FEDERAL COURT OF AUSTRALIA
Rambaldi v Mullins (No 2) [2016] FCA 977
File number: VID 193 of 2014 Judge: MURPHY J Date of judgment: 22 August 2016 Catchwords: BANKRUPTCY AND INSOLVENCY – application by trustees in bankruptcy for declarations of entitlement - agreements entered by bankrupt and bankrupt’s associate for transfer of interests in business – agreements intended to conceal bankrupt’s property
AGENCY – whether bankrupt’s associate entered agreement for transfer of business as agent for bankrupt – trustees in bankruptcy entitled to enforce rights under agreement
TRUSTS AND TRUSTEES – whether bankrupt’s associate declared an express trust in respect of monies payable to bankrupt under agreement
EVIDENCE – admissibility of transcript of examination pursuant to ss 81(17) and 255 of the Bankruptcy Act 1966 (Cth)
HIGH COURT AND FEDERAL COURT – Jurisdiction – exclusive jurisdiction of federal courts in bankruptcy matters – Orders made by Supreme Court of New South Wales declared against the title of the trustees in bankruptcy – Status of orders made without jurisdiction – Orders of a superior court of record are to be observed until appealed or set aside
Legislation: Bankruptcy Act 1966 (Cth)
Bankruptcy Legislation Amendment (Anti-avoidance) Act2006 (Cth)
Defamation Act 2005 (NSW)
Evidence Act1995 (Cth)
NSW Trustee and Guardian Act 2009 (NSW)
Probate and Administration Act 1898 (NSW)
Cases cited: Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In liq) (2000) 202 CLR 588; [2000] HCA 25
Belhaven and Stenton Peerage (1875) 1 App Cas 278, 279
Branir v Owston Nominees (No 2) (2001) 117 FCR 424; [2001] FCA 1833
Bulun Bulun & Anor v R & T Textiles Pty Ltd& Anor (1998) 157 ALR 193; [1998] FCA 1082
Chamberlain v The Queen (No 2) (1985) 153 CLR 521; [1984] HCA 7
Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550; [1996] FCA 1115
Colonial Life Assurance Society Ltd v Donnelly (1998) 82 FCR 418; [1998] FCA 364
Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252
HP Mercantile Pty Ltd v Dierickx (2013) 306 ALR 53; [2013] NSWCA 479
Hunter v Chief Constable of the West Midlands Police [1982] AC 529
Continue reading Rambaldi v Mullins (No 2)
Sign in free to access the full text
Details
- AGLC
- Rambaldi v Mullins (No 2) [2016] FCA 977
- Case
- [2016] FCA 977
- Decision Date
CaseChat Overview and Summary
In Rambaldi v Mullins (No 2), the Trustees in bankruptcy sought declarations of entitlement to assets and payments related to a business called the Global business, which was operated by the bankrupt, Alex McHugh, and his associate, Byrnes. The dispute involved agreements between McHugh and Byrnes for the transfer of interests in the Global business, which the Trustees alleged were intended to conceal the bankrupt's property. The primary legal issues before the court were whether Byrnes acted as an agent for McHugh in entering into these agreements and whether Byrnes declared an express trust in respect of monies payable to McHugh under these agreements. Additionally, the court had to determine the admissibility of a transcript of an examination under sections 81(17) and 255 of the Bankruptcy Act 1966 (Cth).
The court found that Byrnes did act as an agent for McHugh in entering the agreements, and thus, the Trustees in bankruptcy were entitled to enforce the rights under these agreements. Regarding the express trust, the court concluded that Byrnes did not declare such a trust in respect of the monies payable to McHugh. The court also ruled that the transcript of the examination was admissible under the exceptions provided in the Bankruptcy Act. The court's reasoning was grounded in the evidence presented, including affidavits and documentary evidence, which the court scrutinized to ascertain the intentions behind the agreements and the nature of the relationships between the parties.
The outcome of the case was that the Trustees were granted relief, including the transfer of specific shares and payment of a sum of money. The court ordered Byrnes and other respondents to transfer half of the shares held in certain entities and to pay the Trustees a specified amount. The court also restrained the respondents from dealing with the shares until the transfer was completed. The court further noted that there might be some double recovery by the Trustees and invited submissions on whether the remedies were to be elected between, in the alternative, or cumulative. The court provided a framework for the parties to file further submissions to address these issues and to seek variation or further orders as appropriate.
The court found that Byrnes did act as an agent for McHugh in entering the agreements, and thus, the Trustees in bankruptcy were entitled to enforce the rights under these agreements. Regarding the express trust, the court concluded that Byrnes did not declare such a trust in respect of the monies payable to McHugh. The court also ruled that the transcript of the examination was admissible under the exceptions provided in the Bankruptcy Act. The court's reasoning was grounded in the evidence presented, including affidavits and documentary evidence, which the court scrutinized to ascertain the intentions behind the agreements and the nature of the relationships between the parties.
The outcome of the case was that the Trustees were granted relief, including the transfer of specific shares and payment of a sum of money. The court ordered Byrnes and other respondents to transfer half of the shares held in certain entities and to pay the Trustees a specified amount. The court also restrained the respondents from dealing with the shares until the transfer was completed. The court further noted that there might be some double recovery by the Trustees and invited submissions on whether the remedies were to be elected between, in the alternative, or cumulative. The court provided a framework for the parties to file further submissions to address these issues and to seek variation or further orders as appropriate.
Orders
Orders of the court
Full text does not contain this section.
Background
Background to the litigation
In my view the evidence of settlement negotiations falls within the exceptions in subs 131(2)(f) and (i). In respect of s 131(2)(j), for the purposes of these proceedings, I am satisfied that the Bankrupt’s statement was made as part of an attempt to conceal from the Trustees that he was to be paid substantial monies for his interest in the Global business. In my view the evidence is admissible. THE FACTS In setting out the facts I set out my view of the evidence. I have largely drawn the facts from the first McHugh affidavit, the evidence given and documents produced in the public examinations, and submissions titled “Costs Applicant’s Narrative and Submissions” made on McHugh’s behalf in the Supreme Court proceeding (“the costs submissions”). I infer that the costs submissions were approved by Byrnes as the evidence shows that he instigated and funded the Supreme Court proceeding. The Trustees relied on the costs submissions and the respondents did not suggest they were incorrect. Although the trial was short, the documentary evidence is voluminous. The documents exhibited to the Rambaldi affidavits comprise six lever arch binders. I was taken to comparatively few of these documents but it was unfortunately necessary to look beyond the materials to which I was directed. The Court should not be required to pick through such voluminous materials and often irrelevant materials in search of pearls of relevance. Alex’s bankruptcy There is no issue that the Bankrupt’s bankruptcy predates the relevant events. It is common ground that on 8 December 2008 the Deputy Commissioner of Taxation obtained judgment against the Bankrupt for $179,652.93 and that on 20 July 2009 the Bankrupt committed an act of bankruptcy. On 19 April 2011 a sequestration order was made against the estate of the Bankrupt. Mr Mark Roufeil was initially appointed trustee of the bankrupt estate and the Trustees were appointed in his place on 10 April 2013. The act of bankruptcy was committed within six months before the date of presentation of the creditor’s petition, and by operation of s 115 of the Act the bankruptcy is taken to have relation back to, and to have commenced, on 20 July 2009. The relevant events all take place after the date of commencement of Alex’s bankruptcy.The Global business The evidence is that McHugh has worked in the labour hire industry in Queensland for some 30 years and from about 1995 he operated a labour hire business in Queensland as a manager and then part-owner, supplying contract skilled and unskilled labour in the construction and mining industries. That business was, in commercial if not legal terms, the predecessor to the Global business. I use the description “the Global business” to refer to the labour hire business that is the central in the proceeding, notwithstanding that the business had different owners and was run through different companies over the years. In the relevant period the Global business comprised: (a)the three Operating Companies, Civil Pacific Services Group, Global HR Group and Global Civils Group; (b)the Parent Company, Global Human Resources Group, which held the shares in the Operating Companies; and(c)GHR No 3, which held the shares in the Parent Company.Shortly before the trial, on 7 March 2014, Russo and McHugh registered GHR Custodian. On 11 March 2014 Global Human Resources Group transferred all of the shares it held in the Operating Companies to GHR Custodian, and it became the New Parent Company. Russo was the sole director of Global Human Resources Group at the time.
Evidence
Evidence Before The Court
The Trustees obtained leave of the Supreme Court of NSW to use evidence filed in the Supreme Court proceeding. They filed the following evidence: (a)affidavits of Mr Rambaldi: (i)sworn 28 March 2014 (“the first Rambaldi affidavit”); (ii)sworn 9 April 2015 (“the second Rambaldi affidavit”) which includes five lever arch binders of exhibits, including transcripts of the evidence given by various persons in public examinations of the affairs of the Bankrupt conducted under s 81 of the Act (“public examinations”) and documents produced in the examinations or otherwise obtained by the Trustees; and (iii)sworn 16 May 2015 (“the third Rambaldi affidavit”); (b)affidavits of Mr Innis Cull, the solicitor for the Trustees: (i)sworn 28 March 2014 (“the first Cull affidavit”); (ii)sworn 12 May 2014 (“the second Cull Affidavit”); (iii)sworn 13 May 2015 (“the third Cull Affidavit”). The Trustees did not read paragraphs 23 to 26 of this affidavit; and (iv)sworn 18 May 2015 (“the fourth Cull Affidavit”); (c)an affidavit of Ms Alison Lee affirmed 18 August 2014 which went to service of orders on Mullins. The deponents were not required for cross-examination. The respondents’ evidence The second to eighth respondents filed the following evidence: (a)affidavits of McHugh: (i)sworn 15 May 2015 in this proceeding, which did no more than exhibit his affidavit in the Supreme Court proceeding sworn 20 May 2013 (“the first McHugh affidavit”); and (ii)sworn 18 September 2013 in the Supreme Court proceeding which was tendered in evidence in this proceeding. McHugh was cross-examined.(b)affidavits of Byrnes sworn 11 May 2015 (“the first Byrnes affidavit”) and 18 May 2015 (“the second Byrnes affidavit”). Byrnes was not required for cross-examination; Russo and Ms Filomena Kyriacou (“Kyriacou”), a director of Wentworth Williams & Associates, did not put on affidavits. They gave viva voce evidence and were cross-examined. The first respondent, Mullins, was served with the proceeding and for a short period a solicitor was on record as acting for her. The ninth respondent, the NSW Trustee, filed a Notice of Appearance and indicated that it did not intend to take part in the proceeding. Neither Mullins nor the NSW Trustee put on evidence or participated in the trial. MY ASSESSMENT OF THE WITNESSESMcHugh’s evidence I accept much of the factual narrative set out in McHugh’s first affidavit largely because much of it is uncontentious, much of it is consistent with my view of other evidence, and some of it is contrary to his interests in the present case. The evidence in McHugh’s second affidavit is largely not relevant. There are various aspects of McHugh’s evidence which I consider unreliable and overall I take a dim view of his credibility. First, for the reasons I set out below (at [294]) I consider McHugh’s evidence that in about May 2011 he was forced by duress into handing over his interest in the Global business to the Bankrupt is implausible.
Decision
Reasons for decision
The respondents did not seek a set-off of the amounts totalling $1.35 million they paid under the October Deed and (as I explain at [254]-[262]) apart from an amount of $105,000 paid to City Nominees there is no evidence that any of these payments went to the benefit of the Bankrupt.L CONCLUSION I have made orders that the second to eighth respondents:(a)within 21 days, transfer to the Trustees half (in number and value) of the shares held by:(i)AR & KH Pty Ltd in GHR Custodian; and(ii)GHR Custodian in Civil Pacific Services Group and Global Civils Group;(“the identified shares”);For the reasons I explained I have not made an order for the transfer of shares previously held by GHR Custodian in Global HR Group;(b)be restrained from transferring, selling, encumbering or otherwise dealing with any shares held by AR & KH Pty Ltd in GHR Custodian or by GHR Custodian in Civil Pacific Services Group and Global Civils Group until they have transferred the identified shares to the Trustees;(c)within 21 days, pay the Trustees $2.395 million (plus interest to be calculated) in respect to the Bankrupt’s rights under the October Deed. I am concerned that there may be some double recovery by the Trustees as the relief ordered includes half (in number and value) of the shares in the Operating Companies as well as payment of $2.395 million under the October Deed. I say this because, although the Bankrupt’s beneficial ownership of half of the shares in the companies in the Global business vested in the Trustees, in my view the Bankrupt’s rights to payment through the October Deed were based in a promise to abandon his claims to ownership and transfer his beneficial interest in the Global business to the October Deed Payers. The Trustees’ submissions were not clear as to whether they intended to elect between these remedies, whether they were in the alternative, or whether they were cumulative. I will hear submissions from the parties in this regard and vary the orders or make further orders as appropriate. The parties must file written submissions in this regard within 14 days, and any submissions in response within seven days thereafter. I am satisfied that the payments to be made to the Bankrupt under the Defamation Deed were not in respect to any defamation of him, and were payments for the transfer of his beneficial interest in the Global business. However, because the March Deeds are void and unenforceable by operation of the 22 October 2013 Orders, I can presently see no utility in a declaration in that regard. Nor can I see any utility in a declaration that the JA Investments Trust did not come into effect. If the Trustees seek such declarations they must file written submissions in this regard within 14 days, and the respondents must file any submissions in response within seven days thereafter. I grant leave generally to the Trustees and the second to eighth respondents to file submissions seeking variation of the present orders or orders further to those made within 14 days, and any submissions in response within seven days thereafter.
Ratio Decidendi
Legal Principle Established
Full text does not contain this section.