Nelson (in His Capacity as trustee of the Property of Supple, a Bankrupt) v Supple
[2019] FCCA 1886
•17 July 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| NELSON (IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF SUPPLE, A BANKRUPT) v SUPPLE & ANOR | [2019] FCCA 1886 |
| Catchwords: BANKRUPTCY – Interim application by first respondent seeking summary dismissal of the substantive application – significant factual disputes not yet resolved and not resolvable until trial – not possible for Court to find substantive application has no reasonable prospects of success. |
| Legislation: Bankruptcy Act 1966 (Cth) Federal Circuit Court Act 1999 (Cth) |
| Cases cited: Tyler v Thomas (2006) 150 FCR 357 Jefferson Fund Pty Ltd v Ford Motor Company of Australia Ltd [2008] FCAFC 66 |
| Applicant: | SIMON PATRICK NELSON (IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF KATARZYNA SUPPLE, A BANKRUPT) |
| First Respondent: | JEFFREY GERARD SUPPLE |
| Second Respondent: | KATARZYNA SUPPLE |
| File Number: | MLG 47 of 2017 |
| Judgment of: | Judge Burchardt |
| Hearing date: | 28 June 2019 |
| Date of Last Submission: | 28 June 2019 |
| Delivered at: | Dandenong |
| Delivered on: | 17 July 2019 |
REPRESENTATION
| Counsel for the Applicant: | Mr Snyder |
| Solicitors for the Applicant: | Barker Jones |
| Counsel for the Respondents: | Mr Jeffrey Supple (in person) |
| Solicitors for the Respondents: | Not applicable |
ORDERS
The interim application of Jeffrey Gerard Supple dated 30 April 2019 is dismissed.
The costs of the interim application are reserved.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 47 of 2017
| SIMON PATRICK NELSON (IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF KATARZYNA SUPPLE, A BANKRUPT) |
Applicant
And
| JEFFREY GERARD SUPPLE |
First Respondent
| KATARZYNA SUPPLE |
Second Respondent
REASONS FOR JUDGMENT
Introductory
By an interim application dated 30 April 2019, Jeffrey Supple, the first respondent in the substantive proceeding, seeks the summary dismissal of the substantive application. That substantive application, filed as long ago as 10 January 2017, is brought by the applicant, Mr Nelson, as the trustee of the second respondent, who is the daughter-in-law of Jeffrey Supple.
Originally, the trustee’s application sought that a transfer of land of the property at Unit 8, 36 Brighton Road, Balaclava between Katarzyna Supple and Jeffrey Supple, dated 31 July 2015, be declared void pursuant to s 120 of the Bankruptcy Act. In the alternative, relief was sought pursuant to s 121 of the Act.
The trustee has, albeit only fairly recently, abandoned the s 120 claim.
The gravamen of Mr Supple’s position is that there is not now and indeed never was any substantive equity in the property the subject of the transfer. It is his case therefore that this proceeding is of no conceivable benefit to the bankrupt’s creditors and that the trustee has acted irregularly and improperly in pursuing the matter. He seeks the summary dismissal of the application accordingly.
For the reasons that follow I do not think that the application is made out and the matter will be adjourned to trial as presently fixed on 15 August 2019.
The issues in the case
It should be noted in passing that the parties have filed voluminous material in this matter and it would be all too easy to condescend to a minute analysis of the factual background. Bearing in mind, however, that this is a summary dismissal application, I will attempt to paint with a relatively broad brush, noting that a number of the matters the case raises will require further and far more detailed consideration at trial.
The issues in the case
Mr Supple’s application relevantly seeks “An order is sought that this matter be dismissed under s 30(1) of the Bankruptcy Act”. There is an issue in the case as to whether s 30 properly grounds that outcome.
In substance, in my opinion, this is an application brought pursuant to
s 17A of the Federal Circuit Court Act. I traversed this matter with counsel for the applicant trustee during the currency of the hearing and I propose to deal with it on this footing, in any event. What is therefore required to be considered is whether, pursuant to the terms of s 17A(2):
(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.
It should be noted that pursuant to s 17A(3):
For the purposes of this section, a proceeding or part of proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospects of success.
Does section 30 of the Bankruptcy Act give the court power to make the orders that Mr Supple seeks?
Understandably, given his self-representation, Mr Supple did not address this matter in terms. Counsel for the trustee submitted that there was no express authority as to the applicability of s 30 to provide summary dismissal applications. Section 30(1) provides:
(General Powers) The court:
(a) has full power to decide all questions, whether or law or of fact, in any case of bankruptcy or any matter under part 9, 10 or 11 coming within the cognisance of the court; and
(b) may make such orders (including to declaratory orders and orders granting injunctions or other equitable remedies) as the court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.
This is, of course, a very general authority but it is subject, it was submitted, to constraints. The court was referred to the case of Tyler v Thomas (2006) 150 FCR 357 in which a Full Court of the Federal Court relevantly found (taken from the headnote): “The discretion in s 30(1)B of the Act is not a source of power to override or alter the impact of the terms of s 120 of the Act.”
This decision accords with High Court authority – see Vale v Sutherland (2009) 26 at [19]:
Section 30 has a provenance which includes s 72 of the Bankruptcy Act 1869 (UK), s 105 of the Bankruptcy Act 1914 (UK) and s 25 of the Bankruptcy Act 1924 (Cth). It is to be generously construed, but, consistently with the reasoning in cases such as Anthony Hordern & Sons v Amalgamated Clothing and Allied Trades Union of Australia, it does not authorise the making of an order which would bring about a result which differs from that prescribed elsewhere in the Act.
It is, of course, true that there is no express authority in the Bankruptcy Act for the summary dismissal of proceedings. Nonetheless, and accepting for present purposes the accuracy of counsel’s submissions that there is no authority directly on point, I would incline to the view that s 30 as a general power of this sort does not ground summary dismissal. However, for reasons I shall shortly come to, this is of no present moment.
Section 17A of the Federal Circuit Act
There is no doubt in my mind that what Mr Supple seeks in substance is summary dismissal of the trustee’s application. This application is properly, in my view, considered pursuant to the terms of s 17A of the Federal Circuit Court Act which I have set out earlier. The nature of the test to be applied has been considered on a number of occasions as to which I would refer generally to George v Fletcher (Trustee) [2010] FCAFC 53, per Ryan and Logan JJ at [74] – [76], including, at [75]:
The suggestion made by Lindgren J at [54], with which we agree, that the intention of the legislature in enacting s 31A was to “lower the bar for obtaining summary judgment” does not carry with it the additional proposition that the intention was to remove the bar completely. True it is that s 31A is not concerned just with pleadings but with substance, not form. The mere presence of a factual controversy, however trifling implausible, tenuous or tangentially relevant is not a bar to the exercise of the power conferred by s 31A to grant summary judgment.
I note further that in considering the question as to whether there is any relevant factual dispute, such a consideration being a substantial impediment to the exercise of the power for summary dismissal, the court is obliged to draw all reasonable inferences, as opposed to merely plausible inferences, in favour of the resisting party (see Gordon J, as her Honour then was in Jefferson Fund Pty Ltd v Ford Motor Company of Australia Ltd [2008] FCAFC 66 at [132]).
The relevant facts
From the materials filed by the parties, which, as I repeat, are voluminous, it is apparent that the entire unhappy saga with which this matter is concerned relates to a unit 8, 36 Brighton Road, Balaclava. The second respondent bought this property in 2009, albeit that Mr Supple has asserted that this was in effect a joint purchase between Katarzyna Supple and her husband, Mr Jeffrey Supple’s son.
Unfortunately, they carried out extensive renovations of the property but ran into difficulties with a neighbour which have led to protracted legal proceedings culminating in the decision by Kaye JA on 12 March 2015. Thereafter Katarzyna Supple sold the property to Jeffrey Supple in July 2015. The purchase price of $475,000 was almost exactly the equivalent of the moneys that Katarzyna Supple owed on the mortgage over the property. It is now accepted by the trustee that the value of the land at the time was some $485,000.
There have been numerous valuations of the property from time to time which have varied from well below the purchase price actually paid and some well in excess. I note that the trustee has expressly abandoned his application pursuant to s 120 of the Act. Nonetheless, the valuations have fluctuated significantly and counsel for the trustee submitted that the valuations will need to be the subject of cross-examination in due course.
It should be noted that amongst the materials filed before the court is exhibit SPN-21B to one of the affidavits of Mr Nelson affirmed on 7 March 2018. This is a letter from Mr Jeffrey Supple to Chisholm & Gammon dated 20 September 2016, which relevantly asserts:
Around 15 months ago I purchased the subject property from my son, Steven Supple. I believe you inspected the property back then, quoting sale prices of 620 - 640K.
Steven had extensively renovated the 1920s apartment, by stripping it back to its bare bones…..The apartment is very much still as new although the renovation was completed in late 2013.
I also note that SPN21C is a valuation of some $620,000 to $670,000 by that firm of estate agents dated 25 September 2016.
I further note that in an affidavit affirmed 17 May 2018 Mr Nelson relevantly opined that both Katarznya Supple and Steven Supple were jointly insolvent from at least March 2015 onwards.
Mr Jeffrey Supple has deposed in an affidavit sworn 4 May 2018 as to the history of the process by which he became the owner of the property. He deposed at paragraph 27 to being unaware of the details of his son and the second respondent’s financial circumstances. And he deposed further to the source of the funds he produced to purchase the property. The affidavit does not in terms assert on what basis the purchase price of $475,000 was reached albeit that paragraph 31 asserts:
At the time of settlement of the purchase of the property, an amount just in excess of the $475,000 remained outstanding to the Commonwealth Bank and was secured by a first ranking mortgage over the title of the Property.
Katarzyna Supple has also earlier sworn an affidavit in the proceedings but it is sufficient to note that that affidavit does not, likewise, provide any particular methodology to explain why the purchase price was $475,000 rather than any other figure.
The submissions made at court
What follows is taken from my notes.
Mr Supple commenced his submission by referring to irregularities in the trustee’s conduct. There was no benefit to creditors in the property in 2015 and now. There was speculation about the value of the property in 2015 and experts had been engaged by both parties. There was a valuation of $475,000 in 2015 and a $450,000 valuation by the CBA. There were problems with building appeals and the trustee was well aware of these matters in 2014. A letter sent by solicitors for the neighbour had been sent to the trustee dated 3 November 2016 which included the problems with the building appeals and orders and this was sent to the trustee.
The trustee had on 9 December 2016 instructed a Mr Sutherland to undertake a valuation but did not include information about the building’s problems. There was no consideration of the effect of the building appeal orders and the council’s notice.
An earlier valuation by the trustee’s valuer over-valued the property. There was no consideration of the orders in the council notice. The expert had not assessed the property. A further valuation had come in at $395,000. When Mr Sutherland revisited his estimate in the light of the material about the building appeals process and the council notice he revised it by $95,000 downwards. He had still not inspected it. There were considerable costs associated with a successful appeal against the orders.
The s 120 application had been withdrawn in February 2019 and a fair value purchase was accepted. There was never any interest available for the disposition to the creditors. He, Mr Supple, had paid more for the property than it was valued at. The trustee had not undertaken due diligence and was in breach of his obligations under the Act and regulations.
Counsel for the trustee noted that the application sought summary dismissal. He queried whether there was power under s 30 to make the orders sought. He submitted that the power to dismiss summarily should not be exercised if there was a dispute as to fact and the power to dismiss should be exercised sparingly. As earlier indicated, he submitted that there was no authority directly on point about the applicability of s 30 to this application for summary dismissal.
Counsel submitted that the applicant was asserting three grounds. First, there were no divisible assets available for creditors at the start in 2015. Second, there were no divisible assets for the creditors now. Third were alleged breaches of duty by the trustee.
Counsel submitted that there was no evidence to justify finding that there was no equity. The respondent’s material is not yet tested and valuation was in dispute. Counsel pointed to the fact that in September 2016 Mr Supple attempted to sell the property with a sale authority for $680,000 and an agent’s estimate of $620,000 - $670,000. Counsel noted that Mr Supple had filed an affidavit describing this as an error but noted that this needed to be tested at trial. The trustee was not imprudent in issuing proceedings. The successful appeal had altered the value. There were various valuations not tested yet through cross-examination.
Counsel referred to the need to take into consideration rental income and also Mr Supple’s expenses on the property and queried whether they should be taken into account. Noting that ss 178 to179 (the latter of which Mr Supple had referred to in passing) were now contained in the regulations, it was nonetheless submitted that the trustee has not breached any duties in bringing the proceeding. The trustee did not now press the s 120 application because the trustee’s valuation was only $10,000 more than what Mr Supple had paid.
In reply Mr Supple submitted that the critical value was July 2015 when he paid $475,000. The trustee’s value was $485,000. The trustee did not consider the orders and notice. The $600,000 estimate by the agent was a mistake. They did not know about the orders in the notice. There was no equity in the property and nothing available to distribute to creditors.
Consideration
It needs to borne in mind that the application pursuant to s 121 is primarily concerned, for these purposes, with the transferor’s main purpose in making the transfer. If the main purpose was to prevent the property from becoming divisible amongst their creditors or to hinder or delay the process of making the property available for division amongst their creditors, then the transfer will be void.
I note, of course, pursuant to s 121(4) the transfer of property is not void against the trustee if
a)the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
b)the transferee did not know, and could not reasonably have inferred, that the transferor’s main purpose in making the transfer was the purpose; and
c)the transferee could not reasonably have inferred that at the time of the transfer the transfer was, or was about to become, insolvent.
Obviously one of the issues in the substantive proceeding is whether the purchase price of $475,000 was a fair market value for the property. Given the concession that the s 120 case cannot succeed, this matter is likely, however, to be perhaps of lesser significance. Thus, the alleged disputes as to valuation may be of less significance than counsel’s submissions suggested. Nonetheless, in circumstances where Mr Supple’s own materials suggest at least some equivocation as to the true value of the properly only relatively shortly after he had purchased it (in late 2016 when he bought it in mid-2015), this remains an area of controversy which is not yet resolved.
More to the point, if the trustee is correct and Mr Supple’s son and daughter-in-law were indeed insolvent by mid-2015, there will plainly be an issue as to the extent to which this was within the knowledge of Mr Supple himself. The contiguity of the purchase price and Ms Supple’s most pressing debt is plainly a matter that will receive attention at the trial itself. This is an important area of evidence which is plainly not yet fully resolved.
It should be noted that the court is required to make a practical assessment of whether or not the case brought by the trustee has no reasonable prospects of success. In circumstances where the motivation of the transferor and the state of mind and understanding of the transferee are plainly in issue, it is simply not possible for the court to arrive at a conclusion that the application has no reasonable prospects of success. It may well face difficulty, and, indeed considerable difficulty, in relation to the issues of the fair market value of the property, but the motivation of the transferor and the knowledge of the transferee are plainly important issues yet to be determined.
This decision is, of course, an interlocutory one and involves no final conclusions of fact save for matters that are beyond argument. Nonetheless, and applying the test as I understand it, it cannot be said that the trustee’s case has no reasonable prospects of success and I will, therefore, dismiss the interim application.
Given the proximity of the substantive trial, at which the factual matters, which are likely to be of significant impact, will be determined, it is in my opinion preferable to reserve costs.
I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Judge Burchardt
Associate:
Date: 17 July 2019
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