McMillan v Warner (Trustee)

Case [2022] FCAFC 20

FEDERAL COURT OF AUSTRALIA

McMillan v Warner (Trustee) [2022] FCAFC 20

Appeal from: Warner (Trustee), in the matter of McMillan (Bankrupt) v McMillan [2020] FCA 1759
File number(s): NSD 191 of 2021
Judgment of: LOGAN, FARRELL AND HALLEY JJ
Date of judgment: 23 February 2022
Catchwords:

BANKRUPTCY – appeal – where property was transferred to the appellant for $1 and the transferor subsequently became bankrupt – where 16 years had elapsed between the transfer and bankruptcy – where there was no temporal nexus between the creditors at the time of the transfer and the subsequent bankruptcy –where the primary judge rejected the transferor’s evidence as to his purpose in making the transfer – whether the transferor’s main purpose was to prevent the property becoming divisible among creditors or to hinder or delay the process of making that property available for division among creditors in contravention of s 121(1)(b) of the Bankruptcy Act 1966 (Cth) – whether the primary judge erred in concluding that a reasonable and definite inference was available that the transferor’s main purpose was to defeat creditors – whether the primary judge made findings that went outside the pleaded case – whether the primary judge erred in making an adverse credibility finding against the transferor – whether the transferor had embarked upon a risky venture –– appeal allowed

EVIDENCE – whether the primary judge erred in drawing Jones v Dunkel inferences  
Legislation:

Bankruptcy Act 1966 (Cth) ss 120, 121

Evidence Act 1995 (Cth) s 140
Cases cited:

Abalos v Australian Postal Commission (1990) 171 CLR 167; [1990] HCA 47

Brunskill and Anotherv Sovereign Marine & General Insurance Co Ltd and Others (1985) 62 ALR 53; [1985] HCA 61

Cannane v J Cannane Pty Ltd (in Liq) (1998) 192 CLR 557; [1998] HCA 26

Chong & Anor v CC Containers Pty Ltd & Ors (2015) 49 VR 402; [2015] VSCA 137

Devries v Australian National Railways Commission (1993) 177 CLR 472; [1993] HCA 78

Ebner v Official Trustee in Bankruptcy (1999) 91 FCR 353; [1999] FCA 110

Ex parte Russell; In re Butterworth (1882) 19 Ch D 588

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Jadwan Pty Ltd v Rae & Partners (A Firm) (2020) 278 FCR 1; [2020] FCAFC 62

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Jones v Hyde (1989) 85 ALR 23; [1989] HCA 20

Lee v Lee (2019) 266 CLR 129; [2019] HCA 28

Mackay v Douglas (1872) LR 14 Eq 106

Micheletto (Trustee), in the matter of El-Debel (Bankrupt) v El-Debel [2020] FCA 1031

Official Trustee v Alvaro (1996) 66 FCR 372

Owners of SS Hontestroom v Owners of SS Sagaporack [1927] AC 37 at 47

Prentice v Cummins (2002) 124 FCR 67; [2002] FCA 1503

The Trustees of the Property of Cummins (A Bankrupt) v Cummins (2006) 227 CLR 278; [2006] HCA 6

Trkulja v Markovic [2015] VSCA 298

Warner (Trustee), in the…

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AGLC
McMillan v Warner (Trustee) [2022] FCAFC 20
Case
[2022] FCAFC 20
Decision Date

CaseChat Overview and Summary

McMillan v Warner (Trustee) was an appeal against a decision made by the Federal Court of Australia regarding a property transfer made by Mr Brian McMillan, who later became bankrupt. The appellant, Anthony John Warner, as trustee in bankruptcy of Mr McMillan's estate, sought to set aside the transfer of a property to Ms Karin Elisabeth McMillan, Mr McMillan's wife, on the grounds that it was a transaction entered into to defeat creditors in contravention of the Bankruptcy Act 1966 (Cth). The central issue before the court was whether the primary judge had correctly inferred that Mr McMillan's main purpose in transferring the property was to hinder or delay the division of his assets among creditors or to prevent the property from becoming divisible among creditors.

The court found that the primary judge had erred in concluding that it was a reasonable and definite inference that Mr McMillan's primary purpose in making the property transfer was to defeat his creditors. The court held that the inference drawn by the primary judge was not supported by the evidence, as there were other equally compelling inferences that could be drawn from the circumstances surrounding the transfer. Notably, the court acknowledged that Mr McMillan's explanation for the transfer, which was rejected by the primary judge, was supported by the objective circumstances that Rolls-Royce had advised there was an "absence of financial separation" between Mr McMillan's personal finances and his business. The court also held that the primary judge's adverse credibility finding against Mr McMillan was not supported by the evidence and that the primary judge had made findings that went outside the pleaded case.

In light of these findings, the court allowed the appeal, set aside the orders made by the Court on 9 February 2021, and ordered that the application be dismissed. The court also ordered that the respondent, Anthony John Warner, pay the appellant's costs of the appeal and the costs of the respondent, Karin Elisabeth McMillan. The court's decision highlights the importance of drawing reasonable and definite inferences from the evidence when determining the purpose of a property transfer in bankruptcy proceedings.

Orders

Orders of the court

1. The appeal be allowed.

2. The orders made by the Court on 9 February 2021 be set aside and in lieu thereof it be ordered that:

(a) the application be dismissed; and

(b) the applicant, Anthony John Warner in his capacity as trustee in bankruptcy of the estate of Brian McMillan, pay the costs of the respondent, Karin Elisabeth McMillan.

3. The respondent to the appeal, Anthony John Warner in his capacity as trustee in bankruptcy of the estate of Brian McMillan, pay the appellant’s costs of the appeal.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

We do not accept that the primary judge erred in not making the finding sought in paragraph 4(n) of the Notice of Appeal.Conclusion on main purpose We have concluded that the primary judge erred in drawing an inference, from all the relevant circumstances, that the main purpose of Mr McMillan in making the Property Transfer was to prevent the Strathfield property from becoming divisible among his creditors, or was to hinder or delay the process of making that property available among his creditors. An inference that the main purpose of a bankrupt in making a transfer of property was to defeat his or her creditors must be a reasonable and definite inference, not merely one of a number of conflicting inferences with equal degree of probability: Cummins at [34]. While it might be safely concluded that the evidence before the primary judge established, at least in general terms, that there was a gradual withdrawal by Mrs McMillan from the business operations of her husband, Mr McMillan, this did not, in context, provide a sufficient foundation for the drawing of a reasonable and definite inference of Mr McMillan’s main purpose in making the Property Transfer for the following principal reasons. First, an equally compelling inference was that the making of the Property Transfer was attributable to the 11 June 2001 letter from Mr Tennant to Mr McMillan. The letter advised Mr McMillan of the concern of Rolls-Royce that there was an “absence of financial separation between your personal situation and that of the business” and informed him that “VWFS or any other finance company will require far greater transparency of your financial situation before agreeing terms”. The drawing of such an inference is supported by Mr McMillan’s 2 July 2001 response to Mr Tennant’s letter in which he agreed his “personal investment” was involved in his business but he did not have an alternative until a financial group was prepared to support a floor plan and in which he noted “let’s hope VW come through”. We acknowledge that this explanation of Mr McMillan’s purpose was not an explanation advanced by him in his evidence for making the Property Transfer. The primary judge rejected Mr McMillan’s explanation. As a result of that rejection, the question of Mr McMillan’s purpose for making the Property Transfer became an objective enquiry to be determined by drawing inferences from factual findings. Those factual findings included that the exchange of correspondence constituted by the 11 June 2001 letter from Mr Tennant to Mr McMillan and Mr McMillan’s 2 July 2001 response to Mr Tennant had occurred. There was never any suggestion that Rolls Royce’s counselling, as conveyed by Mr Tennant, as to an “absence of financial separation between your personal situation and that of the business”, was a contrivance. In that context, it would be somewhat perverse if it were to be suggested that an inference could be drawn that an explanation of purpose that had been advanced by Mr McMillan but rejected by the primary judge and which rejection had not been overturned on appeal, nevertheless was an explanation of purpose that was equally probable to inferences of another purpose or purposes drawn from the same objective circumstances that had earlier led to the rejection of subjective purpose.

Ratio Decidendi

Legal Principle Established

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