Rambaldi v Reeves
[2007] FMCA 408
•19 April 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| RAMBALDI v REEVES | [2007] FMCA 408 |
| BANKRUPTCY – Respondent asserting alienation of ownership of family home by declaration of trust – finding that declaration of trust never effective – held that family home vests in the Applicant trustee. |
| Transfer of Land Act1958 (Vic), ss.89, 89A Evidence Act 1995 (Cth), s.69 |
| Re Armstrong (1960) VR 202 Hyhonie Holdings Pty Ltd v Leroy (2004) NSWCA 72 Hyhonie Holdings Pty Ltd v Leroy (2003) NSWSC 624 Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 |
| Applicant: | GESS MICHAEL RAMBALDI |
| Respondent: | VAUGHAN SCOTT REEVES |
| File number: | MLG 278 of 2006 |
| Judgment of: | Burchardt FM |
| Hearing dates: | 1 & 2 March 2007 |
| Date of last submission: | 2 March 2007 |
| Delivered at: | Melbourne |
| Delivered on: | 19 April 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr S.J. Waldren |
| Solicitors for the Applicant: | Andma Legal |
| Counsel for the Respondent: | Mr P. Fary |
| Solicitors for the Respondent: | Archer and Sapountzis |
THE COURT ORDERS THAT
The land and buildings described in certificate of title Volume 10492 Folio 202 vest in the Applicant as Trustee in bankruptcy of the Respondent pursuant to s.58 of the Bankruptcy Act 1966 (Cth).
The Respondent pay the costs of this application to the Applicant.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 278 of 2006
| GESS MICHAEL RAMBALDI |
Applicant
And
| VAUGHAN SCOTT REEVES |
Respondent
REASONS FOR JUDGMENT
This is in the matter of the bankrupt estate of Vaughan Scott Reeves. The Applicant is Gess Michael Rambaldi and the Respondent is Vaughan Scott Reeves. By an application filed in this Court on 23 February 2006 the Applicant, who is the Trustee of the bankrupt estate of the Respondent, sought declaratory and other relief in respect of land described in certificate of title volume 10492 folio 202 ("the property").
From the first affidavit filed by the Applicant on 23 February 2006 it is apparent that on 18 October 2001 a sequestration order was made against the estate of the Respondent. The Applicant was appointed trustee of that estate upon the making of the order.
As at the date of the sequestration order the Respondent was the registered proprietor of the property. The Applicant lodged a caveat under s.89 of the Transfer of Land Act 1958 (Vic) (“the TL Act”) in respect of the property on 26 October 2001 by his then solicitors. The caveat claimed that the interests of the Respondent had vested in him as Trustee in bankruptcy.
On 12 January 2006 the Respondent made an application pursuant to s.89A of the TL Act for the removal of the caveat to the Registrar of Titles. The terms of the TL Act require the caveator to issue proceedings to sustain the caveat or to lose the benefit thereof. These proceedings are the Applicant's attempt to make out the interest asserted in the caveat.
Although an amended application was filed on 20 March 2006, little turns on that for present purposes. The issue as it has emerged at trial, and indeed as clearly indicated in the affidavit material filed by the parties, is whether or not the Respondent holds the property, and has done so since 21 August 1997, on trust for The Bottled Duck Co Pty Ltd (ACN 076 505 372) ("TBD").
By affidavit filed on 5 May 2006 the Respondent deposed that on 21 August 1997 he declared that he held the property on trust for TBD (“the declaration of trust”). Accordingly, he submitted the property was not property divisible amongst his creditors.
The next affidavit sworn relevant for these purposes was by Peter Vernon Lansell, sworn on 13 October 2006 and filed on 16 October 2006. That affidavit shows that Mr Lansell is a director and shareholder of TBD and that his son, Simon Peter Lansell, is the other director, although the son has little to do with the affairs of the company.
Mr Lansell deposed that the Respondent and he had been friends for about 23 years and that in the mid‑1990’s the Respondent and
Mr Lansell became involved with a group of people who had rights in various technologies. Walter James Archer was originally a solicitor for one of those parties, but he took over as legal adviser to Mr Lansell thereafter.
Mr Lansell deposed that in about 1996, on Mr Archer's request, he had agreed to be a director of a company, to be a trustee of a trust to be set up for the Respondent, and that he had discussed this with the Respondent, who told him that the trust would be used to hold his assets.
By deed of settlement dated 11 October 1006 the Vaughan Reeves Family Trust No. 1 ("Trust 1") deed of settlement was executed.
By deed of settlement dated 11 October 1996 the Vaughan Reeves Family Trust No. 2 ("Trust 2") deed of settlement was created.
On 22 November 1996 TBD was incorporated as a shelf company. Mr Lansell was not able to explain why Trust 1 and Trust 2 were created on a date prior to the registration of TBD.
Mr Lansell deposed that Mr Archer arranged all documentation in relation to the incorporation of TBD and that he signed documents to give effect to the various entities.
At some point late in 1997 Mr Archer told Mr Lansell that he had transferred all of the Respondent's assets to the Respondent's Family Trust (i.e. Trust 1), including the property.
Mr Lansell further deposed that prior to May 2001 Mr Archer was primarily responsible for TBD but that from time to time he attended at Mr Archer's offices to sign papers in relation to the company.
Mr Lansell deposed that in May 2001 Mr Archer became a bankrupt, and on 27 July 2001 Mr Archer ceased to be a director of TBD. Up until then, Mr Archer and Mr Lansell had been the only two directors of TBD.
Mr Lansell further deposed that throughout the time he had been a director of TBD, which is of course all of its corporate life, he had done very little in relation to the Respondent's Family Trust, because it had not, to his knowledge, received any income and because the Respondent was living at the property.
On 4 January 2004 Mr Archer died, and thereafter Ms Sapountzis, who took over Mr Archer’s business, has acted on behalf of the Respondent and on behalf of TBD.
Finally, Mr Lansell deposed that he did not hold any documents in relation to TBD or the Trust and that to the best of his knowledge all such documents were held by Mr Archer. The significance of the absence of those documents will become apparent later.
That affidavit of Mr Lansell itself responded to an affidavit filed on behalf of the Applicant by Michael Badge on 28 September 2006. That affidavit annexed compendious documentation arising out of the investigation of the affairs of the Respondent by or on behalf of the Applicant. Relevantly, from exhibit MB5 to Mr Badge's affidavit, it is apparent that in 2002 the City of Whitehorse purchased from the Respondent a part of the property for the price of $4,095.00.
As I have said, voluminous other documentation, some of which it is necessary to return to later in these reasons for judgment, was also annexed to Mr Badge's affidavit.
Two other matters worthy of note are that on 29 July 1997 the Respondent applied for a loan of $5,900.00 from the Bendigo Bank; and that in connection with that loan on 1 August 1997 Mr Archer wrote to the Bendigo Bank regarding Mr Reeves' entitlements in respect of the property. In exhibit MB6 at page 61 Mr Archer wrote:
“The terms of the will and settlement are such that for a minimum of five years and a maximum of 10 years at his option my client [this was the respondent] can occupy the premises free from payment of rent but subject to paying outgoings and carrying out normal maintenance. The property is in fact unencumbered and when final administration occurs my client will receive a one‑half interest plus the value of any improvements which he has carried out.”
On 21 August 1997 the Respondent transferred a half‑interest in the property to his sister, Vicki Margot Daley as tenant in common. Ultimately the property was divided into two separate titles. The property had been devised solely to the Respondent by the Respondent's father, but the arrangement with Ms Daley disposed of her asserted interest in the property.
On 12 October 2006 the Respondent filed a further affidavit. He deposed that he had two children from a previous de facto relationship with Geraldine McKenna, Bonnie Marion Reeves (born 22 February 1989) and Adam Scott Reeves (born 24 December 1992).
The Respondent deposed that his father, Norman Henry Reeves, had had a falling‑out with the Respondent's sister, Vicki Daley, shortly prior to his death on 1 December 1995. It would appear that Mr Reeves senior lived in the property until a year before he died, and that at the time of the death the Respondent was living in Brunswick with Ms McKenna.
The Respondent went on to depose, in mirror terms to those set out by Mr Lansell is his affidavit, of the way in which Mr Archer had acted as solicitor for the group of investors in the mid‑1990’s. He went on (paragraph 17 of the affidavit) to depose that he had had discussions in 1996 with Mr Archer about structuring his affairs in anticipation of receiving income from the activities of the group and in order to protect his property for the benefit of his children.
The Respondent deposed that by 1995 his relationship with Ms McKenna was fragile and had started to break down.
He deposed further that in 1996 Mr Archer recommended that he create two trusts, the first to hold property for the benefit of his children and the second to be used as a vehicle for receiving income from the group and distributing it to the Respondent and his children. He deposed that it was pursuant to this advice that the trusts had been prepared.
Correspondence was annexed to the Respondent's affidavit from Mr Archer to various bodies, all of which makes it clear that the Respondent was concerned about his matrimonial situation and the possibility that that might impact upon his ownership of the property. The Respondent in fact separated from Ms McKenna in December 1996 and thereafter moved into the property, which had been previously unoccupied since his father moved out (paragraph 31 of the affidavit).
The Respondent deposed that he had agreed about this time to pay maintenance to Ms McKenna and she agreed that the children visit the Respondent routinely, which they have tended to do every second weekend, although this has now reduced because the children are teenagers and have interests which interfere with their staying with him.
The Respondent deposed that at some point prior to 9 May 1997 he entered into an agreement with his sister to resolve her claim against their late father's estate. One of the conditions of the agreement was that the Respondent be given a right to reside in the property. The Respondent deposed that he was concerned to ensure the children had a home to go to and a bed to sleep in.
The Respondent deposed that following his declaration of trust on 21 August 1997 he left it to Mr Archer to do everything else necessary to implement the Trust. The Respondent deposed that from about 1999 onwards he observed that Mr Archer's ability to perform work steadily declined, and he observed that Mr Archer appeared to have memory lapses on a regular basis.
Finally, relevantly, the Respondent deposed that the property is a two‑bedroom weatherboard house in a dilapidated condition.
The oral evidence
Not surprisingly, neither of the deponents who filed affidavits on behalf of the Applicant were required for cross‑examination.
The Respondent gave evidence and was cross‑examined. He was closely cross‑examined about the recitals in the declaration of trust. It emerged that he was by no means sure that all of the recitals were true. He could not recall if recital 1 was true, but believed that it was. He was not sure if recital 3 was true. He believed that the fourth recital was true. He deposed that he intended the property to be held on trust.
Notwithstanding that intention, the Respondent confirmed that it was not his intention that TBD would be occupying the property nor was it his intention that TBD would have told him to move out. He had intended to transfer the property to TBD and there should have been other documents, and he discussed such matters in lay terms with Mr Archer.
The Respondent confirmed that the Box Hill Council wanted to buy part of the property because it backed onto a creek which the Council wanted to clean up. He sold that land in the end, although it transpired that this was in fact probably not owned by him.
He said that this sale of the property was effected by him because he was on title and he conceded that a cheque for the same was received by him and paid into his own account.
He confirmed that he never intended to pay rent to TBD but intended to keep the property to himself for five to ten years.
He confirmed that the declaration of trust was made to protect against possible matrimonial claims by Ms McKenna and for other reasons, but he did not elaborate what those other reasons were.
He confirmed that he had lived in the property since 1997, had never paid rent, and that TBD had never paid the rates or made any payments in respect of land tax.
He confirmed that there was no income on the part of TBD throughout this entire period, and he was not able to say whether stamp duty had been paid on the declaration of trust. The Respondent was cross‑examined about the documents being part of MB6, which related to his application for a bank loan from the Bendigo Bank and which appeared to suggest that he had an unencumbered interest in the property. He said those were written in the context of a loan from the bank. He confirmed that there were no documents referring to TBD and the property after the declaration of trust.
In re‑examination the Respondent confirmed that effectively TBD was understood by him to be Mr Lansell and that it was always very unlikely that TBD would lease the property. The Respondent felt that TBD would give weight to him and his views as a beneficiary.
Mr Lansell was called and was cross‑examined. He confirmed that he was a close friend of the Respondent and that that was why he was made a director of TBD. He confirmed that there was no paperwork and that he had left such matters to Mr Archer and the accountant for at least part of the period of TBD's existence, Ivan Clyne. He confirmed there were simply no documents and no accounts on the part of TBD and that TBD had no income.
Tellingly, Mr Lansell said there was no need to do anything with TBD while the Respondent lived there. As a man who had been a co‑director of more than six companies, he was well aware of the necessity to have financial records and minutes, and he deposed that he believed that all records were held by Mr Archer.
Objections were taken to paragraph 13 of Mr Badge's affidavit, and to exhibits MB3 and MB9. Exhibit MB9 plays no part in the proceeding. The objection to paragraph 13 of Mr Badge's affidavit was on the basis that it was hearsay, and the objection to exhibit MB3 (referred to in paragraph 13 of Mr Badge's affidavit) was that the documentation concerned was simply not evidence of anything of what TBD had done.
In fact, exhibit MB3 purports to be a letter to Pitcher Partners from Davies Clyne and Co dated 2 January 2006 in which Ivan Clyne appears to assert that he encloses tax returns for the years 1998, 1999 and 2000. These are tax returns of the Respondent.
In my view, the documents contained in exhibit MB3 and the remarks made by Mr Badge at paragraph 13 attract the operation of s.69 of the Evidence Act 1995 (Cth). The documents in the exhibit are plainly records prepared as part of a business by Mr Clyne and they fall squarely within the exemption to the hearsay rule that s.69 develops. Nonetheless, I do not think that much turns on paragraph 13 or upon exhibit MB3.
Consideration
The parties provided extensive and very helpful written submissions and spoke to those submissions. I have had regard both to what was put by way of written and oral submission to me by both parties. In the ultimate, however, the major issue in this case can be shortly stated: did Mr Reeves intend to divest himself of his right, title and interest in the property in 1997 and declare a trust or did he not?
The parties agreed that the onus of proving the intention to create a trust lies upon the Respondent (Re Armstrong (1960) VR 202 at 206; and Hyhonie Holdings Pty Ltd v Leroy (2004) NSWCA 72 at [45]). While the ultimate onus in this regard therefore lies upon the Respondent, it is accepted that there may be an evidentiary onus upon the Applicant to rebut the presumption of a declaration of trust.
There is no doubt that the Respondent executed the declaration of trust in 1997; nor to my mind is there any doubt that at least part of the intention of the Respondent in making that declaration of trust was to alienate the property, at least to an extent, so that he could defeat any matrimonial claims (in reality, claims by his de facto, Ms McKenna) and for other reasons not disclosed but which would presumably include any other creditors.
Against this prima facie position, however, there are powerful countervailing considerations. First of all, the recital in the declaration of the trust
“AND WHEREAS the whole of the consideration paid in respect of the trust property was provided by the beneficiary whose name and address is set out in the schedule hereto and who is hereinafter referred to as "the beneficiary"
is plainly untrue. No consideration was paid in respect of the trust property (i.e. the property) because it was inherited by the Respondent at no cost to himself.
Furthermore, and in any event, TBD, which was the beneficiary, paid nothing by way of consideration and did not provide any other consideration in some non‑monetary form towards the Respondent's acquisition of the property.
Furthermore, the next recital in the declaration of trust to the effect that the Trustee acquired its interest in the trust property merely as Trustee for the beneficiary is plainly equally untrue. The property was inherited by the Respondent. At the time at which the Respondent did so, TBD did not exist and was not in contemplation.
Furthermore, in the witnesses section of the declaration of trust the assertion in the paragraph numbered 1 that:
“the trustee hereby acknowledges that all moneys paid in respect of the trustee's acquisition of its interest in the trust property were provided by the beneficiary”
is plainly untrue, for the reasons already described. No moneys were paid by the beneficiary for the acquisition of the trust property.
Contrary to the indication in the paragraph numbered 2 of the declaration of trust, TBD has at no times indemnified the Respondent in respect of any liabilities arising out of or in connection with acquisition and ownership of the property. Counsel for the Respondent sought to explain this by submitting that the evidence suggested that TBD never had any money with which it might have indemnified the Respondent.
While it is true that TBD appears never to have had any money, the fact is that the way in which the Respondent dealt with the property suggests that indemnity was never in the minds either of the Respondent or of the Trustees of the trust.
Further, the evidence is that TBD, as mentioned, never conducted itself as a company, whether as Trustee or otherwise. Notwithstanding that Mr Lansell who is an experienced businessman having familiarity with such matters, on his evidence was the prime mover in the trust following the demise and removal of Mr Archer, TBD has never sought to file any income tax returns or otherwise addressed its corporate responsibilities (subject to an exception to which I will turn in a moment).
Even if I accept that Mr Archer failed to attend to such responsibilities because of infirmity and/or old age, the reality is that TBD has been at all material times a shell. This is inconsistent with the active role contemplated in the declaration of trust in which TBD is to indemnify the Respondent.
So far as I can see, the only corporate activity conducted on behalf of TBD was the payment of funds by way of statutory fees. Tellingly at least some of the said funds were provided by the Respondent
(see exhibit MB6 to Mr Badge’s affidavit at pages 40 and 48).
The Respondent never took any steps to transfer title to TBD until very late in the day. This was plainly done in 2004 as an afterthought in the light of the possibility of these proceedings or some similar proceedings eventuating. Equally, the Trustee at no stage sought, as it should have sought, to have the legal title as registered owner vested in itself.
Further, the evidence of both the Respondent and Mr Lansell was that it was their intention that the Respondent live in the property for up to ten years rent‑free. I have no difficulty in finding on the evidence that Mr Lansell was entirely at the direction of the Respondent and would have done whatever he was told to do by the Respondent in respect of the property. This is not consistent with the vesting of an immediate untrammelled beneficial interest on the part of TBD in the property.
Further again, the Respondent actually sold part of the property and put the money in his own bank account in 1999. He did this without any reference whatever to TBD or indeed to any other person, it would appear, except his sister, whose alleged interest in the property of course had to be taken into consideration.
It should be further noted that the way in which the trust was said to come into existence and its effect are somewhat unusual. What the Respondent purported to do was to vest in TBD a beneficial interest in the property. That beneficial interest was said to be, however, in the capacity of TBD as Trustee of Trust 1. That trust was wholly to the benefit of the Respondent and his children.
While the Respondent, through his Counsel, sought to assert that the dispositions in respect of the property effected by the Respondent in the years from 1997 until the present should be considered in light of the fact that the Respondent's children derived the benefit of staying with the Respondent from time to time, and being provided for presumably by the Respondent during those visits, the pattern of the evidence, in my view, clearly shows that when the Respondent referred to the property as "my property", which he clearly did in respect of his application for a loan from the Bendigo Bank, he was expressing the true position.
This case bears much in common with the decision of Hyhonie Holdings Pty Ltd v Leroy (2003) NSWSC 624 (“Hyhonie”) at first instance. In that case, Young CJ observed at [36]:
“However, difficult questions of fact not infrequently arise where a person, despite that declaration continues to exercise personal dominion over the so–called trust property. In Hughes v Stubbs (1842) 1 Hare 476 at 479; 66 ER 1119, 1120, Wigram V‑C said "A person not intending to give or part with a dominion over his property may retain such dominion, notwithstanding he may have vested the property in trustees and declared a trust upon it in favour of third persons," and that, when that occurs, it is a very difficult question for equity to determine whether the trust exists or not.”
I respectfully adopt what His Honour said in that paragraph.
The fact is that if TBD really intended to be seized of a vested beneficial interest in the property upon the declaration of trust, it did nothing with it. It did not seek to make the Respondent pay rent; it did not reimburse the Respondent in respect of outgoings, as it was required to do pursuant to the indemnity referred to in the declaration of trust; it carried on no business of any sort in respect of the property and did not lodge any relevant income tax returns or do anything more than was barely necessary to enable it to avoid deregistration as a business, and the payments which effected that latter purpose were effected at least in part by the Respondent.
In this case the evidence points overwhelmingly to the conclusion that, while the Respondent undoubtedly intended to protect his property from potential creditors, he did not, in truth, intend to alienate the property from himself, at least for a period of up to 10 years, during which he proposed to live in it rent‑free.
Like Hyhonie at first instance this is not a case in which it is appropriate to consider whether or not the set of transactions involved a sham. As Young CJ observed at [90], quoting what Lockhart J said in the Full Federal Court in Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 461: “To find a sham needs a strong finding”. I respectfully adopt those observations.
In my view, it is preferable to adopt the following assertion made by the Young CJ in Hyhonie at [90]:
“It is sufficient to say that the bulk of the evidence points to transactions being conducted on the basis that there was no trust at all.”
This finding does not involve a finding that the Respondent was intentionally dishonest or wilfully misleading. He wanted to have the best of both worlds and was not apprised by his solicitors of any reason why that was not the case.
I have no doubt that the Respondent intended by the declaration of trust to shield his property from creditors and have no doubt that he expected Mr Archer to do things - which Mr Archer, as it turned out, did not do - to give full effect to that intention.
Nonetheless, at least for a period of ten years, the Respondent had no intention of divesting himself of his beneficial interest in the property. Subject to the dispute with his sister, which he eventually managed to resolve, he intended to live in the property for between five and ten years, at his option. He did not intend to pay rent; he did not do so. He did not intend to divest his actual control over the property for that period of time and had every, and indeed every justifiable, reason to presuppose that those controlling TBD would permit him to do so.
Each case turns on its own facts. This case does not, in my view, turn on any particularly abstruse questions of law. In the context of the facts as I find them to be, I have no doubt that the declaration of trust did not achieve what it purported, at least in part, to achieve, namely the disposition of the Respondent's beneficial interest in the property in favour of TBD. To the contrary, I find that that interest remained vested in the Respondent.
For these reasons, it accordingly follows that the application should succeed and an order should be made in the form sought in paragraph 2 of the application.
I certify that the preceding seventy-six (76) paragraphs are a true copy of the reasons for judgment of Burchardt FM
Associate: Brooke Evans
Date: 19 April 2007
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