Pattison, P.A. (as Trustee in Bankruptcy of the Estate of Kwiatek, M.R. & K.K.) v Benning, M
[1991] FCA 220
•27 Mar 1991
JUDGMENT No. Do / .?! ...,..
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
I
BANKRUPTCY DISTRICT OF THE STATE )
QF VICTORIA 1
BETWEEN: PAUL ANTHONY PATTISON
(as Trustee in Bankruptcy of -
the Estate of MICHAEL ROMAN
KWIATEK and KARIN KWIATEK)
(Applicant)
AND: MARGARET BENNING (Respondent)
Judae Makina Order: Ryan J
Date of Order: 27 March 1991
RECEIVED
Where Made: Melbourne O7MAY 1991
FEDERAL COURT OF
AUSTRALIA
MINUTES OF ORDER PRINCIPAL REGISTRY
THE COURT DECLARES THAT:
A.
The transfer by the bankrupt MICHAEL ROMAN KWIATEY to the respondent dated 4th May 1987 of a one equal undivided third part or share of all the land described in Certificate of Title Volume 9474 Folio 549 is void as against the applicant.
B.
The transfer by the bankrupt KARIN KWIATEK to the respondent dated 4th May 1987 of a one equal undivided third part or share of all the land described in Certificate of Title Volume 9474 Folio 549 is void as against the applicant.
C.
The respondent holds for and on behalf of the applicant two thirds of the net rental (after deduction of the reasonable expenses of the letting and any rates, taxes, insurances, repairs and other landlord's outgoings) received by her after 29 March 1989 in respect of the letting of the
property referred to in paragraphs A and B above.
AND THE COURT ORDERS THAT:
A one equal undivided third part of or share of all of the land described in Certificate of Title Volume 9474 Folio
5 4 9 being the whole of the interest in the land now
described in Certificate of Title Volume 9 8 6 1 Folio 3 0 4 is
hereby vested in the applicant PAUL ANTHONY PATTISON.2 . A one equal undivided third part of or share of all of the
land described in Certificate of Title Volume 9474 Folio
5 4 9 being the whole of the interest in the land now
described in Certificate of Title Volume 9 8 6 1 Folio 3 0 7 is
hereby vested in the applicant PAUL ANTHONY PATTISG.3. That the Registrar take an account of the net rents due to the applicant in accordance with paragraph C of the declaration herein.
4 . The respondent pay the applicant's costs including reserved costs of this application other than the costs of and incidental to amending the application.
NOTE: Settlement and entry of orders is dealt with in Bankruptcy
Rule 1 2 4 .
IN THE FEDERAL COURT OF AUSTRALIA ) VICTORIA DISTRICT REGISTRY
GENERAL DIVISION1 BANKRUPTCY DISTRICT OF THE STATE ) OF VICTORIA 1
BETWEEN: PAUL ANTHONY PATTISON
(as Trustee in Bankruptcy of -
the Estate of MICHAEL ROMAN
KWIATEK and KARIN KWIATEK)
(Applicant)
m: MARGARET BENNING (Respondent)
Coram: Ryan J Date: 27 March 1991
Place: Melbourne
EX TEMPORE REASONS FOR JUDGMENT
HIS HONOUR: By an amended application dated 4 December 1990, the applicant, who is the trustee of the estates of the bankrupts, Michael Roman Kwiatek and Karin Kwiatek, seeks pursuant to s.120
of the Bankru~tcv
"2. A declaration that the transfer by the bankrupt MICHAEL Act, among other things: ROMAN KWIATEK to the Respondent dated 4th May, 1987 of a one equal und~vided third part or share of all the land described in Certificate of Title Volume 9474 Folio 549 is void as against the Applicant.
3. A declaration that the transfer by the bankrupt, KARIN KWIATEK to the Respondent dated 4th May, 1987 of a one equal undivided thrrd part or share of all the land descr~bed in Certificate of Title Volume 9474 Folro 549 is v o ~ d as against the Applicant.
5. A declaration that the respondent holds for and on behalf of the applicant two thirds of the net rental (after deduct~on of the reasonable expenses of the lett~ng) received by her in respect of the letting of the property referred to in paragraphs 2 and 3 above.
6. An Order that the respondent account for and pay over t o the applicant the said amount of the net rental ."
On 7 January 1982, the bankrupts and the respondent, Margareta Benning, who is the mother of the female bankrupt,
became registered as the proprietors as tenants in common in
.
equal shares of land comprising a block of flats situated at Cooper Street, Stawell, being the land comprised in certificate of title volume 9474 folio 549 ("the flats").
On 23 April 1987, a company, Big J Pty Ltd, issued proceedings out of the County Court of Victoria against the bankrupts and a company controlled by them, Kwiatek Constructions Pty Ltd, claiming $46,568.54, together with costs.
On 4 May 1987, each of the bankrupts executed a transfer of his and her interest in the flats to Mrs Benning. The consideration for each transfer was expressed to be $34,200. Each transfer was signed on behalf of Mrs Benning as transferee by Karin Kwiatek as attorney for her mother. Stamp duty was not paid
on 24 June 1988. on the transfers until 3 June 1988, and they were both registered In the meantime, judgment had been entered in the County Court on 12 May 1987 against the company, Kwiatek Constructions Pty Ltd for $46,568.54 with $365 costs, and on 27 July 1987 against the bankrupts for $32,068.54 and $395 costs. Acts of bankruptcy being non-compliance with bankruptcy notices issued on behalf of Big J Pty Ltd were committed by Karin Kwiatek on 26 October 1987 and by Michael Kwiatek on 3 November 1987.
A creditor's petition was issued on 6 April 1988 and a sequestration order was made against both bankrupts on 7 June - 1988. On 14 November 1988, Mr Poloni of J.D. Poloni & Co., Barristers & Solicitors, wrote to the applicant as trustee of the estates of the bankrupts the following letter (omitting formal
parts ) :
"We acknowledge recerpt of your facsimile of 25th of October and
confirmatory copy the followzng day.Whilst we are not seised of the frles regardrng the properties in Cooper Street we do recall discussions with our clients last year regarding these properties.
We have since confirmed wrth Mrs Kwiatek the circumstances of the acquisztion and subsequent revestzng of ownershrp of the proprieties to Mrs Benning.
The properties were purchased wzth Mrs Benning'e money when she was in Australia. When Messrs Webb and Seng Hpa were instructed it was made clear that she was provrding the funding. The drscussions had at the time were on the basis that it was anticipated Mr and Mrs Kwiatek would, through thezr business, effectrvely contribute to half the total purchase and development cost.
As it turned out, due to the dzfficulties of Kwiatek Constructions Pty Ltd., the only contribution to the purchase and development was made by Mrs Benning.
Hr Seng Hpa rn fact prepared a transfer whrch did not reflect the znrtial intentions of 50% to Mrs Bennrng and 50% to Mr and Mrs Kwratek. The revestiture of title to Mrs Benning was to give effect to revesting title and dissolve the 'constructive trust'. Unfortunately we are unable to explain why the Solrcitors who prepared the documentation chose to set out a consrderatzon as a price. There was none; nor was any payment received.
Turning to your comment concernrng Mrs Kw~atek'a purported expression of 'I may not return to Australia' - she instructs me that she has no recollection of the statement and denies that rf she did make it that it was made with any intent to carry it out.
In relation to your request for the copy of Mrs Kwiatek's Power of Attorney from her mother we are unable to understand this requrrement.
The Leases sought are presumably in the hands of Messrs Jamee
Monaghan, Solicitors of 189A Main Street, Stawell.
We trust this will enable you to finally determine in favour of
our client her request to be entitled to travel to Germany."
On 1 December 1988, Mr Poloni attended a meeting of
creditors of the bankrupts. The minutes of that meeting include
the following passages:
--
"Mr. Poloni said that investigations in respect to the Cooper Street units were underway with several different solicitors who had been involved but he could give no answers until all the documentation and accounts were in has possession. As to the transfer, hrs specific instructions were that no money was either put forward or otherwise made available from Mrs. Benning but he had not yet sighted the transfer.
Mr. Poloni aaid that he was satisfied that there was sufficient evidence to argue on a constructive trust. However, he needed to see the files before giving his final advice and, in the event that he came to a conclusion that there was no constructive trust, his advice would be to assent to partitioning either by way of sale or by Mrs. Benning buying the nett equlty that would have been theirs and paylng it out to the Trustee. Another point raised by Mr. Poloni was the possibility of his having to withdraw from acting because of a conflict of interest but this could not be determined until he had read all the relevant documentation."
The minutes of a second meeting of creditors of the bankrupts on 21 December 1988 include this passage:
"Mr. Poloni suggested that an alternative form of security might be for two-thirds of the group of units to be held in escrow, one-
third having been transferred to Mrs. Benning. Discussion ensued between h ~ m and Mr. Rennae as to the purchase of land, the construction of the units and improvements to the property and this led on to consideration of the legal impllcatzons of realising the property. Mr. Pattison required aecur~ty necessary to ensure that all creditors were paid in full and he asked if Mrs. Benning would be prepared to allow the property to be sold and take a subrogation of the creditors' rights whereby she would become sole creditor.
Based on the view that the property had three tenants in common and that Mrs. Benning would be forfe~tlng one-third, Mr. Poloni aaid he would not be advising Mrs. Benning to approve this suggested action. He added that in the event that Mrs. Kwiatek did not return to Auatralla, he would not be receiving further instructions and would not be able to provlde all the information required and therefore the units would be sold."
The minutes of a third meeting of creditors on 7 March 1990 record the following participation, as far as relevant, by M r Poloni:
"Speaking in his legal capacity representing Mrs. Bennrng and Mrs.
Kwiatek, Mr. Poloni said the situation had not changed from h ~ s
earlier statements, namely that from drscussions he had had wrth
solicltors in Stawell and Ararat who had represented the Kwiateks - in the past, he understood that Mrs. Benning had provided all the funds for the purchase of the land on which the flats were built and that she had paid all the bills presented by Kwiatek Constructions Pty. Ltd. for the construction of the flats. He had asked Mrs. Kwlatek and Mrs. Benn~ng to provrde details of bank records to substantiate these claims and had been advised that a substantial number of documents would be in the books of account, bank statements and receipts held by the Trustee here or the Liquidator of Kwlatek Constructrons. Mr. Poloni had sent author~t~es to Germany for h m to extract records from the banks as to funds being drawn against Mrs. Benning's accounts. He foresaw some problem, however, ln that the records would no longer be avarlable. Mr. Poloni sard he had indicated to an earlier meeting that the solicitors who completed the transfers and put a value on them did not prepare the documentation in the way he would have done had he had the carriage of revesting to Mrs. Bennlng the titles to the propertlea. He was instructed that no money changed hands for the reveatrng of titles. "
Mr Poloni himself has sworn an affidavit in these
proceedings which, so far as relevant and admissible, includes
the following passages:
"3. That any instructions I have received for Xrs Benning have been via the bankrupt Mrs. Kwiatek. I have since been asked to confirm my position by the trustee and hrs solicitors sought to secure instructions m writing from Mrs Benning to act on her behalf (sic). I have never received those written instructions. Thls is reflected in the comments made by me at the several creditors meetings. The only authority ever received by me from Mrs. Benning is a proxy to attend the creditors meeting. Unfortunately that proxy, as I recall, arrlved too late to be of any value. I was instructed by Mrs. Kwiatek that although the transfers had been prepared and executed some time earlier and the relevant duty and fees paid by Mrs. Benning there had been no contemporaneous payment of cash in the transfer or equivalent."
There is also evidence from the estate agent instructed to manage the rental of the flats that those instructions were
received on 28 November 1986, and that pursuant to subsequent
instructions, apparently oral, half of the net rents received was
distributed by way of cheques drawn in favour of Mrs Benning, and
-
the other half by cheques in favour of the bankrupts.
Finally, on 23 November 1990, Mrs Benning lodged a proof of debt in the administration of the estates of the bankrupts in the sum of $200,000. That has not been verified by a statutory declaration as required by the applicant.
In the light of the evidence as a whole, and in particular the clear statement made by Mr Poloni, with at least the ostensible authority of Mrs Benning, that no money had changed hands by way of consideration for the transfers, I am satisfied that the applicant has established prima facie that those transfers constituted a settlement of property otherwise than in
following statement of Maddern C.J. in delivering the judgment of favour of a bona fide purchaser for valuable consideration. I have been guided in reaching this conclusion by the the Full Court of the Supreme Court of Victoria in Michael v
Thom~son (1894) 20 V.L.R. 548 at 552:
"In relation to a matter of this kind, where all the facts concerning the settlement are within the knowledge of the settlor and settlee and are not within the knowledae of the creditors impugning the settlement, although the burden bf proof is on those imouanina the settlement. a verv sliaht dearee of roof should be su?f;cieit to shift that burden. hat is aimply oi the princ~ple
that, if it were not so, the most egregious frauds on creditors
could never be investigated. If s u f f i c i e n t though s l i g h t evidence
is given t o impugn the deed, those who know a l l about the deed
have only t o go into the box and explain it. W e think the question, therefore, i s whether there is evidence here which would bring that ru le in to play."
As I have already indicated, I am satisfied that the evidence in the present case justifies, prima facie, a conclusion - of that kind so as to shift the burden of bringing the relevant transfers outside s.120 to Mrs Benning as settlee and the bankrupts as settlors.
Of course, it is clear that settlements embodied in the transfers occurred within two years of the bankruptcy, as required by s.120(1). Accordingly, I am persuaded to make declarations and orders as follows:
THE COURT DECLARES THAT:
A.
The transfer by the bankrupt MICHAEL ROMAN KWIATEK to the respondent dated 4th May 1987 of a one equal undivided third part or share of all the land described in Certificate of Title Volume 9474 Folio 549 is void as against the applicant.
B.
The transfer by the bankrupt KARIN KWIATEK to the respondent dated 4th May 1987 of a one equal undivided third part or share of all the land described in Certificate of Title Volume 9474 Folio 549 is void as against the applicant.
C.
The respondent holds for and on behalf of the applicant two thirds of the net rental (after deduction of the reasonable expenses of the letting and any rates, taxes, insurances, repairs and other landlord's outgoings) received by her after 29 March 1989 in respect of the letting of the property referred to in paragraphs A and B above.
AND THE COURT ORDERS THAT:
1. A one equal undivided third part of or share of all of the land described in Certificate of Title volume 9474 Folio 549 being the whole of the interest in the land now described in Certificate of Title Volume 9861 Folio 304 is hereby vested in the applicant PAUL ANTHONY PATTISON.
-
2. A one equal undivided third part of or share of all of the land described in Certificate of Title Volume 9474 Folio 549 being the whole of the interest in the land now described in Certificate of Title Volume 9861 Folio 307 is hereby vested in the applicant PAUL ANTHONY PATTISON.
3. That the Registrar take an account of the net rents due to the applicant in accordance with paragraph C of the declaration herein.
4. The respondent pay the applicant's costs including reserved costs of this application other than the costs of and incidental to amending the application.
I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment
of His Honour Mr Justice Ryan. Associate: & b m d ~ h @L
Date: 7 M&,& / 991
Counsel for Applicant Mr J.W. de Wijn Solicitors for Applicant Messrs Lander & Rogers - Counsel for Respondent Solicitors for Respondent Irlicht & Broberg Date of Hearing 27 March 1991 Date of Judgment 27 March 1991
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