Official Trustee in Bankruptcy v Dunwoody
[2004] FMCA 143
•27 February 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| OFFICIAL TRUSTEE IN BANKRUPTCY v DUNWOODY | [2004] FMCA 143 |
| BANKRUPTCY – Mareva injunctions. Bankruptcy Act, ss.58, 120, 121 Cardile v LED Builders Propriety Limited (1999) 162 ALR 294 |
| Applicant: | OFFICIAL TRUSTEE IN BANKRUPTCY |
| Respondent: | NANCY MAY DUNWOODY |
| File No: | BZ45 of 2001 |
| Delivered on: | 27 February 2004 |
| Delivered at: | Brisbane |
| Hearing date: | 25 February 2004 |
| Judgment of: | Rimmer FM |
REPRESENTATION
| Counsel for the Applicant: | Mr Porter |
| Solicitors for the Applicant: | Dibbs Barker Gosling |
| Counsel for the Respondent: | Mr Coulson |
| Solicitors for the Respondent: | Shand Taylor |
ORDERS
That the application filed 19 February 2004 be dismissed.
That the applicant pay the respondents costs of this application as agreed or failing agreement as taxed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BZ45 of 2001
| OFFICIAL TRUSTEE IN BANKRUPTCY |
Applicant
And
| NANCY MAY DUNWOODY |
Respondent
REASONS FOR JUDGMENT
Applications
This is an application which was filed by the applicant, the Trustee in Bankruptcy of the bankruptcy of Ernest Dunwoody, the son of the respondent. This application was filed on 19 February 2004 and seeks Mareva orders against the respondent, both personally and in her capacity as the trustee of the Nancy Dunwoody Trust. The application is opposed.
Background
This matter has a lengthy history, both in relation to the bankruptcy proceedings of Mr Ernest Dunwoody, and also in relation to an application which has been brought against the respondent, Nancy May Dunwoody, where the Trustee seeks that a mortgage which was granted by Mrs Dunwoody to her son, Ernest Dunwoody, effectively be set aside on the basis that it gives her a preference.
In relation to that matter, I do not propose in this interlocutory matter to set out in great detail the facts and circumstances leading up to this interlocutory application. For the purpose of today, it is sufficient to state that that matter was heard before myself at the end of January 2004; it is currently reserved for judgment, and this interlocutory application for Mareva injunction is brought during a period where the judgment is reserved, and the applicant says it is necessary to protect any property which might be able to be obtained by them if they are successful with respect to those proceedings.
The relevant history with respect to those earlier proceedings, in summary is set out in the written submissions of Mr Porter for the applicant, particularly in paragraphs 3 through to 9, and I adopt those for the purpose of these reasons.
The applicant trustee’s case
This matter arises because the applicant says that Mrs Dunwoody has divested, firstly, a house property she owned in Mackay to a Trust on 5 May 1999, and that she did so in circumstances where, if this matter is successful in terms of a judgment debt in their favour, they may seek, if non-payment is made of that judgment debt, to then take steps to issue a bankruptcy notice and proceed to sequestrate her estate and in those circumstances would then take further steps to seek to have set aside, pursuant to section 120 or 121 of the Bankruptcy Act, the transfer or disposition of the house property, which has later been sold, in Mackay, to the trust.
The facts which have brought this matter to the Court on an urgent basis are that the respondent, Nancy May Dunwoody, as trustee for the Nancy Dunwoody Trust, has indicated to the applicant that the trust proposes to purchase an interest in a lease of a unit for the provision of accommodation for Mrs Dunwoody in aged-care facility in Toowoomba. The moneys which she proposes to use as trustee of the Nancy Dunwoody Trust are available in a bank account of the trust. These funds are the proceeds of the sale of the property at Seaforth near Mackay, which is a property which was divested by Nancy Dunwoody to the trust at the relevant date in 1999.
The Trustee's argument is that the Court should have reasonable concern with respect to what is the purpose of all these transactions because of certain evidence which has become available to them from a letter which has been forwarded from a Peter Dunwoody, another son of Mrs Nancy Dunwoody, who was the trustee of the Nancy Dunwoody Trust, and that letter is annexed to the affidavit in support of the application of Scott Guthrie, the solicitor on behalf of the Trustee.
In that letter, it is written by Mr Peter Dunwoody, as relied upon by the applicant in this regard, as follows:
“ She has recently sold her house for $310,000 with a view to disbursing the funds before her forthcoming trial in January 2004. My imminent removal as trustee of my mother's affairs will be done without any advice to me and will be because I am advising Nancy, and Barbara Pearson, her daughter, that is it is wrong to try to dispose of the house to beat the Official Trustee, and whilst I am trustee I will have no part of it. You should note that now my mother has had herself appointed as trustee for her trust.”
That letter was written 8 December 2003. Based on that material, the applicant then foreshadowed to the respondent that they would bring an application for a Mareva injunction application in December 2003 and before the trial. This matter was originally resolved on a without-prejudice basis on 22 December 2003. There is no dispute that the present position in relation to the trust is as set out in a factual sense in that letter, and that is that the home at Seaforth has been sold, that there are cash reserves held in the trust, and that the respondent is now the trustee of the Nancy Dunwoody Trust, and in that capacity she holds for the trust the sum of at least $150,000.00.
The concerns of the applicant are that the cost of the acquisition of the lease of the unit in the aged-care facility in Toowoomba are represented by an entry fee of $143,000, which they say is the majority of those funds which are held by the trust, and that once the unit is leased it carries with it the right to receive repayment of the entry contribution less a further charge of up to 5 per cent, and relevantly, 10 per cent fees on termination of the lease and releasing it to another party.
The applicant therefore contends that to allow the trust to enter into this arrangement, given certain matters that they propose are open to them, this is likely to lead to a serious diminution of the funds that might be available to them if judgment is successful, and if judgment is not paid, and if Mrs Dunwoody's estate is sequestrated, and if the transaction disposing the Seaforth property to the trust by Mrs Dunwoody is deemed to fall within the provisions of either section 120 or section 121 of the Bankruptcy Act and that transaction is set aside.
The respondent’s case
The respondent opposes this application. She has filed by leave an affidavit in which she provides her evidence in support of the application, and in it she also annexes a letter which is written by her son Peter Dunwoody to her, and to her daughter Barbara Pearson, in which she says it should be taken into account and the Court should draw an inference that there is no doubt that there is a serious dispute within the Dunwoody family with respect to certain matters of a financial nature that have occurred surrounding Mrs Dunwoody's oldest son, Ernest Dunwoody's bankruptcy, and his subsequent incarceration.
For the purpose of these proceedings, I have not had any direct evidence put before me by Mr Peter Dunwoody. I have not seen either Peter Dunwoody or Mrs Nancy May Dunwoody cross-examined in respect of their competing contentions, and at its highest, I can determine only that there is certainly a very heated dispute going on within the Dunwoody family. Whether or not it is that Mrs Dunwoody's version of events is correct or whether it is that Mr Peter Dunwoody's version of events is correct is a vexed issue which, in my view, it is not appropriate for a Court to make any findings of fact upon, given the very contentious nature of their conflicting untested evidence at this stage of the proceedings.
Those things may become relevant in the fullness of time, if any application were ultimately brought by ITSA in bankruptcy proceedings concerning Mrs Dunwoody, and in proceedings which may or may not transpire in relation to setting aside of the disposition to the trust. The applicant, however, asks the Court, whilst not asking it to find the truth of those matters, to draw from the evidence a strong inference that Mrs Dunwoody has taken steps to ensure that moneys are removed from easy reach of ITSA, the Trustee in Bankruptcy of Mr Ernest Dunwoody, and that if they are successful in their application that those other things to which I have referred would flow as a natural consequence.
As I say the respondent, has replied and filed the relevant material and also there are submissions of both parties before me. The respondent states that the relevant facts are that in April 1999, and prior to commencement of the present proceedings against Mrs Dunwoody, that is, those proceedings which are currently reserved for judgment, a trust was established as the Nancy Dunwoody Trust and the residential property at Seaforth Mackay which she owned was settled to that trust and transferred to it. She says that later in 1999 the trust sold the residential property, that the beneficiaries of the trust are the respondent as the primary beneficiary and her children and grandchildren as secondary beneficiaries. At the time of the settlement to the trust of the Seaforth property, the present action, being the action which is reserved for decision before me, had not even been commenced, and that in those circumstances, there is a real argument as to whether or not the applicant is now or in the future likely to have any potential claims under section 120 or 121 of the Bankruptcy Act.
Further, the respondent points to the fact that she is an elderly woman with serious health difficulties. Those health difficulties are set out in some detail as an annexure to her affidavit and it is not disputed that there is no doubt that Mrs Dunwoody is an elderly and ill lady. In those circumstances, she maintains to the Court that it is untenable that she should continue to reside with her daughter, Barbara Pearson, in Toowoomba, that she requires special facilities for her care and also requires regular medical attention, that she is in need of the premises which will be acquired by the trust and which she, as the primary beneficiary, will receive the benefit of residence in and that it is a facility which is in her view not only necessary for her particular circumstances, but particularly designed to meet all of her particular health needs.
The respondent points to the fact that the costs of purchase in the retirement village by the trust will be approximately $143,000.00. It would provide her with a place to live in supervised circumstances and direct access to full medical facilities. She wishes that negotiations with the lessor continue so that the Nancy Dunwoody Trust will be in a position to purchase the leasehold unit without further delay. Set out in an affidavit in support of the applicant's case is an explanation of the terms and conditions with respect to the relevant and proposed lease to purchase the leasehold in the Downs Retirement village at Toowoomba.
There is no dispute that the matters set out and adopted into the submissions of the applicant's counsel are not representative of the truth in respect of the proposed purchase of leasehold unit.
The Law
The relevant law is set out clearly by each counsel in respect of this matter, and I am satisfied that the appropriate legal principles have been properly identified. It is clearly a matter where the Court has power to make such a Mareva order under section 15 of the Federal Magistrates Court Act, which is in similar terms to section 23 of the Federal Court Act, which has been held to authorise the making of Mareva orders. Both counsel rely on the decision of Cardile v LED Builders Proprietary Limited (1999) 162 ALR 294.
It is clear that such an order is discretionary but that the applicant must show at least that it has a prima facie cause of action against a respondent and that there is a danger that if the plaintiff succeeds in the action judgment will not be satisfied by reason of the respondent removing assets from the jurisdiction, dissipating assets within the jurisdiction or taking some other step in respect of its assets. Those principles have been espoused in the decisions of Pattison v BTR Engineering Australia Proprietary Limited, LED Builders v Eagle Homes Number 4 38 IPR 107 110 and Northcorp Limited v Alman Properties Australia Proprietary Limited (1994) 2 QR 405 407.
I am satisfied that it is the case that this is a drastic remedy and it should not be granted lightly. The respondent has referred to the decision of re Turner v Sylvester (1991) 2 NSWLR 295. The grant of a Mareva type order has significant impact upon the property of a person against whom it is made and such an order should only be granted in exceptional circumstances. Therefore, to obtain a Mareva type order, I am satisfied the applicant must establish to the Court the following matters:
a)that the applicant has a vested and accrued cause of action against the respondent;
b)that the cause of action is sufficiently arguable to justify the granting of interlocutory relief;
c)that danger exists by reason of the respondent absconding or the assets being removed from the jurisdiction or disposed of within the jurisdiction whereby the applicant, if successful, will not be able to have the judgment satisfied; and
d)the balance of convenience must also favour the granting of this relief.
The applicant argues that in their application they seek this Mareva order against the respondent both personally and in her capacity as trustee of the trust. It is clear from the matters to which I have referred in the relevant facts surrounding this application that there is no jurisdiction in the Court to make this order against the applicant personally. She does not own the assets in question, and it really is a matter where those assets some substantial time ago were divested to a trust, and at this point in the proceedings that trust still stands and is a legal entity in its own right. Orders are sought against Mrs Dunwoody as trustee because it is incapacity as trustee that the respondent presently holds the sale proceeds.
It is accepted as an agreed fact that the only asset of value available to pay any potential judgment in the proceedings, if successful, would be the moneys held in the trust; and that those moneys would only become available to the applicant for satisfaction of the judgment debt, if a series of events were to occur and if in relation to that series of events, the applicant was successful. I have already set those matters out in some detail. I don't propose to repeat them.
Orders are sought, it is said by the applicant, against her in a personal capacity if she swears that she will acquire the lease of the unit in her own name but beneficially. In this matter, it is clear from the respondent's case that that is not proposed, but what is proposed is that the trust in its own capacity is to purchase the lease of the unit and then grant a right of residence to Mrs Dunwoody as a primary beneficiary in that accommodation.
In argument before me, Mr Porter, on behalf of the applicant, stated that if it were the case that the unit were purchased in the respondent's capacity personally, then they would have no difficulty in conceding that she should be entitled to proceed with the purchase and to live in the unit upon a very general injunctive order being made in the terms that are sought in their minute of order. It is the argument of the applicant that they would not resist the acquisition of the lease of the unit. They would, in fact, however, proceed in these proceedings with any order against the trust to ensure that it was injuncted from proceeding with acquisition of the lease of the unit.
The applicant argues that the foundation of any order will be an arguable case that the applicant will succeed in its action against the respondent, and unlike the ordinary interlocutory situation, in this particular case the applicant's case has been heard and submissions have been made. It is clear that the delivery of reasons in that matter are reasonably imminent and therefore the applicant argues that they should be given the urgent relief to protect them in circumstances where they have made a claim, the claim has been heard, and it is imminent that the Court will know either to the benefit of the applicant or the respondent the outcome of those proceedings.
With respect to the claim against the respondent as trustee, it must be established by the applicant that there is some basis upon which the respondent as trustee may be obliged to disgorge the property or otherwise contribute to the funds or property of the judgment debtor to assist satisfaction of the judgment against the judgment debtor. On behalf of the applicant, it is submitted that there are three bases upon which that could occur, assuming success in the underlying proceedings. Therefore it is submitted that if the applicant receives judgment against Mrs Nancy May Dunwoody in the proceedings which have been heard and are subject to reservation of judgment, that there are then three bases upon which that claim could occur.
The first to arise is the respondent is made bankrupt following judgment. In that case, the value of the house might be clawed back to the benefit of her estate, as I have already set out, under section 120 or 121 of the Bankruptcy Act. I do not propose to go in detail into the legal principles concerning section 120 and 121 of the Bankruptcy Act. They are referred to in some detail and I adopt paragraphs 30, 31, 32 and 33 of the written submissions of Mr Porter on pages 7 and 8.
The third claim, it is contended, could be made under section 228 of the Property Law Act, and that is, that even if there is no bankruptcy, for the reasons as set out in paragraph 32, the transfer of the house might be voidable at the instance of the applicant once the question of status as a creditor is resolved by the judgment.
In this matter, the applicant further claims that there is a risk of dissipation by the Trust or the applicant, by then her personal capacity or in her capacity as trustee of the Trust and that this is a reasonable risk that her deliberate actions will cause a dissipation of her assets, the trust assets, arising from the evidence contained in the letter from Peter. It is submitted that it is unequivocal evidence from a person in a position to be aware of the purpose and intent of the respondent, that is, her son, and also the longstanding trustee of the Trust.
It is submitted that it is also supported by the matters in paragraph 32, specially the unconvincing nature of her changing story as to the purpose of the Trust. In this regard, the applicant refers in some detail to a transcript of an oral examination of Mrs Dunwoody undertaken in the bankruptcy proceedings of her son Ernest and it is submitted, without going into great detail with respect to those matters by the applicant, that this story has been an evolving one and the final piece of the story is now contained in her affidavit and that is substantially different to that given at the time of the oral examination.
They point to that not only in relation to evidence which might support a claim under section 120 and 121 of the Bankruptcy Act, but also in support of the Court making a finding that there is a real risk of dissipation of assets by Mrs Dunwoody, either personally or in her capacity as trustee if this Mareva Order is not granted.
The respondent argues that as against the Trustee, the Official Receiver of the estate of John Ernest Dunwoody has no vested or accrued cause of action against Nancy Dunwoody as the trustee of the Nancy Dunwoody Trust. In this regard, the respondent urges the Court to consider carefully the ownership of this property and the fact that at law this property is owned by a lawfully constituted Trust. It is not the property of Mrs Dunwoody. It is a discretionary Trust and therefore the property is held by the trust and can be disposed of or used at the discretion of the trustee. Whilst Mrs Nancy May Dunwoody is the primary beneficiary of the Trust, it must, the respondent urges, not be confused as to the legal position with respect to ownership of this particular property, that is, the funds held by the Trust which are thought to be used by the Trust now for the purpose of the relevant unit.
With respect to the underlying matters which form the basis of the granting of a Mareva order, the respondent argues as follows: that there is no direct claim by the Official Receiver, even in the event that it is successful in the substantive proceedings against the trustee of the Nancy May Dunwoody Trust or the Trust itself; that at this point in time the only claim that the applicant would have, if successful, would be against Mrs Dunwoody in her personal capacity, and that Mrs Dunwoody in her personal capacity is therefore the only person whom they can put forward to the Court today as a person against whom they are likely to have a claim which is likely to be defeated.
The respondent, in a nutshell, argues that there is not a sufficient causal link arising from those facts and that even if the Official Trustee is successful in the substantive proceedings and obtains judgment, it will still be necessary for the Official Receiver to apply for sequestration of Nancy Dunwoody herself in the event that judgment is not satisfied. In those circumstances the Official Trustee could not be the trustee of that estate due to a conflict of interest and in any event, the property of the Trust would not be property of the bankrupt which vested in a trustee under section 58 of the Bankruptcy Act.
The respondent therefore argue that this applicant can never have an accrued cause of action against Nancy Dunwoody as trustee of the Nancy Dunwoody Trust; that in fact they could only ever be simply be a judgment creditor in Nancy Dunwoody’s personal bankruptcy and it would be the trustee of her bankruptcy who ultimately would then be the person who had the cause of action against Nancy Dunwoody as trustee of the Nancy Dunwoody Trust pursuant to the provisions of section 120 and 121 of the Bankruptcy Act.
The respondent further argue that there are no facts put before this Court to establish that the Trust is likely to abscond from the jurisdiction or the Trust is likely to remove its assets from the jurisdiction. They say what is happening is in fact the Trust is simply changing the legal nature of the assets; it is converting cash in a bank account into an asset, being a leasehold unit in the retirement village and therefore there is absolutely no evidence, they say, before this Court, that the Trust is removing assets from the Trust in any way which is unlawful or likely to defeat the processes of the law.
Equally the respondent argues that there is no suggestion that the Trust is acting outside its powers in purchasing the leasehold unit. The trustee is entitled, pursuant to the Trust deed, to convert the cash which is held by the Trust as its current asset, into a leasehold unit in the retirement village, and while that changes the nature of the asset, it certainly does not lead to a suggestion or finding by this Court that the Trust is acting outside its power. She says that the balance of convenience must favour the Trust, given that while not having a vested cause of action the application is seeking to prevent the trustee dealing with its assets and that, simply put, there is no entitlement in this matter to a Mareva type order.
There were strong submissions made by the respondent with respect to whether or not the action that is sought to be taken, in light of the concessions made by the applicant at the hearing, that Mrs Dunwoody, if she purchased this leasehold unit in her personal capacity, would not have an argument from the applicant, that really the court should look at the whole purpose of this action with some suspicion. In effect, the argument was put that, in allowing the Trust who owns this asset of cash to in some way provide that asset out of the Trust and to the benefit of the primary beneficiary, Mrs Nancy Dunwoody is to, in fact, by an order of the court, in a backdoor way, seek to make, to use a colloquial term, their life a little easier in terms of the satisfaction of judgment.
At this point in time, it is not an easy road for the applicant to travel, even if successful in the substantive proceedings, to obtain the benefit of those moneys in the Trust. It is an asset owned by the Trust and if the judgment is in their favour they will only have a claim against Mrs Dunwoody personally and to, in effect, go through a process to attach the assets of the Trust is a complex set of legal transactions which may or may not be successful.
It is argued by the respondent that to put a submission to the court that they would not injunct the Trust from making some form of distributional loan to Mrs Dunwoody to then purchase the assets in her own right would, in fact, remove the asset from the Trust into the name of Mrs Dunwoody, making the Trust, in the circumstances of that disposition be by way of loan and not simply a capital distribution to her from the Trust, it would make the Trust simply another creditor in any bankruptcy which may ensue against Mrs Dunwoody herself.
The applicant strongly contends that that is not the case, that the special circumstances of this matter have led them to make the submission that they have and to put the form of orders that they have before the court, and that it has been appropriate for the applicant to consider that this application is brought, in effect, with its effect against an elderly person with serious health difficulties, and that they simply do not wish to put her in a position whereby she will not have adequate accommodation with facilities as she requires.
It is not necessary for me to determine that issue. The facts are these. If the form of order were made as sought by the applicant, the effect would be that, if Mrs Dunwoody, in her capacity as trustee, either caused a capital distribution to herself or granted a loan to herself in her personal capacity, that she would then be able to purchase a unit and the unit would be asset held in her own name, and it is obvious to the court that if that occurred then, of course, in any subsequent action against Mrs Dunwoody for the payment of the judgment debt, that the legal process involved would be more simple.
In those circumstances, I do not make any specific findings against the applicant as to any underlying intention which is wrongful in its nature or is mendacious in its nature. The reality of this matter requires a simple determination by this court. Is this Trust, who is the only legal owner of the property at this point in time, likely to abscond from the jurisdiction, likely to dissipate its assets in a manner which is likely to deny this applicant the benefit of a judgment which I may or may not make in a short period of time. It is a simple proposition, in my view.
This Trust is a duly and legally constituted Trust. I am not in a position today to make any finding that Mrs Dunwoody owns, in her own right, the fruits of that Trust. It is held by the Trust. She is the trustee of that Trust. But it is a legally constituted Trust and it owns the assets, not her personally, and she can deal with them as the trustee of the Trust, but she does not own them as the trustee of the Trust. The Trust owns them itself, as an entity in its own right.
Therefore, I must consider whether the Trust, at the direction of Nancy May Dunwoody as its trustee, is likely to abscond from the jurisdiction, or is likely to dissipate its assets such that, in the event of the successful judgment in favour of the applicant and in the event of non-payment by the respondent, and in the event of sequestration of her estate, that some future trustee of her bankruptcy would be entitled, in assisting this applicant who would then be a judgment debtor, in obtaining satisfaction of their judgment debt under the provisions of section 120, 121 or the Property Law Act, as identified by the applicant, in obtaining these moneys back by setting aside that transaction.
I am satisfied on the evidence before me, notwithstanding the inference that might be drawn by Peter Dunwoody in his evidence, that the evidence before me today is simple. This Trust is not seeking to take these moneys and remove it offshore. They are not seeking to put it into speculative ventures. They are seeking to purchase, for value, on a bona fide basis, a unit in a retirement village. The fact that the consequence of that, if a number of circumstances occur within the bankruptcy jurisdiction, is likely to make it more difficult for this applicant as a potential judgment creditor in a future bankruptcy of Mrs Dunwoody to obtain the benefit of that judgment does not satisfy the test, I find, which must be applied in a Mareva injunction.
These injunctions are important and they are to be made sparingly. If made they interfere substantially with the rights of the Trust. In those circumstances, while I can see quite clearly the difficulties that this applicant perceives that it may face as a result of this purchase, there is simply no legal entitlement, in my view, to them obtaining the benefits of a Mareva injunction against the Trust. There is no basis upon which this court would make it against Mrs Dunwoody personally as she does not own the asset. There is no basis upon which this court, on the facts and circumstances before it in relation to this particular transaction, would make it against her in her capacity as trustee. In those circumstances, I order as follows:
(1)The application must be dismissed.
(2)Costs follow the cause and I make an order that the applicant pay the respondent's costs of and incidental to this application as agreed or taxed.
I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Rimmer FM
Associate:
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