Re Madden, A.W
[1993] FCA 944
•17 DECEMBER 1993
ALEXANDER WILLIAM MADDEN v. JOAN LILLIAN MADDEN (Also known as Joan Lillian
Happ) and MARLENE MORRIS
No. NB627 of 1990
FED No. 944/93
Number of pages - 10
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
BANKRUPTCY DIVISION
DAVIES J
CATCHWORDS
Bankruptcy - application by the Official Trustee for declarations relating to land at Punchbowl - land in the name of the bankrupt's wife - whether land held in trust for the bankrupt - advancement of wife - voidable preference.
Bankruptcy Act 1966 (Cth)
HEARING
SYDNEY, 24-25 November 1993
#DATE 17:12:1993
Counsel for the applicant: Mr B. Skinner
Solicitors for the applicant: Lobban McNally and Harney
Counsel for the 1st respondent: Mr J.W. Fliece
(on 24 November 1993)
Solicitor for the 1st respondent: Mr M. Croke
of Michael Croke and Co. (on 25 November 1993)
ORDER
THE COURT ORDERS THAT:
The Official Trustee brings in minutes of the orders which he proposes.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
DAVIES J This is an application by the Official Trustee, the Trustee in Bankruptcy of the estate of Alexander William Madden, for orders in relation to a property known as 1518-1520 Canterbury Road, Punchbowl, which is a car yard.
At the hearing, Mr B. Skinner of counsel appeared for the Official Trustee. Mr J.W. Fliece of counsel at first appeared for Joan Lillian Madden, the former wife of the bankrupt, but he withdrew on the second day and Mr M. Croke, the instructing solicitor thereafter appeared for Mrs Madden. Mrs Marlene Morris was not served with any papers in the proceedings and took no interest therein. The bankrupt did not take any part in the hearing. The Official Trustee has been unable to examine or to serve any papers on the bankrupt, though it appears to be clear from the evidence given to the Court that he is still active in dealing with business interests in which he and Mrs Madden have been concerned.
The property at 1518-1520 Canterbury Road, Punchbowl, was acquired by Mrs Madden under her maiden name, Lillian Happ, and by Marlene Morris as tenants in common in equal shares for the price of $200,000.
Marlene Morris was in partnership with Mrs Madden in a beauty shop known as "Nail and Beauty Studio". She was also the girlfriend or de facto wife of Mr John Murphy, a business associate or employee of Mr Madden. The exact source of the funds has not been proven but I am satisfied that the funds were not provided by either Mrs Madden or Marlene Morris. It seems to me to be probable that the funds were provided by Mr Madden or by businesses in which he was involved, save as to $60,000 which was lent to Mr Madden by Mr Murphy. I infer from subsequent events, which I shall later mention, that Mrs Morris' name was put on the title to secure the repayment of the monies loaned by Mr Murphy. On completion of the acquisition, the solicitor acting forwarded the certificate of title to Mr Madden.
The property was leased to the operator of car yards, some being businesses in which Mr Madden may have had an interest. In the course of her evidence, Mrs Madden mentioned that there had been formal leases. I see no reason to doubt that and I assume that, if there were leases, the lessors were named as Lillian Happ and Marlene Morris and I assume that the leases may have been executed by them.
However, Mrs Madden gave no evidence that she received any rent from the property. Nor did she appear to have any records relating to the rent. I assume from the course of the hearing that, if Mrs Madden lodged any income tax returns related to the period from 1986 onwards, she did not return any rent from the property as her income.
In 1986, Mr Madden became the subject of police inquiries respecting a number of crimes including drug offences. He was subsequently charged, convicted and sentenced to a term of imprisonment. Mr Madden was arrested in late 1986.
Mr Madden had been the sole registered proprietor of the matrimonial home, 31 Robyn Street, Peakhurst. By a deed dated 19 February 1987, Mr Madden recited that Mrs Madden claimed an interest in the property and was prepared to make application to the Family Court of Australia for orders confirming the same and he declared that he thereby transferred an undivided half-share in the property to Mrs Madden. A statutory declaration made at the same time recorded that Mrs Madden and Mr Madden had become estranged but that Mr Madden was desirous of transferring a one-half interest in the matrimonial home to Mrs Madden and wished to avoid payment of Federal stamp duty arising out of the transfer.
Subsequently, in 1989, Mr Madden instituted proceedings in the Family Court for injunctions and a property settlement. By his application, he sought an order restraining Mrs Madden from dealing with the matrimonial home at 31 Robyn Street, Peakhurst and two further properties, one at 1518-1520 Canterbury Road, Punchbowl and the other at 667 Canterbury Road, Belmore. Mr Madden sought a transfer of all those properties to himself, subject to a payment to Mrs Madden of $100,000. That claim may be regarded as an extravagant ambit claim.
In a statement of financial circumstances filed in response to that claim, Mrs Madden disclosed as income the income from the Nail and Beauty Studio. Against the item "Rents", Mrs Madden put the word "NIL". With respect to property, Mrs Madden claimed that she and her husband each were entitled to a one-half interest in the property at 31 Robyn Street, Peakhurst and the used car yards at 1518-1520 Canterbury Road, Punchbowl and 667 Canterbury Road, Belmore. An application lodged by Mrs Madden on 19 May 1989 applied for a declaration that Mrs Madden was the sole registered proprietor of the property at 31 Robyn Street, Peakhurst and a declaration that Mrs Madden be declared the joint registered proprietor of the property known as 1520 Canterbury Road, Punchbowl.
An affidavit of Mrs Madden's filed at the time referred to the transfer of the one-half undivided share in the property at 31 Robyn Street, Peakhurst and annexed a copy of the deed of 19 February 1987. As to the other properties, Mrs Madden deposed in her affidavit:-
"12. Although I am a director of BELMORE CAR SALES PTY. LIMITED with the husband I have never been involved with any of the businesses conducted under that name nor sighted any balance sheets, tax returns, or financial statements relating thereto.
13. Mrs Morris and I (under my maiden name HAPP) are the registered proprietors of the land described in Certificate of Title Volume 2799 Folio 49 although neither of us made any payment towards the purchase. The husband said to me at the time of the purchase, 'I am putting it in your maiden name to avoid tax'. I did not raise any objections, as throughout the marriage I was fully occupied in working and running the household without any assistance from the husband and have not interfered in the running of his business affairs.
14. The only time when I have dealings with the business of the husband was after he was put on remand in late 1986 and other arrangements had to be made in relating to the running of the car yards which the husband operated. Managers were put in charge of AUSTRALIAN AUTOS at Canterbury Road, Punchbowl. A company known as FINTAX PTY LTD took over the management. The persons employed were HILTON FRASER and ROBERT GREEN. I was aware that there were about 52 cars in stock at the time of the husband's departure amounting to about $200,000 in value. In regard to the running of BELMORE CAR SALES, this property was leased and rental paid for the land only. I had used to collect this, bank it with the ANZ at Roselands in a separate account held in my name, and later transfer this to an interest bearing deposit with the Commonwealth Bank, Roselands. When the husband was released in late 1987 to attend to his affairs, I closed the account at the Commonwealth Bank and withdrew the balance which stood at about $10,000."
It will be seen from this affidavit that Mrs Madden's claim at that time to have a one-half interest in the land at Canterbury Road, Punchbowl was founded on the general claim of a wife to a half interest in the property owned by both husband and wife. Mrs Madden did not claim that she owned the property beneficially and she did not claim that she received rent from the property in her own right. Indeed, her affidavit was to the contrary.
In the proceedings in this Court, Mrs Madden has claimed that she had just recovered from a heart attack which had caused her to be hospitalised and that she was at the time confused and was ill-advised. However, the proceedings in the Family Court in 1989 and the documents filed therein seem to me to provide strong evidence of the relationship between the parties in respect of the properties.
Ultimately, there was no resolution in the Family Court of the property dispute for the Commissioner of Taxation intervened and sought and obtained restraining orders preventing Mr and Mrs Madden from dealing with the properties.
On 10 April 1990, Mr Madden's estate was sequestrated on the petition of the Deputy Commissioner of Taxation. The petition was presented in respect of a judgment debt for $847,550.
A search on 7 March 1990 disclosed that there was a caveat on the land in Canterbury Road, Punchbowl lodged by Mr Madden and another caveat lodged on behalf of Mr J.A. Murphy, the associate of Mr Madden and who had been the boyfriend or de facto husband of Marlene Morris. Mr Murphy's caveat claimed an equitable interest in the land pursuant to a loan of $60,000 advanced to Mr and Mrs Madden. The Official Trustee then caused a caveat to be lodged on the property.
From the events which subsequently occurred, I assume that Mr Murphy had lent money to Mr Madden to acquire the property and that Mr Murphy's caveat had been lodged to protect his interest. I infer also that Mrs Morris' name had been placed on the title as security for the repayment.
It appears that, as Mr Madden did not repay the sum due to Mr Murphy, proceedings were instituted by Mrs Morris on 7 May 1990 seeking orders under s.66G of the Conveyancing Act 1919 (NSW). Such orders were granted on 14 August 1990 and Mr Genge and Ms Capell, solicitors, were appointed as trustees for the sale of the property. However, it appears that a sale of the property fell through in late 1991 as the trustees were not registered as proprietors. Subsequently, in about March 1992, Mrs Madden paid $160,000 for the transfer by the trustees of the one-half interest in the property which was in the name of Mrs Morris. On 9 March 1992, Mrs Morris' solicitors wrote to the trustees:-
"We note Hill Ward Miskell, Solicitors received some monies 'on behalf of' Lillian Happ and Marlene Joyce Morris recently and deducted $2,500.00 from such monies, being payment of costs for that firm's acting for those persons and we confirm that our client, Marlene Joyce Morris accepts the sum of $157,500.00 for transfer of her interest to Lillian Happ in respect of the property, 1518-1520 Canterbury Road, Punchbowl containing two lots and we accordingly request that such total amount be paid to us at the settlement today and the said amount may be paid by bank cheque either payable to 'Marlene Joyce Morris' or to our firm.
We now enclose the following:
1. withdrawal of caveat Y780807 signed by John Alfred Murphy, which caveat had been lodged over one lot, namely lot 28 in deposited plan 12280.
2. authority and acknowledgment signed by Marlene Joyce Morris making reference to the figure of $160,000.00 as her due share and confirm she has since instructed us that the figure of $157,500.00 is to be substituted for $160,000.00 in that authority and acknowledgment
3. original survey report of Gary Fuller dated the 29 January, 1991
4. original Section 317AE certificate issued by Canterbury Municipal Council dated the 26 February, 1991."
It appears from Mrs Madden's evidence that by 1990 she had become more active in Mr Madden's affairs including the affairs of the company known as Belmore Car Sales Pty Limited, which apparently was the registered proprietor of the land at 667 Canterbury Road, Belmore. Mrs Madden's evidence was that it was in the office of the firm, Belmore Car Sales, which carried on business on that land, that Mr Madden handed to her in a bag the money and cheques which enabled her to purchase Mrs Morris' interest for $160,000. She transferred the cheques to her solicitor, who at the time were solicitors who also acted for Mr Madden. Records of the trust accounts of those solicitors and also of Mr Genge and Ms Capell to whom Mrs Madden paid some moneys direct, show that many of the cheques were payable to Belmore Car Sales or to other businesses in which Mr Madden had an interest.
In her evidence in these present proceedings, Mrs Madden denied that the events as described in the Family Court proceedings were true. But I do not accept her evidence in that respect. It could have been in Mrs Madden's interest to have claimed an entitlement in her own right to a half interest in the property at Canterbury Road, Punchbowl. That she did not do so at the time suggests strongly that she thought she was not entitled to such an interest in the property which had been, as she deposed, put into her name to avoid tax.
In the present proceedings, Mrs Madden deposed that she believed that Mr Madden had given her the one-half interest in the land at Canterbury Road, Punchbowl for her future financial security. This seems unlikely, however, as Mr Madden had not at that stage even conveyed to her a one half interest in the matrimonial home. He did not do that until 1987 and apparently only then because Mrs Madden was threatening to institute proceedings in the Family Court.
In the present proceedings, Mrs Madden deposed that she had been seeking to buy Mrs Morris' interest in the property and had ascertained that the amount required to purchase her interest from the trustees was $160,000. She said that Mr Madden approached her and said words to the effect that he could raise the money and that, in or about February 1992, he gave her a bag containing cash and cheques. Mrs Madden deposed that some of the cash and cheques were mistakenly delivered by her to her solicitor's office and the remainder were delivered to the offices of Mr Genge and Ms Capell.
I do not accept the evidence which Mrs Madden has given in these proceedings. Not only is it highly improbable but it was confused. It was given in a way which convinced me that Mrs Madden was answering questions not from her recollection but in a way which she thought would best suit her purposes. Examples may be seen from Mrs Madden's evidence with respect to the property at Canterbury Road, Belmore. At stages in her evidence, she said that that property was hers, that she owned Belmore Car Sales Pty Ltd and that she owned the business, Belmore Car Sales. An example of her evidence may be seen in the following:-
"MR SKINNER: Now upon the commencement of trading by Belmore Car Sales Pty Limited on or about October 1985, what business did it carry on?---It was a car yard. By that you mean it owned some real estate?---Yes, but it was a car yard.
Did it run a business and sell motor cars and did it simply own real estate?---I think it just owned real estate. Did the company, Belmore Car Sales Proprietary Limited have any source of income other than rent at the end of 1985?--- Only money that was put in from Mr Roach (Roche), personal money.
The money that Mr Roach put in would not have been by way of income, would it?---I presume he was working. I can't tell you where.
What do you mean by Mr Roach put in money?---He put in personal money from his own funds.
Was he making a gift or a loan, what was he doing?---It was a loan.
So you now say Mr Roach loaned money to the company?---Well, yes he did.
How much money did he loan to the company?---I don't know the exact figure.
Do you know anything about the loan?---Gary did speak about it. He didn't - well, he died ---
Madam, if he spoke about it would it be presumptuous of me to assume he mentioned a figure!---No, he didn't mention a figure.
So that at the end of 1985 Mr Roach, in conversations with you, talked about loaning money to the company but not mentioning the figure?---No, he didn't mention a figure. The company had a bank account but you do not know at what bank and at what branch?---I know it was at Marrickville - I don't know if that's classed as Dulwich Hill or Marrickville branch. I only deposited some money once and it's going back so long ago I don't remember what bank. I would know it if I drove down the street and saw it - sighted it - I just can't remember.
When did the company purchase the car yard to which you refer?---I think it was in 85, I'm not quite sure. And you are referring to 667 Canterbury Road?---Yes. How much did the company pay for the car yard?---Mr Roach paid for the car yard. I'm not sure if it was - I think it was about - I'm not really sure, I'm just quoting a figure, it was between 65 and - well it was under 90. Are you saying Mr Roach purchased the car yard or are you saying the company purchased the car yard or do you not know?---No, Mr Roach purchased the car yard on my behalf. Sooner or later he would've taken the funds back out of - because he was managing the yard as well. So, at the end of 1985 Belmore Car Sales Proprietary Limited became the owner of real estate at 667 Canterbury Road?--- Yes.
Mr Roach paid for it---?---Yes.
--- but Mr Roach was paying for it on your behalf?---Well, it was a loan to me on my behalf.
You do not think that this is just a nonsense that you are putting to the court?---No. Mr Roach when he was killed had quite a considerable amount of money on him and it disappeared.
Madam, what has money on Mr Roach at his death got to do with the purchase of 667 Canterbury Road by Belmore Car Sales Proprietary Limited?---Possibly nothing but I'm just clarifying the situation."
This evidence may be compared with an affidavit which Mrs Madden filed in the Supreme Court of New South Wales in proceedings instituted in 1989 against Mr Madden. It appears that Mrs Madden was seeking the title to the property at 31 Robyn Street, Peakhurst, which was held by Mr Madden. The affidavit said, inter alia:
"10. About a week after I saw my husband in gaol, I received a telephone call from him during which he said words to the following effect - 'Why haven't you done what I told you to do and hand the deeds to the car yard over to my solicitor?'
I said -
'I'm not handing them over until I get my house deeds back.'"
It is not clear from the affidavit which was the car yard in respect of which Mrs Madden held the title deeds. But I assume from the evidence given with respect to the properties at Canterbury Road, Punchbowl and Canterbury Road, Belmore, that the deeds must have related to either of those properties. Either way, the affidavit conflicts with her evidence given in this Court that she was the beneficial owner of an interest in those two properties. The affidavit filed in the Supreme Court proceedings shows that her concern was to get the title to her house. Indeed, the affidavit in the Supreme Court concluded:-
"I have not spoken to my husband again. Since my husband has been in prison, I have struggled financially to make ends meet. My house is too large and costs too much for me to maintain. Terry Pfiffer, Real Estate Agent, of South Hurstville has valued my house and will be retained by me in the next few days to sell my house. I need my Title Deeds returned to me so that I can sell my house as soon as possible to enable me to make a fresh start elsewhere and I respectfully request this Honourable Court to grant the relief claimed in my Summons."
This indicates again that Mrs Madden was not personally in receipt of the rents from either of the car yards.
It is worth noting that the company, Belmore Car Sales Pty Ltd, was at one stage struck off the register. Mrs Madden did not dispute that Mr Madden recently has had the company restored to the register and has paid $10,000 to the liquidator for his fees and expenses. I draw the inference from this, from Mrs Madden's evidence that she was given the bag of cheques and money by Mr Madden to purchase the interest of Mrs Morris and from her evidence that she has recently had some involvement in car yards in which Mr Madden previously had an interest, that she and Mr Madden are now cooperating together to avoid the demands of the Official Receiver and of others who have an interest in Mr Madden's affairs. The Official Trustee has difficulty in locating Mr Madden or serving any documents on him. It is not surprising that Mr Madden may have taken steps to put property into the name of Mrs Madden, such as the property at Canterbury Road, Punchbowl and the shareholding at Belmore Car Sales Pty Ltd which appears to hold the property in Canterbury Road, Belmore.
In addition to the above facts, I should add that Mrs Madden did not suggest in her evidence that she negotiated with Mrs Morris to purchase her interest in the land or had any discussions with her about it. Moreover, she conceded in her evidence that she assumed that Mrs Morris held her interest in the property as security for Mr Murphy. There is no evidence as to what happened to the $157,500 which was paid to Mrs Morris. The evidence did not show whether she retained it or whether it was simply used to pay off Mr Murphy's loan with the remainder being paid back to the businesses whose cheques had been used. On the payment of the moneys, Mr Murphy withdrew his caveat.
The issue as to whether the Official Trustee is entitled to the declarations sought depends upon the intention of which the interests in the land were acquired in the name of Mrs Madden. It is not in doubt that the funds for the property came from Mr Madden or from sources over which he had control. There is a presumption of advancements in favour of Mrs Madden, at least at the time of the first transaction before Mr and Mrs Madden had separated and proceedings had been commenced in the Family Court. But even in 1986, the presumption must be a very weak one for the matrimonial home was in Mr Madden's name alone and it was only in early 1987, apparently as the result of the threat of proceedings, that Mr Madden transferred a one-half interest to Mrs Madden. So the context in which the 1986 transaction occurred is not favourable to an advancement. Moreover, the property at Canterbury Road, Punchbowl was an income-earning property and the evidence before the Court is inconsistent with the receipt by Mrs Madden in her own right of any rents from the property. I refused an adjournment to permit Mrs Madden's solicitor to search for records of any leases. I assume there were leases. But what there is not is any evidence from Mrs Madden or any records of Mrs Madden's establishing the receipt by her of rental income.
The clear inference to be drawn, in my opinion, is that the first transaction was undertaken for the purpose described by Mrs Madden in her affidavit in the Family Court, that is to avoid tax, or perhaps more probably, to evade tax. I am satisfied that, on the balance of probabilities, that Mrs Madden understood that, although the title was in her name, she held her interest on trust for Mr Madden.
The same conclusion should, in my view, be drawn with respect to the second transaction. I draw the conclusion from the evidence that the transaction was arranged by Mr Madden and funded by Mr Madden from sources over which he had control. In my opinion, Mrs Madden understood that she held the property for her husband.
In the circumstances, the Official Trustee is entitled to the property on the ground that it is property of the bankrupt or, alternatively, that it was the subject of voidable preference. Mrs Madden gave evidence that she is now running a used car business on the property at Canterbury Road, Punchbowl. But I can only say that, in the absence of documentary proof relating to such a business or its income and of copies of any income tax returns lodged on Mrs Madden's behalf in respect of the business, I retain a healthy suspicion that any used car business on the land is a business in which Mr Madden takes a considerable interest.
For these reasons, I am of the view that the Official Trustee is entitled to orders as sought and to the costs of the proceedings. The Official Trustee should bring in minutes of the orders proposed.
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