Marchesi v Apostoulou

Case [2006] FCA 1122

FEDERAL COURT OF AUSTRALIA

Marchesi v Apostoulou [2006] FCA 1122

BANKRUPTCY – whether bankrupt beneficial owner of properties

EQUITY – whether gift of properties to family trust perfected – whether bankrupt did all that was necessary to be done in order to transfer properties and render settlement binding upon him – significance of absence of evidence that consent of mortgagees had been obtained

Held – (i) the gift of properties to the family trust was not perfected (ii) the bankrupt therefore retains beneficial and legal title to the properties, which passes to his trustee in bankruptcy by virtue of his bankruptcy

Bankruptcy Act 1966 (Cth) s 58

Milroy v Lord (1862) 4 De GF & J 264 discussed
Anning v Anning (1907) 4 CLR 1049 discussed
Brunker v Perpetual Trustee Co(Ltd) (1937) 57 CLR 555 discussed
Olsson v Dyson (1969) 120 CLR 365 referred to
Corin v Patton (1990) 169 CLR 540 applied
Costin v Costin (1997) 7 BPR 15,167 discussed

BRENDAN JOHN MARCHESI (as trustee of the bankrupt estate of ANDREW VASILIOU) v VASILIKI APOSTOULOU (as trustee of the VASILIOU FAMILY TRUST) AND ANDREW VASILIOU, a bankrupt
VID 235 OF 2005

WEINBERG J
23 AUGUST 2006
MELBOURNE


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 235 OF 2005

IN THE MATTER OF THE BANKRUPT ESTATE OF ANDREW VASILIOU

BETWEEN:

BRENDAN JOHN MARCHESI (as Trustee of the bankrupt estate of ANDREW VASILIOU)
Applicant

AND:

VASILIKI APOSTOULOU (as Trustee of the VASILIOU FAMILY TRUST)
First Respondent

ANDREW VASILIOU, a bankrupt
Second Respondent

JUDGE:

WEINBERG J

DATE OF ORDER:

23 AUGUST 2006

WHERE MADE:

MELBOURNE

THE COURT DECLARES THAT:

1.The beneficial title to each of the following properties has vested in the applicant pursuant to s 58 of the Bankruptcy Act 1966 (Cth):

(a)the property at 5/3 Alfriston Street, Elwood, Victoria, being the property more particularly described in Certificates of Title Volume 9012, Folios 077, 083 and 092;

(b)the property at 18 St Kilda Road, St Kilda, Victoria, being  the property more particularly described in Certificate of Title Volume 4509, Folio 646 and Certificate of Title Volume 10088, Folio 011; and

(c)the property at 10 Claremont Street, South Yarra, Victoria, being  the property more particularly described in Certificate of Title Volume 1173, Folio 541.

THE COURT ORDERS THAT:

2.The second respondent forthwith execute and deliver to the applicant all documents necessary to transfer to the applicant the title to the properties referred to in these orders.

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


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 235 OF 2005

IN THE MATTER OF THE BANKRUPT ESTATE OF ANDREW VASILIOU

BETWEEN:

BRENDAN JOHN MARCHESI (as Trustee of the bankrupt estate of ANDREW VASILIOU)
Applicant

AND:

VASILIKI APOSTOULOU (as Trustee of the VASILIOU FAMILY TRUST)
First Respondent

ANDREW VASILIOU, a bankrupt
Second Respondent

JUDGE:

WEINBERG J

DATE:

23 AUGUST 2006

PLACE:

MELBOURNE

REASONS FOR JUDGMENT

  1. This is an application brought by Brendan Marchesi…

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AGLC
Marchesi v Apostoulou [2006] FCA 1122
Case
[2006] FCA 1122
Decision Date

CaseChat Overview and Summary

In the case of Marchesi v Apostoulou, the central issue was whether the bankrupt had successfully transferred ownership of certain properties to a family trust in 1987. The dispute arose following the bankrupt's estate being sequestrated in 2004, and the subsequent inquiry by the trustee in bankruptcy as to the legitimacy of the transfer of the properties to the family trust prior to the sequestration. The question of whether the transfer was effectively executed in accordance with equity principles, particularly whether the gift was perfected, was brought before the court for determination. The court was tasked with examining whether the bankrupt had taken all necessary steps to ensure that the properties were transferred to the trust and whether the transfer was completed in a manner that could not be undone by the bankrupt.

The legal issue at the heart of this case was whether the gift of the properties to the family trust was perfected in equity, as required by the principles established by the High Court in Corin v Patton. The court had to consider whether the bankrupt had done all that was necessary to place the vesting of the legal title within the control of the trust, particularly by obtaining the consent of the mortgagees of the properties. Additionally, the court examined whether there was evidence that the bankrupt had represented to third parties that he owned the properties, which could suggest that the gift was not truly intended. The court also considered the significance of the failure to register the transfers and the implications of this for the validity of the gift.

The court found that the gift to the family trust was not perfected in equity. The critical factor was the lack of evidence that the mortgagees had consented to the transfers, which was a necessary step to register the transfers and thus perfect the gift. Without such consent, the bankrupt could still have intervened to recall the gift. Furthermore, the court noted that the bankrupt had made representations to third parties that he owned the properties, which undermined the assertion that the properties had been genuinely gifted to the trust. These representations, made in various contexts including loan applications and dealings with government bodies, suggested that the bankrupt had not intended to transfer the properties to the trust. The court concluded that the bankrupt had not done all that was necessary to perfect the gift to the family trust.

The court ordered that the bankrupt's second respondent must execute and deliver all necessary documents to transfer the title of the properties to the applicant, the trustee in bankruptcy. This order ensures that the properties are transferred to the trustee, reflecting the court's finding that the gift to the family trust was not perfected and thus the properties remained the bankrupt's assets at the time of sequestration.

Orders

Orders of the court

2. The second respondent forthwith execute and deliver to the applicant all documents necessary to transfer to the applicant the title to the properties referred to in these orders.

Background

Background to the litigation

It is clear that the bankrupt took steps to establish a family trust in 1987, and to gift the properties to that trust. It is undisputed that the transfers were not registered, and that stamp duty was not paid on the transactions, at least in 1987. The critical question in this proceeding is whether the bankrupt did enough to perfect the gift of the properties in equity. FACTUAL BACKGROUND The circumstances surrounding the putative gift to the family trust are as follows. In August 1987, the bankrupt decided to create a family trust. He arranged for a firm of solicitors, Coady Dwyer & Associates, to provide a shelf company that would be the trustee of the family trust, and to prepare a deed of trust. The name of the shelf company was Optquest Pty Ltd. The bankrupt and his wife were the directors and shareholders of that company. The deed of trust was dated 12 August 1987. The beneficiaries under the deed of trust included the bankrupt’s two daughters. The bankrupt also arranged for the solicitors to prepare a deed of gift regarding the three properties. That deed of gift was executed by the bankrupt on 8 October 1987. Three separate transfers of land were executed, with Optquest Pty Ltd named as the transferee in each of them. The transfers of land are undated. That is not of itself unusual. Mr Phillip Dwyer, the solicitor engaged to establish the family trust, gave evidence that it was normal practice for transfers not to have been dated until they came to be lodged for stamp duty. For reasons that are not altogether clear, ultimately the transfers of land were not stamped and, of course, have never been registered. Each of the properties was subject to a mortgage in 1987. According to the bankrupt, money was provided to Mr Dwyer to meet the stamp duty on the transfers. However, the bankrupt claims that the funds provided for that purpose were used by his solicitor to meet the firm’s general disbursements. In 1995, Optquest Pty Ltd was deregistered. The bankrupt exercised a power of appointment under the trust deed and appointed himself trustee of the family trust. In 2003, he exercised that power of appointment again, and appointed his wife as trustee of the family trust. The bankrupt’s estate was sequestrated in September 2004. Essentially, there were only two significant creditors. One was Glenvill Homes, which had done some work on the bankrupt’s behalf, in furtherance of a development project that he had in mind in relation to one of the properties that are the subject of this proceeding. Glenvill Homes had not been paid. The other was Tassiopoulous Lambros, a firm of solicitors, that had acted on behalf of the bankrupt in a dispute before the Victorian Civil and Administrative Tribunal (“VCAT”) regarding the Glenvill Homes matter. Neither debt was very great. The bankrupt could easily have obtained the money necessary to discharge it. However, he maintained that nothing was owing to either creditor, and he refused to pay. Eventually Tassiopoulous Lambros obtained a default judgment against the bankrupt in relation to the unpaid fees. This led to a bankruptcy notice, and ultimately to the sequestration of the bankrupt’s estate. The applicant was appointed his trustee in bankruptcy.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

WEINBERG J
The bankrupt’s evidence was that he had said nothing by way of complaint to the Law Institute, or any other body, despite this alleged misuse of money that ought to have been kept in trust.CONCLUSIONS The main issue to be resolved in this proceeding is whether the “gift” to the family trust in 1987 was “perfected” in accordance with the principles established by the High Court in Corin v Patton. In other words, did the bankrupt do all that was necessary to arm the donee with the capacity to register the titles in the name of Optquest Pty Ltd, the trustee of the family trust? That question can best be answered by considering the position of the mortgagees of the various properties at the time of the supposed gift. There is no evidence whatever that consents to the transfers were obtained from any of the mortgagees. The transfers executed in 1987 bore no endorsement by the mortgagees. The evidence goes no further than to establish that correspondence passed between Mr Dwyer and one mortgagee, the Bendigo Building Society, regarding what one might infer concerned the obtaining of such consent. That falls well short of establishing that any such consent was actually obtained. Without the consent of the mortgagees of each of the properties having first been obtained, the transfers could not have been registered. Accordingly, the bankrupt would not have done all that was necessary to place the vesting of the legal title within the control of Optquest Pty Ltd, and so beyond his recall or intervention. In other words, there was nothing to prevent the bankrupt from changing his mind, and electing not to proceed with the gift. In addition to the absence of evidence concerning the mortgagees’ consents, I note that when the bankrupt was cross-examined he was shown a number of documents, all of them created after 1987, in which he represented to third parties that he personally was the owner of each of the properties. A number of these documents were loan applications to various banks and other financial institutions. There were also statements made by the bankrupt to various local government bodies, and to VCAT, to the same effect. The bankrupt agreed that he had made these representations, but claimed that he had done so only because lenders would not have been prepared to provide funds had they known that the properties belonged to a family trust. He described one of the loan applications as a “silly document”, which he claimed was never intended to be taken seriously. That does not explain why the same representations were made to local government bodies, and to VCAT as well. It appears that the first time anyone who has dealt with the bankrupt in relation to his various business ventures was ever told that these properties were not his own, but belonged to the family trust, was after the sequestration order was made. Neither his former solicitors (Tassiopoulous Lambros), nor Glenvill Homes, were ever told that the properties with which they were directly concerned were not the bankrupt’s own properties. Indeed, as indicated, VCAT proceeded upon the same assumption. The bankrupt’s explanation for that state of affairs was simple. These people did not need to know who actually owned the properties, and what they did not need to know, he did not tell them.

Ratio Decidendi

Legal Principle Established

Established by: WEINBERG J

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