Mogilevsky v Leroy (Trustee)
[2017] FCAFC 52
•29 March 2017
FEDERAL COURT OF AUSTRALIA
Mogilevsky v Leroy (Trustee) [2017] FCAFC 52
Appeal from: Application for leave to appeal: Leroy as trustee of the bankrupt estate of Mogilevsky v Mogilevsky (No.2) [2016] FCCA 1967 File number(s): QUD 627 of 2016 Judge(s): MCKERRACHER, FARRELL AND MARKOVIC JJ Date of judgment: 29 March 2017 Catchwords: PRACTICE AND PROCEDURE – application for leave to appeal - appeal against summary judgment – whether applicant has no reasonable prospect of success – extent to which responding party should be expected to supply corroborative evidence of defence – whether valuations of property and interest in property may be relevant to establishing defence – whether documents beyond control of responding party may support defence as alleged – whether more inferences more favourable to the responding party should be drawn
BANKRUPTCY – void transaction pursuant to s 120(1) of the Bankruptcy Act 1966 (Cth) – whether wife’s ‘love and affection’ is consideration for the purposes of s 120 of the Bankruptcy Act 1966 (Cth) – whether valuations of property and interest in property may be relevant to establishing defence – whether documents and evidence beyond control of responding party at summary juncture may support defence as alleged
EQUITY – equity of exoneration – whether evidence may demonstrate that as against bankrupt wife applicant might be regarded as being ‘effectively’ or ‘treated as’ a surety – whether evidence may establish the giving of husband’s security for the purpose of advances in favour only of interests associated with wife
Legislation: Bankruptcy Act 1966 (Cth) ss 120, 120(1)(b), 120(5)(d)
Federal Circuit Court of Australia Act 1999 (Cth) s 17A
Transfer of Land Act 1958 (Vic) s 46(2)
Federal Circuit Court Rules 2001 (Cth) r 13.07
Cases cited: Carrafa v Gomez (No 3) [2016] FCCA 3139
Combis (Trustee) v Spottiswood (No 2) [2013] FCA 240
Dandaven v Harbeth Holdings Pty Ltd [2008] FCA 955
Day v Shaw [2014] EWHC 36 (Ch)
Dickson v Reidy [2004] NSWSC 1200
Ierino v Gutta (2012) 43 WAR 372
Lin v Official Trustee in Bankruptcy (2001) 187 ALR 220
Parsons v McBain (2001) 109 FCR 120
Date of hearing: 1 March 2017 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 82 Counsel for the Applicant: Mr GT Bigmore QC Solicitor for the Applicant: AJH Lawyers Counsel for the Respondent: Mr A Morris QC with Mr I Klevansky Solicitor for the Respondent: Mills Oakley Lawyers ORDERS
QUD 627 of 2016 BETWEEN: EDWARD LEON MOGILEVSKY
Applicant
AND: PAUL LEROY TRUSTEE OF THE BANKRUPT ESTATE OF ALLA MOGILEVSKY (VIC 124/15/3)
Respondent
JUDGES:
MCKERRACHER, FARRELL AND MARKOVIC JJ
DATE OF ORDER:
29 MARCH 2017
THE COURT ORDERS THAT:
1.The application for leave to amend the proposed notice of appeal be allowed.
2.The application for leave to appeal be granted.
3.The appeal be allowed.
4.The orders of Judge Jarrett on 1 August 2016 be vacated.
5.In lieu thereof it be ordered:
(a)The applicant’s application for summary judgment be dismissed.
(b)The applicant pay the costs of the application for summary judgment.
6.The respondent pay the applicant’s costs of the appeal, to be assessed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
THE COURT:
THE APPEAL ISSUE
Mr Mogilevsky applies for leave to appeal and appeals from a decision of a judge of the Federal Circuit Court of Australia (Leroy as trustee of the bankrupt estate of Mogilevsky v Mogilevsky (No 2) [2016] FCCA 1967), by which summary judgment was given against him. The primary judge declared that a transfer by Mr Mogilevsky’s wife, Mrs Mogilevsky, to him of her interest as joint tenant in the family home was void as against the respondent Trustee.
For the following reasons, the application for leave to appeal and the appeal should he allowed.
BACKGROUND
In October 2001, Mr and Mrs Mogilevsky jointly purchased a property in Brighton, Victoria (Brighton property) for $1 million. It was mortgaged to ANZ Banking Group Limited. On 27 July 2006, by a further loan, this time from Westpac Bank Limited, Mr and Mrs Mogilevsky paid out the debt to ANZ, then at about $919,000. Mr and Mrs Mogilevsky entered into a mortgage with Westpac (Brighton Westpac mortgage) in respect of that advance on 19 August 2006 to secure the loan (they describe this as the Edward and Alla Facility Agreement), reflecting the given names of Mr and Mrs Mogilevsky.
In opposing the summary judgment application, Mr Mogilevsky relied on his affidavit of 6 November 2015 relevantly to this effect:
22. Of the Westpac Loan proceeds, which were paid on 21 September 2006, approximately $919,000 was used to discharge an existing mortgage to the ANZ Bank, and approximately $79,000 remained as surplus funds (the Westpac Loan Surplus). [He produced the] settlement statement from Westpac dated 26 September 2006.
23. In or around September 2006, Manly Harbour Developments Pty Ltd Manly Harbour Developments) purchased a development site in Manly Queensland (Manly Project).
24. The Manly Project was conducted by Manly Harbour Developments, a company incorporated by [Mrs] Mogilevsky, which was at all times under her sole ownership and control. I had no involvement in Manly Harbour Developments or in the Manly Project. [He produced a] historical ASIC search of Manly Harbour Developments.
25. [Mrs] Mogilevsky did not inform me about the purchase of the Manly Project until after she had entered into the contract for its purchase. [Mrs] Mogilevsky used the Westpac Loan Surplus as part of the deposit for the purchase of the Manly Project. [He produced the] Westpac Premium Option Home Loan account statement for period from 21 September 2006 to 21 March 2007 showing the withdrawal of the Westpac Loan Surplus in the sum of $79,000.
26. The Manly Project was financed by a $1.6 million Westpac facility obtained in October 2006 (Manly Harbour Facility). [He produced] a copy of letter from Westpac to [Mrs] Mogilevsky dated 10 January 2007 relating to the Manly Harbour Facility.
27. [Mrs] Mogilevsky made all the arrangements for the Manly Harbour Facility by herself and without my involvement.
28. In order to secure the Manly Harbour Facility, Westpac required me to provide as security, among other things, the existing mortgage over the Brighton Property (Manly Harbour Edward Guarantee).
29. I provided the Manly Harbour Edward Guarantee for the benefit of [Mrs] Mogilevsky. I provided the Manly Harbour Edward Guarantee so that Manly Harbour Developments could purchase the Manly Project. My providing the Manly Harbour Edward Guarantee, enabled Manly Harbour Developments to purchase the Manly Project. The money borrowed was applied for that purpose. [He produced the] letter from Westpac dated 20 October 2006 enclosing the business finance agreement for the Manly Harbour Facility.
30. At or around the time, the value of the Brighton Property was approximately $1,356,000.
31. In or around September 2007, Iland Properties Pty Ltd, a company incorporated by [Mrs] Mogilevsky (Iland Properties) purchased a development site in Zillmere Queensland (Zillmere Project).
32. The Zillmere Project was conducted by Iland Properties, a company incorporated by [Mrs] Mogilevsky. I had no involvement whatsoever in Iland Properties or in the Zillmere Project. [He produced] a copy of a historical ASIC search of Iland Properties.
33. The Zillmere Project was financed by a $1.96 million Westpac facility obtained on 30 November 2007 (Iland Properties Facility). [He produced a letter] from Westpac to [Mrs] Mogilevsky dated 9 January 2008 relating to the Iland Properties Facility.
34. [Mrs] Mogilevsky made all the arrangements for the Iland Properties Facility by herself and without my involvement.
35. By March 2008, [Mrs] Mogilevsky had procured increases in the Manly Harbour Facility to $2,300,000. [He produced] a copy of the Details of Variation from Westpac and a letter from Westpac to Ms Mogilevsky regarding the Manly Harbour Facility in the amount of $2,300,000.
36. By July 2008 Manly Harbour Pty Ltd was in default under the Manly Harbour Facility.
37. By January 2010 Iland Properties was also in default under the Iland Properties Facility.
38. [Mrs] Mogilevsky attempted to hold on to the Zillmere Project despite the defaults. To that end, in July 2011 [Mrs] Mogilevsky negotiated an agreement with Westpac (Deed of Forbearance), whereby Westpac refrained from the immediate exercise of its rights to take control of the Zillmere Project, and which required me to provide an unlimited guarantee and indemnity in favour of Westpac for all the liabilities under the Iland Properties Facility (Iland Properties Edward Guarantee). The [produced] Deed of Forbearance was executed on 15 July 2011.
39. As at 28 June 2011, based on the Deed of Forbearance, the following amounts were owed to Westpac under the Manly Harbour Facility and the Iland Properties Facility:
a.$3,512,179.58 under the Manly Harbour Facility; and
b.$2,973,707.11 under the Iland Properties Facility.
40. After the Deed of Forbearance, as at 15 July 2011:
a.The [Brighton Westpac mortgage], under which [Mrs] Mogilevsky and I were jointly mortgagors, was security for the Manly Harbour Facility and the Iland Properties Facility (in addition to the Westpac Loan);
b.I was personally liable for $700,000 plus 20%, together with any further government duties and charges, costs, fees and expenses, of the then outstanding amount as guarantor in respect of the Manly Harbour Facility; and
c.I was personally liable for $2,973,707.11, together with any further government duties and charges, costs, fees and expenses under the Iland Properties Edward Guarantee.
…
41. I entered into the Deed of Forbearance, in so far as it concerned the Manly Harbour Facility and the Iland Properties Facility, and provided the security referred to above at paragraph 38 of this affidavit, for the benefit of [Mrs] Mogilevsky. I did this so that Iland Properties could keep the Zillmere Project despite the defaults. My entering into the Deed of Forbearance providing the necessary security to Westpac enabled Iland Properties to keep the Zillmere Project for some time due to forbearance by Westpac.
42. As a result of the Deed of Forbearance, as at [28 June 2011], [Mrs] Mogilevsky's liability to or security provided to Westpac bank under the Manly Harbour Facility and the Iland Properties Facility was as follows:
a.The [Brighton Westpac mortgage], under which [Mrs] Mogilevsky and I were jointly mortgagors, was security for the Manly Harbour Facility and the Iland Properties Facility (in addition to the Westpac Loan);
b.The amount of $3,512,179.58, together with any further government duties and charges, costs, fees and expenses as guarantor in respect of the Manly Harbour Facility; and
c.The amount of $2,973,707.11, together with any further government duties and charges, costs, fees and expenses as guarantor in respect of the Iland Properties Facility.
43. On 3 November 2011, [Mrs] Mogilevsky transferred her interest in the Brighton Property to me. On 23 November 2011, the transfer of land between [Mrs] Mogilevsky and me was registered on the title of the property.
44. At the time of the transfer on 3 November 2011, [Mrs] Mogilevsky's debt to Westpac, which was secured against the [Brighton Westpac mortgage], was approximately $6,300,000.
45. Based on the City of Bayside property valuations, the value of the Brighton Property in 2010 was approximately $1,660,000, and in 2012 was approximately $1,795,000. This value is based on the valuation given in the City of Bayside in their [produced] valuation and rate notice for 2010 and 2012.
46. Iland Properties and [Mrs] Mogilevsky did not comply with the terms of the Deed of Forbearance and Westpac took control of Iland Properties Pty Ltd and the Zillmere Project.
47. Westpac took steps to sell the Manly Project land and Zillmere Project land.
48. Westpac also took steps to take possession of the Brighton Property, and, on 3 September 2012, served me with a notice under section 76 of the Transfer of Land Act. At the same time, Westpac also served me with a notice under section 76 of the Transfer of Land Act for my property at 2 Forest Avenue, Hepburn Springs, Victoria, being the land described in certificate of title volume 10114 folio 363 (Hepburn Property). [He produced] a copy of a historical land search for the Hepburn Property.
49. As at 26 September 2012, I was indebted to Westpac in the sums of $700,000 plus 20% under the Manly Harbour Edward Guarantee, $3,482,423.39.11 under the Iland Properties Edward Guarantee, $160,881.97 jointly with [Mrs] Mogilevsky under another loan agreement, and $1,173,647.70 jointly with [Mrs] Mogilevsky under the Westpac Loan.
50. As at 26 September 2012, Mrs Mogilevsky was indebted to Westpac in the amount of approximately $5,303,474.22 under the Manly Harbour Facility and the Iland Properties Facility.
51. On 11 October 2012, Mrs Mogilevsky and I entered into an Agreement with Westpac (Terms of Settlement Deed). Under the [produced] [Terms of Settlement Deed], Mrs Mogilevsky and I were required to pay Westpac the amount of $1,265,000 (the Payment Sum), which included an amount for the final repayment of the Westpac Loan. In exchange for the Payment Sum, Westpac, among other things, would discharge the [Brighton Westpac mortgage].
52. In October 2012, I managed to organise a high interest loan …
53. On 19 November 2012, pursuant to the [Terms of Settlement Deed], I made the required payment of $1,265,000 to Westpac and the [Brighton Westpac mortgage] was discharged. …
54. Since the completion of the [Terms of Settlement Deed], I have had and continue to have the burden of servicing the [high interest loan].
55. The [Terms of Settlement Deed] also required that I provide vacant possession of the Hepburn Property to Westpac as mortgagee in possession.
56. I had a mortgage with Westpac on the Hepburn Property (Hepburn Mortgage). As at 26 September 2012, I was indebted to Westpac under the Hepburn Mortgage for approximately $160,881.97.
57. The [Terms of Settlement Deed] required that the proceeds of sale of the Hepburn Property be used to pay off the Hepburn Mortgage and any excess proceeds from the sale to be used to pay off the outstanding amount owing under the Manly Harbour Facility.
58. On or about 25 March 2013, the Hepburn Property was sold for $180,000. The amount of approximately $160,000 of the sale proceeds was used to discharge the Hepburn Mortgage. The amount of approximately $20,000 of the sale proceeds was used to pay off the outstanding amount owing under the Manly Harbour Facility.
…
By a second affidavit of 21 August 2015, Mr Mogilevsky repeated much of the account and confirmed that since the date of the purchase of the Brighton property, he had contributed to servicing the various mortgages, including the Brighton Westpac mortgage, from his earnings as a full time senior music teacher.
As the primary judge noted, it was possible that the first mortgage contained an “all monies” clause. His Honour made no finding or drew no inference in respect of that likelihood, but it may be a matter of some importance in relation to Mr Mogilevsky’s arguments as to the obligations which were secured by the Brighton Westpac mortgage.
A significant consideration for the primary judge was his conclusion that there was no evidence that, despite Mr Mogilevsky’s assertions, the Brighton Westpac mortgage was security for “the Manly Harbour Facility and the Iland Properties Facility”.
In contrast to this conclusion, Mr Mogilevsky relies, amongst other things, on his own averment and on the Deed of Forbearance.
There was reference in the Deed of Forbearance to other securities held by Westpac in the following terms at 2.7 to 2.9:
2.7 Acknowledgement of Security Interest
Manly Harbour, Iland Properties, the Guarantors, [Mr] Mogilevsky (in his personal capacity and as executor of the estate of the late Mariya Mogilevsky) and [Mrs] Mogilevsky acknowledge and agree that the Security granted to Westpac under the Facility Agreements or which is otherwise granted to or held by Westpac is and will continue to remain valid, binding and enforceable.
2.8 Acknowledgement of new securities
For the avoidance of doubt:
(a)Manly Harbour, Iland Properties, [Mr] Mogilevsky and [Mrs] Mogilevsky acknowledge and agree that the [Brighton Westpac mortgage] will secure the Manly Harbour Facility Agreement. the Iland Properties Facility Agreement and the Edward and Alla Facility Agreement; and
(b)Iland Properties, Manly Harbour and Goodluck United acknowledge and agree that the Glen Iris Mortgage will secure the Manly Harbour Facility Agreement and the Iland Properties Facility Agreement.
2.9 Acknowledgment of obligations
Manly Harbour, Iland Properties, the Guarantors, [Mr] Mogilevsky (in his personal capacity and as executor of the estate 'of the late Mariya Mogilevsky) and [Mrs] Mogilevsky acknowledge and agree that, notwithstanding the execution of this Deed:
(a)each Transaction Document to which they are a party has been duly executed by them and delivered to Westpac, and is in full force and effect;
(b)their obligations under each Transaction Document to which they are a party are valid, binding and enforceable against them in accordance with the terms and they have no defence to the enforcement of such obligation;
(c)their obligations under each Transaction Document to which they are a party are unaffected by the execution of this Deed and remain in full force and effect; and
(d)Westpac is and will be entitled to the rights, remedies and benefits provided under each Transaction Document, applicable law or otherwise.
On 15 January 2015, Mrs Mogilevsky became bankrupt on her own petition.
The Trustee sought to set aside the impugned transfer of the Brighton property under s 120 of the Bankruptcy Act 1966 (Cth). The primary judge agreed.
THE STATUTORY PROVISIONS
Section 120 of the Bankruptcy Act relevantly provides:
120 Undervalued transactions
Transfers that are void against trustee
(1)A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a)the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b)the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
Note:For the application of this section where consideration is given to a third party rather than the transferor, see section 121A.
…
What is not consideration
(5)For the purposes of subsections (1) and (4), the following have no value as consideration:
(a)the fact that the transferee is related to the transferor;
(b)if the transferee is the spouse or de facto partner of the transferor—the transferee making a deed in favour of the transferor;
(c)the transferee’s promise to marry, or to become the de facto partner of, the transferor;
(d)the transferee’s love or affection for the transferor;
(emphasis added)
…
Meaning of transfer of property and market value
(7) For the purposes of this section:
(a)transfer of property includes a payment of money; and
(b)a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c)the market value of property transferred is its market value at the time of the transfer.
JUDGMENT OF THE FEDERAL CIRCUIT COURT
After referring to the underlying facts and the principles dealing with summary judgment and the relevant legislation, the primary judge noted Mr Mogilevsky’s defence that Mrs Mogilevsky’s interest in the land was transferred to him for good consideration, being the implied promise to meet Mrs Mogilevsky’s obligations under the mortgage. Section 46(2) of the Transfer of Land Act 1958 (Vic) provides as follows:
In every such transfer of land which is subject to a mortgage or annuity there shall be implied a covenant with the transferor by the transferee binding the latter to pay the interest secured by the mortgage at the rate and times and in the manner specified in the mortgage, or to pay the annuity at the times and in the manner specified in the instrument of charge, and in the case of land subject to a mortgage to indemnify the transferor against all liability in respect of the principal sum secured by the mortgage and any of the covenants therein contained or by this Act declared to be implied therein on the part of the transferor. (emphasis added)
That defence is not directly relied upon in the application and the appeal.
The primary judge emphasised that despite extensive affidavit material relied upon by Mr Mogilevsky, nowhere was it suggested that Mrs Mogilevsky’s interest was transferred to him for any particular reason. No explanation was given about why the consideration stated in the transfer referred only to “natural love and affection”. Nor was there any evidence from Mrs Mogilevsky explaining the position. His Honour noted that if it was the case that the transaction truly was for consideration in the form of the implied covenant provided for by virtue of s 46(2) of the Transfer of Land Act, it was incumbent upon Mrs Mogilevsky to give some evidence of that. There was none.
His Honour reached the view that the summary judgment provisions of the Federal Circuit Court Rules 2001 (Cth), which mirror the provisions of this Court, were satisfied. Rule 13.07 is to the following effect and, in turn reflects s 17A of the Federal Circuit Court of Australia Act 1999 (Cth) (FCC Act) which respectively provide:
13.07 Disposal by summary judgment
(1) This rule applies if, in a proceeding:
(a)in relation to the whole or part of a party’s claim there is evidence of the facts on which the claim or part is based; and
(b) either:
(i)there is evidence given by a party or by some responsible person that the opposing party has no answer to the claim or part; or
(ii)the Court is satisfied that the opposing party has no reasonable prospect of successfully defending the claim or part.
(2)The Court may give judgment on that claim or part and make any orders or directions that the Court considers appropriate.
(3)If the Court gives judgment against a party who claims relief against the party obtaining the judgment, the Court may stay execution on, or other enforcement of, the judgment until determination of that claim.
(emphasis added)
17A Summary judgment
(1)The Federal Circuit Court of Australia may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a)the first party is prosecuting the proceeding or that part of the proceeding; and
(b)the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.
(2)The Federal Circuit Court of Australia may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a)the first party is defending the proceeding or that part of the proceeding; and
(b)the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3)For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
(4)This section does not limit any powers that the Federal Circuit Court of Australia has apart from this section.
(emphasis added)
The primary judge noted that there was no evidence from the Trustee or any other responsible person that there was no answer to the claim, but went on to confirm that his Honour was satisfied that Mr Mogilevsky had no reasonable prospects of successfully defending the claim.
Putting aside the claim in relation to the operation of s 46(2) of the Transfer of Land Act, the matter relied upon before his Honour was that Mr Mogilevsky, at the time of the transfer from Mrs Mogilevsky, was said to be entitled to an equity of exoneration in respect of the obligation taken on by giving the various guarantees of his wife’s debt. Further, it was said that he was entitled to exercise that right of exoneration by applying Mrs Mogilevsky’s share in the Brighton property for that purpose. Mr Mogilevsky argued that because of the value of his right of exoneration, calculated by reference to his potential liability under the guarantees, the value of his wife’s half share in the property was effectively zero because the value of her half share of the Brighton property did not exceed his liability under the guarantees. Even if he gave consideration that had no value for the transfer, the market value of what was transferred to him was also zero because of his equity of exoneration. (The position is put slightly differently on behalf of Mr Mogilevsky on appeal and as noted, the argument under s 46(2) of the Transfer of Land Act is not advanced).
What was important to the primary judge’s consideration of the argument, as it was advanced, was his finding that despite Mr Mogilevsky’s assertions, there was no documentary or other corroborative evidence that the Brighton Westpac mortgage was security for “the Manly Harbour Facility and the Iland Properties Facility”. His Honour also reached the following conclusions (at [17]-[18]) on the facts:
17. But there is no express suggestion in that document, or any other in the evidence, that the [Brighton Westpac mortgage] was expressly to secure the other funds advanced to Mr or Mrs Mogilvesky [sic] or her corporate interests. As I said earlier, perhaps the mortgage contained an all moneys clause, but the terms of the mortgage are not in evidence so that is not clear.
18. Further, it is not correct, I think, to say that as at the date of the deed of forbearance Mr Mogilevsky was “personally liable for $2,973,707.11, together with any further government duties and charges, costs, fees and expenses under the Iland Properties Edward Guarantee”. He had either just given that guarantee or was yet to give it at that stage. There is no suggestion of default in his obligations under the deed of forbearance at that time that triggered Mr Mogilevsky’s liability under the new guarantees.
(emphasis added)
The primary judge referred to the discussion in Parsons v McBain (2001) 109 FCR 120 by the Full Court (Black CJ, Kiefel and Finkelstein JJ) where their Honours (at [20]) explained that a surety, or a person in the position of a surety, has a right of exoneration whereby he or she is entitled to be indemnified by the principal debtor against any liability incurred as a consequence of being called on to pay the debt, describing it as an incident of the relationship between surety and principal debtor.
The primary judge observed (at [50]-[62]):
50. Where co-owners mortgage their property so that money can be borrowed for the benefit of one mortgagor, the other co-owner will be treated as if he or she was a surety and the equity of exoneration will also arise. In those circumstances that other has an interest in the property of the co-mortgagor whose property is to be regarded as primarily liable to pay the debt: Parsons at [21], Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1 at 10.
51. However, the right to exoneration is lost where the surety receives a benefit from the loan or the funds raised in respect of which the charge has been given. “So, if the borrowed funds are applied to discharge the surety’s debts, the surety could not claim exoneration, at least in respect of the benefit received.”: Parsons at [23].
52. Here, the giving of the [Brighton Westpac mortgage] might have created a relationship whereby Mr Mogilevsky would be treated as a surety and Mrs Mogilevsky would be treated as principal debtor if:
a)the mortgage was for the purpose of raising money to benefit the co-owner, in this case Mrs Mogilevsky;
b)the money borrowed was used for that purpose; and
c)Mr Mogilevsky derived no benefit from the money so raised.
53. But none of those matters are demonstrated by the evidence. The [Brighton Westpac mortgage] was created to raise funds to discharge the obligations of both Mr and Mrs Mogilevsky to the previous financier. According to Mr Mogilevsky it was a joint liability that came about when the parties purchased the property in 2001.
54. The money raised on the [Brighton Westpac mortgage] was used for joint purposes – namely to discharge Mr and Mrs Mogilevsky’s prior indebtedness. That some of the funds ($79,000) were used by Mrs Mogilevsky for her own purposes does not impress those funds with an equity of exoneration.
55. Moreover, Mr Mogilevsky obtained a direct benefit from the loan for which the mortgage was given. His liability to the parties’ previous financier was discharged.
56. In those circumstances, the relationship between Mr Mogilevsky and Mrs Mogilevsky is not one that could be treated as if it were a surety and principal debtor relationship. No equity of exoneration arises in that respect.
57. Moreover, there is no evidence that Mr Mogilevsky entered into any other relationship of suretyship with Mrs Mogilevsky. In respect of the Manly development, on Mr Mogilevsky’s evidence it was Manly Harbour Developments Pty Ltd that borrowed the relevant funds from Westpac Bank. The offer of finance by Westpac Bank was to that company. The offer document (page 102 of exhibit “GG” of the affidavit of Mr Mogilevsky filed on 6 November, 2015) records that the facility “will be secured by”, amongst other things, “$500,000 Limited Guarantee from” Mr Mogilevsky. It also recorded that the facility was “Supported by” [the Brighton Westpac mortgage].
58. Nowhere is it suggested in the offer of finance that Mr Mogilevsky should or would guarantee any indebtedness of Mrs Mogilevsky. Her role, according to the offer of finance was also as a guarantor of the company’s obligations.
59. The terms of the guarantee given by Mr Mogilevsky in favour of Manly Harbour Developments Pty Ltd are not in evidence.
60. Similarly, in respect of the guarantee given by Mr Mogilevsky pursuant to the deed of forbearance. That guarantee was not given in respect of any liability of Mrs Mogilevsky but rather, it was given in respect of Iland Properties Pty Ltd and its liability in respect of the Zillmere development. The terms of the guarantee given by Mr Mogilevsky are not in evidence.
61. Assuming that the guarantees referred to in the Manly Harbour Facility and the deed of forbearance were given by Mr Mogilevsky (they are not in evidence), they created a surety and principal debtor relationship between Mr Mogilevsky and Manly Harbour Developments Pty Ltd and Mr Mogilevsky and Iland Properties Pty Ltd. For that reason Mr Mogilevsky’s argument cannot succeed. He and Mrs Mogilevsky do not enjoy a relationship of surety and principal debtor. At best, they are co-sureties. There is no equity of exoneration between co-sureties.
62. Further, even accepting Mr Mogilevsky’s submission that the Brighton property was mortgaged to secure:
a)$700,000 plus 20% plus duties, charges, costs, fees and expenses in relation to the Manly Harbour facility; and
b)$2,973,707.11 for Iland Properties Pty Ltd
the principal debtor in each case was not Mrs Mogilevsky. The references in the Manly Harbour facility and the deed of forbearance to the [Brighton Westpac mortgage] do not assist Mr Mogilevsky because the identity of the principal debtors remains Manly Developments Pty Ltd and Iland Properties Pty Ltd.
(emphasis added)
The primary judge was not satisfied amongst other things that Mr Mogilevsky had guaranteed the indebtedness of his wife, but rather that he was guaranteeing indebtedness of Manly Harbour Developments as a co-surety. He concluded Mr Mogilevsky had no prospect of successfully defending the claim and granted summary judgment in favour of the Trustee.
AMENDED GROUNDS OF APPEAL
If leave to appeal is granted (to be determined in this instance together with the appeal), the amended grounds of appeal on which Mr Mogilevsky would rely, are as follows:
1.The learned primary judge erred in granting summary judgment in favour of the Respondent pursuant to rule 13.07(2) of the Federal Circuit Court Rules 2001 upon holding that [Mr Mogilevsky] had no reasonable prospect of successfully defending the claim and, in particular, the learned judge erred -
1.1.by finding that the evidence did not demonstrate that the [Brighton Westpac mortgage] was for the purpose of raising money for the benefit of [Mrs] Mogilevsky (…), nor that the money borrowed was used for that purpose, nor that [Mr Mogilevsky] derived no benefit from the money so raised (at [16], [17], [52] and [53] of His Honour’s Reasons for Judgment), in circumstances where the uncontroverted evidence before the learned judge was that the Brighton Westpac Mortgage was provided to the mortgagee not only as security for an initial home loan but also as security for subsequent loans to [Mrs Mogilevsky] companies, Manly Developments Pty Ltd and Iland Properties Pty Ltd (Company Loans) (Companies).
1.2.by finding that [Mrs Mogilevsky’s] interest in the Brighton Property was transferred for “no consideration”, in circumstances where the instrument of transfer recorded consideration, namely “natural love and affection”.
1.3.by failing to consider, and make a finding as to, the market value of [Mrs Mogilevsky’s] joint interest in the Brighton Property at the time she transferred that interest to [Mr Mogilevsky] (namely, 3 November 2011), or at all, in circumstances where the uncontroverted evidence before the learned judge (outlined or ambivalent evidence being sufficient for the purpose of resisting a summary judgment application) was that the market value of the Brighton Property (as unencumbered freehold) was no more than $1.795m and the amount secured by the Brighton Westpac Mortgage then (and at all material times thereafter) exceeded $7m, so that the market value of [Mrs Mogilevsky’s] interest was zero.
1.4.by misdirecting himself by failing to ask himself “Who got the money?” or further and alternatively, “Who benefited from the money?”, when the uncontroverted evidence showed that [Mrs Mogilevsky] held shares in the Companies (and thereby stood to benefit from the application of the Company Loans provided to the Companies and secured by the Brighton Westpac Mortgage) and that [Mr Mogilevsky] did not.
1.5.by finding that [Mr Mogilevsky] was not surety qua [Mrs Mogilevsky] in respect of the Company Loans but rather that [Mrs Mogilevsky] and [Mr Mogilevsky] were co-sureties and that the principal debtors were the Companies (at [56], [58], [61] and [62] of His Honour’s Reasons for Judgment), in circumstances where it was appropriate (especially in the context of a summary judgment application) to infer (or presume) that, because -
1.5.1.[Mrs Mogilevsky] received (as shareholder and director of the Companies at the time) the benefit of $2.3m pursuant to the Manly Harbour Facility Agreement (advanced by Westpac Banking Corporation in about and between October 2006 and March 2008) and the benefit of the forbearance in respect of the Iland Properties Facility Agreement contained in the Deed of Forbearance dated 15 July 2011;
1.5.2.The Company Loans were applied for the purposes of the Companies; and
1.5.3.[Mr Mogilevsky] (who was neither a shareholder in, nor an officer of, the Companies) received no benefit from the said Facility Agreements or the application of the Company Loans;
the objective manifest intention at all relevant times of [Mrs Mogilevsky] and [Mr Mogilevsky] as between themselves was that, in respect of moneys raised by virtue of their agreement that the Brighton Westpac Mortgage should also secure the Company Loans under the said Facility Agreements, [Mrs Mogilevsky] would be principal debtor and [Mr Mogilevsky] would be surety.
1.6.by misdirecting himself to the effect that [Mr Mogilevsky] needs to have derived no benefit from the loan for the equity of exoneration to apply (at [51] and [52] of His Honour’s Reasons for Judgment).
1.7.by failing to apply the proposition extracted by His Honour at [51] from Parsons in respect of the $79,000 referred to at [54] and by finding at [55] that [Mr Mogilevsky’s] receipt of a benefit from the application of the balance of the $1m advanced by Westpac Banking Corporation disentitled him from any right to exoneration in respect of the $79,000, in circumstances where His Honour ought to have found that [Mr Mogilevsky] received no benefit from $79,000 of the $1m and that accordingly, [Mr Mogilevsky] was entitled to be exonerated as against [Mrs Mogilevsky’s] share of the Brighton Property to the extent of that $79,000.
2.The learned judge should have found that [Mr Mogilevsky] had a reasonable prospect of successfully defending the claim because -
2.1.the uncontroverted evidence before the learned primary judge showed that:-
2.1.1.the Brighton Westpac Mortgage was security for the Manly Harbour Facility and the Iland Properties Facility and the Company Loans;
2.1.2.as at 3 November 2011 (the date of the impugned transfer), the local council considered the value of the Brighton Property to be between $1.66m and $1.795m;
2.1.3.as at 3 November 2011, at least $2.3m had been advanced by the mortgagee in respect of the Company Loans;
2.1.4.as at 3 November 2011, at least $7m was secured by the Brighton Westpac Mortgage; and
2.1.5.[Mr Mogilevsky] derived no benefit from the said Facilities or the Company Loans.
2.2.it was open to be inferred (or presumed) that [Mrs Mogilevsky] was, qua [Mr Mogilevsky], in the position of principal debtor in respect of the said Facilities and the Company Loans; and [Mr Mogilevsky] was, qua [Mrs Mogilevsky], in the position of surety in respect of the said Facilities and the Company Loans;
2.3.the evidence indicated, or it could reasonably be inferred that, as at 3 November 2011, [Mr Mogilevsky] was entitled to throw the burden of paying at least $2.3m upon [Mrs Mogilevsky’s] interest in the Brighton Property; and accordingly
2.4.it was strongly arguable that, as at 3 November 2011, the market value of [Mrs Mogilevsky’s] interest in the Brighton Property was zero, in which event the reasoning in Lin v Official Trustee in Bankruptcy (No.1) (2001) 187 ALR 220; [2001] FMCA 106 would apply so that the transfer does not contravene section 120(1)(b) of the Bankruptcy Act 1966. Alternatively, the learned primary judge should have directed a trial as to the market value of [Mrs Mogilevsky’s] interest at the relevant time and/or as to the value of [Mr Mogilevsky’s] equity of exoneration.
3.The learned primary judge erred by declaring that the Trustee is entitled to be registered as proprietor of one half interest in the Brighton Property and ordering that the Brighton Property vest in the Trustee and [Mr Mogilevsky] as tenants in common in equal shares.
4.The learned primary judge misdirected himself as to whether he could or should be satisfied that [Mr Mogilevsky] has no reasonable prospect of successfully defending the proceeding by failing to weigh the evidence of [Mr Mogilevsky] on the basis that:-
4.1.[Mr Mogilevsky] was obliged to provide no more than an outline of evidence, sufficient to show that there is a genuine dispute; and/or
4.2.evidence of an ambivalent character will usually be sufficient to amount to reasonable prospects; and/or
4.3.all reasonable inferences should have been drawn in favour of [Mr Mogilevsky], including especially that:-
4.3.1.because the amount owed to the mortgagee far exceeded the value of the Brighton Property, the market value of [Mrs Mogilevsky’s] interest in it when she transferred it to [Mr Mogilevsky] was zero;
4.3.2.[Mrs Mogilevsky] “got the money” by reason of her being shareholder and director of the Companies while [Mr Mogilevsky] was not; and
4.3.3.whilst the Brighton Westpac Mortgage originally secured a $1m loan used as to all but $79,000 to pay out a previous home loan, it was capable of securing, and did secure, the said Facilities and the Company Loans.
MR MOGILEVSKY’S ARGUMENTS
Mr Mogilevsky contends that leave to appeal should be granted as the judgment is attended by sufficient doubt to warrant it being reconsidered. The application for leave itself did not appear to be seriously opposed. The arguments in response were directed to the substantive grounds of appeal. We will take the same approach.
From the grounds which are set out above, it can be seen that proposed ground 1.1 and proposed ground 2.1 are directed to what are said to be factual errors. Proposed ground 1.2 involves an element of s 120 of the Bankruptcy Act which it was said was “not dealt with” by the primary judge and proposed ground 4 addresses his Honour’s treatment of some of the evidence before him in the context of a summary judgment application. The remaining grounds concern the scope and application of the facts to the suggested “equity of exoneration”.
Mr Mogilevsky’s central point of contention was that the primary judge erred in finding that “… there is no evidence that the [Brighton Westpac mortgage] was security for the Manly Harbour Facility and the Iland Properties Facility”. Mr Mogilevsky contends that such evidence exists and is unequivocal in that:
(a)the Westpac facility documents relating to financing the Manly Harbour Developments for the Manly Project show that the Brighton Westpac mortgage became security for an advance to Manly Harbour via a commercial bill of $1.66 million in October 2006 with further advances after that time, bringing the total to $2.3 million by the end of March 2008. Mr Mogilevsky relies upon an exchange of communications and security documents produced in evidence under which the penultimate security listed refers to a related commercial bill. Mr Mogilevsky makes the point, as he did throughout argument, that at trial he would hope, possibly with the benefit of subpoenas, to produce other Westpac documents which could support his contention;
(b)moreover, he points to cl 2.8(a) of the Deed of Forbearance dated 15 July 2011 which confirms that the Brighton Westpac mortgage “remains” security for the Manly Harbour Facility and also showed that it became security for the financing of the Zillmere Project undertaken by another of Mrs Mogilevsky’s companies, Iland Properties; and
(c)the Terms of Settlement Deed entered into between Mrs Mogilevsky, Mr Mogilevsky and Westpac on 11 October 2012, which provides that Mr Mogilevsky is by then the sole registered proprietor of the Brighton property and “… has provided the [Brighton Westpac mortgage] as security for, inter alia, the Manly Harbour Edward guarantee and Iland Properties Edward guarantee ...”. On Mr Mogilevsky’s argument, it is the giving of the Brighton Westpac mortgage by Mr and Mrs Mogilevsky to secure present and future advances which attracted the “equity of exoneration”, not the giving of any specific individual limited or unlimited guarantees.
Mr Mogilevsky contends that the primary judge applied the erroneous finding in [17] of his Honour’s reasons, which is to the following effect:
But there is no express suggestion in that document, or any other in the evidence, that the [Brighton Westpac mortgage] was expressly to secure the other funds advanced to Mr or Mrs Mogilvesky or her corporate interests. As I said earlier, perhaps the mortgage contained an all moneys clause, but the terms of the mortgage are not in evidence so that is not clear.
In substance, this was then repeated at [52] and [53], set out above.
Mr Mogilevsky points out that these conclusions were reached notwithstanding the primary judge’s acknowledgment in [5] and [17] that the mortgage might have contained an “all moneys clause”.
The Brighton Westpac mortgage, which was in evidence, also referred to Westpac’s Memorandum of Common Provisions which was not in evidence. It is a document which would possibly need to be subpoenaed for the purpose of trial, but may well, it is said, contain an “all monies” clause as bank mortgages frequently do. An all monies clause is effectively a clause which would (for the purposes of the present facts), have the effect of securing by the same security, future advances from the mortgagee to the mortgagor or for the mortgagor, at his/her request.
The second factual error, it is contended, is a failure to find that $2.3 million had been advanced by Westpac to Manly Harbour Developments in about and between October 2006 and March 2008 on the security of the Brighton Westpac mortgage. It is contended that this fact is apparent from the signed Westpac facility documents referred to in relation to the first of the alleged contended errors, discussed above.
Thirdly, it is argued that the primary judge failed to find that the value of the Brighton property was between $1.66 million and $1.795 million when Mrs Mogilevsky transferred her interest in it to Mr Mogilevsky in November 2011. This was an assertion contained in an affidavit in support relied upon by Mr Mogilevsky. Evidence of the Council’s valuation was available, but Mr Mogilevsky would seek to adduce a proper valuation at trial.
Fourthly, it is argued that the primary judge failed to make a finding as to “the market value” of Mrs Mogilevsky’s actual interest in the Brighton property when it was so transferred or at all. It is contended that his Honour should have found that the market value of her interest was half the amount by which the then market value of the property exceeded the amount due to Westpac and secured by the Brighton Westpac mortgage, subject only to any “equity of exoneration enjoyed by [Mr Mogilevsky]”.
The relevance of the valuations is that assuming on 28 June 2011 the Brighton Westpac mortgage secured:
·the initial home loan in the sum of $1,094,533.77;
·the Manly Harbour Facility in the sum of $3,152,179.58; and
·the Iland Properties Facility in the sum of $2,973,707.11;
this was a total exceeding $7 million. Then, having regard to the fact that the valuation of the Brighton property was in the order of $1,795 million, the market value of Mrs Mogilevsky’s interest was said to be zero, even without resort to any “equity of exoneration”.
Mr Mogilevsky points to the fact that the primary judge did recite (at [36]) that “market value” was an element of s 120 of the Bankruptcy Act and that s 120 was apparently the only provision relied upon by the Trustee for the relief sought by him. Mr Mogilevsky says he is entitled in turn to rely upon the failure to make any finding on market value as a proper basis of complaint on appeal.
Mr Mogilevsky argues that the fact that Westpac eventually discharged the Brighton Westpac mortgage in exchange for $1.265 million throws no light on the value of other securities which Westpac held in respect of those facilities, on 3 November 2011. Mr Mogilevsky submits that it could not, without a trial, be established that the $7 million should notionally be reduced by, for example, the net value of the Manly Project or the net value of the Zillmere Project or any other securities or guarantees.
Suggested errors in the primary judge’s reasoning
Mr Mogilevsky stressed that the finding that there is no evidence that the Brighton Westpac mortgage secured the Manly Harbour Facility and the Iland Properties Facility was essential to the reasoning of the primary judge (at [52] and [53]), extracted above (at [21]), to the effect that Mr Mogilevsky derived a benefit from the Brighton Westpac mortgage along with Mrs Mogilevsky (that is, the discharge of the earlier ANZ home loan), that no monies borrowed on the security of the mortgage were applied for Mrs Mogilevsky’s exclusive benefit and that the mortgage itself did not benefit Mrs Mogilevsky to the exclusion of Mr Mogilevsky. This, it is said, is at least a triable issue, if not fundamentally wrong.
Mr Mogilevsky goes on to argue that notwithstanding the error, his Honour should have endeavoured to ascertain the market value of Mrs Mogilevsky’s interest in the Brighton property at the time of the impugned transfer to Mr Mogilevsky. This was because at the hearing of the summary judgment application, Mr Mogilevsky relied upon the decision of Lin v Official Trustee in Bankruptcy (2001) 187 ALR 220 for the proposition that s 120(1)(b) of the Bankruptcy Act excludes cases where the transferor has, in effect, transferred nothing of value. (Lin is discussed below). It was argued that this is an inquiry which had to be undertaken and could only sensibly be undertaken at trial, but even on the face of matters, there was a good basis to infer that what was transferred was of no value.
Mr Mogilevsky argues that the consideration he gave to his wife clearly had zero value (love and affection), but it was nonetheless necessary for the primary judge to ascertain if there was any reasonable basis upon which Mr Mogilevsky’s assertion that the market value of Mrs Mogilevsky’s interest was also zero, made at the hearing, could be vindicated at trial.
The equity of exoneration
Moving then to the separate issue concerning the equity of exoneration, Mr Mogilevsky says the “equity of exoneration” is concerned with identifying the application of the monies borrowed in consideration of the grant of a mortgage. Mr Mogilevsky argues that the appropriate question here is “who got the money?” or “who otherwise benefitted from the mortgaging of a person’s property to secure the debt of another?”.
The only evidence was from Mr Mogilevsky that he had no interest or role in Manly Harbour or Iland Properties. They were companies controlled by Mrs Mogilevsky. She directed them and held the shares, although apparently not beneficially, according to ASIC searches.
At least at a summary judgment level Mr Mogilevsky argues that it is open to be inferred that at least the $2.3 million advanced to Manly Harbour between October 2006 and March 2008 was borrowed for Mrs Mogilevsky’s purposes and benefit, to the exclusion of Mr Mogilevsky. It is argued that the primary judge should have drawn that inference or, if not, at least declined to grant summary judgment to the Trustee.
The basis on which his Honour rejected Mr Mogilevsky’s claim to an equity of exoneration included the fact that Mr Mogilevsky derived a benefit from the initial home loan and this is undoubtedly correct. However, Mr Mogilevsky submits that it is clear from Parsons (at [51]) that the $79,000 Mrs Mogilevsky used exclusively for Manly Harbour from the $1 million advanced by Westpac can be excluded from the general proposition that the right to exoneration is lost where the surety receives a benefit from the loan funds raised. Mr Mogilevsky submits that this is also confirmed in Ierino v Gutta (2012) 43 WAR 372 (at [40] and [46]), discussed below at [50]-[51].
His Honour also excluded the possibility of Mr Mogilevsky being entitled to an equity of exoneration on the basis that the Westpac loan documents did not refer to Mr Mogilevsky as a surety for Mrs Mogilevsky. This, however, is not the position put, at the very least on appeal, by Mr Mogilevsky who contends that his position is covered by the third of the three classes of cases contemplated by Lord Selborne LC, as referred to in Ierino (at [27]) and Parsons (at [20]) (discussed below at [79]). In other words, the case put is that a triable issue is whether, as between themselves, Mr Mogilevsky might be regarded as being effectively, or “treated” as, a surety for Mrs Mogilevsky in respect of at least the $2.3 million. Mr Mogilevsky submits it was open to infer at trial that the use of $2.3 million was entirely for the benefit of the companies controlled by Mrs Mogilevsky and the fact that Mr Mogilevsky derived no benefit at all, and therefore he was, for the purposes of considering the equity between the parties, to be treated as surety and exonerated by the other. While that conclusion would not necessarily be drawn affirmatively on a summary judgment application, the argument for Mr Mogilevsky is that summary judgment should have been declined because that inference was, at least, open and capable of being drawn following evidence at trial.
THE CONTENTIONS FOR THE TRUSTEE
The Trustee contends that it amounts to an entirely novel suggestion that a husband of a bankrupt may retain the equity left in a property which is transferred to him prior to his wife’s bankruptcy for “no consideration” merely because he provided security for debts owed jointly with the bankrupt, despite the fact that he has not contributed anything to the discharge of those debts. The question is, however, whether this is a correct synopsis of all the facts.
Response to the alleged error in the primary judge’s findings of fact
The Trustee points to the fact that the finance agreement or the guarantee for the Manly Harbour Facilities does not appear anywhere in the affidavit material and that all that was relied upon by Mr Mogilevsky was an offer as opposed to actual security documents. The Trustee contends that the primary judge did not err in any of the facts about which complaint is made and correctly stated the position that, despite being a summary judgment application, Mr Mogilevsky failed to put on material showing the alleged guarantee.
The reliance upon para 2.8 of the Deed of Forbearance is misplaced, it is said, because it simply provides for an acknowledgment of new securities.
The Trustee contends that the recital in the Terms of Settlement Deed between Westpac, Mr Mogilevsky and Mrs Mogilevsky, at its highest demonstrates that the Brighton property was secured from 15 July 2011 for multiple debts, specifically being the following:
(a)$3,512,179.68 by Manly Harbour Developments;
(b)$2,973,707.11 by Iland Properties;
(c)$1,094,533.77 by Mr and Mrs Mogilevsky (joint loan over the property);
(d)$148,634.90 by Mr Mogilevsky in his personal capacity; and
(e)$1,245,877.74 by Mr Mogilevsky in his capacity as executor of the estate of the late Marlya Mogilevsky.
The Trustee argues that there was no need for the primary judge to make any of the suggested findings in relation to the market value of the Brighton property as the construction advanced by Mr Mogilevsky as to s 120(1)(b) of the Bankruptcy Act in combination with s 120(5)(d) is untenable.
The Trustee stresses that no monies were ever paid by Mr Mogilevsky or the mortgage drawn down against the Brighton property for allegedly supporting the Manly Harbour Edward Guarantee. After the transfer for no consideration on 23 November 2011 to Mr Mogilevsky, he, Mrs Mogilevsky and Westpac entered into the Terms of Settlement Deed essentially releasing all the various facility debts and allowing for a refinance of the Brighton property for a similar amount to the existing mortgage on the property. Any equity of exoneration claimed by Mr Mogilevsky is said to be “too remote to be applied”. The absence of any drawing down is said to be critical, relying on the observations in Ierino per Edelman J (at [44]), where his Honour said:
The intention of the parties at a date prior to the date of the $90,000 debt might be relevant, but only if that earlier intention continued at the date the $90,000 debt arose.
This point was repeated in Ierino (at [46]):
… In cases where the relevant debt is an apportionable part of a line of credit, the relevant time for assessing the intention of the parties is the time when that part of the debt is drawn down and incurred: Dinsdale (by his tutor Protective Commissioner) v Arthur (2006) 12 BPR 23,509 at [24]-[25] per Brereton J; Burch v Cone [2009] NSWSC 1430 at [24]-[32] per Barrett J; Boyd v Hummelstad [1996] NSWSC 93 per Brownie J.
In this instance, however, the fundamental fact relied upon by the Trustee is that the mortgage was never drawn down for any of the alleged advancements to the companies, nor has Mr Mogilevsky ever incurred the debt. The Trustee relies on Carrafa v Gomez (No 3) [2016] FCCA 3139 where Judge Riley relevantly observed (at [227]):
The respondents, in fact, have only shown snippets of the whole story. To establish an equity of exoneration, they would have needed to produce complete financial records and trace the various payments right through to the ultimate beneficiary, and provide sufficient information to show whether any money was repaid. That has not been done.
Contrary to Mr Mogilevsky’s submissions, the Trustee argues that there are no errors of fact. Rather, the Trustee contends Mr Mogilevsky does not provide any evidence to demonstrate a reasonable prospect of success.
Response to alleged errors in the primary judge’s reasoning
The Trustee submits that there was no need for the primary judge to ascertain the value of the land in circumstances where the mortgage was not drawn down and the equity of exoneration did not apply.
The Trustee says that the circumstances of this case are different from Lin insofar as there was no obligation on Mrs Mogilevsky to account to Mr Mogilevsky at the time of the transfer. Further, the relevant time for assessment is when the debt is drawn down and incurred. This did not occur prior to the transfer for no consideration on 23 November 2011.
Response to the alleged errors relating to the equity of exoneration
The Trustee contends that the facts that Mr Mogilevsky seeks the Court to find are not open on the evidence. The Trustee submits that Mr Mogilevsky does not satisfy the doctrine of equity of exoneration and, in any event, the doctrine of equity of exoneration is irrelevant. Mr Mogilevsky did not put forward sufficient affidavit evidence at the summary judgment hearing for the inferences which he now seeks to advance, particularly to the effect that Mr Mogilevsky should be treated as being security for Mrs Mogilevsky, at least in respect to the $2.3 million used for the benefit of the companies which she controlled and in which she held the shares.
In any event, it is sufficient, the Trustee says, that the primary judge correctly found that Mr Mogilevsky obtained a benefit from refinancing the Brighton Westpac mortgage and was therefore not entitled to monies allegedly used by Mrs Mogilevsky for her own purposes, namely, the $79,000. The Trustee distinguishes Dickson v Reidy [2004] NSWSC 1200, a case relied upon by Mr Mogilevsky, on the basis that Mrs Mogilevsky was not the principal debtor, nor was she the owner of the shares in the companies as they were non-beneficially owned, nor did she enter into any other relationship of suretyship.
Importantly, the Trustee stresses that, at its highest, any equity would be a charge over the property only through the guarantee, which was extinguished without a debt being incurred. In Parsons (at [21] and [25]) the Full Court said:
21 An equity of exoneration operates in the nature of "a charge upon the estate of the principal debtor by way of indemnity for the purpose of enforcing against that estate the right which [the beneficiary] has, as between [the beneficiary] and the principal debtor, to have that estate resorted to first for the payment of the debt": Gee v Liddell at 72. Thus, where co-owners mortgage their property so that money can be borrowed for the benefit of one mortgagor, the other has an interest in the property of the co-mortgagor whose property is to be regarded as primarily liable to pay the debt.
…
25 Although each appellant is entitled to exoneration, that does not give her ownership of her husband's property, but merely a charge over it. It will therefore be necessary for each appellant to transfer a one half interest in the property to the trustee. He will then hold it subject to each appellant's charge. In any event, each appellant has the right to be subrogated to the mortgage over her husband's interest in accordance with cases such as Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221.
This is a case, the Trustee emphasises, where the transfer specifically stated that it was for “natural love and affection”. No explanation was ever given in the affidavit material as to why the transfer was for “natural love and affection” and why the transfer makes no reference to any debt. It would be, the Trustee argues, perversely unjust to enrich Mr Mogilevsky to the detriment of creditors in circumstances where he has done no more than to refinance a jointly owned property. For those reasons, the primary judge was right, it is argued, to conclude that there were no reasonable prospects of successfully defending the Trustee’s claim.
CONSIDERATION
Summary judgment principles
Correctly, no party suggested that the principles cited by the primary judge concerning exercise of the discretion to award summary judgment were misplaced.
The primary judge set out those principles from [27]-[35] after citing s 17A of the FCC Act as follows:
27. This section is cognate with s.31A of the Federal Court of Australia Act 1976 and, accordingly, this Court is guided by the approach taken by the Federal Court as I previously suggested in Ejueyitsi v Bond University [2012] FMCA 872 at [24] (see also George v Fletcher [2010] FCAFC 53 at [75] and [105]).
28. The High Court discussed s.31A in Spencer v Commonwealth (2010) 241 CLR 118 and made a number of observations (which I set out as follows in, no particular order). First, the joint majority (comprised of Hayne, Crennan, Kiefel and Bell JJ) noted (at 139) that s.31A departs radically from the basis upon which earlier forms of provision permitting the entry of summary judgment have been understood and administered. Those earlier provisions were understood as requiring formation of a certain and concluded determination that a proceeding would necessarily fail.
29. The previous approach referred to in that passage is best represented by cases such as General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 and Dey v Victorian Railways Commissions (1949) 78 CLR 62. In the General Steel Industries case, Barwick CJ said (at 83) that the test could be described as applying where a proceeding “is so clearly untenable that it cannot possibly succeed”. The joint majority’s assertion in Spencer that there has been a departure from the approach espoused by Barwick CJ is informed by s.31A(3) (s.17A(3) FCC Act), which provides that a proceeding need not be hopeless or bound to fail for it to have no reasonable prospects of success.
30. Relevantly, French CJ and Gummow J discussed Parliament’s intention behind the introduction of s.31A(3). The section was introduced by the Migration Litigation Reform Act 2005. That amending legislation also inserted s.17A into the Federal Magistrates Act 1999 (as it then was). At the time, the Attorney-General said in his Second Reading Speech that:
The bill … strengthens the power of the courts to deal with unmeritorious matters, by broadening the grounds on which federal courts can summarily dispose of unsustainable cases.
31. The inference their Honours were seeking to draw, perhaps, is that Parliament’s intention in introducing ss.31A and 17A was to lower the bar for obtaining summary dismissal. Such an inference had previously been drawn by the Federal Court in Dandaven v Harbeth Holdings Pty Ltd [2008] FCA 955 and White Industries Aust Pty Ltd v Federal Commissioner of Taxation (2007) 160 FCR 298.
32. However, the majority observed that where there are real issues of fact and/or law to be decided, and the rights of the parties depend upon it, it is appropriate that the matter go to trial. In Spencer, the party seeking to defend the summary dismissal of the proceedings had identified both a factual and a constitutional question to be tried. The joint majority concluded that, since the factual question depended upon what evidence would be subsequently adduced, and the constitutional question may be affected by the resolution of the factual question, the proceeding could not suitably be determined on a summary basis.
33. The phrase “no reasonable prospect” should not be paraphrased, defined, or further explained. The joint majority (at 141) was adverse to the possibility that the phrase would spawn a lexicon or list of words or phrases intended to capture most or all cases in which a court might be satisfied that there is no “reasonable prospect”. Rather, their Honours said that:
full weight must be given to the expression as a whole. The Federal Court may exercise power under s 31A if, and only if, satisfied that there is “no reasonable prospect” of success.
34. Spencer has been and continues to be applied by this Court in respect of s.17A (see, e.g., Jackson v P/T Constructions WA Pty Ltd [2015] FCCA 1014 at [14]; Henry v Leighton Admin Services Pty Ltd [2015] FCCA 1923 at [5]; Bloomfield v Grainger [2014] FCCA 2074 at [10]). The Federal Court has similarly continued to rely on Spencer (see Keenan v Bundaberg Port Authority [2016] FCA 134 at [45]; Australian Securities and Investments Commission v Cassimatis (2013) 220 FCR 256; [2013] FCA 641 at [15]-[30]; Krajniw v Newman (No 2) [2015] FCA 673 at [9]-[13]; Crocker v Toys R Us (Australia) Pty Ltd (No 3) [2015] FCA 728 at [8]-[11]).
35. Section 17A of the FCC Act, insofar as it concerns summary judgment is manifested by r. 13.07 of the Federal Circuit Court Rules 2001, the terms of which are as follows:
13.07 Disposal by summary judgment
(1) This rule applies if, in a proceeding:
(a)in relation to the whole or part of a party’s claim there is evidence of the facts on which the claim or part is based; and
(b) either:
(i)there is evidence given by a party or by some responsible person that the opposing party has no answer to the claim or part; or
(ii)the Court is satisfied that the opposing party has no reasonable prospect of successfully defending the claim or part.
(2)The Court may give judgment on that claim or part and make any orders or directions that the Court considers appropriate.
(3)If the Court gives judgment against a party who claims relief against the party obtaining the judgment, the Court may stay execution on, or other enforcement of, the judgment until determination of that claim.
As indicated, there is no reason to question the correctness of those principles.
While a substantial body of material was before the primary judge, it is almost certain there would be other material available on Westpac’s files. Some of this material may well be relevant to the defences which Mr Mogilevsky seeks to advance. An example is the Memorandum of Common Provisions or the Brighton Westpac mortgage itself which would confirm, as might well be the case, that the original mortgage was an “all monies” mortgage.
As to the contentions strenuously advanced for the Trustee that Mr Mogilevsky failed to produce important evidence at the hearing to support his case, in all the circumstances of this case, this would place the burden too high on the party seeking to demonstrate a case that may be open on the documents produced. As noted in Dandaven v Harbeth Holdings Pty Ltd [2008] FCA 955 per Gilmour J (at [6]):
…
(a)the Court must be very cautious not to do a party an injustice by summarily dismissing proceedings;
(b)the Court ought not dismiss a claim based on a predictive assessment of prospects, where it is possible that if the claim went to trial, it may succeed;
(c)in a case where evidence can give colour and content to allegations, and where questions of fact and degree are important, the Court should be more reluctant to dismiss a proceeding on the face of a pleading;
(d)it is not Parliament's intention to require the Court to engage in lengthy and elaborate trials on an interlocutory basis for the purposes of determining whether or not a proceeding has no reasonable prospects of success. It may be necessary for the opposing party to provide no more than an outline of evidence, sufficient to show that there is a genuine dispute, to prevent the summary application becoming a trial;
(e)if there is a real issue of fact or law to be decided, and the rights of the parties depend upon it, it is obviously appropriate that the matter goes to trial. It cannot be said that where there is a real factual dispute and that factual dispute must be resolved to determine whether the claim succeeds that there is ‘no reasonable prospect of success’;
(g)it ought not be used to shut out proceedings where, on a proposition of law, there may be room for doubt. On questions of law, an inquiry as to their merit should not be for the purpose of resolving them and also not simply to determine whether the argument is hopeless, but in order to decide if it is sufficiently strong to warrant a trial;
(h)evidence of an ambivalent character will usually be sufficient to amount to reasonable prospects;
(i)in determining if there are real issues of fact in issue so as to preclude summary judgment the courts must draw all reasonable inferences in favour of the non-moving party.
(emphasis added)
For summary judgment purposes, the absence of the Manly Harbour Edward Guarantee document should not be fatal, as contended by the Trustee, when it is open, at least, to infer from the offers, the Terms of Settlement Deed and the Deed of Forbearance that the Brighton Westpac mortgage may have been used to secure the Manly Harbour Facility at the least. The intervening signed documents referred to in the Brighton Westpac mortgage were not available. However, the inference is open that Mr Mogilevsky, as he has sworn, joined in providing the Brighton Westpac mortgage as security for facilities granted to the companies controlled by Mrs Mogilevsky. Ultimately a detailed documentary analysis may reveal that this conclusion is misplaced. But at least there is sufficient evidence to support that issue going to trial. It cannot be said the assertions are implausible.
It appears reasonably clear that the Brighton Westpac mortgage was extended as security for the Manly Harbour Facility at least and some $1.6 million to $2.3 million, at least, was in fact drawn down under that facility for the purposes of the Manly Project. It should not be required of a defending party in this situation to produce every document to support each contention raised when such inferences, at least for summary judgment purposes, are capable of being drawn at a prima facie level from the documents that are produced.
There is also an inference that the Iland Properties Facility was drawn down by the time of the execution of the Deed of Forbearance on 15 July 2011 (that is that the benefit of the funds had been received). Under the Terms of Settlement Deed, the Brighton Westpac mortgage was used to secure the Iland Properties Facility. The balance owing on that Facility being in excess of $2.9 million on 28 June 2011 and in excess of $3.4 million on 26 September 2012. It would be reasonable to infer that it would be improbable that the total amount of the two Facilities secured by the Brighton Westpac mortgage dropped below $3 million between June 2011 and September 2012. As at November 2011, the market value of the Brighton property did not exceed, at least for summary judgment purposes, $1.8 million.
Section 120 construction argument
It is necessary to expand a little on the construction argument as it is developed in relation to the suggested failure to find market value contention. The primary judge’s reasons for judgment (at [38], [39] and [63]) record a finding that “love and affection” is not consideration at all. The Trustee adopts that approach, such that there was no need to consider “market value”. On its face, that is an unsurprising submission.
The position, however, advanced for Mr Mogilevsky is that s 120(5)(d) of the Bankruptcy Act recognises “love and affection” as consideration, but deems it to have no value. The next logical step, it is said, is to compare the consideration of zero value with the “market value” of what was transferred. This, it is argued, is the correct approach to the construction of the words “no consideration” in s 120(1)(b) of the Bankruptcy Act. This alternative construction of s 120 in respect of the notion of “no consideration” was alluded to (only) in Combis (Trustee) v Spottiswood (No 2) [2013] FCA 240 where Logan J observed (at [15] and [45]):
15 The only consideration recited in the Deeds of Gift is natural love and affection. The effect of s 120(5)(d) of the Act is that this is taken to be of no value as consideration. On one view of the effect of s 120(5), this means that, in this instance, it is not necessary, in relation to the claim under s 120 of the Act, for the trustees to prove the alternative mentioned in s 120(1)(b) of the Act, ie that Mrs Spottiswood gave consideration of less value than the market value of the property. That would be because, having regard to the only consideration recited in the Deeds of Gift, the operation of the Act is such that she is taken to have given no consideration for any transfer.
…
45 Even if one were to approach the gifts made under the Deeds of Gift on the basis that the effect of s 120(5) was not that no consideration was to be taken as having been given but rather that there was consideration (natural love and affection) but that consideration is to be taken as having no value the result would be no different. The transaction would remain one in which a payment of money was to be taken to have occurred with the money necessarily having a market value of $3,693,412.85 as at the date of the Deeds of Gift. Having bound herself by deed to that position, she cannot now resile from it: Dabbs v Seaman (1925) 36 CLR 538 at 549 per Isaacs J and at 573 per Starke J. Consideration of no value was given by Mrs Spottiswood in return for that payment. In Anscor at 478-479, in a passage cited with apparent approval by the High Court in Vale v Sutherland (2009) 237 CLR 638 at [6] (Vale v Sutherland), Lindgren J stated that, “the policy underlying s 120 is to enable the trustee in bankruptcy to recapture the amount of the ‘shortfall in consideration’; not to go further by, in effect, requiring the transferee to pay more for the property than its market value at the time of the transfer.” Here, the position to which Mrs Spottiswood has bound herself by deed is that the shortfall is $3,693,412.85.
Mr Mogilevsky argues that the construction noted at [45] by Logan J is to be preferred as it is more consistent with purpose with s 120 of the Bankruptcy Act. At least, he contends, that the argument in favour of such a construction should not be foreclosed by summary judgment.
This argument, it is said, was put, but not considered by the primary judge, when Mr Mogilevsky relied before the primary judge on the decision of Lin in which the consideration was also stated to be “natural love and affection” in support of the submission that Mrs Mogilevsky’s interest had no market value (albeit because of Mr Mogilevsky’s equity of exoneration).
In Lin, the following argument was accepted (at [43]-[45]):
[43] On the other hand I do think there is merit in Mr Bigmore’s suggestion that a purposive construction be given to the words in s 120(1)(b) so as to exclude cases such as the present one where the transferor has, in effect, transferred nothing of value. I am satisfied that this is the case here and that on any calculation the equities to which the bankrupt’s moiety was subject are greater than any possible valuation of that interest.
[44] The section is intended to attack the mischief (see Re Heydon’s Case (1584) 3 Co Rep 7a; 76 ER 637) of transfers at an under value. That assumes that what is transferred has a value. It also attacks the mischief of a transfer for no consideration. But “natural love and affection” is defined as “consideration having no value” (s 120(5)(d)), not as “no consideration”. It follows that a transfer of something with no value for the consideration of natural love and affection is the transfer of something with no value for consideration of no value. Mathematically it is no difference from the transfer of something worth $10 for a consideration of $10. The transaction is not mischievous; it is not in need of a remedy.
[45] The effect of this finding is that I can therefore distinguish this case from Parsons and decline to make the declaration requested by the trustee on the basis that the transfer was not one caught by the provisions of s 120.
The argument does not appear to have been expressly examined by the primary judge. At one level it seems to turn on a semantic distinction but it would appear that the underlying valuations should be established in order to explore the argument.
If the argument is correct, it would be appropriate for the value of the Brighton property and the value of Mrs Mogilevsky’s interest in the property to be established.
There is only a very small number of cases in Australia dealing with the equity of exoneration. There have been only two at intermediate appellate level and it appears that the primary judge may not have been referred to Ierino. As noted by the Court of Appeal (Pullin, Newnes JJA and Edelman J) in Ierino (at [37] and [38]):
37 … [the] principled basis for the equity of exoneration is the simple notion that effect should be given to the intention of the parties that, as between them, it is intended that the burden of a debt should be borne by one, and the other should be exonerated.
38 The intention with which the equity of exoneration is concerned is a manifest, or objective, intention. …
…
And (at [53]):
… [T]he use of borrowed funds for the sole benefit of one joint debtor can be a significant factor indicating the parties’ intention that, as between them, the person not obtaining the benefit will be treated as a surety and exonerated by the other.
(emphasis added)
The important words here are “treated as a surety”. There is no suggestion of an actual suretyship.
Mr Mogilevsky argues that it matters not that the Brighton Westpac mortgage was given in 2006 and later used to secure the company loans. As noted in Ierino (at [46]):
In each of these cases the mortgage was given at the time that the relevant debt was incurred. Nothing was said in these cases to deny that the intention of the parties in relation to a debt subsequently incurred should be considered at the time the relevant debt is incurred. In cases where the relevant debt is an apportionable part of a line of credit, the relevant time for assessing the intention of the parties is the time when that part of the debt is drawn down and incurred: Dinsdale (by his tutor Protective Commissioner) v Arthur (2006) 12 BPR 23,509 at [24]-[25] per Brereton J; Burch v Cone [2009] NSWSC 1430 at [24]-[32] per Barrett J; Boyd v Hummelstad [1996] NSWSC 93 per Brownie J.
(emphasis added)
One point in the Trustee’s argument has been that Mrs Mogilevsky did not receive the benefit of the funds personally. But it is not clear that this would preclude an equity of exoneration arising because it is clear that “the equity is not confined to a situation in which the liability is incurred to discharge a debt or obligation personal to the co-owner of secured property” as noted by Nicholas J in Dickson (at [33]). (Dickson was a case where the money was borrowed by the husband so that his wife, the mortgagor, could pay debts of her employer, to buy into her employer’s business and discharge the registered mortgage).
Moreover, this possibility was alluded to in Parsons when the Full Court said at [18] to [27]):
18 This disposes of the trustee's claim to one half of each property. We can now consider each appellant's claim to ownership of the remaining half based upon the right of exoneration. The equity of exoneration is summarised in Fisher & Lightwood's Law of Mortgage (Aust. Ed., 1995) at par 30.7:
"It is a well-established principle that a person who has mortgaged his property to secure the debt of another stands only in the position of a surety and is entitled to be exonerated by the principal debtor. In this position is a wife who has mortgaged her property to secure money raised for the benefit of her husband. There is a similar equity in favour of a husband.
Where the property of the wife, or property over which she has a power of appointment, is mortgaged, and the money is paid to her and her husband, or to him alone, it is considered prima facie that it was borrowed for his benefit, and his property is first applied, as for payment of his own debt, unless the presumption is rebutted by proof on the part of the husband, that the whole or some part of the money did not come to his hands. If the debt was not originally incurred for the benefit of the husband, this equity of exoneration does not arise by reason of his giving a covenant as additional security. The result will be the same, where the husband has paid off the mortgage, and has taken an assignment of it in trust for himself."
The authorities go back three centuries: Huntington v Huntington [1702] EngR 126; (1702) 2 Vern 438; 23 ER 881; Taite v Austin [1715] EngR 19; (1714) 1 P Wms 284; 24 ER 382; Parteriche v Powlet [1742] EngR 99; (1742) 2 Atk 383; 26 ER 632; Clinton v Hooper [1791] EngR 213; (1791) 3 Bro CC 201; 29 ER 490.
19 It was once thought that this doctrine was limited to husband and wife. This appeared to be the view of Ashburner in his Principles of Equity (2nd ed, 1933) at p 170. In Halsbury's Laws of England (4th ed, 1979), exoneration is discussed only under the title concerned with husband and wife (Vol 22, pars 1071-1076). However the authorities show that the doctrine is not so limited, and will apply in other cases. That is what occurred in Gee v Liddell [1913] 2 Ch 62 and Caldwell v Ridge Wholesale Acceptance Corporation (Australia) Limited (1993) 6 BPR 13,539.
20 The equity of exoneration is an incident of the relationship between surety and principal debtor. It usually arises where a person has mortgaged his property to secure the debt of another, whether or not that other has covenanted to pay the debt. However, it will also arise in a case where, although not an actual suretyship, the relationship is treated as one of suretyship. This is Lord Selbourne's [sic] third class of suretyship mentioned in Duncan, Fox, & Co v North and South Wales Bank (1880) 6 App Cas 1, 10. For the doctrine to apply in this class, the following facts will usually exist. First, a person must charge his property. Where the person is the beneficial owner of the property it will be sufficient if the charge is by his trustee. Second, the charge must be for the purpose of raising money to pay the debts of another person or to otherwise benefit that other person. Third, the money so borrowed must be applied for that purpose. See generally Re Berry (a bankrupt) [1978] 2 NZLR 373.
21 An equity of exoneration operates in the nature of "a charge upon the estate of the principal debtor by way of indemnity for the purpose of enforcing against that estate the right which [the beneficiary] has, as between [the beneficiary] and the principal debtor, to have that estate resorted to first for the payment of the debt": Gee v Liddell [1913] 2 Ch D 62 at 72. Thus, where co-owners mortgage their property so that money can be borrowed for the benefit of one mortgagor, the other has an interest in the property of the co-mortgagor whose property is to be regarded as primarily liable to pay the debt.
22 The trial judge denied to each appellant the right of exoneration because she had received "a tangible benefit" from the 1992 mortgage. The benefit, which might more accurately be described as an expected benefit, was that, by putting money into the partnership business, the business might survive and, as put by counsel for the trustee, that would bring "home money to put food on the table and clothe the children".
23 If a surety receives a benefit from the loan, the equity of exoneration may be defeated. So, if the borrowed funds are applied to discharge the surety's debts, the surety could not claim exoneration, at least in respect of the benefit received. But the benefit must be from the loan itself. The question suggested by the Lord Chancellor of Ireland is: "Who got the money?": see In re Kiely (1857) Ir Ch Rep 394, 405. In Paget v Paget [1898] 1 Ch 470 both the husband and the wife "got the money" and this prevented the wife claiming exoneration.
24 The "tangible benefit" referred to by the trial judge will not defeat the equity. It is too remote. In any event, the exoneration to which a surety is entitled could hardly be defeated by a benefit which is incapable of valuation, and even if it were so capable, the value is unlikely to bear any relationship to the amount received by the principal debtor.
25 Although each appellant is entitled to exoneration, that does not give her ownership of her husband's property, but merely a charge over it. It will therefore be necessary for each appellant to transfer a one half interest in the property to the trustee. He will then hold it subject to each appellant's charge. In any event, each appellant has the right to be subrogated to the mortgage over her husband's interest in accordance with cases such as Banque Financière de la Cité v Parc (Battersea) Ltd [1998] UKHL 7; [1999] 1 AC 221.
26 Finally, it should be noted that upon becoming the registered proprietor of the matrimonial home, each appellant mortgaged the property to raise money. The trial judge ordered each appellant to indemnify the trustee in respect of all liability incurred pursuant to that mortgage. It has not been suggested that this order was wrongly made.
27 In the result, the appeals should be allowed in part. In each appeal, the declaration and orders 2 and 4 of the trial judge should be set aside, and in lieu thereof there should be orders requiring each appellant to transfer her respective property to herself and to the trustee as tenants in common in equal shares (if there was a joint tenancy, it was severed by the bankruptcy: Morgan v Marquis [1853] EngR 887; (1853) 9 Ex 145 at 147-148; [1853] EngR 887; 156 ER 62 at 63; Re Holland; Ex parte Official Trustee in Bankruptcy (1985) 5 FCR 165). Each appellant should have her costs of the appeal and of the proceedings at first instance.
(emphasis added)
See also, more recently, Day v Shaw [2014] EWHC 36 (Ch).
In short, as to the s 120 construction argument and generally, it seems to us that too great an onus was put on Mr Mogilevsky to prove all the facts on which he would rely in his defence if the matter went to trial. Notably, the terms of documents that he may well be required to subpoena and expert evidence he may be required to call as to the valuation of interests in property fall into this category. There is then the argument in Lin, which remains unresolved, and in the absence of a factual foundation we will not resolve it. At least, one judge of the Federal Circuit Court has found in favour of the construction which Mr Mogilevsky would advance and another judge of this Court has referred to the argument without dismissing it. In the second category of matters, while it is not yet clear that such facts or other facts would support the contention, it may be that Mr Mogilevsky could make out an equity of exoneration defence on the basis of being treated at least implicitly, if not expressly, as a surety for Mrs Mogilevsky; that is to say, by reason of Lord Selborne’s third category. That category was alluded to by Edelman J, with whom Pullin and Newnes JJA agreed, in Ierino, and while of course it would depend upon the facts being established, the facts as actually found by the primary judge did not appear to address this possibility.
It is not at all difficult to understand the scepticism which attaches to a transfer which is merely for “natural love and affection” in this context, but in this instance, with the considerable complexity of the multiple transactions, in our view, Mr Mogilevsky should have had the opportunity to put his position at trial or at least have the benefit of a further interlocutory process, including discovery. While the bar has been lowered in moving for summary judgment, in our view it has not been lowered to the point of rejecting summarily a case which may be arguable even though it appears to have substantial difficulties. In saying this, we do not suggest the primary judge failed to look at the matter closely as it is clear his Honour did.
CONCLUSION
We have identified matters which may arguably constitute a defence. In our view, the application for leave should be granted and the appeal allowed with costs.
I certify that the preceding eighty-two (82) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices McKerracher, Farrell and Markovic. Associate:
Dated: 29 March 2017
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