Matthews v Nilant; Nilant v Matthews

[2002] FMCA 201

FEDERAL MAGISTRATES COURT OF AUSTRALIA

MATTHEWS v NILANT & ORS
NILANT & ORS v MATTHEWS [2002] FMCA 201

BANKRUPTCY – Whether transfer of bankrupt’s half interest in property contravenes s.120 and/or 121 of the Bankruptcy Act 1966 – solvency – intent – conduct and knowledge of bankrupt relevant – failure to prove solvency – no basis upon which s.139(7)ZQ notice should be set aside – declaration granted.

PRACTICE AND PROCEDURE – Bankruptcy – appropriate form of orders where trustee claim under ss.121 and 122 of Bankruptcy Act successful – advocacy certificate pursuant to Federal Magistrates Court Rules O 21 R 15 – costs up to and including decision on form of orders – notification pursuant to s.120(6) of Bankruptcy Act to Bank not necessary.

Bankruptcy Act 1966, ss.120, 120(3), 120(5)(d), 120(6), 121
Home Building Contracts Act 1991, s.4

Sandell v Porter (1966) 115 CLR 666
Taylor v Carroll (1991) 6 ACSR 255
Taylor v ANZ Banking Group (1988) 13 ACLR 780
Calzaturificio Zenith Pty Ltd (in liq) v NSW Leather & Trading Co Ltd (1970) VR 605
Totterdell v Nicol-Burmeister (1995) 13 ACLC 1521
Cannane v J Cannane Pty Ltd (in liq) (1998) 28 ACSR 603
Ex parte Russell (1882) 19 Ch. D 588
Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515
Re Brechin, ex parte Putin and Stokes (A’asia) Pty Ltd (1986) 12 FCR 184
Halse as trustee of the property of Payne a bankrupt v Norton (1997) 76 FCR 389
McVeigh v Zanella (2000) FCA 1890
Milpurrurru & ors v Indofurn Pty Ltd & ors (1994) 130 ALR 659

File No: WZ19 of 2001

Applicant: NOLA JANET MATTHEWS

Respondents: CHARLES PHILLIPE LOUIS NILANT, OREN ZOHAR AND PETER FREDERICK PREBBLE

File No: WZ36 of 2001

Applicants: CHARLES PHILLIPE LOUIS NILANT, OREN ZOHAR AND PETER FREDERICK PREBBLE

Respondent: NOLA JANET MATTHEWS

Delivered on:

10 September 2002

15 November 2002 (Perth)

Delivered at: Melbourne (by video link)

Hearing Date:

14, 15 and 16 November 2001

15 November 2002

Judgment of: McInnis FM

REPRESENTATION

File No WZ19/01

Counsel for the Applicant: Mr L Christensen

Solicitors for the Applicant: Tottle Christensen

Counsel for the Respondents: Mr I Morison

Solicitors for the Respondents: Jackson McDonald

File No WZ36/01

Counsel for the Applicant: Mr I Morison

Solicitors for the Applicant: Jackson McDonald

Counsel for the Respondent: Mr L Christensen

Solicitors for the Respondent: Tottle Christensen

ORDERS

In application WZ19 of 2001 -

1. The application filed 19 April 2001 be dismissed.

In application WZ36 of 2001 -

IT IS DECLARED that —

1. The transfer dated 7 August 1996 whereby Lynthorne James Matthews transferred to the respondent the whole of his estate, title and interest in the property situated 49A Reserve Street, Bicton, in the state of Western Australia being the whole of the land comprised in certificate of title volume 1792 folio 626 (the property) is void as against the applicants.

1. The respondent holds one undivided half share of the property on trust free of all encumbrances save for the mortgage G247957 granted by the respondent to the Commonwealth Bank of Australia which should be deemed to secure the sum of $56,809.26 against the applicants' one undivided half share.

IT IS ORDERED:

1. That the applicants be at liberty to sell the property and receive the net proceeds of sale upon trust for the parties with liberty to apply as to the proper allocation of those funds.

1. The respondent shall execute all such documents and do all such things that are necessary to enable the applicants to effect sale of the property.

1. The respondent indemnify the applicants from and against any liability under mortgage G247957 in excess of the sum of $56,809.26.

1. I grant a certificate of advocacy to counsel for the applicants pursuant to order 21 rule 15 of the Federal Magistrates Court Rules.

1. The respondent shall pay all of the applicants' costs including any reserved costs of actions WZ19 of 2001 and WZ36 of 2001 as costs in the same action to be taxed pursuant to Order 62 of the Federal Court Rules upon the Federal Court Scale.

1. The parties have liberty to apply for any further directions or orders as may be required to give effect to these declarations and orders.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

WZ19 of 2002

NOLA JANET MATTHEWS

Applicant

And

CHARLES PHILIPPE LOUIS NILANT, OREN ZOHAR and PETER FREDERICK PREBBLE

Respondents

WZ36 of 2002

CHARLES PHILIPPE LOUIS NILANT, OREN ZOHAR and PETER FREDERICK PREBBLE

Applicants

And

NOLA JANET MATTHEWS

Respondent

REASONS FOR JUDGMENT

Introduction

1. There are two applications before the Court.

2. In application WZ19/01 (the first application) NOLA JANET MATTHEWS (Mrs Matthews) seeks to set aside a notice dated

   
   

   19 March 2001 (the notice) issued pursuant to s 139(7)ZQ of the Bankruptcy Act 1966 (the Bankruptcy Act), by Peter Frederick Prebble, the Official Receiver on behalf of the trustees of the bankrupt estate of Lynthorne James Matthews (the bankrupt). By order of the Court Oren Zohar was joined as a Second First Respondent in the first application.

3. In application WZ36/01 (the second application) Charles Phillipe Louis Nilant and Oren Zohar (the trustees) seek in their capacity as trustees of the estate of the bankrupt orders pursuant to ss.120 and 121 of the Bankruptcy Act setting aside a transfer of land being the Transfer G247956 dated 7 August 1996 (the transfer) of the half share of the bankrupt in a property located at 49A Reserve Street Bicton (the Bicton property) as void against the trustees. By order of the Court Oren Zohar was joined as a Second Applicant in that application.

4. A further declaration is sought by the trustees that on 26 June 2000 legal title to the half share of the bankrupt in the Bicton property vested in the Applicants and/or an order or declaration that the Applicant’s interest in the Bicton property be quantified at 50% of the net value of the Bicton property remaining after the interest of mortgagee or alternatively be quantified at such other percentage as the Court deems appropriate.

5. The Court made an order on the first day of the hearing that application WZ19/01 be consolidated with application WZ36/01 and the applications be heard together.

Background

1. It is appropriate to set out briefly the chronology and background.

2. Mrs Matthews is the wife of the bankrupt who had become bankrupt on 18 August 2000.

3. Mrs Matthews and the bankrupt were married on 25 May 1963.  There are four children of the marriage and the bankrupt and Mrs Matthews reside at the Bicton property.

4. The notice was addressed to Mrs Matthews at the Bicton property.

5. In the notice the trustee gave notice that Mrs Matthews had received a transfer of the Bicton property on or about 7 August 1996 and claimed that that transfer was void pursuant to s 120 of the Bankruptcy Act or in the alternative that the requirements of s 121 of the Bankruptcy Act have been met.

6. The facts and circumstances relied upon the trustee to establish that the transfer was void were stated in the 139ZQ notice to be the following:

   “1.Charles Phillipe Louis Nilant and Oren Zohar were appointed as Joint and Several Trustees of the bankrupt on 18 August 2000.  The bankrupt previously lodged his debtor’s petition on 26 June 2000 and appointed the Official Receiver as his trustee.

   2.The bankrupt and yourself were the registered proprietors of a property located at 49A Reserve Street, Bicton being the whole of the land described in Certificate of Title Volume 1792 Folio 626 (‘the property’).

   3.By transfer of land document dated 7 August 1996, the property was transferred to you as sole proprietor.

   4.You did not give consideration for the transfer of the half share of the property.  A search of the transfer from the Land Titles Office shows consideration of ‘natural love and affection’.

   5.At the time of the transfer the market value of the property was $450,000 and $120,000 was owing under first mortgage to the Commonwealth Bank of Australia Limited (‘bank’).  The total equity of the property was $330,000 with the Bankrupt’s half share being $165,000.

   6.By virtue of the matters stated above, I consider that the requirement of section 120 of the Act are met in that:

   (i)the Transfer of the Bankrupt’s interest in the property to you (‘the transfer’) amounted to the transfer of property within the definition of section 120 of the Act;

   (ii)the Transfer was made to you within 5 years of the commencement of the bankruptcy of the bankrupt;

   (iii)the transfer was made for no consideration;

   (iv)you are liable to pay Charles Phillipe Louis Nilant and Oren Zohar the sum of $165,000 by virtue of section 120(4) of the Act.

   7.Further or alternatively, by virtue of the matters stated above, I consider that the requirements of section 121 of the Act are met in that:

   (i)the Transfer of the Bankrupt’s interest in the property to you (‘the transfer’) amounted to the transfer of property within the definition of section 121 of the Act;

   (ii)the Transfer was made for no consideration pursuant to section 121(6)(d);

   (iii)the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred;

   (iv)the Bankrupt’s main purpose in making the transfer was to prevent the transferred property from becoming divisible among the transferor’s creditors or to hinder or delay the process of making property available for the division among the transferor’s creditors.

   (v)you are liable to pay Charles Phillipe Louis Nilant and Oren Zohar the sum of $165,000 by virtue of section 121(5) of the Act.

   8.The information and documents relied on by me in arriving at the conclusion that section 120 and/or section 121 of the Act applies are:

   (i)Certificate of Title Volume 1792 Folio 626

   (ii)Transfer of land document dated 7 August 1996

   (iii)Copy of Insolvency Trustee Service Australia report to creditors regarding notice of a meeting for 18 August 2000.

   (iv)Valuation from Hegney Property Valuations, licensed valuers dated 6 February 2001.

7. Although the notice refers to the transfer of land document document being dated 7 August 1996 it was suggested by Mrs Matthews representative and in her affidavit evidence that the transfer was executed some time between 5 and 9 July 1996.

8. The bankrupt had signed a Statement of Affairs on 25 June 2000.  In the Statement of Affairs it was clear that the most significant unrelated creditor was a Ms Alicia Christy (Ms Christy) who it was said was owed $99,000.00.  That amount had been the subject of orders made by the Builder’s Registration Board (the BRB) arising out of the defective construction of a house designed and built by the bankrupt for Ms Christy.  The house was situated at 20 Chittering Valley Road Chittering (the Christy property).  That had occurred in 1994 and then costs orders were subsequently made in the District and Federal Courts in Western Australia.

9. It is clear that there had been a protracted dispute between the bankrupt and Ms Christy.  A very detailed chronology was presented to the Court of that dispute by way of exhibit to an affidavit of Charles Phillipe Louis Nilant sworn 30 May 2001.  The chronology reveals that the construction of the Christy property had commenced on 21 July 1994 and as I understood it after a site inspection certain defects were then noted culminating in a formal complaint by Ms Christy to the BRB on 13 October 1995.

10. It seems clear that the BRB followed certain procedures in relation to assessment notices and issuing orders to remedy defects and the matter had been the subject of inspections and correspondence.  It is not disputed that on 12 April 1996 Ms Christy through her solicitors indicated that she was dissatisfied with the order to remedy which had been issued by the Building Disputes Committee (the BDC) and indicated that she would seek to pursue alternative remedies under the relevant legislation,  Ms Christy in fact filed Points of Claim against the bankrupt on 18 July 1996.  Hence although it is asserted by Mrs Matthews Counsel that the result of these applications should be the same on the issue of solvency whether the Court were to find the transfer of the bankrupt’s interest as joint tenant to Mrs Matthews occurred between 5 and 9 July 1996 or at around the time it was registered on 7 August 1996, it would appear at least that those dates prime facie have some relevance against the background chronology of the dispute between the bankrupt and Ms Christy.

11. Notification of orders made by BDC after a two day hearing on

    
    

    5 December 1996 were conveyed by letter to the bankrupt dated

    
    

    16 December 1996 which amongst other things required the bankrupt to comply with directions and pay the costs of Ms Christy.  Further disputation occurred over the remedial work to be carried out in relation to defects and directions were given on 18 June 1997 by the BDC to the bankrupt.  The bankrupt was deregistered as a builder on 27 July 1997.

12. After the bankrupt was deregistered there was further activity in relation to non compliance with rectification of faults in the Christy property and directions hearings were conducted by the BDC.

13. On 25 June 1998 the BDC had ordered the bankrupt to pay Ms Christy’s costs of $20,646.50.  It would seem that certain procedures of the BDC meant that that sum was not immediately recoverable though ultimately an order was made on 23 July 1998 for the bankrupt to immediately pay the costs referred to of $20,464.50.  A warrant of execution was issued on 29 September 1998 for the sum outstanding.  A further order was made on 15 February 1999 by the BDC that the bankrupt pay Ms Christy the sum of $79,000 by 16 March 1999 together with legal costs and other orders were made.

14. In further litigation between Ms Christy and the bankrupt, it appears that on 18 May 1999 Ms Christy issued a writ in the Supreme Court of Western Australia seeking an order pursuant to s 89(1) of the Property Law Act that the transfer from the bankrupt to Mrs Matthews be set aside.

15. On 20 May 1999 a bankruptcy notice was issued in relation to the sum of $40,646.50.  That bankruptcy notice was served on 14 June 1999.  As indicated earlier the bankrupt became bankrupt on 18 August 2000.

The evidence

1. Mrs Matthews relied upon affidavits sworn by her on 19 April 2001 and 14 June 2001.  She gave evidence and also relied upon and called as witnesses Mr Brian Bethune who adopted an affidavit sworn by him on 17 July 2001, the bankrupt gave evidence and relied upon affidavits sworn by him on 17 July 2001 and 8 November 2001 and Mr Colin Lloyd Hughes gave evidence and relied upon an affidavit sworn

   
   

   8 November 2001.

2. The trustees relied upon the evidence of Mr Nilant in affidavits sworn by him in particular on 30 May 2001, 20 June 2001 and 16 August 2001 together with evidence of Mr James Healy by an affidavit sworn 16 August 2001 and Ms Alicia Christy by her affidavit sworn

   
   

   27 September 2001.

Mrs Matthews

1. In support of her claim that the notice should be set aside Mrs Matthews after reciting the background details to which I have already referred added to the chronology by reference to the purchase of

   
   

   a residential property at Glebe Road Darlington on 13 October 1973.  That property was purchased in her name as sole proprietor and she claimed that she was required to obtain a loan from the Bank of New South Wales in the sum of $15,000.  She made all the loan repayments on that property.

2. The Glebe Road property was sold in December 1984 for $125,000 and it was claimed by Mrs Matthews that the net proceeds of the sale were applied towards the purchase of the Bicton property.  A settlement statement produced in relation to that sale reveals that after deduction of the amount required to discharge the mortgage and other sale expenses, the net proceeds of sale appear to be $32,270.25 which

   
   

   I assume is the sum referred to by Mrs Matthews being available for the purchase of the Bicton property.  The Bicton property was registered in both Mrs Matthews and the bankrupt’s name.  Mrs Matthews was unable to advance a reason for that being the case and said on affidavit that she did not question it at the time.  There was

   
   

   a loan to the Swan Building Society in the name of Mrs Matthews alone.  That Building Society later became the Home Building Society.  Loan statements produced in evidence showed credits of $1,700 per month and it was claimed by Mrs Matthews that those payments were made by her throughout the period 1995 and 1996.  When the loan was finalised with the Home Building Society Mrs Matthews received

   
   

   a letter dated 6 August 1996.  She claimed she made all the repayments in respect of the mortgage in relating to the Bicton property.  It should be noted that the loan statement produced in relation to the Bicton property for the period ending 30 June 1996 shows a loan balance of $113,618.52.  It is somewhat difficult to determine the precise details of payments as a “detailed discharge statement” referred to in the letter dated 6 August 1996 did not appear to be part of the material before the Court.

3. In any event Mrs Matthews claimed that she was a person of independent income in the past and had also inherited $55,000 from her deceased mother’s estate.  The precise details of that inheritance were not clear.

4. Mrs Matthews gave evidence that in July 1996 the bankrupt had been in a relationship with another woman and a daughter had been born of that relationship.  This was discovered by Mrs Matthews in 1995.

5. It is claimed by Mrs Matthews that upon discovering that her husband had a ten year old daughter from another relationship and that he was then planning to spend time in Vietnam on business, she became concerned and believed the Bicton property may be at risk.  She then asked the bankrupt to make arrangements to secure the Bicton property.  The bankrupt, according to Mrs Matthews then consulted solicitors who prepared a Trust Deed.  An extract of the Trust Deed shows a stamp duty imprint dated 13 April 1995.  The name of the trust was the Lynthorne Matthews Family Trust and the primary beneficiaries were Mrs Matthews and the bankrupt.  It was apparently suggested that the Bicton property be transferred to the trust and Mrs Matthews did not regard that as being an arrangement which would give her the control she required because control vested in the bankrupt who was specified in the Trust Deed as principal.  She claimed to want control of the Bicton property as she considered it to be hers and that the bankrupt was holding his share in trust for her.  Accordingly she claims that on 27 June 1996 she approached “Documentary Services Pty Ltd” and instructed that company to facilitate a transfer of the Bicton property to her name as sole proprietor.

6. Letters were produced from Documentary Services Pty Ltd.  The first one dated 27 June 1996 addressed to Mrs Matthews and the bankrupt confirms instructions to transfer half share of the Bicton property. 

   
   

   A second letter dated 23 July 1996 refers to stamp duty being assessed on the transfer and confirms that upon receipt of the amount payable for stamp duty and the fee due to Documentary Services Pty Ltd the transfer would be forwarded to the Commonwealth Bank Fremantle for registration. 

7. During the time when the transfer had occurred Mrs Matthews both in affidavit and in oral evidence under cross-examination denied having any knowledge of the bankrupt’s architectural or construction business.  She specifically denied any knowledge of the bankrupt’s difficulties with Ms Christy.  She referred to the chronology of the dispute between Ms Christy and the bankrupt but strongly claimed that at the time of any transfer that any dispute then in existence between the bankrupt and Ms Christy had nothing to do with the decision to execute the transfer.

1. Mrs Matthews produced evidence in relation to bank statements of the bankrupt covering the period 4 July 1996 to 2 August 1996 which she claimed demonstrated a $19,000 credit in the account.

2. It was claimed that the bankrupt did not discuss with her any details of the potential claim against him by Ms Christy and under cross-examination Mrs Matthews re-asserted that the purpose of the transfer was to provide her with security in the context of acquiring knowledge as to the bankrupt’s other relationship which had produced a child and his plans to travel overseas.  Mrs Matthews produced income tax returns of the bankrupt for the year ending 30 June 1997 and claimed that the bankrupt was solvent in both 1996 and 1997.  She produced bank statements.  She further noted that the BDC in an order to remedy had calculated a figure of $11,240.00 being the cost of the work necessary to remedy the claim by Ms Christy and that order was made on 1 April 1996.  She referred to an offer by the bankrupt on 8 January 1996 to undertake remedial work.

3. Mrs Matthews otherwise joined issue with assertions made by Mr Nilant on behalf of the trustees in his affidavit material.  She specifically denied that $127,051.72 was owed to Ms Christy arising out of the statement of affairs and asserted that instead the sum of $32,557.00 was owed to Ms Christy in respect of amounts owing to sub-contractors.

4. Mrs Matthews disputed a claim by Mr Nilant that a van had been transferred to the bankrupt’s accountant’s wife for the sum of $5,000 when it had been acquired by the bankrupt from his late father’s estate in October 1999 for $14,000.

5. A dispute concerning the production of documents was raised by Mr Nilant and this was in part addressed by Mrs Matthews in further material relied upon in her affidavits.

6. Mrs Matthews did confirm that the Bicton property had been the subject of renovation and conversion into two strata units with the assistance of the bankrupt.  She claimed that apart from that initial advice the funds from the Swan Building Society were advanced to her to enable the development of the Bicton property into the two strata title units.  The strata subdivision resulted in two properties created namely 49A and 49B Reserve Street Bicton and Mrs Matthews claimed that 49A was sold in 1988 and net proceeds deposited into her account with the Swan Building Society.

7. It is common ground that the transfer of land document signed by Mrs Matthews and the bankrupt in 1996 did not refer to the trust in favour of Mrs Matthews and refers specifically to the gift.  Mrs Matthews claimed that she relied upon Mr Bethune her accountant to instruct the settlement agents in relation to the transfer of the property and otherwise believed on solicitor’s advice that the transfer would not normally disclose whether the property was held in trust or otherwise.

8. As indicated earlier, Mrs Matthews claims that the transfer was executed by herself and the bankrupt prior to the date of registration being 7 August 1996.  In any event she claims that the bankrupt was solvent for both the 1996 and 1997 financial years respectively.

9. Mrs Matthews conceded that stamp duty and settlement fees on the transfer of the Bicton property to her were paid by the bankrupt.

Colin Lloyd Hughes

1. Mr Hughes gave evidence that he was a carpenter engaged by the bankrupt to undertake some minor repair work at the Christy property.  He agreed in evidence that he had worked as a carpenter and organiser on a number of jobs.  He agreed that the bankrupt was a builder and architect and that he built as well as designed the project for Ms Christy.  He agreed in cross-examination he had been de-registered for “licence lending”.  He knew for some time of the bankrupt’s relationship with another person and that there had been a child born of that relationship but did not disclose that information to Mrs Matthews.

Lynthorne Matthews (the bankrupt)

1. The bankrupt adopted his affidavits and in brief terms asserted that he was solvent at all relevant times.  He specifically referred to an overdraft account with the Commonwealth Bank which he had in 1996.  That overdraft account had an overdraft limit of $30,000 and between 29 and 30July of 1996 the account was in debit for $2,281.41 which meant that there were funds available to draw upon of $27,718.59.  He referred to a joint bank account with the National Australia Bank.  He claimed that from May to July 1996 the only project he was involved in as a builder was for and on behalf of Mr Bethune.  During 1996 he claimed that his creditors consisted solely of sub-contractors and that he paid trade creditors for accounts as and when they fell due.  In July 1996 he was up to date with loan repayments on a car which he purchased in 1993 with a personal loan and payments on his credit card with the National Australia Bank which had a limit of $7,000.

2. In relation to the claim by Ms Christy he confirmed the complaint had been made to the BRB by July 1996 and that he had been ordered to undertake remedial work.  He claimed he had reached agreement with sub-contractors who had undertaken the work and thought that work would be performed.  In return he did not expect to receive payment of an outstanding amount owed to him by Ms Christy and assumed that there would be no claim against him by her in the future.

3. In relation to the transfer of the Bicton property he confirmed the evidence of Mrs Matthews concerning properties owned by her prior to the acquisition of the Bicton property.  He asserted therefore that as a consequence he considered he held a share in the Bicton property on trust for Mrs Matthews and could not explain why they were both originally registered as joint owners.  It should be noted that the equitable claim was not pursued by Counsel for Mrs Matthews.

4. He claimed that it was “late 1995” that Mrs Matthews became aware of a long term relationship that he had had with another woman and that he had a daughter by that relationship.  This led to discussions about property and a desire on the part of Mrs Matthews to have the Bicton property registered in her name and although a trust was prepared with Mrs Matthews as beneficiary she refused to agree to establishment of the trust and was demanding a transfer of the interest which she decided to agree to on the advice of Mr Bethune by late June 1996.  He claimed to have done this as a result of wishing to satisfy the anger of Mrs Matthews and because he believed in any event that he did not have any beneficial interest in the property.

5. In response to claims made by Ms Christy the bankrupt claimed that he was not aware of the extent of Ms Christy’s complaints until he received a letter from Mr Jones (Archicentre) in October 1995.  He was unable to recall complaints by Ms Christy about any other items apart form problems with a tap and a stair tread in the period December 1994 to January 1995 and did not attend an inspection of the property by a representative of Archicentre.

6. The bankrupt denied a conversation alleged by Ms Christy to have occurred in December 1994 when in response to a question she allegedly asked concerning fixing of the outstanding problems to the house he had allegedly said, “I will come and fix them, I never finish all my houses straight away.  I have just run out of money at the moment”.

7. The bankrupt admitted that in late 1994 to 1995 he had discussions with Ms Christy to the effect that the house had cost about $30,000 more than she had paid but otherwise denied seeking further money from Ms Christy to complete the house.  He in turn asserted that Ms Christy had made suggestions about paying him further money when she received an amount from her late aunt’s estate.  He was unable to confirm that Ms Christy had left a number of telephone messages on his voicemail and produced a work diary extract and suggested he was unable to find references other than an extract from 9 February and

   
   

   24 February 1995 to Ms Christy. 

8. The bankrupt in his affidavit suggested that he wrote to “Christy on several occasions regarding the matters in dispute between us and in relation to the monies that I thought she owed to me”.  He claimed he did not receive a response to the letters and as a result he sent “at least one of them by registered post”.  He produced one registered post receipt as an exhibit and the date of the receipt is 29 October 1995.

9. During the course of cross-examination he denied that he tried to get assets out of his name in circumstances where he had not been fully paid by Ms Christy and that a claim was being made against him.

10. He acknowledged that he had decided not to comply with the BDC direction.  He otherwise adopted what had been said in relation to his financial circumstances by Mrs Matthews. 

Brian Bethune

1. Mr Bethune gave evidence that he was an accountant for the bankrupt and had prepared financial statements for the bankrupt’s architecture practice for 1996.  He claimed that he was not aware of any debts that the bankrupt could not pay or creditors that had made demand on the bankrupt and that in 1996 the bankrupt was able to pay debts when they fell due.

2. He gave evidence that in or about 1995 he agreed with the bankrupt to offset accounting fees against the bankrupt’s fees in building a house which was being subdivided at Gidgegannup.  Hence it was said that his fees for the years 1995 to 2000 were not paid. The fees charged according to the proof of debt relied upon by Mr Bethune totalled $15,000 being $3,000 per annum exactly for five years from 1995 up to and including 1999.

3. He acknowledged giving advice to the bankrupt to have his assets placed in a family trust.  He stated, “I gave him this advice due to my (then) recent experience in litigation”.  He stated that he then had no knowledge of any possible claim against the bankrupt and that it was after giving that advice that Mrs Matthews became aware that the bankrupt had fathered a daughter by another relationship.  He claims to have then advised the bankrupt “in early 1996” that “in order to make Nola feel secure and to smooth things over there would be nothing untoward in gifting his share” in the Bicton property to Mrs Matthews.

4. Under cross-examination he agreed that he was a bankrupt and had been involved in litigation in the Federal Court concerning aboriginal copyright in artwork and had sought to dispose of property by way of transfer into a trust and because he agreed “storms clouds were gathering”.  He denied however that he did that because he anticipated a judgment against him and that he would then be declared bankrupt.

5. He claimed that he did not discuss specific problems with the bankrupt concerning any possible claims arising out of buildings and in particular the difficulties with the building being undertaken for

   
   

   Ms Christy.

6. Mr Bethune referred to a balance sheet of the bankrupt dated 9 July 1996 and determined that if there was a net equity of $5,000 it could be found that the bankrupt was then solvent.

Trustee’s evidence

1. The trustee relied upon the affidavits to which I have referred.  Mr Nilant in his affidavit sworn 30 May 2001 referred to difficulties obtaining information from the bankrupt concerning the bankrupt’s financial affairs over a period of time and difficulty in relation to obtaining appropriate documentation concerning the acquisition of the Bicton property.

2. He referred to the bankrupt and Mrs Matthews lodging a strata plan in respect of the Bicton property and noted that as a result of that strata subdivision two lots were created namely 49A and 49B Reserve Street with 49B being sold in 1988 by Mrs Matthews and the bankrupt for $200,000.  Apart from noting that at settlement of that property a mortgage was discharged Mr Nilant claims that further documentation has not been forthcoming relating to disbursements from the sale. 

3. In relation to the solvency of the bankrupt Mr Nilant produced an account bank statement for the whole of August 1996 which showed that throughout the period the account was in debit.  It should be noted that the exhibit “CPLN 18” does show the account to be in credit up to 6 August 1996 and thereafter in debit.

4. The statement of affairs by the bankrupt dated 25 June 2000 was produced which in brief terms discloses liabilities of $196,297 and assets of $68,700.  The creditors include legal fees to Mr Pillay said to have been incurred between 1993 and 2000 in the sum of $41,294, accountancy and administrative fees to Mr Bethune in the sum of $15,000 said to have been incurred in 1995 to 2000, an amount of $15,000 by way of loan to “Tenable Trust – DW Beeck” incurred

   
   

   31 August 1998, an amount of $99,000 incurred in 1999 to Ms Christy being the damages claim, $6,000 to the Deputy Commissioner of Taxation for income tax incurred 1998/1999 and Nola Matthews in the sum of $20,000 by way of loan debt incurred in 1999.

5. Mr Nilant produced a copy of the valuation form from the Commissioner of State Taxation dated 5 July 1996 in relation to the Bicton property giving it a market value as at that date of $350,000.

6. It was noted by Mr Nilant that the application by the bankrupt to set aside the bankruptcy notice was dismissed by consent on 4 April 2000.  An objection to discharge of the bankrupt dated 14 February 2001 had the effect of extending the bankruptcy to 26 June 2008.

7. In his affidavit sworn 20 June 2001 by way of reply to the affidavit of Mrs Matthews sworn 14 June 2001 Mr Nilant takes issue with the dispute over the total indebtedness to Ms Christy and claims that the indebtedness was based upon a proof of debt provided by Ms Christy.

8. Mr Nilant refers to the income tax return of the bankrupt for the year ended 30 June 1996 and notes that a claim was made by the bankrupt for a deductable allowance against his own income of $1,452 being spouse rebate and that on the return the reference to spouse income is zero.

9. Mr Nilant joins issue with Mrs Matthews where she suggested there was no request for documents relating to the builder of the strata title units and specifically referred to a letter dated 23 May 2001 (Exhibit CPLN 10A of his affidavit sworn 30 May 2001) which specifically requests “Any and all documentary evidence relating to the construction of the strata units on the property in or about 1987 including but not limited to funding and building of the property”.

10. Mr Nilant in his affidavit accepts that solvency of the bankrupt at the time of the transfer of land rather than subsequent to the transfer of land is the relevant issue but complains that he was not provided with details of the bankrupt’s financial position for the 12 month period prior to 8 August 1996 and nor was he provided with source documents relating to the bankrupt’s solvency during that period.

11. Mr Nilant in dealing with the solvency of the bankrupt notes that the statement of affairs refers to debts dating back to as far as 1993 and specifically refers to the proof of debt completed by Mr Bethune on

    
    

    17 August 2000 claiming the sum of $15,000 owing.  He referred to a further proof of debt from the bankrupt’s solicitors Naveen Pillay claiming a debt of $41,679 incurred between September 1995 and May 2000.

12. Mr Nilant also challenged the dates upon which the bankrupt had allegedly visited Vietnam.  He disputes Mrs Matthews assertion in her first affidavit that the bankrupt had visited Vietnam in 1995.  It is now common ground that that assertion was incorrect and that the bankrupt did not visit Vietnam in that year.  Mr Nilant produced extracts from the bankrupt’s passport which showed that he did visit Vietnam in 1993 but did not visit in 1995 or 1996.

13. In his affidavit sworn 16 August 2001 he notes an account ledger for “Generator Hiring Service” from 20 July 1982 to 30 June 1985 shows Mrs Matthews had an interest in that business.  An examination of group certificates from Mrs Matthews for the years 1988, 1992, 1993, 1997, 1998, 1999 and 2000 demonstrate that she was in receipt of modest income for those years and did not receive however on examination of the documents taxable income for 1989, 1990, 1991, 1994, 1995 and 1996.  Mr Nilant claimed that in the years ending

    
    

    30 June 1997, 1998, 1999 and 2000 Mrs Matthews sole source of income was the bankrupt's business.

Alicia Christy

1. The trustees relied upon the affidavit of Alicia Christy sworn

   
   

   27 September 2001.

2. Ms Christy sets out a detailed chronology of the history of the dispute between herself and the bankrupt.  She confirms the construction of the dwelling occurred on or about 21 July 1994 and continued until about November/December 1994.  She became concerned about the work carried out by the bankrupt in about October 1994 and then obtained a quotation from an independent pest control contractor for termite treatment of the property.  She claimed that termite treatment carried out by the bankrupt was not in accordance with the building licence.  In October 1994 she contacted the Architects Board and Builders Registration Board for their advice regarding the conduct of the bankrupt.  She expressed concerns to the bankrupt and in or about November/December 1994 a dispute arose in respect of poor workmanship and contractual issues that had been identified.

3. Ms Christy produced a letter dated 29 November 1994 from an Officer of the Shire Council to the bankrupt detailing deficiencies which needed to be corrected in relation to the septic system. Further correspondence between the bankrupt and the council was produced for the period June and July 1995.

4. Ms Christy in her affidavit also referred to the conversation which was denied by Mr Matthews wherein he is alleged to have claimed he overspent on the construction of the house.

5. Archicentre inspected her property on 10 December 1994 and she stated she made several telephone calls during that month and January 1995 to the bankrupt and had another conversation in person in December 1994 when the bankrupt attended to fix a shower and when asked “What are doing about the outstanding problems with my house?”  Ms Christy states that the bankrupt responded in effect,

   
   “I will come and fix them, I never finish all my houses straight away.
    I have just run out of money at the moment”

   .

6. A further conversation regarding a request for further money to complete the house which is now not in dispute is also referred to in the affidavit of Ms Christy.  She confirmed that Mr Hughes attended to fix the problem with the staircase treads in February 1995.  Further rectification work occurred for a sink in March 1995 and on that occasion Ms Christy claims that the bankrupt asked for some more money to which Ms Christy said in effect, “I am not a bank and I am not going to give you any further money.  I paid you the final payment in October 1994.”  Ms Christy referred to leaving messages on the voicemail of the bankrupt from November/December 1994 through to October 1995.

7. It was upon receipt of the Archicentre report on 20 September 1995 that Ms Christy then decided to lodge a complaint against the bankrupt with the BDC on or about 13 October 1995.

8. Ms Christy attached a letter from Archicentre to the bankrupt dated

   
   

   20 September 1995 which lists in detail numerous structural aspects of the property requiring immediate attention and notes in relation to contractual issues that the type of construction and finish had been varied without approval and provides particulars. Further issues were brought to the attention of the bankrupt in relation to a failure to provide in contravention of s 4 of the Home Buildilng Contracts Act 1991 a formal written contract.

9. Ms Christy otherwise recited the chronology to which I have already referred.

10. Ms Christy refers to the notice of assessment from the BRB received on 14 December 1995.  That notice refers to a wide range of complaints together with the inspector’s observations and comments and action required by the builder.  For that purpose there does not seem to be any doubt that the bankrupt was the builder. 

    
    

    Of significance in that notice of assessment is the reference to an exposed single skin external brick wall being saturated along the rear of the house affecting the internal fabric.  It was suggested by way of comment that this would result in the major repairs during the wet season and that the builder acknowledged the need for remedial action to eliminate water absorption of the masonry and adequate waterproofing of the walls.  The action required removing earth fill from outside the face of the single leaf masonry walls at the rear walls effectively waterproof masonry against moisture penetration and generally comply with the Shire requirements in respect of surface drainage along rear walls.

1. It is noteworthy that attached to Ms Christy’s affidavit marked “AC 11” is a letter from the bankrupt which asserts that he was an architect for the project and wherein he states, “There was never any complaint in writing or by phone called by the client to me until I received the letter of complaint from Archicentre on 20 September 1995”.

2. A copy of an order to remedy from BDC to the bankrupt dated 2 April 1996 is also annexed to the affidavit of Ms Christy and marked “AC 12”.

3. On 18 July 1996 Ms Christy filed Points of Claim with the BDC.  The Points of Claim are quite detailed and on 8 October 1996 the bankrupt provided answers to those Points of Claim and in particular admits that Ms Christy had indicated to the bankrupt that she had read an article about him in The West magazine.  He again however asserts that he was not the builder but simply the architect and otherwise joins issue with the Points of Claim.

4. Ms Christy exhibited to her affidavit further documents concerning the Points of Claim and particulars.  She also produced the published reasons of the BDC delivered on 26 February 1999.  That decision concluded in parts that there was “now clear evidence that the builder was flouting the decision of the committee”.  It went on to say “Nothing had occurred to prevent him from completing the work”.

5. Ms Christy also exhibited the reasons for decision of Blaxell DCJ in the District Court of Western Australia which was the hearing of an appeal from the BDC and in particular an application for extension of time to apply for leave to appeal by the bankrupt.  The court refused the application for extension of time to apply to leave to appeal although the court there noted in favour of the bankrupt that the committee had perhaps erred by determining whether the applicant acted as architect or builder when it only needed to determine whether he was “the person who carried out the building work”.  The court was not prepared to use that as a basis upon which the extension of time would be granted or upon which it would conclude there was merit in the application.  The court did conclude that “The only fair interpretation of the whole unfortunate history of the matter is that the applicant has at all times sought to stall and defer the proceeding before the committee”.  The court found that by the date of the committee hearing, that is 2 February 1999 that the “Committee was well and truly justified in finding that `there was now clear evidence that the builder was flouting the decision of the committee’”.

6. Ms Christy was not called to give evidence and was not subject to cross-examination.

James McMahon Healy

1. An affidavit sworn by Mr Healy on 16 August 2001 was relied upon by the trustees.  That affidavit refers to searches carried out by Mr Healy and in particular identified that Mr Bethune was the owner of the property at 1302 Toodyay Road Gidgegannup.  A search of National Personal Insolvency Index held by the Insolvency Trustee Service Australia showed that Mr Bethune had become bankrupt on 11 December 1995 and was discharged from bankruptcy on 29 December 1998.

Submissions

Mrs Matthews

Section 120

1. It is not disputed in the present case that the bankrupt gifted his half share in the Bicton property within five years prior to the bankruptcy. Nor is it disputed that the transfer for love or affection is not valid consideration pursuant to s 120(5)(d) of the Bankruptcy Act.

2. The main submission advanced on behalf of Mrs Matthews was that the transfer is not void against the trustees as it took place more than two years before the commencement of the bankruptcy and that the transferee, that is Mrs Matthews had proved at the time of the transfer that the transferor, that is the bankrupt was solvent (see

   
   

   s 120(3) of the Bankruptcy Act). There is no dispute between the parties that the transfer which occurred in the present case was at least registered on 7 August 1996 and therefore clearly occurred more than two years before the commencement of the bankruptcy.

3. It was submitted on behalf of Mrs Matthews that the court should accept that the transfer was executed somewhere between 5 and 9 July 1996 and that the Court should consider that period of time as being the relevant time to determine whether or not Mrs Matthews has discharged the obligation to establish that the bankrupt was then solvent. It was submitted that in determining solvency the Court should consider the definition in s 5(2) of the Bankruptcy Act which provides that:

   “A person is solvent if and only if the person is able to pay all the person’s debts as and when they become due and payable”.  (See Sandell v Porter (1966) 115 CLR 666).

4. It was submitted that amongst other things the bankrupt had no pressing creditors at the material time and was well within his overdraft limit.

5. During final submissions counsel for Mrs Matthews submitted that there is no claim by Mrs Matthews that prior to the time of the transfer she had an equitable interest in the property.

6. Hence the Court had to deal with the application of s 120 as what was described by Counsel as a “single issue matter”. That issue was whether or not it has been established that the bankrupt was solvent at the relevant time. It was submitted that there was no evidence regarding any “pressing creditors” during the year 1996. Reference was made to the July/August period. Reliance was placed upon the evidence of Mr Bethune who had indicated that the bankrupt was solvent at the relevant period of time and in particular reliance was placed upon payment of sub-contractors each Friday when invoices were delivered and that cash or cash on delivery was the arrangement for supplies including building supplies.

7. It was submitted that the two creditors identified as being in existence at the time of the transfer and who were the subject of claims by way of proof of debt namely Mr Pillay and Mr Bethune that neither had ever made demand for their claims.  Both had adopted on the evidence what could be described with the bankrupt as being a “barter system” where in reduction of the debts the bankrupt would provide at a future time architectural services.  It was submitted in that context that the offer of future services free of charge in reduction of the debt was capable of being interpreted as an ability to satisfy debts for the purpose of the issue of solvency.  That would be so even if the promise was to extinguish a debt by providing services of an unspecified nature at an unspecified time.  In relation to the issue of solvency, Counsel referred to the decision of Taylor v Carroll (1991) 6 ACSR 255. Reference was made in that case to the tests for insolvency and in particular Counsel referred to the headnote of that decision which provides:

   “The question whether a company is able to pay its debts as they fall due from its own money is a question of fact to be determined as a matter of commercial reality in the light of all the circumstances, and not merely by looking at the accounts and making a mechanical comparison of assets and liabilities”.

8. In reaching its decision the Full Court in Taylor v Carroll followed a decision of McGarvie in Taylor v ANZ Banking Group (1988)

   
   

   13 ACLR 780. The Court further applied the reasoning of Menhennitt J in Calzaturificio Zenith Pty Ltd (in liq) v NSW Leather & Trading Co Pty Ltd (1970) VR 605 where it was held that in determining the question of solvency it is legitimate to take into account the times extended to the company to pay its creditors and in turn to take into account the times within which it might reasonably expect to receive payments of debts owing to it. The Full Court accepted that if there is a “course of dealing whereunder a debt is not payable and the parties do not expect it to be payable until a future time it should not be reckoned as due at the earlier time” (per Thomas J at page 260).

9. It was submitted on behalf of Mrs Matthews that in the present case she has displaced the onus demonstrating that the bankrupt was solvent and at the very least one could assess the net position of the bankrupt’s interest in the Bicton property as being in excess of $5,000 based upon the assessment made by Mr Bethune.   In addition the Court should take into account that there was some work in progress.

10. In relation to the claim by Ms Christy it was submitted that the value of works required to remedy deficiencies at the relevant time was somewhere between $11,400 and $14,000.  It was not anticipated then that Ms Christy would become a creditor of the bankrupt and the fact that he was later found to be indebted to Ms Christy in an amount of more than $100,000 should not be used against Mrs Matthews in determining the solvency issue (see Totterdell v Niciol-Burmeister (1995) 13 ACLC 1521).

11. It was submitted therefore that the application under s 120 of the Bankruptcy Act ought to be dismissed with costs.

Section 121

1. It was submitted and likewise s 121 cannot be relied upon in the circumstances. To do so the trustees would need to establish pursuant to that provision that the property would probably have become part of the bankrupt’s estate or would probably have been available to creditors if the property had not been transferred and that the bankrupt’s main purpose in making the transfer was to prevent the transferred property from becoming divisible amongst the bankrupt’s creditors or to hinder or delay the process of making property available for division amongst the bankrupt’s creditors.

2. It was submitted on behalf of Mrs Matthews that the intent of the bankrupt at the time of disposition is material and that the Court needs to be satisfied that the bankrupt had an actual intent to defraud his creditors (See Cannane v J Cannane Pty Ltd (in liq) (1998) 28 ACSR 603. In these circumstances given an allegation of fraud the “Briginshaw test” is applicable.

3. It was submitted that the past conduct of Mr Matthews both in relation to the BRB and the relationship that caused concern to Mrs Matthews are not matters which the bankrupt tried to hide.  The Court should not conclude from those matters that Mr Matthews was deceitful to this Court or the approach to this Court.

4. It was submitted that the Court should consider the level of indebtedness of the bankrupt at the relevant time having regard to the evidence particularly about the debts to Mr Bethune and Mr Pillay, the Court should not be satisfied that the bankrupt at the time of the transfer was endeavouring to act in a way which would contravene

   
   

   s 121 of the Bankruptcy Act (see ex parte Russell (1882) 19 Ch. D 588) as submitted earlier Counsel for Mrs Matthews argued that the bankrupt could not have reasonably anticipated at the time of the transfer that it would be found to be indebted to Ms Christy for more than $100,000. The evidence of Mrs Matthews corroborated by Mr Matthews was that the property was transferred into her name because she had discovered the bankrupt had fathered a child during the course of a long standing and ongoing extra marital relationship. It was submitted therefore that the respondent had failed to demonstrate at the time of the transfer that the main or predominant purpose of the transfer was to defeat or delay or hinder creditors or prevent the transferred property from becoming divisible among creditors.

5. The Court should accept the evidence of Mrs Matthews that she did not have knowledge of Ms Christy’s complaints and certainly in the circumstances would not be aware of the extent and enormity of the claim as it eventually transpired.  An awareness of the problem it was submitted would not be sufficient.  And although it may be said that Mr Matthews had seen the storm clouds on the horizon it was not a matter which would then be in the mind of Mrs Matthews.  The Court should accept Mrs Matthews evidence in this regard.  The bankrupt it was submitted was involved in a dispute but would not at the time have concluded that there was a potential indebtedness which would cause him to transfer the property.  In essence it was submitted that at the time of the transfer, that is July 1996, neither the bankrupt nor Mrs Matthews would have known or been aware of what ultimately may have happened in relation to the claim by Ms Christy.

6. Counsel for Mrs Matthews referred me to the joint decision of Brennan CJ and McHugh J in Cannane’s case and in particular at p 608 where the Court states:

   “Although the party impugning the disposition of property must show an actual intent to defraud creditors at the time of the disposition, the intent may be inferred from the making of a disposition which, to adopt the words of Lord Hatherley LC in Freeman v Pope, `subtracts from the property which is the proper fund for the payment of [the] debts, an amount without which the debts cannot be paid’.  The `proper fund’ may consistent in assets out of which future creditors as well as present creditors would be entitled to be paid a dividend in respect of what is owing to them. Therefore a subtraction of assets which, but for the impugned disposition, would be available to meet the claims of present and future creditors is material from which an inference of intent to defraud those creditors might be drawn.  Whether that inference should be drawn depends upon all the circumstances of the case.

   If property be disposed of by sale and the sale price received by the disponor is equal to the true value of the property at the time of the disposition, the creditors have an undepleted fund against which to prove their debts.  But if property is sold for an undervalue or is given away, that fact is relevant to the intent to be attributed to the disponor in disposing of the property.  …. But disposition of property at an undervalue is only a fact from which, dependent on the surrounding circumstances, an inference of fraudulent intent may be drawn.”

7. It was appropriate to further refer to the following passage from the same case where the Court states again at p 608 the following:

   “Section 121 is not enlivened merely by showing that the disposition has reduced the assets available to the creditors when the disponor is adjudicated bankrupt.  It is the disponor’s intent to deprive creditors of assets against which (or against the process of which) they would otherwise be entitled to prove their debts that enlivens the operation of s 121.  As Dixon CJ said in Hardie v Hanson:

   ‘The phrase ‘intent to defraud creditors of the company’ suggests that present or future creditors of the company will, if the intent is effectuated, be cheated of their rights.’”

8. It was submitted on behalf of Mrs Matthews that no such intention can be found in the present case even having regard to the disposition being clearly for reduced value or even if it could be said that that disposition deprived creditors of assets against which they would otherwise be entitled to prove their debts.  It was submitted that the transfer occurred when the matters relied upon by Mrs Matthews corroborated by the bankrupt occurred namely the desire of Mrs Matthews to become sole proprietor against the background circumstances of the bankrupt’s infidelity and the birth of a child as a result of that other relationship.

Trustee’s submissions

Section 120

1. It was submitted on behalf of the trustees that Mrs Matthews has failed to discharge the burden of proof that the bankrupt was solvent at the time of the transfer.  It was submitted that there was insufficient factual evidence to support a conclusion that the bankrupt was solvent at the relevant time.  Any credit balance in his bank account was short-lived and indeed was followed by four months in debt.

2. Counsel for the trustees was critical of the state of evidence available as to when the bankrupt be paid by debtors.  It was submitted there was a contradiction between the evidence of the bankrupt and Mr Bethune as to the bankrupt’s liabilities.  The bankrupt had argued that he paid everything in cash but Mr Bethune acknowledged that there were liabilities.  The assumption by Mr Bethune that trade creditors were paid over a period of approximately two months was based on an estimate and an assumption and did not take into account other potential liabilities.

3. It was submitted that the trustees had discharged the onus of proving the facts that make the transfer void by establishing that the transfer had occurred for no proper consideration within 5 years before bankruptcy and that Mrs Matthews had failed to establish solvency of the bankrupt at the relevant time.

4. In written submissions I was referred to the Full Court of the Federal Court Decision of Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515. A page 527 the Court states,

   “The motion of good faith is common to the protective provisions of both ss 120 and 121.  In each section it is the good faith of the settlee or disponee respectively that must be considered.  This is clear from the language of s 12, and well established by authority in the case of s 120:  Mackintosh v Pogose [1895] 1 Ch 505 at 509-510; re Hyams; Official Receiver v Hyams (1970) 19 FLR 232 at 256.”

5. It was submitted that in determining solvency and in particular the amount of a person’s liabilities the Court is not to consider the amount that the person spends.  The Court should reject the suggestion that Messrs Bethune and Pillay were not creditors at the relevant time and whether payment is made by cash or kind or even ‘barter’ Counsel for the trustees accepted that that is still a liability.  It was said however that given the transfer of the property was a gift then the failure to provide further details regarding the financial position and precise particulars of the liability to Bethune and Pillay amounts to a failure to disclose the whole picture regarding the financial position.  In particular the value of the building work for Mr Bethune was not clear and nor was it clear that the value of that work was sufficient to discharge the outstanding debt.

6. The Court was asked to infer that there was an issue of credibility in relation to the matter of indebtedness to Pillay and Bethune and the Court should infer that the only objective of any apparent arrangement to set off the debt by work was to avoid tax.

Section 121

1. It was submitted that this section had been contravened as the property would have become part of the bankrupt’s estate and would have been available to creditors if the property had not been transferred.  It was voidable against the trustees but it was submitted that having failed to thwart Ms Christy but repeated unsuccessful challenges and appeals before the BRB and the District Court that the bankrupt had sought to give away his major asset and to become bankrupt.  The purpose in transferring the property was to prevent the transferred property becoming divisible amongst the bankrupt’s creditors or at least hinder or delay the process of making the property available for division amongst those creditors.

2. An attack was made on Mr Bethune who had engaged in a process of transferring businesses and resigning directorships and who himself had become bankrupt and a transfer of a property was registered some ten years after it had been executed.

3. It was submitted that the trustee had discharged the overall onus of proving that the transfer of the land was in contravention of s 121 of the Bankruptcy Act.

4. In the circumstances it was submitted that the application by Mrs Matthews under s 139ZQ means there is an onus on the trustee to satisfy the Court that the provisions of Division 3 apply subject to the express contrary provisions of those set out in s 120(2) and (5). It was conceded the trustee bears the burden of proof in establishing the facts or circumstances contained in the s 139ZQ notice (see re Brechin,
    ex parte Putin and Stokes (A’asia) Pty Ltd (1986) 12 FCR 184). It was submitted however that the bankrupt was required to put before the Court sufficient evidence to call the validity of the notice into question (see Halse as trustee of the property of Payne a bankrupt v Norton (1997) 76 FCR 389). It was submitted that as Mrs Matthews has received property as a result of a transaction that is void against the trustee in bankruptcy of the bankrupt’s estate that she is required to pay an amount equal to the value of the property she received. It is not a situation it was submitted where the Court should make an order setting aside the s 139ZQ notice pursuant to s 139ZS of the Bankruptcy Act. Mrs Matthews has failed to place before the Court sufficient information by way of facts and circumstances to set aside the notice. It was submitted that the claim by Mrs Matthews that the bankrupt’s interest in the land was at all times lawfully owned by Mrs Matthews and was held in trust for her by the bankrupt was not supported by any records and not supported by contemporaneous records and was inconsistent with prior statements (see McVeigh v Zanella (2000) FCA 1890). It should be noted however that during the course of final submissions it was understood by the Court that Counsel for Mrs Matthews did not pursue the constructive trust argument and indeed did not pursue at the outset during opening submissions an equitable interest claim prior to the time of the transfer. So that there be no misunderstanding the Court regards that concession as appropriate having regard to the evidence and would otherwise accept the submissions made for and on behalf of the trustees in relation to that issue. An analysis of the trust deed and other evidence would not satisfy the Court that there is sufficient material to properly conclude that a constructive trust was in existence prior to the transfer.

1. An attack was made on Mrs Matthews concern about the property being registered in her name as a result of the bankrupt’s travel to Vietnam and the past infidelity.  It was suggested these were not relevant factors in the decision to transfer the Bicton property.

2. It was submitted that significant defects were evident to the bankrupt at an early stage of the complaints by Ms Christy and that the Court should find that there was from the photographic evidence sufficient for a finding that the concrete foundation had to be taken out and that the matter was not built according to plans.  The significance of this it was submitted is that the bankrupt knew that he had a significant liability pending and it was further submitted that Mrs Matthews who had been relied upon as conducting the office for and on behalf of the bankrupt and therefore was in the office along with her daughter.  The Court was invited to draw an inference that Mrs Matthews on her evidence could reasonably be inferred to have knowledge of the full and extent and nature of the Christy complaint prior to the relevant date and the court was asked to infer that Mrs Matthews was anxious to conceal her involvement in the business and anxious to conceal that she even knew Ms Christy.

3. Other references were made to the bankrupt’s defences to the Christy claim being what were described as “sham defence”.  In particular reference that he was not a builder.  The Court was invited to consider the voluminous material concerning the chronology of the dispute including the decision of Judge Blaxell and the conclusion drawn by the Court of the delaying tactics of the bankrupt.  The delay it was submitted in the BRB was a strategic decision in order to ensure having divested himself of the property that the bankrupt in practical terms would ensure that there was more space created between the divesting and the bankruptcy.

4. Significant criticism was made of the bankrupt and his suggestion that he was not the builder.  Reference was made to the bankrupt referring to the sub-contractors as being “his men” and that he engaged and supervised those contractors.

5. A major attack was launched on the bankrupt’s credit.  Apart from the deception of his wife it was pointed out that he practiced a deception on the BRB by engaging in licence lending, that he was deregistered as a builder for that offence and even presently is engaged in a building task which would then lead to an inference that he is engaged in illegal building.  He failed to discover his diaries and in relation to the 1995 diary refusing to provide anything other than extracts from that diary initially.  It was submitted that he had flouted BDC’s orders.

6. In relation to Mr Bethune the Court was referred to a Federal Court decision of the matter of Milpurrurru & ors v Indofurn Pty Ltd & ors (1994) 130 ALR 659. In that case Mr Bethune had been a director of the respondent to a claim by three aboriginal artists and a fourth applicant representing the estates of five deceased artists. It was asserted that the respondent had manufactured and imported into Australia artwork with the substantial parts of each being the Applicant’s artwork without the licence of the owner to the copyright. The application was allowed. Mr Bethune was a director of the respondent company and had resigned his directorship of that company and transferred the business in August 1994. The hearing had occurred of the application on 25 and 29 July with a further hearing

   
   

   22 November to 1 December 1994 and the judgment delivered on

   
   

   13 December 1994.  The court was invited to conclude that Mr Bethune had taken steps to ensure registration of a transfer of the business from Indofurn and indeed had put his affairs in order “because he saw the storm clouds on the horizon”.  He had delayed the action and had adopted tactics which it was submitted in the view of the Federal Court Judge were extraordinary and on a plain reading of the judgment objectionable.  It was submitted that that method of operation of Mr Bethune was passed on to the bankrupt in the present case.  Reference was made to the words of Mr Bethune in his affidavit where he advised the bankrupt to place his property in trust because of Mr Bethune’s “experience with litigation”.

7. The Court was invited to consider the comments made in relation to Mr Bethune by von Doussa J in the Milpurrurru case.  It was noted that at page 665 His Honour states, in relation to Mr Bethune and the company Indofurn (previously known as Beechrow Pty Ltd) the following:

   “Mr Bethune described Beechrow as a one person company that person being himself.  The company has two issued shares, one held by Mr Bethune and the other held by the fourth respondent Mr Rylands.  Mr Bethune asserted in evidence that the roles of the respondents, Mr King and Mr Rylands, were nominal.  He said the company has never held directors meetings.  He alone runs the company, makes the decisions, and keeps the financial statements.  Although Mr Bethune described himself as an accountant, the records of Beechrow produced to the court, and in particular the sparse records kept pertaining to the carpets, has left a lot to be desired.  The length and complexity of the trial has been contributed to by this short coming.”

8. It was submitted therefore that the initial idea for the trust came from Mr Bethune and as I understood it his involvement in the Milpurrurru case constituted his ‘experience with litigation’ and that in turn provided him with a basis upon which he could advise the bankrupt in the present case.  Ultimately the transfer document was prepared which clearly went beyond the trust document.

9. The Court was invited to reject the evidence of Mrs Matthews who expressed concern about the bankrupt travelling to Vietnam as the passport evidence clearly indicated that there was no travel in 1995 or 1996.  There was evidence about life insurance policies and the fact is that the property was a joint tenancy and the doctrine of survivorship would apply had anything untoward happened to bankrupt during any trip to Vietnam.

10. A further criticism was made of Mr Bethune in lodging a proof of debt with the trustee and then doing so in circumstances where he know says the fees would be satisfied by building work that the bankrupt would undertake on his behalf.

11. In general terms on the issue of solvency Counsel for the trustee submitted that the Court could not draw significant conclusions about the overdraft facility then available to the bankrupt at the relevant time as that overdraft may well have been repayable on demand.

12. Counsel for the trustees provided by way of a schedule to written submissions a detailed analysis of the assertions supporting annexure and comment on the extent to which supporting annexures supported the assertions of the affidavit material from Mrs Matthews.  In general terms the thrust of those submissions is that the assertions made by Mrs Matthews are often not supported by the documentation.  In particular the suggestion that at the time of transfer the exposure or contingent liability for the claim by Ms Christy was no more than $11,400 was submitted to be a matter not supported by the documents and the Court was asked to note that ultimately Ms Christy was awarded a total of $99,000 with costs and damages.

13. The family trust deed which it was suggested was a means by which Mrs Matthews would obtain an interest in the property as sole beneficiary did not reflect that outcome as the trust deed showed that the beneficiary of both the bankrupt and Mrs Matthews with the bankrupt being the principal.

14. In assessing the valuation of the Bicton property at the time of the transfer it was indicated that if there was a mortgage in place then there may be some difficulty establishing the exact amount though the trustee was relying upon a valuation annexed to Mr Prebble’s affidavit which I have referred to earlier suggests a net interest of $250,000.  In those circumstances the trustees invited the Court to make the declaration sought and for the precise amount either be the subject of agreement or further consideration.  Otherwise the Court was invited to dismiss the application of Mrs Matthews and make orders accordingly.

Reasoning and findings

1. The facts and circumstances in relation to both applications may be considered together.

2. It is appropriate in my view to make a general assessment of the evidence and then in applying the relevant principles of law to which I have been referred by both Counsel seek to draw a conclusion in relation to the competing applications.

3. In my view it is appropriate for a Court in circumstances where a claim is made to set aside the notice and where the trustees have sought to make a claim pursuant to s 120 and/or 121 of the Bankruptcy Act to make a realistic assessment of the facts and circumstances at the time.

4. In relation to the s 120 claim it is clear that the sole issue for the Court to determine in the present case is the question of solvency of the bankrupt at the time the transfer was signed. I accept for the purpose of this part of the case that I should have regard to the date of signing of the transfer rather than the date upon which the transfer was registered. In my view registration of a transfer would certainly by the act of registration provide a title protection as contemplated by the ‘Torrens’ system. It is equally clear however that the execution of a transfer provides sufficient indication of the intent of parties to transfer ownership for property which for the purposes of bankruptcy proceedings is sufficient in my view to justify an analysis of the financial circumstances of the bankrupt at the time the transfer was executed.

5. On the material before me I am satisfied that the bankrupt was seeking to trade as a builder/architect and I so find.  That is very clear from a brief analysis of the income tax return for the bankrupt for the financial year ending June 1996.  In that document the bankrupt’s income is referred to as “architectural fees” and “building and contracting”.  For architectural fees he is said to have earned income of $28,552.  For building and contracting he is said to have earned $648,894.  To the extent that I am therefore required to make some assessment of the bankrupt and his refusal in various forms and indeed even before this Court to accept the description “builder” I am satisfied that he clearly has represented himself to be and conducted himself in a manner which is consistent with the activities of a builder.

6. I further find that in relation to the protracted and prolonged litigation with Ms Christy that the bankrupt has conducted himself in a way which would ensure maximum delay and non co-operation with both the BRB and the BDC.  It is clear to me and I so find that the bankrupt became aware in 1995 of a significant claim against him by Ms Christy.  I am satisfied that the potential of that claim was then known to the bankrupt and that he did everything he could within his power thereafter to ensure that Ms Christy would be subject to prolonged and expensive litigation.

7. I further find that in the present case that it is unlikely that Mrs Matthews would not have been aware and/or made aware of the full and extent and nature of the exposure of this potential claim by Ms Christy against the bankrupt.

8. I further find that any arrangements made by the bankrupt both in connection to the establishment of the trust and/or the subsequent transfer were decisions made by him where at least in his mind it was important to arrange his financial affairs in such a manner that would prevent Ms Christy from obtaining satisfaction in relation to the potential claim against him.  I am satisfied that at least by April of 1996 the bankrupt was well aware of the potential claim by Christy against him.

9. I accept the affidavit evidence of Ms Christy and in particular the evidence of conversations referred to therein between herself and the bankrupt which would indicate that the bankrupt was in financial difficulty, did require further advances of money from Ms Christy and made some promises to remedy the defects though of course failed to either undertake or instruct others to undertake the work to ensure those defects were remedied within a reasonable time.  I accept in particular that the bankrupt had said to Ms Christie something like he had “run out of money at the moment” and this occurred in December 1994.  I further accept that in February 1995 the bankrupt had requested further money from Ms Christy to complete the house. 

   
   

   I note that the bankrupt admits that on various occasions in late 1994 to early 1995 he had discussions with Ms Christy to the effect that the house had cost about $30,000 more than she had paid.  The overspending seems to vary depending on which time period is referred to as initially an amount of $5,000 was mentioned then later an amount of $20,000 mentioned by Ms Christy and ultimately $30,000 referred to by the bankrupt.  In any event I am satisfied there had been significant overspending which was evident to the bankrupt to the end of 1994 or early 1995.

10. I can see no reason why I should depart from the conclusions otherwise drawn against the bankrupt by Blaxell DCJ.  It is evident to me on all the material that the bankrupt has as described by His Honour at all times “sought to stall and defer the proceedings before the committee”.  He has on my overview of the facts never conceded that he is indebted to Ms Christy and it is against that finding that I must then assess his conduct both in terms of the transfer and his credit in terms of his evidence concerning solvency.

11. It is equally clear that Mrs Matthews in her application before the Court needs to rely upon the bankrupt and needs to satisfy the Court that the bankrupt was solvent at the time of the execution of the transfer.

12. I have referred to the findings of fact on the general issues so that it again provides some background though is not conclusive as to the issue of solvency.

13. In dealing with the issue of solvency I reject the suggestion that both Mr Pillay and/or Mr Bethune though completing a proof of debt could somehow suggest that those debts were not really debts owed by the bankrupt to them but could be paid at some future unspecified date for some unspecified work to be undertaken by the bankrupt in relation to buildings and/or architectural work.  It is nonsensical in my view for creditors to on the one hand file a proof of debt and to then assert at a later stage that that debt had been satisfied by an understanding and/or agreement that it could be paid in the manner described.

14. To suggest that a `barter arrangement’ if indeed it truly exists could somehow in the present case detract from evidence of the bankrupt being unable to meet his debts when they became due and payable is not tenable in the present case.  In any event I am satisfied that in the present case there was no course of dealing where Bethune did not expect to be paid until some future time of a kind referred to by the Full Court in the Taylor v Carroll decision.  I am further satisfied that Mr Bethune having been the author and instigator of the arrangements by the bankrupt was simply seeking to further support the bankrupt in his quest to ensure that creditors did not obtain access to the bankrupt’s estate.  To that extent therefore Mr Bethune’s credit is in issue and any assessment he makes of the solvency of the bankrupt must be questioned.

15. I find that in relation to solvency that at the relevant time the bankrupt had at least two creditors namely Mr Pillay and Mr Bethune and that he was unable to pay those debts.  Despite there being a transient balance in his account in debit I am satisfied that at the time he was insolvent. It is also relevant to take into account the conversations between the bankrupt and Ms Christie which occurred in late 1994 and early 1995 concerning the overspending on the building project and the fact that the bankrupt then had no money.  In my view a realistic assessment of the issue of solvency cannot be determined simply by looking at accounts and making what is described as a mechanical comparison of assets and liabilities.  I am satisfied the commercial reality in all the circumstances including the debts owed to Bethune and Pillay, the conversations with Ms Christy, the clear evidence that the building project for Christy had been a financial disaster, that in those circumstances at the time of the execution of the transfer the bankrupt was not solvent.

16. I am satisfied that the application pursuant to s 120 of the Bankruptcy Act should succeed and orders made accordingly.

17. In the alternative if I am incorrect in relation to the issue of solvency of the bankrupt at the time of the execution of the transfer I am satisfied for the purposes of s 121 of the Bankruptcy Act that the transfer was void against the trustees on the grounds that I am satisfied that at the time of the transfer the bankrupt was at the very least about to become insolvent. This is evidenced by the fact that accounts shortly after the date of execution of the transfer clearly demonstrate an ability to pay debts as and when they became due. I do not accept the evidence of Mr Bethune and/or the bankrupt in relation to payment by cash of outstanding debts particularly having regard to the lack of documentary material which would establish in clear terms the real nature of the bankrupt’s business. As indicated earlier in this judgment I am not satisfied that the bankrupt has been truthful in his description of his employment as an architect and in my view has at all times sought to use the confusion over his description to avoid responsibility that he had as a person who could either be described as the builder or arranging the building.

18. It is appropriate to consider the chronology in this matter to determine whether the claim by Mrs Matthews that the transfer was entered into for other reasons can be substantiated.  In my view an analysis of the chronology demonstrates that Mrs Matthews became aware of her husband’s infidelity and the child born as a result of that other relationship by the end of 1995.  The trust deed which had been entered into which did in fact make provision for Mrs Matthews to be the sole beneficiary was in fact dated April 1995 and I am satisfied in the circumstances that that document was prepared at the instigation and on the advice of Mr Bethune.  I do not accept that that document was in part a response at all to the issue of the bankrupt’s social and/or material difficulties.

19. I further reject any suggestion that the trust document and/or the transfer was entered into as a consequence of visits to be made to Vietnam by the bankrupt.  I accept the evidence that there were no visits by the bankrupt to Vietnam in 1995 and 1996.  I am satisfied that the transfer which was ultimately executed in July of 1996 was executed against the backdrop of a significant contemporaneous event, namely the pending claim against the bankrupt by Ms Christy and his powerless financial circumstances as a result of overspending on that project and not being able to meet debts as and when they became due including debts to Mr Bethune at the time.

20. I am strengthened in my conclusion that the transfer was signed for the reasons stated and had been executed in contravention of s 121 of the Bankruptcy Act as I have no doubt that other arrangements could have been made by Mrs Matthews at the time when she discovered her husband’s infidelity and there was no immediate threat of a trip to Vietnam which would prompt the arrangement. It should be remembered that it is the bankrupt’s purpose in making the transfer that is relevant and not the state of knowledge of Mrs Matthews in the present case. Her state of knowledge can only be used in my view to attempt to corroborate the claim made by the bankrupt. I reject both the evidence of the bankrupt and Mrs Matthews however as to the stated cause. To the extent that I am required I am prepared to infer that Mrs Matthews was aware of her husband’s difficult financial circumstances and had been aware of the advice given by Mr Bethune together with at least an awareness that there was a potential significant claim arising out of the disastrous building project for Ms Christy.

1. In all the circumstances I am satisfied that the bankrupt’s main purpose in making the transfer was to prevent the transferred property from becoming divisible amongst the transferors creditors at the time and/or to hinder or delay the process of making property available to divide amongst those creditors.

Conclusion

1. It is appropriate therefore that I propose making the following orders:

   (1)That application number WZ19/01 filed 19 April 2001 be dismissed.

   (2)That in relation to application number WZ36/01 filed 31 May 2001 the following orders be made:

   (a)Pursuant to ss 120 and/or 121 of the Bankruptcy Act 1966 it is declared that the transfer G247956 dated 7 August 1996 of the half share of Lynthorne James Matthews in the property located at 49A Reserve Street Bicton being the whole of the land described in Certificate of Title Volume 1792 Folio 626 (the property) is void against the Applicants.

   (b)It is declared that on 26 June 2000 legal title to the half share of Lynthorne James Matthews in the property vested in the Applicants.

   (c)It is declared that the Applicants’ interest in the property be quantified at 50% of the net value of the property remaining after the interest of the mortgage.

   (3)Liberty is granted to the parties to apply in relation to the quantification and/or assessment of the amount payable to the Applicants arising out of these orders.

2. I will hear Counsel further in relation to the issue of costs and the form of orders.

Costs

1. In these applications I delivered a decision on the substantive issues between the parties on 10 September 2002.  On that occasion I referred to orders that were orders which I intended to make set out above, subject to hearing submissions for and on behalf of the parties.  It is noteworthy that the orders that were proposed were essentially orders which had been set out in the application filed with the court in application number 36 of 2001.

2. Since the judgment and the reasons for judgment were published the matter has been the subject of further consideration by the parties and indeed the court had made orders on 29 October 2002 in relation to further material which should be provided by way of affidavit material from Ms Matthews.  After those orders were made on 29 October 2002 it was made clear that the matter would be adjourned to this day for further argument if necessary as to matters arising from the directions given by the court, as I indicated, on 29 October 2002.

3. There are two applications as indicated in my reasons for judgment and those reasons for judgment will be amended to incorporate the reasons which I now deliver.  The first of the applications, application WZ19 of 2001, is an application where the order proposed is not in dispute, so that in that application the only order required by the court is that the application filed 19 April 2001 be dismissed.  Of course there is the issue of costs arising from that application which I will deal with presently.

4. Before the court this day the representatives acting for and on behalf of Nilant have proposed a number of orders and declarations which are now before the court.  It is convenient to refer to them seriatim as each and every one of the declarations sought, save and except for the one referring to proceedings WZ19 of 2001, have been the subject of some submissions by both parties in this application.

5. The court has also received on behalf of Mrs Matthews an affidavit sworn by her on 14 November 2002 and has received a further affidavit of Eibhlin McCloskey sworn 14 November 2002, an affidavit of Susan Elizabeth Goudrey sworn 14 November 2002 and a further affidavit of Eibhlin McCloskey sworn 15 November 2002.

6. The proposed minutes of orders which have been relied upon by the representatives of Nilant and another set out declarations which, of course, having regard to the orders made by the court, or as proposed by the court, are confined now to the application WZ36 of 2001, the court having dismissed WZ19 of 2001.  What has been proposed is that the court make a declaration as follows:

   “The Transfer dated 7 August 1996 whereby Lynthorne James Matthews transferred to the Respondent the whole of his estate title and interest in the property situate at 49A Reserve Street, Bicton in the State of Western Australia being the whole of the land comprised in Certificate of Title Volume 1792 Folio 626 (‘the property’) is void as against the Applicants.”

7. It is submitted for and on behalf of Mrs Matthews that that declaration is appropriate save and except for the addition of the words at the end of the paragraph as follows:

   “On and from 19 April 2001”.

8. That is in fact based upon the date, it is said, of commencement of proceedings, though I note in passing it is the date of commencement of the proceedings by Matthews in WZ19 of 2001, whereas the date of commencement of the proceedings by Nilant is 31 May 2001.  In any event it is said that that is an appropriate date and I was referred in support of that submission to the decision of the Federal Court of Australia in the matter of Siegfried Tantner Ex parte Ivor Worrel (1999) FCA 1452 Dowsett J 22 October 1999. I was particularly referred to paragraph 61 of his Honour's judgment where His Honour states the following:

   “In Official Trustee v Alvaro (1996) 138 ALR 341, Wilcox and Cooper JJ held that pursuant to section 121 of the Bankruptcy Act, a disposition of property is avoided against a trustee from the date when proceedings to establish that fact are commence”.

9. It is submitted for and on behalf of Matthews that applying the reasoning of the court in that case to the present circumstances would lead the court to conclude that if it was going to make a declaration of the kind sought and referred to as number ‘1’ in the minutes that are now relied upon by counsel for Nilant, then the words that I have referred to earlier should be added.

10. In response it has been submitted that in the circumstances, those words are unnecessary, that what is necessary is to make the declaration in relation to the transfer and by making that declaration in relation to the transfer of 7 August 1996, that is sufficient to give effect to the present proceedings and indeed to give effect to the judgment of this court which, as I indicated, was delivered by the court in September this year.

11. In my view, the addition of the words proposed by the representative for Matthews in the circumstances of the present case is unnecessary.  Those words will not be necessary in the sense that they do not add to the effect of the declaration.  To give proper effect to the decision which has been delivered in this matter, in my view, it is only necessary to make the appropriate declaration that the transfer in question be declared void.  In those circumstances, it is not relevant to adopt the approach suggested by his Honour Dowsett J in the case to which I referred and, in my view, unnecessary in the circumstances of the present case as indicated. 

12. In relation to the second declaration sought, further submissions have been made.  The declaration sought reads:

    “The respondent holds one undivided half share of the property on trust free of all encumbrances save for mortgage G427957 granted by the respondent to the Commonwealth Bank of Australia which should be deemed to secure upon the sum of $56,809.26 against the applicant's one undivided half share”.

13. It should be noted that it is common ground that the reference in that proposed minute to the mortgage number is incorrect and it should read "G247957."  The amount of $56,809.26 is the amount, it is submitted on behalf of Matthews, which is not correct.  What is submitted on behalf of Matthews is that the correct amount should be as at the date of commencement of proceedings so that instead of referring to that specific sum, the declaration should simply say "upon the amount as at the date of commencement of proceedings" rather than inserting a precise figure.  On behalf of Nilant, it is submitted that that amount is relevant because it is relevant to fix an amount as close as one can to the date upon which the transfer which has now been impugned was made; that is, 7 August 1996.

14. Reliance was placed upon the affidavit which was received as “exhibit Matthews 1” and an affidavit of Nola Janet Matthews sworn on 19 April 2001 and, in particular, reference was made to exhibit NJM5, which is a statement of account from the Home Building Society.  In that statement, as at 30 June 1996 the balance in the account is $113,618.52.  It is said for and on behalf of Nilant that I should rely upon that affidavit and indeed other exhibits to confirm that on or about the date of transfer, which occurred admittedly approximately 1 month later, it would be reasonable to infer that the amount paid to discharge the mortgage would be substantially the same as appears in that statement.

15. A concession is made, it is said, and I accept for the purpose of these submissions that the concession is properly made, that although that account to which I have referred is in the name of N.J. Matthews alone, an allowance should be made for in fact half of the liability said to have arisen as at 30 June 1996 which is imputed to be the amount which would be substantially the same as at the date of the transfer; namely, 7 August 1996.  It is said for and on behalf of Nilant that that is the appropriate amount to allow and the matter should not be left in abeyance or at least should not be subject to the phrase which has been suggested for and on behalf of Matthews.

16. In my view, in the circumstances of this case, it is appropriate for there to be a degree of certainty in the judgment of the court.  The court should be reasonably satisfied that it is appropriate to fix an amount which would in all the circumstances be substantially the same as if the court had before it the precise figure that applied as at the date of the transfer which has now been declared void.

17. To do otherwise would not be to take into the only relevant and provable amount which should be allowed in all the circumstances.  In my view, therefore, the insertion of the amount $56,809.26 is an appropriate amount to find.  It is a sum certain based upon the evidence before me and doing the best one can in reaching that conclusion on the balance of probabilities.

18. I now consider orders that have been proposed in the minutes.  Order 2 provides that the applicants be at liberty to sell the property and receive the net proceeds of sale upon trust for the parties with liberty to apply as to the proper allocation of these funds.  It is submitted for and on behalf of Matthews that the court should insert in that order "sale by private treaty."  That suggestion has been resisted by counsel for Nilant as it is suggested that in all the circumstances that would provide an undue and unwarranted restriction upon the ability of the applicants to dispose of the property. 

19. In my view, to impose such a restriction in these circumstances would constitute an unnecessary fetter upon the discretion of the applicants in terms of the manner in which the property is to be disposed of and it is in the interests of all parties that there be a degree of flexibility which would not otherwise be achieved if the court were to accede to the submission that the property be sold by private treaty.  It is clear in my view that at least one other viable and reasonable option which may be considered in all the circumstances is sale by public auction and to restrict the order in the manner suggested would constitute an undue and unnecessary fetter upon the discretion of the applicants and would not be necessary to give property effect to the order of the court.

20. It is common ground that order 3 should be made, namely “that the respondent execute all such documents and do all such things that are necessary to enable the applicants to effect sale of the property.”  Consequential amendments need to be made to the proposed order 4 and apart from amendment to the mortgage number, it was also suggested, of course, that the amount of $56,809.26 is inappropriate.  It follows, however, from my earlier reasoning that apart from the amendment to the mortgage number, there should be no further amendment to that order and that order should be made.

21. Proposed Order 5 reads "a certificate of advocacy be issued to Mr Ian Morrison, counsel for the applicants, pursuant to order 21 rule 15 of the Federal Magistrates Court Rules." It was suggested by a representative of Ms Matthews that that would be an inappropriate certificate to grant having regard to the most recent hearing which occurred on 29 October 2002. I do not take there to be any objection to a certificate otherwise being issued. In my view the issue of a certificate under that order is a logical consequence of the involvement of counsel up to and including the obtaining of judgment. There is a significant role to be played by counsel in finalising the terms of orders and ensuring that the orders of the court ultimately entered are orders which in truth and fact accurately reflect the reasons for judgment. A continuing role of counsel as advocate - and I interpolate here it does not need to be counsel but solicitor or counsel as advocate - is essential, in my view, in the proper administration of justice. Accordingly, I have no hesitation in deciding that there should indeed be a certificate of the kind sought in proposed order number 5.

22. Order 6 proposes the following:  “That the Respondent do pay all of the Applicants' costs, including all reserved costs, of actions WZ19 2001 and WZ36 of 2001 as costs in the same action.”  That order was opposed, as I understood it, in terms of costs from the date when the decision was delivered.  There is no doubt on the affidavit material that there has been extensive efforts made for and on behalf of Ms Matthews and those efforts to a large extent have been unrewarded, in the endeavour to obtain accurate and up to date and relevant information from the Commonwealth Bank. 

23. I have no doubt that those efforts were genuine and that the efforts were made in the interests of Ms Matthews for and on her behalf by her solicitors.  However, in my view, until the matter is finalised it is appropriate that the order for costs should extend up to and including any directions that are made after the published reasons have been made available to the parties.  To do otherwise would be to deprive a party of the application of the normal principles whereby costs follow the event.  The event does not simply mean up to and including the date when the reasons for judgment have been provided but include all other steps that are taken which involve in parties incurring costs.  In this case it happens to be the case that a large proportion of costs incurred would seem to have been incurred by those acting for and on behalf of Ms Matthews in their genuine endeavours to obtain information as described.

24. I should indicate at this point that another factor which was relevant in the consideration of the declaration and indeed order 4 was the question of other expenses said to have been incurred by Ms Matthews and which have been the subject of her affidavit material received by the court.  For the sake of completeness I should indicate that at best those amounts claimed are alleged to have been claimed without, in my view, being properly the subject of appropriate proof even with the assistance of the affidavit which I have noted from Ms Goundry. 

25. I accept the submission for and on behalf of Nilant that Matthews, at least from 7 August 1996, was the beneficial owner of the property and expenses that are claimed to have been incurred were expenses for which she gained the benefit as beneficial owner and, in the alternative, I accept that these matters can and should have been agitated during the course of the trial and should not be the subject of further consideration by the court at this stage. 

26. For those reasons I reject the submission that those items allegedly expended by Ms Matthews should be taken into account in any way by the court in making these orders. 

27. That leaves me with the remaining proposed orders; namely, orders 7 and 8.  Order 7 provides that the respondents' share of the net proceeds of sale be charged with payment of the applicants' costs of these proceedings.  That order is opposed by Ms Matthews' representative and has been opposed on the basis that there is insufficient evidence before this court which would enable this court to make any or any proper assessment of the capacity of Ms Matthews to pay costs and in any event it goes beyond what is required in order to give force and effect to the orders before this court.

28. It was submitted for and on behalf of Nilant that there is a convenience and a desirability in making an order of this kind where the only known property is the property which has been the subject of the orders and it would be appropriate, in those circumstances, for an order of this kind to be made.  In my view an order of the kind proposed as order 7 is inappropriate in an action of this kind because it gives effectively to the applicant a benefit of enforcing an order for costs which would not otherwise be available to litigants and which cannot on the evidence before me be sustainable.

29. I accept that the court may well have a discretion to make orders of that kind in special circumstances but I'm not satisfied that in the present case there are circumstances of that kind which exist which would justify the making of that order. 

30. There is no dispute that I should make order 8 which provides that the parties have liberty to apply for any further directions or orders as may be required to give effect to these declarations and orders. 

31. Accordingly, for those reasons it is proposed that I make the following declarations and orders:

In application WZ19 of 2001 —

(1)The application filed 19 April 2001 be dismissed.

In application WZ36 of 2001 —

IT IS DECLARED that:

1.The transfer dated 7 August 1996 whereby Lynthorne James Matthews transferred to the respondent the whole of his estate, title and interest in the property situated 49A Reserve Street, Bicton, in the state of Western Australia being the whole of the land comprised in certificate of title volume 1792 folio 626 (the property) is void as against the applicants.

2.The respondent holds one undivided half share of the property on trust free of all encumbrances save for the mortgage G247957 granted by the respondent to the Commonwealth Bank of Australia which should be deemed to secure the sum of $56,809.26 against the applicants' one undivided half share.

IT IS ORDERED:

1.That the applicants be at liberty to sell the property and receive the net proceeds of sale upon trust for the parties with liberty to apply as to the proper allocation of those funds.

2.The respondent shall execute all such documents and do all such things that are necessary to enable the applicants to effect sale of the property.

3.The respondent indemnify the applicants from and against any liability under mortgage G247957 in excess of the sum of $56,809.26.

4.I grant a certificate of advocacy to counsel for the applicants pursuant to order 21 rule 15 of the Federal Magistrates Court Rules.

5.The respondent shall pay all of the applicants' costs including any reserved costs of actions WZ19 of 2001 and WZ36 of 2001 as costs in the same action to be taxed pursuant to Order 62 of the Federal Court Rules upon the Federal Court Scale.

6.The parties have liberty to apply for any further directions or orders as may be required to give effect to these declarations and orders.

1. Finally, I should indicate this, that in addition to making those orders it was urged upon me that consideration should be given to notification being provided by the trustees to the Commonwealth Bank. Reliance was placed upon section 120(6) of the Bankruptcy Act. That subsection provides that this section does not affect the rights of a person who acquired property from the transferee in good faith and by giving consideration that was at least as valuable as a market value of the property.

1. It is said that in the present case the court should require that notice be given so that the Commonwealth Bank can participate further in these proceedings.  In opposition to that submission it has been submitted for and on behalf of Nilant that there is sufficient protection afforded to the Commonwealth Bank by operation of both the declaration, that is, the second declaration which I have just made and also by virtue of order 3 which I made; that is, the order whereby the respondent indemnify the applicants from and against any liability under the relevant mortgage in excess of the sum referred to of $56,809.26.

2. I am satisfied that section 120(6) does not apply to the present case and there is no requirement for the Commonwealth Bank in this particular case to be notified at this stage or indeed to become involved in these proceedings. I am further satisfied in the alternative that in any event the interests of the Commonwealth Bank have been protected to the extent that may be required by virtue of the declaration and orders to which I have referred. I will direct that the reasons for judgment I have just delivered be transcribed and upon review shall constitute my additional reasons for judgment which shall, with appropriate modifications, be incorporated into those reasons for decision which I delivered on 10 September 2002.

I certify that the preceding one hundred and eighty-five (185) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate: 

Date:  15 November 2002