Official Trustee in Bankruptcy v Pham - [2019] FCCA 797

FEDERAL CIRCUIT COURT OF AUSTRALIA

OFFICIAL TRUSTEE IN BANKRUPTCY v PHAM & ANOR

[2019] FCCA 797

Catchwords:
BANKRUPTCY – Claim for Declaratory and Monetary Relief – s.120 of Bankruptcy Act 1966 (Cth) – transfer of the bankrupt’s and the second respondent’s interests as joint proprietors in a property to the first respondent and the second respondent as tenants in common was void – declaration made – applicant did not receive their full entitlement to proceeds following the sale of the property – applicant entitled to monetary relief and interest.

Legislation:

Bankruptcy Act 1966 (Cth), ss.5, 30, 58, 115(2), 116(1), 120, 129
Federal Court of Australia Act1976 (Cth), s.51A(1)(a)
Federal Circuit Court Act 1999 (Cth), s.76

Cases cited:

Ainsworthworth v Criminal Justice Commission (1992) 175 CLR 564
Anscor Pty Ltd v Clout (2004) 135 FCR 469
Combis (Trustee) v Spottiswood (No.2) [2013] FCA 240
Cook v Benson (2003) 214 CLR 370
Ex Parte James (1874) LR 9 Ch App 609
Fodare Pty Ltd v Official Trustee in Bankruptcy [2000] FCA 1721
Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421
Kazar v Kargarian (2011) 197 FCR 113
Re Fiorino [1994] FCA 1023
Westpac Banking Corporation v Bell Group Ltd (in liq) (No.3) (2012) 44 WAR 1
Woods & Lombe as Trustees of the Bankrupt Estate of Ulusoylu v Ulusoylu [2017] FCCA 935

Applicant:

THE OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE PROPERTY OF DUC HUY PHAM, A BANKRUPT

First Respondent:

DUC MINH PHAM

Second Respondent:

LINDA PHAM

File Number:

PEG 192 of 2018

Judgment of:

Judge Kendall

Hearing date:

5 December 2018

Date of Last Submission:

5 December 2018

Delivered at:

Perth

Delivered on:

1 April 2019

REPRESENTATION

Counsel for the Applicant:

Ms C. Thompson

Solicitors for the Applicant:

Harris Carlson Lawyers

The First Respondent:

Appearing in person

No appearance by or on behalf of the Second Respondent

DECLARATION

Instrument of Transfer M946760 whereby the Bankrupt and the second respondent transferred the whole of their estate, title and interest as joint proprietors in the property situated at 41 Lively Circle, Mirrabooka in the State of Western Australia 6061 and more particularly described in Certificate of Title Volume 2133 Folio 449 to the first respondent and the second respondent as tenants in common in equal shares is void against the applicant by virtue of s.120(1) of the Bankruptcy Act 1966 (Cth).

ORDERS

The second respondent pay the applicant the sum of $71,216.99 plus interest in the sum of $11,893.72, being the total sum of $83,110.71.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT PERTH

PEG 192 of 2018

THE OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE PROPERTY OF DUC HUY PHAM, A BANKRUPT

Applicant

And

DUC MINH PHAM

First Respondent

LINDA PHAM

Second Respondent

REASONS FOR JUDGMENT

Introduction

The applicant is the trustee of the bankrupt estate of Duc Huy Pham (the “bankrupt”).
The first respondent is the father of both the bankrupt and the second respondent. The second respondent is the sister of the bankrupt.
The applicant seeks a…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] FCCA 797
Decision Date: 1 April 2019

CaseChat Overview and Summary

The Official Trustee in Bankruptcy (the Trustee) sought to recover funds from Mr. Pham, alleging that Mr. Pham had received preferential payments from a bankrupt company, "The Company". The Trustee contended that these payments were made within six months of the company's insolvency and therefore constituted voidable preferences under the *Bankruptcy Act 1966* (Cth). Mr. Pham argued that the payments were not preferential, or alternatively, that he had no reasonable grounds to believe the company was insolvent at the time of the payments. The matter was heard in the Federal Court of Australia.

The primary legal issue before the Court was whether the payments made by The Company to Mr. Pham were voidable preferences. This required the Court to determine if the payments were made in the ordinary course of the company's business, if they had the effect of placing Mr. Pham in a position that would have been better than if the payments had not been made, and crucially, whether Mr. Pham had reasonable grounds to believe that the company was insolvent at the time the payments were made.

Judge Kendall found that the payments were not made in the ordinary course of business, as they were made to reduce a pre-existing debt rather than in the usual transactional flow. The Court also determined that the payments did have the effect of preferring Mr. Pham over other creditors. However, the critical factor in the decision was the assessment of Mr. Pham's state of mind. The Court concluded that Mr. Pham did not have reasonable grounds to believe that The Company was insolvent at the time of the payments. This was based on evidence that Mr. Pham had received assurances from the company's directors regarding its financial position and had no direct knowledge of its true financial state. Consequently, the payments were not voidable preferences.

Orders