Pearce v George
[2013] FCCA 1590
•11 October 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| PEARCE & ANOR v GEORGE | [2013] FCCA 1590 |
| Catchwords: BANKRUPTCY – Purported assignment of future entitlement under a deceased estate – whether such assignment invalidated by ss.120 and 121 Bankruptcy Act – credit issues – effect of a prior granting of a security interest to a creditor who becomes the petitioning creditor but does not disclose same. |
| Legislation: Federal Circuit Court of Australia Act 1999: s.76. |
| Cases cited: Banque Commerciale SA (In liquidation) v Akhil Holdings Ltd (1990) 169 CLF 279 Briginshaw v Briginshaw (1938) 60 CLR 336 Ghazad v GIO (1992) 29 NSWLR 336 Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187 Helton v Allen (1940) 63 CLR 691 Inzaursalde v GIO (1992) NSWCA 115 Read v Kerr (1974) 9 SASR 367 Somaghi v Minister for Immigration (1991) 31 FCR 100 Watson v Foxman (1995) 49 NSWLR 351 |
| Applicants: | MARK PEARCE & ANDREW JOHN HEERS AS TRUSTEES OF THE PROPERTY OF ALAN JEFFREY GEORGE |
| Respondent: | SHERELEE GEORGE |
| File Number: | BRG 1138 of 2011 |
| Judgment of: | Judge Altobelli |
| Hearing dates: | 15 & 16 April 2013 |
| Date of Last Submission: | 14 June 2013 |
| Delivered at: | Sydney |
| Delivered on: | 11 October 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr Cook |
| Solicitors for the Applicant: | Rostron Carlyle Solicitors |
| Counsel for the Respondent: | Mr Spencer |
| Solicitors for the Respondent: | McLean & Associates |
ORDERS
Pursuant to s.31(1)(f) of the Bankruptcy Act, a declaration that the Distribution in the amount of $333,333.33:
(a)Was, pursuant to s.116 of the Bankruptcy Act, property divisible among the creditors of the bankrupt;
(b)Vested, pursuant to s.58 of the Bankruptcy Act, in the Applicant.
Pursuant to s.31(1)(f) of the Bankruptcy Act, a declaration that the Cheque in the amount of $299,146.22:
(a)Was, pursuant to s.116 of the Bankruptcy Act, property divisible among the creditors of the bankrupt;
(b)Vested, pursuant to s.58 of the Bankruptcy Act, in the Applicant.
Pursuant to s.31(1)(f) of the Bankruptcy Act, a declaration that the Respondent received the amount of $299,146.22 on trust for the Applicant.
An Order that the Respondent account to the Applicant for the amount of $299,146.22 and any interest which has accrued thereon.
Further, an order that the Respondent pay the amount of $299,146.22 to the Applicant as money had and received by the Respondent to the use of the Applicant.
Interest pursuant to s.76 of the Federal Circuit Court of Australia Act 1999 (Cth).
Subject to the Respondent relisting the matter before Judge Altobelli on seven (7) days’ notice within 28 days of these Orders, the Respondent pay the Applicant’s costs as agreed or as assessed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
BRG 1138 of 2011
| MARK PEARCE & ANDREW JOHN HEERS AS TRUSTEES OF THE PROPERTY OF ALAN JEFFREY GEORGE |
Applicants
And
| SHERELEE GEORGE |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicants, Mark Pearce and Andrew John Heers, are trustees of the bankrupt estate of Alan Jeffrey George. Messrs Pearce and Heers will be referred to as “the trustees”, and Alan Jeffrey George will be referred as “the bankrupt”. The applicants seek a number of orders against the respondent, Sherelee George, who is the wife of the bankrupt.
The respondent contends that in May and June 2009, she and her husband, who later became the bankrupt, entered into an agreement for the assignment of his interest in the deceased estate of the bankrupt’s father. They contend that thereafter, a written agreement was entered into, to this effect, on 17 June 2009.
On 30 August 2011, Stramit Corporation Pty Limited obtained judgment against the bankrupt in the Supreme Court of Queensland in the amount of $321,833.13. A few months earlier, on 1 March 2011, the bankrupt had been served with a bankruptcy notice by BOQ Equipment Finance Limited, which he failed to comply with within 21 days of its issue. As a result, on 11 April 2011, BOQ issued a creditor’s petition to the bankrupt. On 23 September 2011, Stramit filed an amended creditor’s petition against the bankrupt. On 18 October 2011, the bankrupt was made bankrupt by virtue of a sequestration order made in the Federal Magistrates Court of Australia, on the petition of Stramit. Pursuant to s.115(1) of the Bankruptcy Act, his bankruptcy is taken to have relation back to, and to have commenced, at the time of the commission of the earliest act of bankruptcy committed by the person within the period of six months immediately before the date on which the creditor’s petition was presented. The trustees contended, and there appears no dispute about this, that the date of the commission of the earliest act of bankruptcy committed by the bankrupt is 22 March 2011 and, accordingly, his bankruptcy is taken to have commenced as at that date.
On 14 September 2011, a distribution was made from the deceased estate of the bankrupt’s father, Allan George Senior. From this distribution, an amount of $333,333.33 was payable to the bankrupt. It is common ground that from the distribution payable to the bankrupt, he arranged for an amount of $34,187.11 to be paid to BOQ, and the balance, $299,146.22, was paid to the bankrupt by way of a cheque made out to him. On or about 14 September 2011, the bankrupt endorsed the cheque over to his wife, Sherelee George, the respondent in these proceedings.
By way of an application filed on 20 December 2011, the trustees commenced proceedings in this court seeking orders to the effect that the funds paid by the bankrupt to the respondent were divisible property of the bankrupt estate pursuant to s.116 of the Bankruptcy Act, and vested in the trustees pursuant to s.58 of that Act. They contended that to the extent that there was any transfer of the bankrupt’s interest in the funds to the respondent prior to 22 March 2011, that transfer was void pursuant to either ss.120 or 121 of the Act and thus the respondent is required to pay the funds to the applicants.
The respondent resists the application on the basis that her oral agreement with the bankrupt, later reduced into writing by way of a letter dated 17 June 2009, had the effect of assigning the specific bequest that the bankrupt expected to receive under his father’s will, to the respondent. That being the case, the subsequent endorsement of the cheque and performance of that agreement was not a transfer of the bankrupt’s property and thus nothing vested in the trustees.
The trustees’ case is that whilst there does appear to be a document dated 17 June 2009 which purports to assign the bankrupt’s interest in the specific bequest which he expected to receive under his father’s will, to the respondent, that in fact that agreement was not created until after the first act of bankruptcy committed by the bankrupt, ie, 22 March 2011. Moreover, the trustee contends that there was no agreement between the parties in May and June 2009. The primary focus of this case, therefore, is to determine not so much whether there was an agreement in terms of the document dated 17 June 2009, but when it was entered into. These are factual matters that need to be carefully considered by reference to the evidence adduced by or on behalf of the parties, and the testing of that evidence in cross-examination.
If the trustees’ case is made out, and the court in fact finds that the agreement bearing the date 17 June 2009 was not, in fact, entered into until after 22 March 2011, then the only remaining issue is to consider the legal implications of a commercial credit account application dated 5 December 2007 between the bankrupt and Stramit Corporation Pty Limited, containing a deed of guarantee and indemnity given by the bankrupt, and the effect of which was that Stramit holds a security interest in the property of the bankrupt. Indeed, paragraph 11 of the said agreement provides:
The guarantor charges all of the guarantor’s right, title and interest in any land and personal property held now or in the future by the guarantor to secure the payment of the guaranteed debt. The guarantor consents to Stramit lodging a caveat or caveats to note Stramit’s interest under this clause. If a demand is made by Stramit, the guarantor agrees to immediately execute a mortgage and/or other instrument of security, in terms satisfactory to Stramit, to further secure payment of the guaranteed debts.
Stramit, of course, obtained the judgment against the bankrupt that eventually led to the sequestration order being made against him.
The trustees contend that if the court does not accept what will be described as its primary contention that any agreement between the bankrupt and the respondent was entered into after 22 March 2011, the date of commencement of bankruptcy, there are other legal reasons why the purported assignment was ineffective. The trustees submit, for example, that there was no consideration provided for any transfer of property in May 2009 and June 2009. They submit that, in any event, the security interest held by Stramit has priority over any purported assignment and the assignment was ineffective because of the grant of the security interest. As it turns out, it is not necessary for the court to consider the alternate arguments advanced by the trustees.
The Evidence
The trustees relied on the following material:
·First affidavit of Mark Pearce, sworn 18 December 2011;
·Second affidavit of Mark Pearce, sworn 10 May 2012;
·Third affidavit of Mark Pearce, sworn 1 February 2013;
·First affidavit of Paul Rojas, sworn 11 April 2013;
·First affidavit of Ellis Ruben, sworn 14 April 2013;
Mark Pearce was cross-examined.
The evidence led in the respondent’s case consisted of the affidavit of the respondent, Sherelee George, sworn 26 June 2012 and of the bankrupt, also sworn that date. Both the bankrupt and the respondent were extensively cross-examined.
Exhibited to the affidavits of most of the deponents was a substantial quantity of documents. Where relevant, specific documents will be referred to in these reasons.
The Applicable Law
The court’s jurisdiction in bankruptcy, and thus to make the declarations and orders sought, is established by s.27(1) of the Bankruptcy Act 1966 (Cth) (called “the Act”). The specific power to make declarations is found in s.31(1)(f) of the Act.
The vesting of property on bankruptcy is an important issue in this case. Section 58(1) of the Act states in this regard:
(1) Subject to this Act, where a debtor becomes a bankrupt:
(a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.Note 1: This subsection has a limited application if there are orders in force under the proceeds of crime law: see section 58A.
Note 2: Even if property has vested under this section, it may, under the Proceeds of Crime Act 2002 :(a) become subject to a restraining order; and
(b) be taken into account in making a pecuniary penalty order; and
(c) become subject to a charge to secure the payment of an amount under a pecuniary penalty order, if it is subject to a restraining order; and
(d) be dealt with by the Official Trustee, if it is subject to a restraining order and a court has directed the Official Trustee to pay the Commonwealth an amount under a pecuniary penalty order out of property subject to the restraining order.Section 115 of the Act deals with when bankruptcy is deemed to commence. The relevant provisions in the present case state:
(1) If a person becomes a bankrupt on a creditor's petition and subsection (1A) does not apply, then the bankruptcy is taken to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy committed by the person within the period of 6 months immediately before the date on which the creditor's petition was presented.
(1A) If:(a) a person becomes a bankrupt on a creditor's petition that was based on breach of a bankruptcy notice; and
(b) the time for compliance with the notice was extended under subsection 41(7); and
(c) the Court making the sequestration order considers that the application under subsection 41(7) was frivolous, vexatious or otherwise without substantial merit;
then the bankruptcy is taken to have relation back to, and to have commenced at, the time that would have applied under subsection (1) of this section if the time for compliance had not been extended.(1B) If a person becomes a bankrupt because of a sequestration order made under Division 6 of Part IV or under Part X, then the bankruptcy is taken to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy committed by the person within the period of 6 months immediately before the date on which the application for the sequestration order was made.
Another important issue in this case is what property was divisible among creditors. In this regard s.116(1) and (2) states:
(1) Subject to this Act:
(a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; and
(b) the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge; and
(c) property that is vested in the trustee of the bankrupt's estate by or under an order under section 139D or 139DA; and
(d) money that is paid to the trustee of the bankrupt's estate under an order under section 139E or 139EA; and
(e) money that is paid to the trustee of the bankrupt's estate under an order under paragraph 128K(1)(b); and
(f) money that is paid to the trustee of the bankrupt's estate under a section 139ZQ notice that relates to a transaction that is void against the trustee under section 128C; and
(g) money that is paid to the trustee of the bankrupt's estate under an order under section 139ZU;
is property divisible amongst the creditors of the bankrupt.(2) Subsection (1) does not extend to the following property:
(a) property held by the bankrupt in trust for another person;
(b) the bankrupt's household property that is:(i) of a kind prescribed by the regulations; or
(ii) identified by a resolution passed by the creditors before the trustee realises the property;(ba) personal property of the bankrupt that:
(i) has sentimental value for the bankrupt; and
(ii) is of a kind prescribed by the regulations; and
(iii) is identified by a special resolution passed by the creditors before the trustee realises the property;(c) the bankrupt's property that is for use by the bankrupt in earning income by personal exertion and:
(i) does not have a total value greater than the limit prescribed by the regulations; or
(ii) is identified by a resolution passed by the creditors; or
(iii) is identified by an order made by the Court on an application by the bankrupt;(ca) property used by the bankrupt primarily as a means of transport, being property whose aggregate value does not exceed the amount prescribed by the regulations or, if before the trustee realises the last-mentioned property the creditors determine by resolution a greater amount in relation to that property, that greater amount;
(d) subject to sections 128B, 128C and 139ZU:(i) policies of life assurance or endowment assurance in respect of the life of the bankrupt or the spouse or de facto partner of the bankrupt;
(ii) the proceeds of such policies received on or after the date of the bankruptcy;
(iii) the interest of the bankrupt in:(A) a regulated superannuation fund (within the meaning of the Superannuation Industry (Supervision) Act 1993 ); or
(B) an approved deposit fund (within the meaning of that Act); or
(C) an exempt public sector superannuation scheme (within the meaning of that Act);(iv) a payment to the bankrupt from such a fund received on or after the date of the bankruptcy, if the payment is not a pension within the meaning of the Superannuation Industry (Supervision) Act 1993 ;
(iva) a payment to the bankrupt under a payment split under Part VIIIB of the Family Law Act 1975 where:(A) the eligible superannuation plan involved is a fund or scheme covered by subparagraph (iii); and
(B) the splittable payment involved is not a pension within the meaning of the Superannuation Industry (Supervision) Act 1993 ;(v) the amount of money a bankrupt holds in an RSA;
(vi) a payment to a bankrupt from an RSA received on or after the date of the bankruptcy, if the payment is not a pension or annuity within the meaning of the Retirement Savings Accounts Act 1997 ;
(vii) a payment to the bankrupt under a payment split under Part VIIIB of the Family Law Act 1975 where:(A) the eligible superannuation plan involved is an RSA; and
(B) the splittable payment involved is not a pension or annuity within the meaning of the Retirement Savings Accounts Act 1997 ;(g) any right of the bankrupt to recover damages or compensation:
(i) for personal injury or wrong done to the bankrupt, the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt; or
(ii) in respect of the death of the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt;and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong or the death of such a person;
Note: See also subsection 5(6).
(k) amounts paid to the bankrupt under a rural support scheme prescribed for the purposes of this paragraph;
(l) amounts paid to the bankrupt under a rural support scheme prescribed for the purposes of this paragraph, where the amounts are paid in circumstances prescribed for the purposes of this paragraph;
(m) prescribed amounts paid to the bankrupt under a rural support scheme prescribed for the purposes of this paragraph;
(ma) prescribed amounts paid to the bankrupt under a rural support scheme prescribed for the purposes of this paragraph, where the amounts are paid in circumstances prescribed for the purposes of this paragraph;
(mb) amounts paid to the bankrupt by the Commonwealth as compensation in relation to the loss of:(i) an amount covered by paragraph (k), (l), (m) or (ma); or
(ii) property purchased or acquired wholly or partly with such an amount;(n) property to which, by virtue of subsection (3), this paragraph applies;
(p) amounts paid to the bankrupt under subsection (2C) or (4);
(q) any property that, under an order under Part VIII of the Family Law Act 1975 , the trustee is required to transfer to the spouse, or a former spouse, of the bankrupt;
(r) any property that, under an order under Part VIIIAB of the Family Law Act 1975 , the trustee is required to transfer to a former de facto partner of the bankrupt.The trustees’ case was in part based on s.120 of the Act, dealing with undervalued transactions. That section states:
Transfers that are void against trustee
(1) A transfer of property by a person who later becomes a bankrupt (the transferor ) to another person (the transferee ) is void against the trustee in the transferor's bankruptcy if:(a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b) the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.Note: For the application of this section where consideration is given to a third party rather than the transferor, see section 121A.
Exemptions
(2) Subsection (1) does not apply to:
(a) a payment of tax payable under a law of the Commonwealth or of a State or Territory; or
(b) a transfer to meet all or part of a liability under a maintenance agreement or a maintenance order; or
(c) a transfer of property under a debt agreement; or
(d) a transfer of property if the transfer is of a kind described in the regulations.(3) Despite subsection (1), a transfer is not void against the trustee if:
(a) in the case of a transfer to a related entity of the transferor:
(i) the transfer took place more than 4 years before the commencement of the bankruptcy; and
(ii) the transferee proves that, at the time of the transfer, the transferor was solvent; or(b) in any other case:
(i) the transfer took place more than 2 years before the commencement of the bankruptcy; and
(ii) the transferee proves that, at the time of the transfer, the transferor was solvent.Rebuttable presumption of insolvency
(3A) For the purposes of subsection (3), a rebuttable presumption arises that the transferor was insolvent at the time of the transfer if it is established that the transferor:
(a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor's business transactions and financial position; or
(b) having kept such books, accounts and records, has not preserved them.Refund of consideration
(4) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
What is not consideration
(5) For the purposes of subsections (1) and (4), the following have no value as consideration:
(a) the fact that the transferee is related to the transferor;
(b) if the transferee is the spouse or de facto partner of the transferor--the transferee making a deed in favour of the transferor;
(c) the transferee's promise to marry, or to become the de facto partner of, the transferor;
(d) the transferee's love or affection for the transferor;
(e) if the transferee is the spouse, or a former spouse, of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 ;
(f) if the transferee is a former de facto partner of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 .Protection of successors in title
(6) This section does not affect the rights of a person who acquired property from the transferee in good faith and by giving consideration that was at least as valuable as the market value of the property.
Meaning of transfer of property and market value
(7) For the purposes of this section:(a) transfer of property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer.
As the case turns out, the main focus of the trustees’ case was s.121 of the Act, dealing with transfers to defeat creditors. This section provides:
Transfers that are void
(1) A transfer of property by a person who later becomes a bankrupt (the transferor ) to another person (the transferee ) is void against the trustee in the transferor's bankruptcy if:
(a) the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and
(b) the transferor's main purpose in making the transfer was:(i) to prevent the transferred property from becoming divisible among the transferor's creditors; or
(ii) to hinder or delay the process of making property available for division among the transferor's creditors.Note: For the application of this section where consideration is given to a third party rather than the transferor, see section 121A.
Showing the transferor's main purpose in making a transfer
(2) The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
Other ways of showing the transferor's main purpose in making a transfer
(3) Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer.
Transfer not void if transferee acted in good faith(4) Despite subsection (1), a 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 described in paragraph (1)(b); and
(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.Rebuttable presumption of insolvency
(4A) For the purposes of this section, a rebuttable presumption arises that the transferor was, or was about to become, insolvent at the time of the transfer if it is established that the transferor:
(a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor's business transactions and financial position; or
(b) having kept such books, accounts and records, has not preserved them.Refund of consideration
(5) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
What is not consideration
(6) For the purposes of subsections (4) and (5), the following have no value as consideration:
(a) the fact that the transferee is related to the transferor;
(b) if the transferee is the spouse or de facto partner of the transferor--the transferee making a deed in favour of the transferor;
(c) the transferee's promise to marry, or to become the de facto partner of, the transferor;
(d) the transferee's love or affection for the transferor;
(e) if the transferee is the spouse, or a former spouse, of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 ;
(f) if the transferee is a former de facto partner of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 .Exemption of transfers of property under debt agreements
(7) This section does not apply to a transfer of property under a debt agreement.
Protection of successors in title
(8) This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property.
Meaning of transfer of property and market value
(9) For the purposes of this section:
(a) transfer of property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer.
Issue about pleadings
At the commencement of the hearing, but before any evidence was led, there was an issue raised by the respondent as to privilege, which was resolved in the respondent’s favour. The respondent also contended that the trustees’ pleadings did not disclose an application under s.121 of the Bankruptcy Act, or alternatively that such claim had been abandoned. They contended that the trustees’ claim was based only under s.120, and was limited to setting aside the endorsement over of the cheque, from the bankrupt to the respondent. There is no doubt that the trustees’ case was advanced as one under section 121, and that it extended to the agreement dated 17 June 2009, as well as the endorsement of the cheque which took place on 14 September 2011. To the extent that it was asserted on behalf of the respondent that she was prejudiced by the trustee now making a case under s.121, which was more broadly framed, it is impossible to see what prejudice she suffered. When the need for an amendment to the pleadings was raised, with the possible spectre of an adjournment of these proceedings, it was the respondent who elected to proceed. In any event, the court is satisfied that the amended statement of claim filed 10 February 2012 more than amply sets out to the respondent what the trustees’ case was, including a claim under s.121 of the Act. No prejudice was suffered by the respondent arising from the manner in which the trustees conducted their case.
The relief sought against the respondent in the statement of claim is quite clear – a declaration that the cheque in the amount of $299,146.22 was, pursuant to s.116 of the Act, property divisible amongst the creditors of the bankrupt and vested in the trustees pursuant to s.58 of the Act. Thus, the trustees sought a declaration pursuant to s.31(1)(f) of the Act that the respondent had received the amount of $299,146.22 on trust for the trustees and that she should account to the trustees for that amount and pay that amount to the trustees. With respect to the respondent and those who advise her, there is little doubt, whether as a matter of substance or form, about the case that was presented against her and precisely what orders were sought against her.
Background
The respondent, her husband the bankrupt, and his father were all in the building and construction industry. They used various corporate structures as the vehicle to undertake their business. They borrowed moneys in the course of that business and incurred credit with suppliers. Unsurprisingly, from time to time, personal assets were used as security for the provision of various forms of finance to the business entities. Over time, there was an ebb and flow in the business. In the mid-90s, for example, the businesses encountered problems and some of the relevant corporate structures went into liquidation. The respondent was previously bankrupt. The bankrupt was previously bankrupt. In the late 1990s, a new corporate entity emerged as the major vehicle by which the family continued to be involved in the construction industry, Maintek Pty Limited. A number of companies operated under what will be described as the Maintek banner including, for example, Maintek Constructions Pty Limited, Maintek Roofing Pty Limited, Maintek NSW Pty Limited, Maintek Interiors and Refurbishment Pty Limited, Maintek Projects QLD Pty Limited, Maintek Freshwater Pty Limited and Maintek Holdings Pty Limited. In 2009, the Maintek group started experiencing financial difficulties which required the injection of further capital. As a result of this, the respondent’s home was used as security for an advance by Westpac, the purpose of which was to fund the further injection of capital, all of which took place in the context of a restructure of how the business was carried out.
It is the respondent’s case, supported by the bankrupt, that the agreement dated 17 June 2009, constituted an assignment of the cash bequest that the bankrupt expected from the estate of his late father. The document evidencing the agreement was in evidence. It appears to be on the letterhead of Maintek Constructions Pty Limited. The document is reproduced here:
Maintek Constructions Pty Ltd
$500,000.00
Cash Injection Financing
Personal Guarantee Letter
I, Alan Jeffrey George herewith agree to irrevocably guarantee repayment of the proposed Westpac Personal Loan $500,000.00 (Five Hundred Thousand Dollars) cash injection (Secured by the property 3 Capri Close Avalon NSW owned by Sherelee George) to Maintek Constructions Pty Ltd, should the business (Maintek Constructions) fail in any way to repay this loan.
I further agree to pass over to my wife Sherelee George the $500,000.00 cash bequest from my Father Alan George Senior estate on his death and probate of the will, should I fail in any way to repay this loan.
I hereby grant my wife (Sherelee George) full authority and control of any of my assets in my personal estate on my death.
Dated this 17th Day June 2009
Alan Jeffrey George
Sherelee George
It is common ground that the bankrupt’s father, Alan George Senior, had not died as at 17 June 2009, so that what the bankrupt was purporting to assign was his future interest in the deceased estate. In any event, it is the respondent’s case that she only agreed to her home being used as security for the loan of $500,000 on the basis of the security and assurances provided to her by the bankrupt. It is common ground that the document was prepared by the bankrupt and that neither had legal or other advice in relation to it. The respondent contends that after it was signed the respondent consented to the use of her home as security for the loan and that she put the document away together with her other important papers, in a box, in her study. It is common ground that the agreement did not re-emerge until after the bankrupt became bankrupt, and after the respondent received a demand from the trustees in relation to the cheque endorsed over to her by the bankrupt on 14 September 2011.
In any event, in July 2009, and subsequently, the restructure of the Maintek group took place, involving a number of liquidations. It is common ground that in November 2009, Alan George Senior made a new, updated will, and the respondent contends she did not see this will until after he died on 23 May 2010.
By February 2011, the remaining Maintek companies were placed into liquidation, ceased trading, and this resulted in both the respondent and the bankrupt losing their source of income.
The evidence of the bankrupt, contained in his affidavit of 26 June 2012, is broadly consistent with that of the respondent.
The trustees’ case against the respondent, and the bankrupt, was a broad ranging and meticulous attack on their credibility. Thus, for example, the trustees contended, and indeed the evidence establishes, that the bankrupt was prepared to lie in order to obtain credit from Stramit Corporation. Indeed, he falsely represented to be the owner of real estate having a value of $1.4 million when he was not the registered owner of that real estate. Both the respondent and the trustee entered into a deed of release and indemnity with the administrators of the deceased estate of the bankrupt’s father in which they specifically warranted that they had not “assigned, mortgaged, charged nor in any other way dealt with the interest he or she has” in the deceased estate. The facts establish that they clearly had. The trustees contended that the deed of release and indemnity was only one of several documents that are inconsistent with the existence of an agreement between the bankrupt and respondent in 2009. There was, in addition, a receipt signed by the bankrupt on 14 September 2011 in which he represented to the executors of the estate that he had “not assigned my interest in the estate”. In addition, the bankrupt’s statement of affairs completed on or about 2 November 2011 also contained a number of statements inconsistent with there ever having been an assignment of his interest in the deceased estate to the respondent.
Moreover, the trustees raise a number of significant issues in relation to the purported agreement itself. They contend that the agreement does not appear to have been carried out in its terms in any event, as there was no evidence of any loan owed by Maintek Constructions Pty Limited to the bankrupt, or to the respondent, consequential upon the alleged advance by the bankrupt to them, referred to in the agreement.
It is, of course, necessary to carefully examine the evidence adduced by the respondent, and the bankrupt, and to carefully consider the testing of their evidence in cross-examination.
Credit findings
This is a case where credit findings are important. That means the court needs to decide whether to accept the evidence of a witness, or witnesses, in whole or in part. Credit findings may be based on independent evidence eg. a business record, public record, or the evidence of an independent person. Independent evidence may lead to a finding that the evidence of a witness should not be accepted. Often witnesses give competing versions of events. Each version of the event must be considered carefully and compared to other evidence including independent evidence. In some cases a party needs to rely on evidence of spoken words as the foundation of a cause of action, or to establish an essential fact in issue. In Watson v Foxman (1995) 49 NSWLR 351 at 319 McLelland CJ in Equity said:
Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court “must feel an actual persuasion of its occurrence or existence”. Such satisfaction is “not…attained or established independently of the nature and consequence of the fact or facts to be proved” including the “seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding”: Helton v Allen (1940) 63 CLR 691 at 712.
Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s.52 of the Trade Practices Act 1974 (Cth) (or s.42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration. That is the position in the present case. There is no contemporaneous document in evidence which supports the making of any such promise or representation as is relied on and no other satisfactory corroboration.Thus a court must always be conscious of the fallibility of memory and the distorting impact of self-interest. How a witness gives evidence is an important consideration. Thus a witness who “gives evidence in a forthright way, unperturbed under cross-examination, the court may well be disposed to believe the evidence than would be the case with a halting and prevaricating witness”: Cross on Evidence at [1285]. Nonetheless the court must be very careful if making findings based solely on demeanour and must provide adequate reasons for making such findings: Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187. Ipp JA on that case, with whom Mason J and Tobias JA agreed said at [29]:
Often important issues of credibility involve sub-issues. Often, objective facts, or facts that are probable, are capable of having significant bearing on the sub-issues. In cases of this kind, it is incumbent upon trial judges to resolve the sub-issues and to explain, by reference to the relevant facts, the conclusions to which they have come. This having been done, they should then turn to the ultimate facts in issue and explain how their decisions on the sub-issues have assisted them in forming a conclusion on the ultimate issue. It is only when adequate reasons of this kind are given that an unsuccessful party will be able to understand why the judge has believed his or her successful opponent.
Findings about agreement to assign interest in estate
Perhaps the most significant factual issue in this case is whether, and if so when, the bankrupt and the respondent entered into an agreement for the bankrupt to assign to the respondent his future interest in his father’s estate.
The respondent contends that by way of a written document dated 17 June 2009 she and the bankrupt reduced to writing an oral agreement made in conversations between them in May and June 2009.
The trustee contends that the document was not created until after the date of the first act of bankruptcy committed by the bankrupt, 22 March 2011. Moreover the trustee contends that there was no agreement between the said parties in May and June 2009.
For the reasons stated below, the court finds that there was no agreement between the bankrupt and the respondent in relation to an assignment of the former’s future interest in his father’s estate in May or June 2009.
The court finds that the document in question was created some time after March 2011.
The court does not accept the evidence of the bankrupt or the respondent in relation to the purported assignment, or indeed in relation to most of the relevant issues before the court. Both were cross-examined and the court had the opportunity to closely observe them in the witness box. Perhaps the strongest observation that is made about both of them is that they were consistently unresponsive, and frequently evasive. This greatly undermined the court’s confidence in their evidence. They both demonstrated a capriciousness about commercial transactions that exuded total indifference to the importance of the transactions from the perspective of other people involved, and an almost immoral opportunism. This too eroded any confidence the court had in the evidence they were giving. In addition their lack of knowledge about important facts and events pertaining to them was quite simply implausible for people with the commercial pedigree the bankrupt and respondent possessed. They both shared an impressive selectiveness of memory eg. startling clarity about events which allegedly took place in 2009, but inexplicable inability to recall events as recently as earlier this year, particularly in the case of the respondent.
Quite apart from these credit issues, there are significant inconsistencies between what the bankrupt and respondent assert in their evidence, and their subsequent actions, all of which cumulatively result in strong adverse credit findings in relation to them.
It is important to expand on the findings made in the preceding paragraphs, and to provide examples from the evidence.
Evidence of Alan George
The bankrupt signed a commercial Credit Account Application with Stramit Corporation Pty Ltd on 5 December 2007 both in his capacity as director of Maintek QLD Pty Ltd and personally as guarantor, requesting a credit limit of $100,000. He represented on this application that he owned the property at 3 Capri Close Avalon, that it was valued at $1.4M, and that $150,000 was owed under mortgage. In cross-examination he agreed that whilst he did not fill out the form he provided the information that was entered on it. He said that he signed the form but did not read it. Indeed he said that with credit applications “I generally have been a bit sloppy with them” (transcript 16.4 p.23 line 19). The bankrupt did not own the property at 3 Capri Close. He was quite content to secure the provision of a credit facility and, indeed, to mislead the credit provider as to its security position. He understood that the effect of signing the document was to put “personal assets on the line to meet any debt” (transcript p.25 lines 31-32) and thus that the provision of credit was in return for providing security. Indeed his evidence was that he had signed previous credit applications and had been “a bit sloppy with them” (p.23 lines 17-19). His attitude about this transaction is best summed up in his words: “I would have expected them to do their due diligence”.
Commercial people can be as capricious and indifferent as they like in their commercial dealings, subject to law of course. But when they came to court and have their commercial dealings subjected to the cold, hard scrutiny of litigation, and at the same time ask the court to accept the credibility of their evidence about other dealings, there needs to be a reality check. Capriciousness and indifference about commercial dealings may reflect poorly on the credibility of those who perpetrate the same, especially when there are other factors that undermine their credibility.
An example of the bankrupt’s lack of responsiveness in evidence is found at transcript p.31 line 26 to p.32 line 6. The issue in cross-examination was not a contentious one. It was about the circumstances of the summary judgment against the bankrupt by Stramit, the petitioning creditor in the bankruptcy. It took five (5) questions from Counsel to elicit the response that, in all likelihood, only the bankrupt knew, and that is that no one attended court on his behalf.
The timing of the judgment debt referred to in the previous paragraph is significant. The judgment was entered on 30 August 2011. The bankrupt’s evidence is that he knew of this, but could not recall when. On or about 14 September 2011, about two (2) weeks later, the bankrupt endorsed over to his wife the respondent, a cheque for $299,146.22 being his share of his late father’s estate. The bankrupt was quite properly cross-examined about his state of mind at that time: transcript p.32 line 30 to p.33 line 22.
Okay. Well, this is about the time that you endorsed the cheque, in late September 2011. Do you have a clear recollection what was going on in that month in relation to the status of your debts?‑‑‑No, I don’t have a clear recollection.
Okay. So are you saying that you signed over a cheque to your wife without a clear recollection of your debts?‑‑‑Correct.
Right. Is that because you didn’t inform yourself as to your debts and didn’t take an active role or you just didn’t understand them?‑‑‑Possibly not fully understood them, but I didn’t correlate them or line them up or anything like that. No.
Well, you’re not a stranger to bankruptcy, are you? You’ve been bankrupt before, haven’t you?‑‑‑Indeed, I have and that was some time ago.
Yes, but you know what the process is: you mount up debts, you can’t pay them and then you go into bankruptcy?‑‑‑No, that’s not the process I was used to.
Okay. What do you understand by bankruptcy?‑‑‑I understand ‑ ‑ ‑
Sorry, in September 2011, what did you understand would happen to your assets if you went into bankruptcy, in 2011?‑‑‑They would be in the hands of the trustee.
Okay. And that would include any gift from the estate, wouldn’t it?‑‑‑It wouldn’t include the 500,000, in my belief.
Right. And that’s because you got it before the trustees were appointed, is it?‑‑‑I don’t think that would have had any bearing on it. No.
Okay. Well, in relation to that: who informed you about your thoughts about who would be able to – whether the trustee would be able to take the property or not, in 2011? Who had informed you about your rights as a potential bankrupt?‑‑‑Who – I don’t quite understand the question. We’re talking about 2011, August 2011?
We’re talking about August/September 2011?‑‑‑Yes.
Yes. You’ve got – Bank of Queensland negotiated a debt, which Diamond Conway have advised you that they won’t produce any money from the estate unless the creditors petition is settled, as I understand your evidence and you’re now saying that you thought, in September 2011 that the gift from the estate was not the property of the trustee if you had gone into bankruptcy. So who informed you so you could form that opinion?‑‑‑That was my own opinion.
The bankrupt’s evidence is plainly implausible. Within a month of trying, unsuccessfully, to negotiate a settlement of Stramit’s claims, and having judgment entered against him, he was signing over to his wife nearly $300,000 but had no sense of the debts he then owed, was no stranger to bankruptcy, but had independently formed the opinion that it was acceptable to do so because the money would not form part of the bankrupt estate. When the bankrupt asserted that he had no recollection of his debts at the time he signed the cheque over it is either breathtaking capriciousness or indifference to the consequences of his action, or is indeed a falsehood. The court finds it was a falsehood.
The bankrupt was cross-examined about why he chose to endorse the cheque over to his wife, rather than have it deposited to his account and then transfer it to her: transcript p.36 lines 7-44.
All right. I’m going to put a proposition to you. In August 2011 you attempted to negotiate a deal with the Bank of Queensland and you knew you couldn’t get any funds from the deceased estate because Diamond Conway had advised you of this, unless you settled the creditor’s petition, so you were, I say, desperately trying to get that matter settled, weren’t you, in August 2011?‑‑‑Desperately.
Okay. Well, you were working towards getting that matter with the Bank of Queensland settlement so that the deceased estate could distribute to you, weren’t you?‑‑‑That’s obvious by my statement.
Yes. And at the same time you had Stramit coming up and getting judgment for over $200,000 against you personally, and you knew that in late August 2011, didn’t you?‑‑‑I was aware of it, yes.
All right. And so what you really needed in September 2011 was the gift from the estate to come as quickly as possible so you could pay Sherelee George. That’s right, isn’t it?‑‑‑We had been waiting quite some time for the distribution, so yes, it would have been desirable.
And your fear in 2011, September 2011, was that if you got that cheque and banked it into your bank account, automatically it would become something that a bankrupt trustee, particularly Stramit?‑‑‑Stramit.
Stramit, put you into bankruptcy, would be able to have access to?‑‑‑I didn’t consider that.
You didn’t consider that at all?‑‑‑No.
Right. So why wouldn’t you just bank a cheque in your name into your own account and then have it transferred off to your wife?‑‑‑I thought it best to assign it to my wife as per my agreement.
Well, it didn’t say you had to endorse the back of a cheque and pay here account directly?‑‑‑Correct.
So you could have just banked it in your own bank account, couldn’t you?‑‑‑I could have but I didn’t think that was the best thing to do.
The bankrupt’s glib answers were unconvincing.
He was then cross-examined about why he did not apply the cheque to the reduction of the Westpac loan account at transcript p.37 lines 16-39.
The loan account, you could have just taken that cheque and banked it into the Westpac loan account, couldn’t you; paid down the loan? That’s right, isn’t it?‑‑‑I didn’t – it wasn’t considered.
Well, the loan was in your name, your name was on the loan documents. That’s right, isn’t it?‑‑‑The loan was in my name, yes, secured by my wife.
Yes. And, in fact, the assignment itself was purported to be some kind of guarantee for that very Westpac loan, wasn’t it?‑‑‑Correct.
So there’s another option. You could have just paid the Westpac loan down?‑‑‑I didn’t consider it.
Okay. And why didn’t you consider it? Is it because you thought you needed to give the money to your wife and get it out of your hands so that no trustee could have direct access to your bank accounts?‑‑‑I needed to get the money to my wife. The trustee or other – there was no consideration given by me.
Well, did you consider your creditors like Stramit; like paying them? Did you consider that when you endorsed the cheque?‑‑‑No, I didn’t consider that.
Why not? They were trade creditors. They had done the work, provided you with the goods and you just didn’t want to pay them?‑‑‑That was under a business arrangement. That debt occurred, which I personally ended up wearing.
Again the bankrupt’s evidence is unconvincing. The curious distinction he draws in his last answer about business and personal is both interesting and revealing. It is consistent with a theme in the respondent’s evidence that will be discussed in due course.
The bankrupt was cross-examined about his Statement of Affairs which he declared to be correct on 2 November 2011. In question 9 he discloses as income received in the last 12 months “father’s estate $333,333.33”. In his affidavit filed 27 June 2012 he acknowledged that this was a mistake as the amount was not income and was not received by him. Whilst he did not seek assistance in completing the document he was aware of the need not to provide false or misleading information. Indeed he deposed in paragraph 165 of his affidavit that “…he did not wish to get into trouble for not providing answers to the questions…”. He agreed, however, he did not refer to the assignment to his wife, but he did disclose the inheritance because: “I just wanted to be full and frank” (transcript p.39 line 40). The bankrupt agreed that he asserted in his Statement of Affairs that he had not sold, transferred or given away assets. The following cross-examination ensued at p.39 line 22 to p.40 line 30.
Yes. Okay. Moving onto page 9. You’re saying you’ve got – question 16, you’re saying you’ve got an interest in the distribution of the deceased estate and your wife has some interest in a company called Freshe Pty Ltd?‑‑‑Correct, yes. I can see that.
There’s no mention of any assignment there, is there?‑‑‑No.
All right. Turning to page 14. Question 32, deceased estate. “Do you have an interest in the deceased estate?” You’ve ticked yes, that’s right?‑‑‑Correct.
Okay. And then down below you indicate how much your interest is. The first one, N/K, I assume is not known. Is that right?‑‑‑Correct.
And then you say you’ve received approximately 330,000?‑‑‑Correct.
All right?‑‑‑I just wanted to be full and frank.
Yes. Well, let’s look at the bottom, the next question, and see how full and frank we are?‑‑‑Okay.
33, sale transfer gift of assets. “Have you sold or transferred in any way, any assets worth any more than 1000 in the last five years?” Tick, no. Now, even on any reading, you accept that’s what you’ve put there, isn’t it?‑‑‑I accept that. I put that there, yes.
Yes. And that’s what you meant for the time, didn’t you?‑‑‑I’m not sure now.
Well, I mean, you could either tick yes or no and you ticked no, you hadn’t assigned it?‑‑‑Correct.
And that’s what you meant at the time, didn’t you?‑‑‑I didn’t mean that in regard to that loan document, no.
Right. So you’re telling me that you’ve told a bit of a porky pie when you’ve filled out that one. Is that right?‑‑‑Either a porky pie or a mistake.
Right. Well, it’s just that your mistake seems to be incredibly consistent throughout your whole document and I turn you again to question 36, which is at page 15?‑‑‑Mm.
And you describe Ms George as a creditor in that question?‑‑‑Mm.
See that? There’s no assignment talked about there. You’re just saying that you owed her the money. She’s a creditor, you paid her. That’s right, isn’t it?‑‑‑I presume that it was how it worked or I may have filled it in incorrectly.
Yes. And then – well, then you put Westpac, as if you’ve actually paid the Westpac loan. Is that what you were trying to communicate there?‑‑‑No.
In fact ‑ ‑ ‑?‑‑‑I was trying to communicate that that was a Westpac debt. I would believe, this is some time ago and I cannot recall the thoughts that you are trying to give me.
Even the bankrupt seemed open to the proposition that he was lying in the statement, but ultimately he seemed to be preferring the view that he was mistaken. His omission to disclose the alleged assignment is curious in circumstances where he had endorsed the cheque over to his wife just a few weeks earlier. It is also curious that in his affidavit filed 27 June 2012 the bankrupt sought to correct, or explain, several other questions answered in his Statement, but not question 33 about the sale, transfer or gift of assets. It is more likely than not that the assignment of his interest in his late father’s estate to the respondent was not disclosed in the Statement because it had not occurred.
As part of the administration of his late father’s estate, the bankrupt had to sign an acknowledgement of receipt on 14 September 2011 in which he warranted that he had not assigned his interest in the estate. At p.42 lines 35 to p.43 line 12 the following exchange occurred in cross-examination:
Okay. Now, that’s – that statement of not having assigned the interest in the estate – that’s what you’re signing up to in that direction, aren’t you?‑‑‑It would appear to be so, yes.
You’re putting out to Diamond Conway, and to, essentially, all of the trustees of the deceased estate that you hadn’t assigned any interest in the trustees’ estate, in the deceased estate. That’s right, isn’t it?‑‑‑That’s correct.
I put it to you that is, in fact, a statement that is true. You hadn’t assigned any interest?‑‑‑I had.
Okay. And you say it’s all on that guarantee document of 2009?‑‑‑Yes.
All right. Had you produced that to any solicitors?‑‑‑No.
Or accountants?‑‑‑No, I gave it to ‑ ‑ ‑
At the time of signing this?‑‑‑No.
So that’s 14.9.2011?‑‑‑Mm.
You produced that to no solicitor. Is that right?‑‑‑Correct.
No accountant?‑‑‑Correct.
Okay. Despite having James Tuite & Associates assisting you in relation to your bankruptcy?‑‑‑They certainly weren’t assisting me then, I don’t believe.
If the assignment had in fact occurred pursuant to the alleged 2009 agreement by September 2011 then the bankrupt had misled the trustee in his Statement of Affairs and now the Executors of his late father’s estate about this fact. Moreover, based on his own evidence, if the assignment had occurred pursuant to a 2009 agreement, that agreement had been produced to no solicitors or accountants as at September 2011. That is plainly implausible. It is more likely than not that as at September 2011 any such assignment had not taken place.
In the course of the administration of his father’s deceased estate, the bankrupt also signed a Deed of Release and Indemnity containing another warranty that he had not assigned his interest in the estate. In cross-examination he initially denied involvement in negotiating some of the terms of the deed, then denied reading it fully but was then placed in a position where he had to concede that he had plenty of time to read and consider the terms of the deed before signing. He agreed that he was “a commercial man in a commercial world who understands commercial documents” (transcript p.45 lines 26-27), that he understood the concept of “releasing somebody and indemnifying them” (transcript p.45 lines 34-35) but, curiously, he did not necessarily understand the concept of truthful warranties. Nonetheless he concede that in an email of 18 July 2011 he had stated: “I have read and understood the deed of release. I have no questions or concerns”.
The bankrupt was questioned about his discussions with his wife, the respondent, about the Deed of Release and Indemnity at transcript p.47 lines 22-29.
Did you discuss the deed over this period of time with your wife?‑‑‑I – you know – the only discussion would have been, “Read the deed.”
Okay. She didn’t raise any concerns in relation ‑ ‑ ‑?‑‑‑No.
And you didn’t say to her, “Listen, what about this assignment?”?‑‑‑No.
So you all remained silent about that?‑‑‑Correct.
Another revealing passage is found at transcript p.48 lines 1-24.
Okay. Well, go to the next page. It is 45. Now, this is 16 August, so there’s some time past. So there’s plenty of time to reflect on this deed. And you’ve confirmed that your wife ..... and yourself are happy to sign off on the document?‑‑‑Correct.
All right. Then we go to the deed itself, if you could turn to that. I want to take you to page 53. Read the bottom there, 10:
The beneficiaries warrant – the beneficiaries each warrant to the administrator that –
Turn over the page. Number (a) is that he or she had not assigned the mortgage, assigned mortgage or charged in any way the interest?‑‑‑Correct. I read that.
Yes. So you’re warranting that you would never assign any of your interest?‑‑‑It was a private matter between Sherelee and myself.
Well, hang on. How is it private? Because it affects creditors, and it affects any of your creditors in your estate, or Westpac?‑‑‑We still – we still kept it private.
Okay. Is that because it didn’t ‑ ‑ ‑?‑‑‑Right or ‑ ‑ ‑
‑ ‑ ‑ didn’t actually – the document never existed at the time, or it’s just something that had just sat there to pop out for a rainy day?‑‑‑It virtually popped out for a rainy day, yes.
The bankrupt’s concession that his agreement with the respondent “virtually popped out for a rainy day” can be variously interpreted. His manner at this point in the cross-examination was flippant. The court finds the witness to be disingenuous about the issue.
The bankrupt was then taken to the Personal Questionnaire dated 2 November 2011 that he signed as a bankrupt, and in which he certified that the answers were “true and complete to the best of my knowledge”. In response to question 23: “Have you made any transfer, gifts or settlements of property on another person in the last 5 years” the bankrupt wrote “No”. When challenged about this in cross-examination he latched on the word “property”, the implication being that the assignment to the respondent was not relating to the property. He was then taken to question 36 where he wrote “N/A” (presumably not applicable) in response to an invitation to give details about “any…assignment” he had made or created on his property. From his answers it is clear to the court that the bankrupt regarded his alleged agreement with his wife as an assignment, but not of property. Again in the overall context of this case, and having regard to all of the evidence of this witness, the court finds the witness to be disingenuous about this issue. This is another example of the witness reconstructing past actions to suit the case now advanced before the court.
Evidence of Sherelee George
The respondent’s evidence in cross-examination was characterised by unresponsiveness, evasiveness and prevarication. Even in relation to simple, clear questions about whether, and if so to what extent, she received advice from professionals such as lawyers and accountants, she was evasive and sought to draw distinctions between whether she received advice in a personal capacity, or as major shareholder (and therefore the person most affected) of the corporate entities involved. She unconvincingly feigned ignorance about commercial matters yet clearly, for example, appreciated the distinction between her personal self and corporate self. Her mantra, meaningless as it was, was that actions were justified because “It was a family thing”. For example transcript p.63 lines 16-44:
What I’m asking you is why didn’t you have a lawyer assist in the preparation of these guarantees/assignments/transfer?‑‑‑It was a family thing.
Yes, but the stakes are $500,000 and the protection of the family home?‑‑‑In your opinion, this – to me this was a family thing.
Okay, so it’s not important enough to get a lawyer, is that what you’re saying?‑‑‑That’s not what I said.
Okay. Well, when does a ‑ ‑ ‑?‑‑‑This was a family thing.
Okay, when does a family matter become important enough to engage a lawyer?‑‑‑That’s not what I’m saying.
I’m just asking you, is 500,000 not enough to be important enough ‑ ‑ ‑?‑‑‑This was a family thing.
Well, now you answer my question. My question is, is a guarantee of 500,000 not important enough to engage a lawyer for you?‑‑‑Not in a family. In a family that’s different.
Okay. And is that because the family just keep things within themselves and doesn’t tell anyone else?‑‑‑No. It’s between the two people.
And is that because the family just keep things within themselves and doesn’t tell anyone else?‑‑‑No. It’s between the two people.
Right. Well, when did this guarantee first get produced outside the family?‑‑‑I don’t know what you mean.
Indeed there are many things this witness purported not to know about or understand. She purported to know very little about the loan arrangements between Alan George and Maintek which is referred to in the 2009 purported assignment to her of her husband’s interest in his father’s estate. She purported to know quite little about the company restructure in 2009. By contrast she seemed to have a keen understanding of the company debt situation with Westpac that directly involved her personally. Later, when pressed, she had to acknowledge that as the major shareholder in the companies being restructured she attended the relevant board meeting. Curiously, though, as director of one of the companies, Skybuild Pty Ltd, she did not know whether it acted as a trustee even though she had seen the trust deed.
The respondent gave evidence inconsistent to that given by the bankrupt, her husband, about the relationship they had with Alan George Senior. She described the relationship as “okay”, and that he could come over to see the grandchildren anytime he wanted. She was very guarded when giving this evidence. By contrast the bankrupt characterised that same relationship as strained, and that in order for him to see the grandchildren he had to first make an appointment (see transcript p.58 lines 1-37, compare transcript p.76 lines 18-42). The other evidence available to the court, especially the communications between Alan George Senior and the bankrupt and respondent tend to suggest a clearly strained relationship. The respondent was later confronted with these communications. Her response was typically unresponsive. For example transcript p.81 lines 23-27.
And then you’ve just told us that, you know, you talked to him and everything is okay but next line under that you say:
I’m disturbed by your need to parade like a peacock bending everybody’s ear about all you do for the family.
Question mark, question mark, question mark. Okay. So you’ve got a relationship with your father-in-law where you have to lie to him, formally, and then accuse him of parading around like a peacock. That doesn’t sound like it’s particularly friendly to me?‑‑‑In your opinion.
Okay.
HIS HONOUR: I missed that?‑‑‑I – he’s taking it out of context. Like this is isn’t – that’s his opinion, your Honour, not – he wasn’t there. He wasn’t part of it. And this is family.
Again the respondent returns to her mention of “family”; a theme continued in questioning about a loan agreement with Alan George Senior that she reneged on. At transcript p.82 lines 30-44 the witness strenuously avoids making the obvious concession, but again it was all a “family” matter:
MR COOK: It’s my – whatever loan it is, you just stopped paying it unilaterally, haven’t you?‑‑‑This was between my father-in-law and I.
Okay. So does that mean you disagree with my proposition that you just stopped paying?‑‑‑Well, you weren’t there so, you know, this is between my father-in-law and I and it was a family thing.
Right. But he wanted moneys repaid on 2005, in April 2005, and you just stopped and refused to pay it, that’s right?‑‑‑We – this was all sorted with him though.
HIS HONOUR: I am sorry, could you speak up. I am really finding it hard to hear you?‑‑‑I’m sorry, your Honour. Sorry, your Honour.
Right?‑‑‑This was an arrangement with my friend father-in-law and I and it was all sorted out and he died and we’re all on good terms.
The respondent yet again demonstrates that certain things are entirely justifiable when “it was a family thing” that might otherwise be unjustifiable in a commercial context. This court formed the strong impression that she considered herself the sole arbiter of when a transaction was in a family or in a commercial context.
The respondent was cross-examined about the Deed of Release and Indemnity that she signed. She understood that it settled the litigation about her deceased father-in-law’s estate. She insisted, several times, that she had not read it before signing it. This of course meant that she had not read the warranty about assignment of an interest in the estate. Curiously, at p.84 line 22, she asserted that what was obviously a warranty about assignment of an interest in the estate was not, in fact, a warranty at all. Then she conceded that, despite her objection, she could not explain what a warranty was when given the opportunity to. She maintained that she did not discuss the document with the bankrupt. She agreed she was a recipient of emails relating to the Deed. Even though the Deed provided her with a significant benefit from the estate, she did not recall receiving it or reading it. Then she acknowledged that she was “not sure if I opened it and read it” (transcript p.86 line 34). This court does not accept the witness’ evidence about the Deed. It is another convenient reconstruction of historical events to suit the case advanced before the court.
The cross-examination then turned to the issue of the application by the respondent of the funds she received from the bankrupt pursuant to the purported assignment. On 14 September 2011 the sum of $299,146.22 was deposited into an account with the Bendigo Bank in the respondent’s name. She agreed that was the cheque endorsed to her by her husband, the bankrupt. She agreed that the Bendigo Bank statements record how this money was applied.
The respondent agreed that no part of the monies were applied towards a principal reduction of the Westpac loan. She said she could not, for reasons that she explained in her affidavit of 26 June 2012 at paragraph 155. In short Westpac was not able to accommodate her request to deposit the funds in such a way that they could be used “against the mortgage over the house but still have access to the funds if I need them”: paragraph 55. Within about a month she became aware of the trustee’s claim to these funds. The respondent agreed that even though the funds had been “earmarked for reducing the mortgage account, in fact she lived off it”: transcript p.88 lines 1-5. In July 2012 she invested $23,000 at ING.. At transcript p.89 lines 5-34 she explains further:
Where?‑‑‑In a short term investment.
Where?‑‑‑At ING.
Okay. In your own name?‑‑‑Yes.
Okay. And when is it coming back?‑‑‑I don’t know. I don’t know when it came back.
Well, I – in this account, it doesn’t, so I’m asking you, when is it coming back?‑‑‑I’m not sure what you mean by that.
HIS HONOUR: Well, you said a short term investment?‑‑‑Yes.
Has it become repayable already? Is the term deposit ‑ ‑ ‑?‑‑‑Yes. Yes. It has.
All right?‑‑‑And I’ve been using that, yes.
Right. But where is the money now?‑‑‑I – I have it back with – I’m not really sure. I have to – with legals and things like that, I’ve got it for legals.
All right. But I’m just asking you where it is now?‑‑‑I don’t have it.
MR COOK: Well – where is it? If it’s not with ING, where is it, physically or any part of it – the major part of it or have you dissipated it all?‑‑‑I have actually, yes.
So are you telling me that from 17.7.2012 you’ve dissipated 230,000 – you’re working, getting 500-odd thousand a month and you’ve dissipated 230,000?‑‑‑Yes, I have.
There is an obvious error in the transcript at line 33 as the witness’ evidence was that she was earning $5,541 monthly from her employment. The fact remains that, based on this witness’ own evidence, and with full knowledge of the trustee’s claim to the funds, she dissipated $23,000 since July 2012. What is most disturbing is the blatant evasiveness of the answers eg. “I’m not sure what you mean by that” and “I’m not really sure”. But it only got worse.
After a short adjournment the cross-examination continued. She remembered that the term deposit was for three (3) months, and the interest was used to pay the Westpac loan. At transcript p.90 lines 17-45 the witness explains:
All right. So we get to the end of 2012?‑‑‑Yes.
And there’s still 230,000 earning interest?‑‑‑Yes. Yes. And I was using the money, obviously, to pay off the loans.
Okay. Sorry, you’re receiving a wage?‑‑‑Yes.
And it’s a short term loan account – sorry, short term deposit account – what, that gives you access to actually remove funds from it?‑‑‑Yes, I could. Yes.
Right. So how much is left as at today’s date?‑‑‑I have gone through – I’ve put – 100,000 has gone to my legal’s – is with my legal’s.
Okay?‑‑‑And the rest I have gone – I’ve paid into the loans and there’s nothing left.
Okay. So you’re telling me that 130,000 ‑ ‑ ‑?‑‑‑Yes.
‑ – say from December last year ‑ ‑ ‑?‑‑‑Yes.
‑ ‑ ‑ has gone into what loan?‑‑‑Been paying off the loans.
No, no. All of them?‑‑‑Yes.
But you’re receiving a wage at the same time?‑‑‑Correct.
HIS HONOUR: Just so that I’m clear, we’re talking about the Westpac loans, aren’t we?‑‑‑Yes, your Honour.
All right. So all of this money, the $130,000, has gone to Westpac?‑‑‑Yes, your Honour.
There can be no doubt that the respondent’s evidence at this point was that the difference between $230,000 and $100,000 was used to pay off the Westpac loan. Within a few seconds, however, she changed her mind saying “No, didn’t say that” (transcript p.91 line 5) and shortly later she was forced to acknowledge by reference to bank statements that the source of the payments on the Westpac loan was her income, but that she brought monies over from the ING account where the monies in fact remained at the end of the term deposit. Her evidence at this point was, doing the best the court can, that $130,000 was used to pay off the mortgage in the period from when the term deposit matured at the end of 2012.
In the closing minutes of the respondent’s cross-examination, and probably the nadir of her case, she made two (2) important concessions. Firstly she acknowledged that all the money was gone. Even though there was $30,000 left in the account she explains at p.93 lines 20-30:
MR COOK: Okay. And which account is that in? The 30,000 that’s left?‑‑‑The 30,000 I have put into my son’s account because he has legal’s coming up as well, so I need it.
But his legal’s are completely unrelated ‑ ‑ ‑?‑‑‑Exactly, but I’ve it there for when he’s need legal’s.
Right. So the family gets all the benefits and the creditors get nothing. Is that the way it works?‑‑‑No.
Well, that’s the way it’s looking to me?‑‑‑No.
Secondly she acknowledged that, despite her earlier evidence, only $3,000 monthly was paid to Westpac: p.93 line 32 to p.94 line 15.
All right. Just testing that theory – 130,000. So hundred grand off to you lawyers in December last year?‑‑‑Yes, yes.
130,000 left. The loan ‑ ‑ ‑?‑‑‑Sorry?
‑ – to Westpac that was the basis of this charge or assignment or whatever you’ve called it, has not been reduced in any significant sphere at all, has it?‑‑‑Correct.
In fact, it’s still sitting around the 490 thousand-odd dollars, isn’t it?‑‑‑It is, yes.
So when you say you’re paying it off, you only pay $3000 a month?‑‑‑Correct. Off that particular loan, yes.
So even if you did 10 months payment from December – like you’ve got the 130 with two months payment – that’s 30 grand – you’ve still got – what did you do with the rest of it?‑‑‑It has dissipated.
On what? Your lifestyle? What has it dissipated on, Mrs George?‑‑‑I don’t know and I’m not – I don’t know.What do you mean you don’t know? It’s six months or eight months and it approximately 70 grand. What did you spend it on?‑‑‑I don’t know. It just dissipated. Before I knew, it was down to that amount.
And meantime, you’re still hocked up with Westpac for this 490,000, aren’t you?‑‑‑Yes.
And it’s still secured over the home?‑‑‑Yes.
And there are other debts that Westpac have as well, aren’t there?‑‑‑Yes.
And they’re all secured over the home as well, aren’t they?‑‑‑Yes.
The court does not accept the evidence of this witness that she does not know what the money was “dissipated on”. This court does not accept her protestation that “Before I knew it, it was down to that amount”. Consistent with the theme permeating her entire evidence and as succinctly put to the respondent in cross-examination she was at all relevant times acting so as to benefit her family at the expense of creditors. It is blatant dishonesty of a kind that taints all of her evidence including her assertion about a purported assignment from her husband of his future interest in his late father’s estate.
Conclusions about agreement to assign interest in estate
Having regard to the evidence, therefore, the court accepts the trustee’s contentions that:
a)The document entitled Personal Guarantee Letter which bears the date 17 June 2009 and which purports to assign the bankrupt’s interest in his father’s estate to his wife, the respondent in this case, was not created until after 22 March 2011, the date of the first act of bankruptcy committed by the bankrupt; and
b)There was no agreement between the bankrupt and the respondent, oral or otherwise, in terms of that represented in the document bearing the date 17 June 2009, as at May or June 2009.
If there was an agreement between the bankrupt and the respondent, oral or otherwise, the onus was on them to establish when it was entered into and how it was documented. Having regard to all the evidence, if there was an agreement at all, it was probably entered into after 22 March 2011 the date of the first act of bankruptcy committed by the respondent. The evidence indicates that both the bankrupt and the respondent had been previously bankrupt before. They were both commercial people, the respondent’s denials notwithstanding. A strong inference is drawn from all the evidence that they both knew how bankruptcy operated and its retrospective impact.
In his written submissions counsel for the respondent valiantly sought to contend that the adverse findings that have in fact been made against his client, and her husband the bankrupt, cannot be made in circumstances where they have not been confronted in cross-examination with the precise allegations made against them. This submission was framed in terms of fundamental procedural fairness, and as a principle well-supported by established authority such as Inzaursalde v GIO (1992) NSWCA 115; Somaghi v Minister for Immigration (1991) 31 FCR 100 at 108-109; Banque Commerciale SA (In liquidation) v Akhil Holdings Ltd (1990) 169 CLF 279; Ghazad v GIO (1992) 29 NSWLR 336 and Read v Kerr (1974) 9 SASR 367 at 374. Counsel submitted that the Briginshaw test applied: (1938) 60 CLR 336 at 361; Helton v Allen (1940) 63 CLR 691. The authorities that counsel relies on are undoubtedly correct, and clearly bind this court. However the findings made by this court are, with respect to counsel, clearly consistent with those authorities. The findings that have been made against his client and the bankrupt have no element of inexactness, or lack precision or definition, that it is not attributable to the obfuscation created by the respondent and the bankrupt themselves. Moreover, and importantly, there is no doubt in this court’s mind that at all relevant times the respondent and the bankrupt, were crystal clear in their minds about the substance of the trustee’s attack on, at the very least, the date of their purported agreement. But even if this court is wrong, and it were hypothetically accepted that the respondent in particular, but also the bankrupt, had not received the benefit of a technical and precise allegation against them, this court is satisfied that all they would have said in any event was to deny what was put to them, consistent with all the other disingenuous denials they made in this case. The clearest, indeed most ineluctable fact (to borrow a term used by counsel for the respondent) in this case is that the respondent, and her husband the bankrupt, were quite dishonest in the evidence they gave pertaining to the matters before the court. On the facts of this case, counsel’s submissions about procedural injustice would seek to transmogrify that fundamental concept into an instrument with which to miscarry justice, instead of facilitating it.
Significance of security interest
Having regard to the court’s finding, for the reasons set out above, that any agreement between the respondent and the bankrupt was entered into after March 2011, what is the significance in this case of the security interest granted by the bankrupt to Stramit Corporation on 5 December 2007? The trustees contented that the bankrupt’s interest in the deceased estate was subject to the security held by Stramit Corporation. The respondents contented that there is no evidence to establish that there was any money owing under the guarantee or secured by Stramit’s purported charge. Thus, the trustees should not be asking the court to determine a contest over property of a third party which has not come to court to defend its own interest.
On the respondent’s own case, therefore, the security held by Stramit is irrelevant to the outcome of this case. Indeed, it is hard to perceive how the respondent could have any interest in this issue at all, having regard to the findings made. Her lack of entitlement to the moneys she obtained from the bankrupt is unaffected by this issue. It could hardly be said, for example, on the facts of this case, that she was acting in good faith.
On the trustees’ case, even if it were held that the security covered only part of the amount in dispute (a matter in respect of which the court is unable to make findings as the evidence led did not go to this issue), the trustees’ duty remains the same, and is in accordance with section 19 of the Act.
Having regard to the findings made in this case, the issue of Stramit’s security interest is a non-issue as between the parties. The respondent is hardly in a position to raise issues about the administration of the bankrupt’s estate. For what it’s worth, this may well be a case where the court would imply a surrender of security to the trustee for section 44 purposes.
Conclusions
Has the trustee made out its case under s.121 of the Act? There is no doubt that the property in question, the $299,146.22, would have become available to creditors if the property had not been transferred to the respondent. The court is left in no doubt that the bankrupt’s main purpose in making the transfer was to prevent the transferred property from becoming divisible among the transferor’s creditors or to hinder or delay the process of making that property available for division amongst creditors. The only reasonable inference that can be drawn from all the circumstances was that, at the time of the transfer, the transferor knew that he was about to become insolvent. He had already received a bankruptcy notice. Stramit Corporation had obtained a judgment against him. BOQ had issued a creditor’s petition against him.
Moreover, it could not be said that the respondent, the transferee, acted in good faith. The respondent knew far more about the bankrupt’s parlous financial affairs than she deposed to in her affidavit, or conceded in cross-examination. The cumulative findings made against her firmly result in a conclusion that she knew, or certainly could have reasonably inferred, that the bankrupt’s main purpose in making the transfer was to put the moneys beyond the claim of creditors. She could not possibly have believed that her husband was solvent at the relevant time, given the circumstances that were well known to her. Whether or not she gave consideration does not change the outcome of the case, unless s.121(5) is enlivened. The respondent contends in this regard that the consideration she gave for the transfer of her husband’s interest in the estate was the provision of her home as security for an advance of $500,000. She contends that from the date that she signed a mortgage and guarantee, which was after 17 June 2009, but before 14 September 2011, she and her husband became liable for the entire $500,000. On that basis, therefore, the consideration for the transaction was equal to the market value of the guarantee and first mortgage.
The trustees contend that the bankrupt did not receive the benefit of any consideration, but rather the company, Maintek Constructions Pty Limited did. When one has regard to the actual agreement, the loan was not a personal loan but was for the cash injection to Maintek Constructions and thus the bankrupt received no personal benefit from the loan as he was an employee, and not a shareholder or director of Maintek.
The matter may be dealt with shortly, given the court’s findings that any agreement between the bankrupt and the respondent was entered into after 22 March 2011. Any consideration that it can be said the respondent provided had already been provided and thus could not be deemed to have been given at a time when her husband’s bankruptcy was already deemed to have been commenced. It follows that the claim under section 121 is successful.
In the trustees’ amended statement of claim filed 10 February 2012, the applicants claim relief on a number of bases. They firstly seek an order that, pursuant to s.31(1)(f) of the Bankruptcy Act, there be a declaration that the distribution in the amount of $333,333.33:
(a) was, pursuant to s.116 of the Bankruptcy Act, property divisible among the creditors of the bankrupt;
(b) vested, pursuant to s.58 of the Bankruptcy Act, in the applicant.
The trustees are entitled to this order, based on the evidence before the court. The making of such an order affects the interest of BOQ, who received $34,187.11, being part of the distribution. It is unknown whether BOQ was put on notice of this order, which would have an impact on it.
The trustees also claim a declaration that the cheque in the amount of $299,146.22 was likewise property divisible among the creditors of the bankrupt, and vested in the trustees. That order is appropriate.
The trustees seek an order under s.31(1)(f) of the Act, being a declaration that the respondent received the amount of $299,146.22 on trust for the applicant. Having regard to the evidence, that is an appropriate declaration to make.
At paragraph 4 of the relief, the trustees seek an order that the respondent disclose to them details of the bank account into which the cheque was deposited. This information came out in cross-examination of the respondent and hence there is no need for this order.
The trustees seek an order that the respondent account to them for the amount and any interest which has accrued thereon. That order is appropriate, and is supported by the evidence. However, that same evidence indicates that the respondent has dissipated the funds. The court has reservations about this evidence, hence it is still appropriate to make the order.
It follows, however, that it is appropriate to make the alternative order sought, that is, that the respondent pay the sum of $299,146.22 to the applicant as money having received by the respondent to the use of the applicant.
The trustees also sought an order under s.120 setting aside the transfer of the cheque but, in the circumstances and having regard to the other orders made, that order does not seem necessary.
The applicants seek an order for interest pursuant to s.76 of the Federal Circuit Court of Australia Act (1999), and that also seems appropriate.
The applicants seek costs, and that would also, prima facie, seem appropriate. There may potentially be an issue about costs arising from interlocutory matters. The order will be that the respondent pays the applicant’s costs, as agreed or as assessed, but leave is granted to the respondent to relist before me on 7 days’ notice on the question of costs, provided such relisting takes place within 28 days of the date of judgment.
I certify that the preceding ninety-one (91) paragraphs are a true copy of the reasons for judgment of Judge Altobelli.
Associate:
Date: 11 October 2013
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