love and affection – whether respondent was entitled to equity of exoneration – where no relationship of principal and surety – no equity of exoneration. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.120(1), 120(5) Federal Circuit Court of Australia Act 1999 (Cth), s.17A |
| Cases cited: Australian Securities and Investments Commission v Cassimatis (2013) 220 FCR 256 |
| Applicant: | PAUL LEROY, TRUSTEE OF THE BANKRUPT ESTATE OF ALLA MOGILEVSKY (VIC 124/15/3) |
| Respondent: | EDWARD LEON MOGILEVSKY |
| File Number: | BRG 566 of 2015 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 16 November 2015 |
| Date of Last Submission: | 16 November 2015 |
| Delivered at: | Brisbane |
| Delivered on: | 1 August 2016 |
REPRESENTATION
| Counsel for the Applicant: | Mr Morris QC with Mr Klevansky |
| Solicitors for the Applicant: | Mills Oakley Lawyers. |
| Counsel for the Respondent: | Mr Robertson QC with Mr Hogan, by video link to Melbourne |
| Solicitors for the Respondent: | AJH Lawyers |
THE COURT ORDERS THAT:
Pursuant to rule 13.07(2) of the Federal Circuit Court Rules 2001 there be judgment for the applicant on the applicant’s claim.
THE COURT DECLARES THAT:
The transfer by Alla Mogilevsky to the respondent Edward Leon Mogilevsky dated 3 November 2011 and registered on 23 November 2011 of Alla Mogilevsky’s interest as joint tenant in the land described as Lot 4 of plan of subdivision 400315U being the whole of the land comprised in certificate of title volume 10363 folio 917 pursuant to s.120 of the Bankruptcy Act 1966 is void against the applicant.
The applicant is entitled to be registered as proprietor of one half interest in the said land as tenant in common in equal shares with the respondent.
THE COURT FURTHER ORDERS THAT:
The land referred to in declaration (2) hereof vest in the applicant and respondent as tenants in common in equal shares.
The respondent pay the applicant’s costs of and incidental to this application to be taxed and paid in accordance with the Federal Circuit Court (Bankruptcy) Rules 2006.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 566 of 2015
| PAUL LEROY, TRUSTEE OF THE BANKRUPT ESTATE OF ALLA MOGILEVSKY (VIC 124/15/3) |
Applicant
And
| EDWARD LEON MOGILEVSKY |
Respondent
REASONS FOR JUDGMENT
This is an application for summary judgment in proceedings brought by Mr Paul Leroy as trustee of the bankrupt estate of Alla Mogilevsky. In the proceedings Mr Leroy seeks an order that a transfer by Alla Mogilevsky of her interest as joint tenant in certain land to the respondent Edward Leon Mogilevsky dated 3 November, 2011 and registered on 23 November, 2011 be declared void as against the applicant pursuant to s.120 of the Bankruptcy Act 1966 (Cth).
These reasons should be read in conjunction with reasons that I delivered on 12 July, 2016 in which I determined to restrain the applicant’s then solicitors, Worcester & Co. from further acting in these proceedings.
The facts
On 26 October, 2001 Mr and Mrs Mogilevsky jointly purchased certain real property in Brighton, Victoria for $1 million. The land was mortgaged from the date of settlement of the purchase. The mortgagee was ANZ Banking Group Limited.
On 27 July, 2006 a further joint loan for $1 million was raised by Mr and Mrs Mogilevsky from Westpac Bank Limited. The loan was secured over the Brighton property and used to payout the existing obligation of $919,000.00 to the ANZ Bank, although it seems that the ANZ mortgage was not released and removed from the title. Mr and Mrs Mogilevsky entered into a mortgage with Westpac Bank on 19 August, 2006 to secure the loan. The loan is referred to in the annexures to Mr Mogilevsky’s affidavit filed on 25 August, 2015 as a Facility Agreement. In annexure “K” to that affidavit, it is referred to as the “Edward and Alla Facility Agreement”.
Mr Mogilevsky swears that in September, 2006 his wife, the bankrupt, utilising a company with which Mr Mogilevsky had no association, purchased a development site in Manly, Queensland. To finance the purchase, the company borrowed funds on a commercial bill facility from Westpac Bank. To secure the company’s performance of its obligations to the Bank, amongst other things the Bank required Mr Mogilvesky to give a personal guarantee to the Bank and to “provide the [Brighton] Property as security for” his guarantee. He swears that he did that. There is corroborative evidence annexed to his affidavit that establishes the guarantee, but there is no evidence that a second or subsequent mortgage was registered over the Brighton property. Perhaps the first mortgage contained an “all moneys” clause. In any event, in his second affidavit filed on 6 November, 2015 Mr Mogilevsky swears that he had to provide “as security, among other things, the existing mortgage over the Brighton Property”. The amount financed was $1.6 million. Mr Mogilevsky’s guarantee, however, was limited to $700,000 “plus 20%”.
In September, 2007 Mrs Mogilevsky, again via a corporate entity associated only with her, entered into another purchase contract of a development site, this time at Zillmere, Queensland. Again, that occurred with no involvement of Mr Mogilevsky. The amount financed was $1.96 million.
By March, 2008 Mrs Mogilevsky had procured increases in the borrowings for the Manly development to $2.3 million.
However, by July, 2008 Mrs Mogilevsky’s company responsible for the Manly development was in default of its finance arrangements with Westpac Bank. By January, 2010 Mrs Mogilevsky’s company responsible for the Zillmere development was also in default of its finance arrangements with Westpac Bank.
In 2011, as part of an attempt by Mrs Mogilvesky to keep Westpac Bank from exercising its rights that had been enlivened by reason of the defaults, Mr Mogilevsky gave Westpac an unlimited guarantee and indemnity in respect of all Mrs Mogilevsky’s company’s obligations to Westpac Bank in respect of the Zillmere development.
On 15 July, 2011 Mr and Mrs Mogilevsky, Westpac Bank and three companies, two of which at least were associated with Mrs Mogilevsky entered into a deed of forbearance arising from the defaults referred to above.
The recitals in the deed of forbearance make it clear that all of the facilities that Mr and Mrs Mogilevsky had with Westpac Bank were in default. That included not only the corporate facilities, but also the joint facility that Mr and Mrs Mogilevsky established in July, 2006 (referred to as the Edward and Alla Facility Agreement) and a separate facility that Mr Mogilevsky operated with Westpac Bank referred to as the “Edward Facility Agreement”.
By the deed of forbearance, both Mr and Mrs Mogilevsky acknowledged and agreed that as at 4.00pm on 28 June, 2011 the total amount owing by them pursuant to the July, 2006 Edward and Alla Facility Agreement was $1,094,533.77 and that fees, charges and interest amounts due in accordance with that facility agreement would continue to accrue.
Further, by the deed, Mr Mogilevsky acknowledged and agreed that as at 4.00pm on 28 June, 2011 the total amount owing by him pursuant to the Edward Facility Agreement was $148,634.98 and that fees, charges and interest amounts due in accordance with the terms of his facility agreement with Westpac would continue to accrue.
The deed of forbearance provided that to further secure the amounts owing by Mrs Mogilevsky’s companies and to secure Westpac Bank’s forebearance from exercising the rights that had accrued to it by reason of the relevant defaults, further guarantees were to be given by, amongst others, Mr Mogilevsky. Mr Mogilevsky gave that further guarantee. The deed also required Mr Mogilevsky to take certain specified action in relation to some real property referred to in the deed as the “Hepburn Springs Property”. The required action would result in the subdivision and sale of that property and the return to the Bank of the proceeds of the resulting sales. There were other terms and conditions of the forebearance.
Mr Mogilevsky swears that after the deed of forbearance was executed on 15 July, 2011:
a)the mortgage over the Brighton property, under which he and Mrs Mogilevsky were joint mortgagors, was security for “the Manly Harbour Facility and the Iland Properties Facility”, in addition to the Westpac Loan. The Iland Properties Facility referred to the funding for the Zillmere development;
b)he was personally liable for $700,000 plus 20%, together with any further government duties and charges, costs, fees and expenses, of the then outstanding amount as guarantor in respect of the Manly Harbour Facility; and
c)he was personally liable for $2,973,707.11, together with any further government duties and charges, costs, fees and expenses under the Iland Properties Edward Guarantee.
However, despite Mr Mogilevsky’s assertions, there is no evidence that the mortgage over the Brighton property was security for “the Manly Harbour Facility and the Iland Properties Facility”. There is reference in the deed of forebearance to other securities held by Westpac Bank in the following way:
2. 7 Acknowledgement of security interest
Manly Harbour, Iland Properties, the Guarantors, Edward Mogilevsky (in his personal capacity and as executor of the estate of the late Mariya Mogilevsky) and Alla Mogilevsky acknowledge and agree that the Security granted to Westpac under the Facility Agreements or which is otherwise granted to or held by Westpac is and will continue to remain valid, binding and enforceable.
But there is no express suggestion in that document, or any other in the evidence, that the mortgage on the Brighton property was expressly to secure the other funds advanced to Mr or Mrs Mogilvesky or her corporate interests. As I said earlier, perhaps the mortgage contained an all moneys clause, but the terms of the mortgage are not in evidence so that is not clear.
Further, it is not correct, I think, to say that as at the date of the deed of forebearance Mr Mogilevsky was “personally liable for $2,973,707.11, together with any further government duties and charges, costs, fees and expenses under the Iland Properties Edward Guarantee”. He had either just given that guarantee or was yet to give it at that stage. There is no suggestion of default in his obligations under the deed of forbearance at that time that triggered Mr Mogilevsky’s liability under the new guarantees.
On 3 November, 2011, Mrs Mogilevsky transferred her interest in the Brighton property to Mr Mogilevsky. The consideration for the transfer was “love and affection”. The transfer was registered on 23 November, 2011.
Mrs Mogilvesky and her companies defaulted under the deed of forebearance. Westpac Bank exercised its rights under the various securities that it had and consequently, in September, 2012 it took steps to take possession of the Brighton property. It served relevant notices upon Mr Mogilevsky. The Bank also took action against Mr Mogilevsky’s property at Hepburn Springs, Victoria.
At the time Westpac Bank moved against Mr Mogilevsky’s real property in September, 2012 the parties’ joint loan with Westpac Bank was $1,173,647.70. He was also indebted to Westpac Bank for $700,000 plus 20% under the Manly Facility guarantee and a further $3,482,423.39.11 under the guarantee he had given for the purposes of the deed of forebearance. He was jointly liable with Mrs Mogilevsky “under another loan agreement” for $160,881.97. Finally, Mr Mogilevsky swears that at that time Mrs Mogilevsky was indebted to Westpac in the amount of about $5,303,474.22.
On 11 October, 2012 Mr and Mrs Mogilevsky entered into a further agreement with Westpac Bank. By cl. 2.1 of that agreement they acknowledged that as at 26 September, 2012 the payout figures under the various facilities that they, or entities associated with them, had with Westpac Bank were (using the description of the facilities set out in the deed):
a)$1,821,050.83 under the Manly Harbour Facility Agreement;
b)$3,482,423.39 under the lland Properties Facility Agreement;
c)$160,881.97 under the Edward Facility Agreement; and
d)$1,173647.70 under the Edward and Alla Facility Agreement.
By this further agreement Mr and Mrs Mogilevsky agreed to pay to Westpac $1,265,000 on or before 18 December, 2012. In return for payment Westpac agreed to, amongst other things, discharge the mortgage over the Brighton property.
Mr Mogilevsky swears that to meet the terms of the agreement with Westpac Bank he borrowed a further $1.4 million and paid in November, 2012 $1,184,699.89 to the parties’ joint Westpac loan account to discharge it. He has subsequently met the repayments to that financier.
On 15 January, 2015 Mrs Mogilevsky became bankrupt on her own petition.
Summary judgment
Section 17A of the Federal Circuit Court Act 1999 empowers the Court to give judgment in a proceeding where it is satisfied that a respondent has no reasonable prospect of successfully defending the proceeding. The section provides:
(1) The Federal Circuit Court of Australia may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is prosecuting the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.
(2) The Federal Circuit Court of Australia may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
(4) This section does not limit any powers that the Federal Circuit Court of Australia has apart from this section.
This section is cognate with s.31A of the Federal Court of Australia Act 1976 and, accordingly, this Court is guided by the approach taken by the Federal Court as I previously suggested in Ejueyitsi v Bond University [2012] FMCA 872 at [24] (see also George v Fletcher [2010] FCAFC 53 at [75] and [105]).
The High Court discussed s.31A in Spencer v Commonwealth (2010) 241 CLR 118 and made a number of observations (which I set out as follows in, no particular order). First, the joint majority (comprised of Hayne, Crennan, Kiefel and Bell JJ) noted (at 139) that s.31A departs radically from the basis upon which earlier forms of provision permitting the entry of summary judgment have been understood and administered. Those earlier provisions were understood as requiring formation of a certain and concluded determination that a proceeding would necessarily fail.
The previous approach referred to in that passage is best represented by cases such as General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 and Dey v Victorian Railways Commissions (1949) 78 CLR 62. In the General Steel Industries case, Barwick CJ said (at 83) that the test could be described as applying where a proceeding “is so clearly untenable that it cannot possibly succeed”. The joint majority’s assertion in Spencer that there has been a departure from the approach espoused by Barwick CJ is informed by s.31A(3) (s.17A(3) FCC Act), which provides that a proceeding need not be hopeless or bound to fail for it to have no reasonable prospects of success.
Relevantly, French CJ and Gummow J discussed Parliament’s intention behind the introduction of s.31A(3). The section was introduced by the Migration Litigation Reform Act 2005. That amending legislation also inserted s.17A into the Federal Magistrates Act 1999 (as it then was). At the time, the Attorney-General said in his Second Reading Speech that:
The bill … strengthens the power of the courts to deal with unmeritorious matters, by broadening the grounds on which federal courts can summarily dispose of unsustainable cases.
The inference their Honours were seeking to draw, perhaps, is that Parliament’s intention in introducing ss.31A and 17A was to lower the bar for obtaining summary dismissal. Such an inference had previously been drawn by the Federal Court in Dandaven v Harbeth Holdings Pty Ltd [2008] FCA 955 and White Industries Aust Pty Ltd v Federal Commissioner of Taxation (2007) 160 FCR 298.
However, the majority observed that where there are real issues of fact and/or law to be decided, and the rights of the parties depend upon it, it is appropriate that the matter go to trial. In Spencer, the party seeking to defend the summary dismissal of the proceedings had identified both a factual and a constitutional question to be tried. The joint majority concluded that, since the factual question depended upon what evidence would be subsequently adduced, and the constitutional question may be affected by the resolution of the factual question, the proceeding could not suitably be determined on a summary basis.
The phrase “no reasonable prospect” should not be paraphrased, defined, or further explained. The joint majority (at 141) was adverse to the possibility that the phrase would spawn a lexicon or list of words or phrases intended to capture most or all cases in which a court might be satisfied that there is no “reasonable prospect”. Rather, their Honours said that:
full weight must be given to the expression as a whole. The Federal Court may exercise power under s 31A if, and only if, satisfied that there is “no reasonable prospect” of success.
Spencer has been and continues to be applied by this Court in respect of s.17A (see, e.g., Jackson v P/T Constructions WA Pty Ltd [2015] FCCA 1014 at [14]; Henry v Leighton Admin Services Pty Ltd [2015] FCCA 1923 at [5]; Bloomfield v Grainger [2014] FCCA 2074 at [10]). The Federal Court has similarly continued to rely on Spencer (see Keenan v Bundaberg Port Authority [2016] FCA 134 at [45]; Australian Securities and Investments Commission v Cassimatis (2013) 220 FCR 256; [2013] FCA 641 at [15]-[30 ]; Krajniw v Newman (No 2) [2015] FCA 673 at [9]-[13]; Crocker v Toys R Us (Australia) Pty Ltd (No 3) [2015] FCA 728 at [8]-[11]).
Section 17A of the FCC Act, insofar as it concerns summary judgment is manifested by r. 13.07 of the Federal Circuit Court Rules 2001, the terms of which are as follows:
13.07 Disposal by summary judgment
(1) This rule applies if, in a proceeding:
(a) in relation to the whole or part of a party’s claim there is evidence of the facts on which the claim or part is based; and
(b) either:
(i) there is evidence given by a party or by some responsible person that the opposing party has no answer to the claim or part; or
(ii) the Court is satisfied that the opposing party has no reasonable prospect of successfully defending the claim or part.
(2) The Court may give judgment on that claim or part and make any orders or directions that the Court considers appropriate.
(3) If the Court gives judgment against a party who claims relief against the party obtaining the judgment, the Court may stay execution on, or other enforcement of, the judgment until determination of that claim.
Consideration
Mr Leroy relies upon s.120(1) of the Bankruptcy Act 1966 (Cth). That section is in the following terms:
120 Undervalued transactions
Transfers that are void against trustee
(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a) the transfer 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 transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
There are exemptions to the operation of s.120(1) of the Bankruptcy Act, but it was not suggested that any apply in this case.
A transferee’s love and affection for the transferor of property is not consideration for the purposes of s.120(1) of the Bankruptcy Act: s.120(5)(d) of that Act.
There is uncontroversial evidence that Mrs Mogilevsky transferred her interest in the Brighton property to Mr Mogilevsky in the period beginning five years before the commencement of her bankruptcy and ending on the date of her bankruptcy. The consideration for the transfer is not, for the purposes of the Bankruptcy Act, consideration at all.
Mr Mogilevsky argues that when Mrs Mogilevsky’s interest in the land was transferred to him, there was good consideration for the transfer. The consideration arises from the operation of s.46(2) of the Transfer of Land Act 1958 (Vic). That section provides:
(2) In every such transfer of land which is subject to a mortgage or annuity there shall be implied a covenant with the transferor by the transferee binding the latter to pay the interest secured by the mortgage at the rate and times and in the manner specified in the mortgage, or to pay the annuity at the times and in the manner specified in the instrument of charge, and in the case of land subject to a mortgage to indemnify the transferor against all liability in respect of the principal sum secured by the mortgage and any of the covenants therein contained or by this Act declared to be implied therein on the part of the transferor.
By the operation of that section, Mr Mogilevsky argues, the gift to him of Mrs Mogilevsky’s interest in the Brighton property was converted into a transfer for consideration – the consideration being the implied promise to meet Mrs Mogilevsky’s obligations under the mortgage.
Whether a transfer operates as a gift or as a transaction for consideration is a question of fact. The operation of s.46(2) of the Transfer of Land Act does not, without more, convert a transaction by way of gift into a transfer for consideration. Gutwenger v Commissioner of Taxation (1995) 55 FCR 95 at [54].
Mr Mogilevsky has filed affidavits in response to this application. They are extensive. Nowhere does he suggest that the transfer of Mrs Mogilevsky’s interest to him was for any particular reason. There is no explanation about why the consideration stated in the transfer referred only to love and affection. Indeed, there is no evidence at all about the circumstances of the transfer. There is no evidence from Mrs Mogilevsky. Having regard to the authority to which I have just referred, if it was the case that the transaction truly was for consideration in the form of the implied covenant provided for in s.46(2) of the Transfer of Land Act, it was incumbent upon Mr Mogilevsky to give some evidence of that. There is none.
In my view, FCCR 13.07(1)(a) is satisfied. There is evidence of the facts upon which Mr Leroy’s claim is based.
FCCR 13.07(b)(i) is not satisfied because there is no evidence given by Mr Leroy or other some responsible person that Mr Mogilevsky has no answer to the claim. There is no deposition to that effect.
The remaining question to be answered in terms of FCCR 13.07(1) then, is whether the Court is satisfied that Mr Mogilevsky has no reasonable prospect of successfully defending the claim: FCCR 13.07(1)(b)(ii).
Mr Mogilevsky raises two arguments to suggest that he has reasonable prospects of successfully defending Mr Leroy’s claim. I have dealt with the first concerning the operation of s.46(2) of the Transfer of Land Act above.
The second matter relied upon by Mr Mogilevsky is that, at the time of the transfer from Mrs Mogilevsky, he was entitled to an equity of exoneration in respect of the obligation he had taken on by giving the guarantees referred to above. Further, he was entitled to exercise that right of exoneration by applying Mrs Mogilevsky’s share in the Brighton property for that purpose. He argues that because of the value of his right of exoneration (calculated by reference to his potential liability under the guarantees) the value of Mrs Mogilevsky’s half share in the Brighton property was effectively zero because the value of her half share of the Brighton property did not exceed his liability under the guarantees. Thus, even if he gave no consideration for the transfer, the market value of what was transferred to him was also zero because of his equity of exoneration.
A surety, or a person in the position of a surety, has a right of exoneration, whereby he or she is entitled to be indemnified by the principal debtor against any liability incurred as a consequence of being called on to pay the debt. It is an incident of the relationship between surety and principal debtor: Parsons v McBain (2001) 109 FCR 120 at [20] (Black CJ, Kiefel and Finkelstein JJ).
Where co-owners mortgage their property so that money can be borrowed for the benefit of one mortgagor, the other co-owner will be treated as if he or she was a surety and the equity of exoneration will also arise. In those circumstances that other has an interest in the property of the co-mortgagor whose property is to be regarded as primarily liable to pay the debt: Parsons at [21], Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1 at 10.
However, the right to exoneration is lost where the surety receives a benefit from the loan or the funds raised in respect of which the charge has been given. “So, if the borrowed funds are applied to discharge the surety’s debts, the surety could not claim exoneration, at least in respect of the benefit received.”: Parsons at [23].
Here, the giving of a mortgage over the Brighton property might have created a relationship whereby Mr Mogilevsky would be treated as a surety and Mrs Mogilevsky would be treated as principal debtor if:
a)the mortgage was for the purpose of raising money to benefit the co-owner, in this case Mrs Mogilevsky;
b)the money borrowed was used for that purpose; and
c)Mr Mogilevsky derived no benefit from the money so raised.
But none of those matters are demonstrated by the evidence. The Westpac Bank mortgage over the Brighton property was created to raise funds to discharge the obligations of both Mr and Mrs Mogilevsky to the previous financier. According to Mr Mogilevsky it was a joint liability that came about when the parties purchased the property in 2001.
The money raised on the Westpac Bank mortgage was used for joint purposes – namely to discharge Mr and Mrs Mogilevsky’s prior indebtedness. That some of the funds ($79,000) were used by Mrs Mogilevsky for her own purposes does not impress those funds with an equity of exoneration.
Moreover, Mr Mogilevsky obtained a direct benefit from the loan for which the mortgage was given. His liability to the parties’ previous financier was discharged.
In those circumstances, the relationship between Mr Mogilevsky and Mrs Mogilevsky is not one that could be treated as if it were a surety and principal debtor relationship. No equity of exoneration arises in that respect.
Moreover, there is no evidence that Mr Mogilevsky entered into any other relationship of suretyship with Mrs Mogilevsky. In respect of the Manly development, on Mr Mogilevsky’s evidence it was Manly Harbour Developments Pty Ltd that borrowed the relevant funds from Westpac Bank. The offer of finance by Westpac Bank was to that company. The offer document (page 102 of exhibit “GG” of the affidavit of Mr Mogilevsky filed on 6 November, 2015) records that the facility “will be secured by”, amongst other things, “$500,000 Limited Guarantee from” Mr Mogilevsky. It also recorded that the facility was “Supported by” “Mortgage from Edward Leon Mogilevsky and Alla Mogilevsky over” the Brighton property.
Nowhere is it suggested in the offer of finance that Mr Mogilevsky should or would guarantee any indebtedness of Mrs Mogilevsky. Her role, according to the offer of finance was also as a guarantor of the company’s obligations.
The terms of the guarantee given by Mr Mogilevsky in favour of Manly Harbour Developments Pty Ltd are not in evidence.
Similarly, in respect of the guarantee given by Mr Mogilevsky pursuant to the deed of forbearance. That guarantee was not given in respect of any liability of Mrs Mogilevsky but rather, it was given in respect of Iland Properties Pty Ltd and its liability in respect of the Zillmere development. The terms of the guarantee given by Mr Mogilevsky are not in evidence.
Assuming that the guarantees referred to in the Manly Harbour Facility and the deed of forebearance were given by Mr Mogilevsky (they are not in evidence), they created a surety and principal debtor relationship between Mr Mogilevsky and Manly Harbour Developments Pty Ltd and Mr Mogilevsky and Iland Properties Pty Ltd. For that reason Mr Mogilevsky’s argument cannot succeed. He and Mrs Mogilevsky do not enjoy a relationship of surety and principal debtor. At best, they are co-sureties. There is no equity of exoneration between co-sureties.
Further, even accepting Mr Mogilevsky’s submission that the Brighton property was mortgaged to secure:
a)$700,000 plus 20% plus duties, charges, costs, fees and expenses in relation to the Manly Harbour facility; and
b)$2,973,707.11 for Iland Properties Pty Ltd
the principal debtor in each case was not Mrs Mogilevsky. The references in the Manly Harbour facility and the deed of forebearance to the mortgage over the Brighton property do not assist Mr Mogilevsky because the identity of the principal debtors remains Manly Developments Pty Ltd and Iland Properties Pty Ltd.
Conclusion
Mr Leroy has established by evidence that there was a transfer of property by Mrs Mogilevsky, who later became a bankrupt, to Mr Mogilevsky. He has established that the transfer took place in the period beginning five years before the commencement of Mrs Mogilevsky’s bankruptcy and ending on the date of her bankruptcy. He has established that Mr Mogilevsky gave no consideration for the transfer. He claims in these proceedings that the transfer is void against him pursuant to s.120 of the Bankruptcy Act. Prima facie his claim is made out.
In my view, Mr Leroy has also established that Mr Mogilevsky has no reasonable prospect of successfully defending the claim in these proceedings. For the reasons given above, Mr Mogilevsky did not have an equity of exoneration that was satisfied by the transfer to him of Mrs Mogilevsky’s interest in the Brighton property.
There will be judgment for the applicant against the respondent pursuant to FCCR 13.07(2) with costs.
I certify that the preceding sixty-five (65) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered on 1 August, 2016.
Date: 1 August, 2016
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