Peldan and Lane v Nurcombe and Nurcombe
[2007] FMCA 266
•8 March 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PELDAN & LANE v NURCOMBE & NURCOMBE | [2007] FMCA 266 |
| BANKRUPTCY – Consequential orders that the mortgage be set aside together with other further or consequential as are necessary and costs – transfer to defeat creditors – bankrupt’s purpose in the transfer was to prevent the property from becoming divisible among his creditors. |
| Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372, 417 Schmicrar v Smith (No. 2) [2004] FMCA 856 Sutherland v Brien (1999) 149 FLR 321, 325 Trustee of the Property of Cummins (a Bankrupt) v Cummins (2006) 224 ALR 280 |
| Applicant: | MICHAEL PELDAN & MORGAN GERARD JAMES LANE AS TRUSTEES OF THE BANKRUPT ESTATE OF GEORGE WILLIAM COX |
| Respondent: | RENEE CLARE NURCOMBE & MARK ROBERT NURCOMBE |
| File number: | BRG 65 of 2007 |
| Judgment of: | Burnett FM |
| Hearing date: | 21 February 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 8 March 2007 |
REPRESENTATION
| Solicitors for the Applicant: | Quinn & Scattini |
| Despite the application having been served upon the Respondents they did not appear. In their absence it is appropriate to dispose of the application summarily: FMC order13.03A(e) |
ORDERS
The Court declares the grant of a mortgage identified by title reference number 708535244 dated 18 March 2005 by George William Cox (mortgagor) and Renee Clare Nurcombe and Mark Robert Nurcombe (mortgagees) in respect of property at 64, Coombal Waterhole road, Maindenwell more properly described as Lot 9 on RP190560 parish of Neumgna county of Fitzroy bearing title reference 15410039 (“the mortgage”) is void against Michael Peldan and Morgan Gerard James Lane as Trustees of the bankrupt estate of George William Cox.
The Court orders that the mortgage be set aside.
The Respondent pay the Applicant’s costs of the application, including any reserved costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 65 of 2007
| MICHAEL PELDAN & MORGAN GERARD JAMES LANE AS TRUSZTEES OF THE BANKRUPT ESTATE OF GEORGE WILLIAM COX |
Applicant
And
| RENEE CLARE NURCOMBE & MARK ROBERT NURCOMBE |
Respondent
REASONS FOR JUDGMENT
Introduction
The Applicants, Michael Peldan and Morgan Gerard James Lane as Trustees of the bankrupt estate of George William Cox (the bankrupt) apply for a declaration pursuant to s30 Bankruptcy Act that a mortgage between the bankrupt as mortgagor and Renee Clare Nurcombe and Mark Robert Nurcombe (the Respondents) as mortgagees dated 18 March 2005 over property described as Lot 9 on RP190560 Parish of Neumgna County of Fitzroy bearing title reference 16510039 and being situate at 65 Coombal Waterhole Road, Maindenwell (the Property) is void as against the Applicants pursuant to sections 120 and 121 of the Bankruptcy Act. They seek consequential orders that the mortgage be set aside together with other further or consequential as are necessary and costs.
Background
On 28 February 2005 the Respondent was ordered by Richards DCJ of the District Court (Queensland) to pay an amount of $26,250 to Lynda Fay Tosi. Ms Tosi is currently a creditor in the bankruptcy and is owed that sum by way of criminal compensation ordered for injuries occasioned to her following upon an assault by the bankrupt.
By letter dated 18 March 2005, Ms Tosi’s solicitor, McNamara and Associates, sent a letter to the bankrupt’s solicitor, Caboolture Legal Centre demanding that the bankrupt pay to her the sum of $26,225 as ordered by the Court on 28 February 2005. The demand was for payment within fourteen days.
On or about 24 March 2005 the bankrupt mortgaged the fee simple in the Property to Renee Clare Nurcombe and Mark Robert Nurcombe as joint tenants. The description of debt or liability as indicated in the mortgage was $35,000. A stamp upon the mortgage document lodged with the Queensland Land Registry indicates that the mortgage was assessed by the Stamp Duties Office in Queensland as a “first home mortgage concession $35,000”.
In an affidavit filed in support of the application by Michael Richard Peldan it is sworn that on or about 24 March 2005 the mortgage was lodged for registration under dealing number 708535244. That matter is apparent from the barcode of Queensland Land Registry label which appears affixed to the mortgage document a copy of which is exhibit MRP1 at page 5.
The notation of the mortgagees’ interest on the title was recorded in accordance with the dealing number for the mortgage and noted as having been lodged on 24 March 2005 at 15.24 hours. The lodgement was noted as having been effected by “Caboolture Legal Centre”.
By letter dated 13 April 2005 Caboolture Legal Centre advised Ms Tosi’s solicitor that in response to their letter of demand dated 18 March 2005 their client “has no monies or liquid assets to satisfy any compensation order”. They noted that their clients “only major assets, apart from rudimentary possessions is a block of land at Maindenwell on which a shed is located in which he resides. This land is worth approximately $30,000 but secured by mortgage with an unpaid balance owing of $35,000”. An appraisal of the value of the land from local real estate agents at Nanango was enclosed in the solicitor’s letter. Curiously the author of that letter overlooked informing Messrs McNamara and Associates that between 18 March 2005 and their letter of 13 April 2005 they had received instructions from their client to prepare a mortgage in respect of the Property and that they had acted upon their client’s instructions in perfecting that matter.
Between April 2005 and March 2006 it is apparent that correspondence concerning the debt was exchanged between Ms Tosi’s solicitors and solicitors acting for the bankrupt. On 30 November 2005 a Writ of Execution was registered on the title deed of the Property.
Subsequently steps were taken to bankrupt the Respondent. An application was filed on 26 July 2006 with Linda Fay Tosi being the petitioning creditor. The bankruptcy notice was entered on the NPII on 3 May 2006 and the hearing for the creditor’s petition took place on 28 July 2006. At that time a sequestration order was made against the Respondent.
Upon their appointment the Trustees investigated the above transaction. In the course of their investigation they corresponded with the mortgagees. In particular by a letter dated 3 October 2006 they informed the mortgagees that unless they received some evidence to show an advance of funds to the Respondent, under the mortgage “…a mortgage will be void under Section 120 of the Bankruptcy Act for want of consideration and will need to be removed from the title”. The mortgagees were requested by that letter to provide any evidence to the Trustees by 19 October 2006 and were put on notice that if they did not do so or did not agree to remove the mortgage, then application would be made for the mortgage to be removed.
It appears that in response to the letter of 3 October 2006 Mark Nurcombe forwarded an email on 10 October 2006 at about 5.59pm. In his email Mr Nurcombe noted:
“…the caveat that my wife and I have against George’s land is for advances made to him over a five year period. I have attached a spreadsheet which details how the funds were disbursed. There was never a lump sum given to the value of $35,000. However, the sum has risen over the years to a sum of about $55,000. This is hard to tell as we have never really kept track of everything over the years. As George is Renee’s father we weren’t exactly counting.”
The spreadsheet attached to Mr Nurcombe’s email listed various expenses alleged to have been incurred between 14 February 2002 and the date of the spreadsheet. The largest of those expenses appears to be a sum of $23,400 which is alleged to have arisen by way of a payment of $150 per week over a three year period.
Not surprisingly the Trustees responded to Mr Nurcombe challenging his spreadsheet and noting that in respect of the funds advanced prior to the mortgage they were not recoverable as no consideration had been given for the mortgage in respect of those amounts. Further they considered that the transactions were undervalued. In respect of the later advances the Trustees were prepared to consider them but required the production of proper proof of expenditure by the mortgagees. In addition the Trustees foreshadowed that the circumstances of the case raised the possibility that the transaction was simply one entered into with a view to defeating creditors and in particular the petitioning creditor, Ms Tosi.
Despite having written to the Nurcombes on 13 October 2006 no response was received by the Trustee. Accordingly they instructed their solicitors to write demanding a response and threatening proceedings in the event of non compliance with that request. Subsequently by letter of 31 October 2006 solicitors acting for Mr and Mrs Nurcombe wrote to the Trustee’s solicitors indicating that they had been retained and requested time to take instructions and respond. They indicated that they would “revert to you with a detailed response and in any event by no later than Friday 10 November 2006”.
Despite that promise no response was received. The Trustee’s solicitors again wrote to the Nurcombe’s lawyers on 16 November 2006 affording them one further opportunity to resolve the matter. Despite that letter no response was forthcoming.
Transfer to Defeat Creditors
Section 120 of the Bankruptcy Act relevantly provides:
“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.”
For the purposes of the Bankruptcy Act the granting of a mortgage constitutes a transfer of property: Sutherland v Brien (1999) 149 FLR 432; Schmicrar v Smith (No. 2) [2004] FMCA 856. The transfer took place in the period beginning five years before the commencement of the bankruptcy. As discussed at paragraph 1 above there is no evidence to demonstrate there was any consideration given in respect of the mortgage. Even if the material submitted by the Respondent was admissible it demonstrates that in respect of many of the advances the consideration was past consideration which is no consideration at all. See generally Cheshire and Fifoots Law of Contract, 5th Australian Edition[1].
[1] Starke, Seddon & Ellinglaws, Butterworths 1988 at [203]. Cited with approval in Official Trustee in Bankruptcy v Mateo (2003) 202 ALR 571 (FCFCA)
In his email Mr Nurcombe referred to “advances” but then proceeded to say “…we never really kept track of everything over the years. As George is Renee’s father, we weren’t exactly counting”. It is difficult to arrange an “advance” where neither the lending or borrowing party kept an accurate record of the sums advanced. The essence of this transaction was Mr Nurcombe’s remark that “George” (the bankrupt) was Renee’s (the mortgagees) father. The expenses were in the nature of living expenses and they were paid as such, unconditionally. It is only in the context of the bankruptcy that the bankrupt and mortgagees have contrived a series of loan transactions to justify the mortgage.
The unchallenged evidence demonstrates that the Bankrupt transferred to the Nurcombes (the transferees) in the period beginning five years before the commencement of the bankruptcy an interest, being a mortgage over the property. Furthermore there is no evidence to demonstrate that the consideration was adequate for the transfer. The only material before the Court is the spreadsheet which was attached to an email. The spreadsheet has not been sworn to. Despite the bankrupt having been served with this application the bankrupt has chosen not to or determined not to appear or place any sworn testimony concerning the relevant matters contended for on his behalf before the Court. Accordingly I accept there is no evidence of consideration for the transfer. Furthermore Section 120(3) casts an onus upon the transferee to demonstrate to the Court various matters. Further they have chosen not to or decided not to put evidence in relation to those matters before the Court and accordingly cannot be afforded the opportunity for consideration of that defence.
I am satisfied the mortgage transaction is a sham designed to defeat the Applicant’s claims and that none of the so called advances were in fact advances but were simply payments each made in the nature of a gift. Upon that basis the transfer was void.
Transfer to defeat creditor
Section 121 of the Bankruptcy Act relevantly 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.”
The Trustee alleges that the transfer is void as against him because the property would probably have become part of the transferor’s estate and have been available to the creditors but the property had not been transferred. Nothing in any of the material which has been provided by the Trustees including the exchange of correspondence between the Trustee and the bankrupt’s solicitor would suggest that there was any other claim upon the property aside from the claim by the bankrupt or the mortgagees. But for the mortgage I am satisfied the whole value of the Property probably would have become part of the transferor’s estate and would probably have been available to the creditors.
To succeed for a declaration in terms of section 121 it is also necessary for the Trustee to demonstrate that the transferor’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 the property available for division among the transferors creditors. Section 121(2) provides that the transferor’s main purpose in making the transfer is taken to be the purpose described in section 121(1)(b) if it can be reasonably inferred from all of the circumstances that at the time the transferor was or was about to become insolvent.
From the evidence it is apparent that at the time of the transfer the bankrupt had just suffered a judgment against him in the District Court at Ipswich in favour of his ex-wife. It is apparent from the material that the judgment given against him was one in respect of a criminal compensation claim arising from a charge of assault occasioning bodily harm in respect of which he was convicted. No doubt because of the former marital relationship the prospect of paying any sum to his former spouse by way of criminal compensation was not attractive to the bankrupt.
The following additional factors also warrant mention. The transfer occurred approximately one month after the applicant in the bankruptcy succeeded in obtaining a money judgment against the bankrupt in the District court. The applicant in the bankruptcy, premised upon the unsatisfied judgment, precipitated the bankrupt’s act of bankruptcy and subsequently her successful application for sequestration. Clearly this unsatisfied judgment debt caused the bankrupt to be insolvent from that time. There is for instance no evidence to suggest any other factor militating against insolvency. It is quite apparent from the correspondence that passed between the applicant in the bankruptcy (by her solicitors) and the bankrupt (by his solicitors) that he did not wish to make any funds available to satisfy her claim as he caused them to write on 13 April 2005 informing her he had no money or liquid assets “to satisfy any compensation order”. This all occurred against a background of a transaction between the bankrupt and the respondents being related parties. The female respondent was the bankrupt’s daughter. The respondents are husband and wife.
In any event aside from those matters it can be properly inferred that at the time of the transfer the bankrupt was about to become insolvent because apart from that asset the bankrupt had no other asset available to satisfy the judgment given against him in the sum of $26,250. The evidence demonstrates that the property had a value of approximately $30,000 and accordingly once allowance is made for sale expenses and the discharge of the judgment of the District Court it is highly likely that the bankrupt would have been insolvent.
For reasons detailed above I am satisfied the transaction was a sham transaction. I am satisfied that in this instance the Trustee had discharged his onus: Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372, 417. But for the mortgage the Property would have been available to his creditors.
The mortgagees as transferees have not advanced any evidence in respect of the matters required by s121(4) to establish any entitlement in that regard. The Applicant having satisfied the primary elements of s121 the burden shifted to the Respondent/Transferee. They have failed to discharge that onus: Trustee of the Property of Cummins (a Bankrupt) v Cummins (2006) 224 ALR 270.
In the circumstances I am satisfied the Property would have become available to creditors but for its transfer and that the Bankrupt’s purpose in the transfer was to prevent the Property from becoming divisible among his creditors. The transaction was void as against the Trustee.
Conclusion
The circumstances the mortgage granted by the Bankrupt to the Respondents to the application indicate a transaction caught by the operation of either or both s121 and s121 Bankruptcy Act. The transaction was void as against the Trustee in the transferor’s bankruptcy and should be set aside.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Burnett FM
Associate: Bev Schmidt
Date: 8 March 2007
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