Pascoe v Voukidis Holdings Pty Ltd

Case [2024] FCA 915

FEDERAL COURT OF AUSTRALIA

Pascoe v Voukidis Holdings Pty Ltd [2024] FCA 915

File number(s): VID 105 of 2023
Judgment of: BUTTON J
Date of judgment: 16 August 2024
Catchwords:

BANKRUPTCY AND INSOLVENCY – transactions void against trustee – where first respondent proved in bankruptcy pursuant to loan agreement between it and the bankrupts dated 1 October 2010 (Loan Agreement) – where third respondent, a director of first respondent, and son of bankrupts, had chequered history of fabricating documents and giving false evidence – whether Loan Agreement backdated – whether Loan Agreement created security interest over bankrupts’ home – whether first respondent entered into Loan Agreement as trustee of a trust or in its own capacity – amount for which first respondent should be admitted as creditor

EQUITY – whether Loan Agreement created equitable mortgage or equitable charge – where first respondent’s obligation to provide funds under Loan Agreement conditional upon having received a mortgage in registrable form “on terms acceptable to the Lender” – where bankrupts and borrowers under Loan Agreement required to use “best endeavours” to obtain a mortgage in registerable form

EQUITY – unconscionable conduct – undue influence – whether relationship gives rise to presumption of undue influence outside established categories – whether Loan Agreement should be set aside – conditions on which Loan Agreement should be set aside – where bankrupts and borrowers under Loan Agreement elderly, retired and depended on son for income – where Loan Agreement imposed onerous terms, including a default interest rate of 24%, compounding monthly

BANKRUPTCY AND INSOLVENCY – ss 120 and 121 of the Bankruptcy Act 1966 (Cth) – s 37A of the Conveyancing Act 1919 (NSW) – onus of proof – where bankrupts disposed of shares in first respondent within five years of beginning of bankruptcy – where shares later transferred to third respondent – whether share transfers void against trustee – whether trustee discharged onus of proving inadequacy of consideration
Legislation:

Australian Securities and Investments CommissionAct 2001 (Cth) ss 12BAB, 12CA

Bankruptcy Act1966 (Cth) ss 120, 121, 122

Evidence Act 1995 (Cth) ss 67, 97, 100

Conveyancing Act 1919 (NSW) s 37A
Cases cited:

Alati v Kruger (1955) 94 CLR 216

Andrew v Zant Pty Ltd (2004) 213 ALR 812; [2004] FCA 1716

Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447

Commissioner of State Revenue (NSW) v Dick Smith Electronics Holdings Pty Ltd (2005) 221 CLR 496; [2005] HCA 3

Commissioner of State Revenue (Vic) v Lend Lease Development Pty Ltd (2014) 254 CLR 142; [2014] HCA 51

Commissioner of Taxation v Oswal (No 6) (2016) 339 ALR 560; [2016] FCA 762

Creak v Ford Motor Company of Australia Ltd (2023) 112 NSWLR 272; [2023] NSWCA 217

Currie v Dempsey (1967) 69 SR (NSW) 116

El-Debel v Micheletto (Trustee) (2021) 153 ACSR 15; [2021] FCAFC 117

G v H (1994)…

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Pascoe v Voukidis Holdings Pty Ltd [2024] FCA 915
Case
[2024] FCA 915
Decision Date

CaseChat Overview and Summary

In the case of Pascoe v Voukidis Holdings Pty Ltd, the Federal Court of Australia was tasked with determining various disputes surrounding a loan agreement between Voukidis Holdings Pty Ltd and the bankrupts, Peter and Kathy. The primary issues included whether the loan agreement was backdated, whether it created a security interest over the bankrupts' home, and the conditions under which the agreement should be set aside due to unconscionable conduct and undue influence. Additionally, the court had to consider whether certain share transfers were void against the trustee in bankruptcy and whether the trustee had discharged the burden of proving the inadequacy of consideration.

The court found that the loan agreement was not backdated to 1 October 2010, as claimed, but rather was executed at a later date. The agreement did not create an immediate proprietary interest or an immediate right of recourse to identifiable property. Instead, it imposed a conditional obligation on the bankrupts to provide a mortgage in registrable form before any funds were advanced. The court also held that the loan agreement should be set aside due to unconscionable conduct and undue influence, given the relationship between the parties and the onerous terms of the agreement. The relationship between the bankrupts and Voukidis Holdings, compounded by the history of document falsification and false evidence by one of the respondents, further supported the decision to set aside the loan agreement.

Consequently, the loan agreement and the mortgage were declared void, rendering Voukidis Holdings an unsecured creditor. The court ordered that draft orders be provided by 23 August 2024, with any disputes over costs to be resolved by the end of August 2024. This ruling underscores the importance of the integrity of financial documentation and the court's vigilance in protecting vulnerable parties from exploitative arrangements.

Orders

Orders of the court

1. By 23 August 2024, the parties are to provide draft orders to chambers to give effect to these reasons.

2. If the parties disagree as to the appropriate outcome as to costs, each party must file and serve any submissions on costs (limited to four pages) by 28 August 2024, with any responsive submissions (limited to two pages) by 30 August 2024.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Some of the documents tendered as hearsay evidence were not objected to. I ruled against the Respondents’ objection to one document tendered as hearsay evidence of Peter and Kathy (being a joint affidavit they swore in a proceeding in the Supreme Court of Victoria). Some additional hearsay evidence (transcript extracts of evidence given by Gerard O’Hea and Theo Baker in Supreme Court of Victoria proceedings) was also tendered pursuant to s 64 of the Evidence Act, without objection. Tendency evidence The Applicant sought to adduce tendency evidence, being evidence adduced to prove that Christos has or had a tendency to create false documents, backdate documents, knowingly give false evidence on oath and give false instructions to lawyers. The tendency evidence was sought to be adduced after notice was given under s 97(1) of the Evidence Act. I granted a dispensation under s 100(1) of the Evidence Act from the notice requirement in s 97 in relation to a document that was not referred to in the tendency notice served on the Respondents, and admitted the tendency evidence over the Respondents’ objections, for reasons recorded in the transcript. Olga Sclavenitis Olga was called by the Applicant. She gave evidence on subpoena concerning her relationship with Christos and their homes, her involvement (or lack thereof) with the activities of COV and Voukidis Holdings, and the application of her signature to various documents. She was cross-examined. I accept Olga as a witness of truth, although her evidence on some matters (referred to below) was of limited probative value.Penny Calagis Ms Calagis was called by the Respondents, and was cross-examined. With the Applicant’s agreement, Ms Calagis was cross-examined by video link from New South Wales as she had caring responsibilities for Kathy. Ms Calagis’ evidence focused on the execution of the Loan Agreement and, in particular, whether it was executed in 2010. I have accepted her evidence, as detailed below. Maurizio Zappacosta The Respondents called Mr Zappacosta. He was cross-examined, also by video link from New South Wales. His evidence concerned whether Voukidis Holdings entered into the Loan Agreement and made advances to Peter and Kathy as trustee of the KC Trust or in its own capacity. I have rejected his evidence. Mr Zappacosta made himself the uncritical mouthpiece of Christos and gave baseless evidence.Christos Voukidis To a large extent, the Respondents’ case relied on evidence given, and documents produced, by Christos. The Applicant urged the Court to find that Christos is an unreliable witness, whose evidence should not be accepted unless it is independently corroborated by documents or other witnesses whose evidence is also accepted. In aid of that submission, the Applicant adduced the tendency evidence referred to above. I address this evidence below.Break Fast bank statements The Joint Venture Proceeding involved Ambridge Investments Pty Ltd and Break Fast, which was controlled at the relevant time by Christos.

Decision

Reasons for decision

This document is a further instance of Christos creating a backdated document and using it in litigation without disclosing the circumstances of its creation.Conclusion on Christos’ credit I do not accept Christos as a witness of truth. His willingness to fabricate documents (particularly the bank statements noted above) and give false evidence (particularly in relation to the application of funds in accordance with a court order for cladding removal purposes) means that I do not accept Christos’ evidence on contested facts unless supported by the evidence of a witness whose disposition to dishonesty has not been established (such as Ms Calagis) or reliable documentary evidence. In addition, I found Christos’ evidence in cross-examination to often be evasive and non-responsive. In my assessment, in answering questions in cross-examination, Christos’ evidence was directed to what he perceived to be to the Respondents’ advantage. He sought to side-step or minimise the significance of evidence put to him regarding his history of falsification of documents and false evidence.WHEN WAS THE LOAN AGREEMENT EXECUTED? The Applicant’s position was that the Loan Agreement was entered into in 2020, and not on the date stated on the face of the document, being 1 October 2010. The Applicant submitted that, even putting to one side Christos’ history of document falsification, the terms of the Loan Agreement (which in the Applicant’s submission created an “absurdly inflated liability” of Peter and Kathy to Voukidis Holdings of more than $1,800,000 on advances (net of repayments) of $268,650 over a period of more than 10 years) and the timing of the lodgement of the caveat in support of it (on or about 25 August 2020, when Peter and Kathy were aware of the imminent costs order in the COV Proceeding) should invite the most serious scepticism as to the date of the Loan Agreement’s execution. In an annexure to his closing submissions, the Applicant relied on further pieces of evidence as supporting his contention that the Loan Agreement was not executed on 1 October 2010, including:(1)The fact that no native file of the unexecuted document was ever produced, with no credible explanation given for the absence of the native file.(2)The earliest evidenced date of existence of the document (other than Christos and Ms Calagis’ evidence) was 5 August 2020, being the “date content created” and “date content last modified” date identified in respect of the document by Mr Le.(3)The fact that no mortgage was provided by Peter and Kathy until 22 March 2021, despite it being a condition precedent to any advances under the Loan Agreement, and the absence of any good reason for a mortgage not being provided earlier.(4)The absence of any credible explanation by Christos for the failure to lodge a caveat until August 2020, when he well knew the caveat procedure to protect unregistered security interests.(5)The absurdity of the assertion by Christos that Voukidis Holdings notified Peter and Kathy of the imposition of default interest from 1 July 2011, while at the same time making a further 84 advances of money to Peter and Kathy between 1 July 2011 and 20 July 2021.(6)That in 2016, Christos prepared a pension application on Peter’s behalf and ticked “no” in respect of the question: “In the last 12 months have you (and/or your partner) [being Peter and Kathy] borrowed an amount which is secured against your home”.

Ratio Decidendi

Legal Principle Established

The Applicant further submitted, by reference to Joseph Finance and Investment Pty Ltd v Eastwood Retirement Pty Ltd [2023] VSC 731, that a best endeavours clause does not impose an absolute obligation, with the result that the appropriate remedy is damages and not specific performance. The Applicant concluded that: “The provision of a mortgage in registrable form would have effected the creation of an equitable security, but a less than absolute obligation to provide it does not achieve the same result”.Consideration As noted above, based on the authorities (principally Investwell) the critical question is whether the Loan Agreement evinces an intention to create an immediate proprietary interest or an immediate right of recourse to identifiable property. Clause 3.1 did not create an equitable mortgage or equitable charge. The Loan Agreement does not evince an intention on the part of the parties for the creation of an immediate proprietary interest or right of recourse against the Property. Rather, the effect of clause 3.1 was that Voukidis Holdings was not obliged to advance funds to Peter and Kathy if no mortgage in registrable form was provided. The clause did not itself purport to create a security interest in the Property. The evident intention of the clause was to entitle Voukidis Holdings to insist on provision of a mortgage in registrable form before advancing funds under the Loan Agreement. The fact that the Loan Agreement did not specify the terms of the proposed mortgage, but instead referred to it being “on terms acceptable to the Lender” also tends against any conclusion that the parties intended to create an immediate interest in the Property (as was the case in Investwell at [32]). The existence of a best endeavours obligation, imposed by clause 3.2, does not assist the Respondents. It does not impose an absolute obligation. All that clause does is to require Peter and Kathy to use their best endeavours to provide (inter alia) a mortgage in registrable form which, had it been provided, would have created a security interest in the Property. Consequently, and in accordance with the position agreed by the parties, the Loan Deed and Mortgage are void and Voukidis Holdings stands as an unsecured creditor. It also follows that the first caveat (lodged on or about 25 August 2020) was not supported by the Loan Agreement, which was the stated basis for the interest claimed. However, it is still necessary to determine whether the Loan Agreement should be set aside, as the sum for which Voukidis Holdings can prove in the bankruptcies of Peter and Kathy as an unsecured creditor depends on the interest rate to be applied. If the Loan Agreement is not set aside, the amount will be calculated in accordance with the contractual terms of the Loan Agreement (including as to compounding interest).SHOULD THE LOAN AGREEMENT BE SET ASIDE ON THE BASIS OF HAVING BEEN PROCURED BY UNCONSCIONABLE CONDUCT AND/OR UNDUE INFLUENCE? The Applicant contended that the Loan Agreement should be set aside on the basis that it was procured by unconscionable conduct and/or undue influence.