Reynolds v Vince
[2008] FMCA 1088
•1 August 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| REYNOLDS v VINCE | [2008] FMCA 1088 |
| BANKRUPTCY – Section 104 application to review decision of a Trustee to reject a proof of debt – application dismissed. |
| Bankruptcy Act 1966 (Cth) |
| Applicant: | FAY MARGURITTE REYNOLDS |
| Respondent: | PETER ROBERT VINCE |
| File Number: | MLG 126 of 2008 |
| Judgment of: | Hartnett FM |
| Hearing date: | 14 April 2008 |
| Delivered at: | Melbourne |
| Delivered on: | 1 August 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr James |
| Solicitors for the Applicant: | Nelson Partners Lawyers |
| Counsel for the Respondent: | Mr Manly |
| Solicitors for the Respondent: | Serry White & Co Solicitors |
ORDERS
The application is dismissed.
The applicant pay the costs of the respondent as agreed and failing agreement as taxed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 126 of 2008
| FAY MARGURITTE REYNOLDS |
Applicant
And
| PETER ROBERT VINCE |
Respondent
REASONS FOR JUDGMENT
The applicant made application on 1 February 2008 for an order “that she be listed as a debtor in the bankrupt estate of Thelma Atwater”.
On 14 April 2008 an order was made by Registrar Allaway substituting Peter Robert Vince as the respondent in lieu of Vince & Associates Pty Ltd being the named respondent against whom the proceedings were issued. Peter Robert Vince is the Trustee of the bankrupt estate of Thelma Atwater and also of her husband, Joseph Atwater. Both Mr and Mrs Atwater became bankrupts on their own petition on 24 November 2007.
On 13 March 2008 a Notice Stating Grounds of Opposition to Application was filed on behalf of the respondent. Ground 3 of that notice is not proceeded with and ground 4 has been dealt with by the order made on 14 April 2008.
The respondent opposes the application on two grounds namely:
1.The Applicant is not a creditor of the Bankrupt Estate of Thelma Atwater and the Trustee was entitled to properly reject the Applicant’s proof of debt.
2.The Applicant has failed to provide supporting evidence to prove the Applicant is a creditor of the Bankrupt Estate of Thelma Atwater.
This application is made pursuant to section 104 of the Bankruptcy Act 1966 (Cth) (“the Act”). In essence it is a review of the decision of the respondent, the Trustee of Thelma Atwater’s bankrupt estate to reject the proof of debt of the applicant (s.102 of the Act). The applicant had submitted a proof of debt with respect to both bankruptcy estates with the respondent accepting her proof of debt in relation to Joseph Atwater’s estate only. Notice of the refusal in relation to Thelma’s bankruptcy estate was conveyed in correspondence from the Trustee of 11 December 2007. The claim was said to be rejected on the basis that:
(a)no contract was signed or acknowledged by Thelma Atwater;
(b) there was insufficient supporting information and evidence;
(c)all negotiations were conducted through Joseph Atwater; and
(d)payment of the applicant’s funds to Joseph Atwater was not clearly identifiable.
The Court’s decision is a discretionary one.
History
In 2004 the applicant’s book keeper introduced her to a Ms Sullivan. Ms Sullivan informed the applicant that she was involved in a reputable property investment organization in America and that she would arrange for the applicant an introduction with a Mr Joseph Atwater.
The applicant deposed in paragraph 3 of her affidavit sworn 31 January 2008 and relied on in the proceedings as follows:
In late 2004 Mr Atwater attended my home in Geelong and explained to me his property investment scheme whereby he would assist me to buy and manage rental properties in Buffalo, New York. Mr Atwater informed that there was a rental shortage in that area and that properties could be purchased for around AU $60,000 and provide a return of up to US $800 per month.
The applicant as a consequence of that visit and following further assurances by Mr Atwater and Ms Sullivan as to the scheme proceeded to refinance her home for $120,000 to purchase two properties in Buffalo, New York. Those properties were at 15 Purdy Street and 224 Woltz Avenue and the total cost of purchase was $120,000. The applicant paid this money or a sum of $96,000 or a sum of $92,000 (the precise sum being unable to be determined by the Court), to Mr Atwater who informed her that it would take a few months for the properties to be registered in her name. The applicant commenced in early 2005 to receive rental payments from Mr Atwater of approximately AU $1,700 per month. Mr Atwater had signed a document on 21 December 2004 guaranteeing the payment of rents.
On that same date Mr Atwater had provided to the applicant a document headed “Invoice USA Property Acquisition”. That document has two names at the bottom, that of Joseph Atwater and that of Elysian Investments, the sole proprietor of that entity being Joseph Atwater. The applicant subsequently requested of her book keeper that she follow up with Mr Atwater and Ms Sullivan the whereabouts of the proof of ownership documents of the Buffalo properties. The applicant deposes that Mr Atwater became increasingly evasive and that from February 2006 onwards the majority of responses were from Mr Atwater’s wife, Thelma Atwater via email. From copies of emails from Thelma Atwater to Ms Otley and Ms Sullivan dated 9 February 2006, 1 April 2006 and 13 April 2006 the applicant believes that Thelma Atwater was always involved in the property scheme and made various representations that she was in the process of negotiating the purchase of properties on the applicant’s behalf. Those emails are annexed to the affidavit of the applicant sworn 31 January 2008 as set out in “FMR-3”.
The content of those emails are relied upon by the applicant to support the argument that Joseph and Thelma Atwater acted in partnership. Relevantly, they include:
On 1 April 2006 to Ms Sullivan
We are negotiating on 3 houses at the moment and one is secured. There are two others we are waiting to hear about. We had hoped to find a single multiple for Faye which would make the returns necessary as we have concerns about her ability to manage more than one property. However we have a very good contact over there at the moment and he is personally assessing every house we enquire about and providing us with very detailed feedback and advice. There was one we thought was a great prospect for her but our research showed it would take another 23K to fix it. So we have not been able to find a good enough quality duplex with the high return need to cover the full cost yet but we are still juggling and madly submitting enquiries and offers.
from: Thelma Atwater
and
On 13 April 2006 to Ms Sullivan
We have secured a home for Suzy in Buffalo with approx $1,200 AUD per month on the rentals for her first home.
As there will be two homes for her.
We are negotiating a duplex in Rochester for Fay that is returning $1,700 per Month.
I have contacted the Agent (Richard McIntosh) and the home is presently available and the Rental Manager is going by today to inspect and upon his recommendation we will purchase tomorrow. (Avenue D)
The original home we was to purchase had problems with the roof and we declined.
The duplex on “Avenue D” has had a lot of new updates and good rental history.
We have three other homes that we have put deposits on and can use as a backup if we that one fails. But all signs are good at this stage.from: Joseph and Thelma Atwater
On 29 August 2006 Joseph Atwater executed an Authority pursuant to s.188 of the Act and Mr Vince consented to act as Controlling Trustee of the debtor’s (Joseph Atwater) estate. He prepared a report pursuant to section 189A of the Act and dated 22 September 2006 which is annexed as document “FMR-4” to the affidavit of the applicant sworn 31 January 2008. It is clear from that document that Mr Atwater had not lodged an income tax return for the period of 30 June 2002 to
30 June 2006. The applicant is noted as an unsecured creditor in an amount claimed of $92,000. The majority of debt owing to unsecured creditors is said to relate to incomplete transactions resulting from the debtor’s involvement and intention to purchase properties in the USA. The debtor’s unsecured creditors totalled approximately $402,595. That part of the report dealing with “Other investigations” notes:
Upon review of the bank statements for the prior twelve (12) months, it appears that the debtor has spent the money paid into the account by the investors, for personal expenses.
It appears that minimal expenditure on the account, during the review period was used for its purpose of purchasing investment properties in the USA for the investors.
Consideration
The applicant argues that Joseph and Thelma Atwater are married. Thelma Atwater has no income and on the basis of the material contained in the report referred to on paragraph 10 herein, the money invested by the applicant has been spent by Joseph Atwater for the personal expenses of himself and it is argued, his wife. Further the lack of documents referred to in the report, including taxation returns, are a feature of the alleged joint operations of Mr and Mrs Awater and that absence of documentary proof to support the applicant’s case is not the fault of the applicant but rather a feature of the manner in which this partnership operated. Finally the applicant argues that one Elizabeth Pecova, an unsecured creditor in the estate of Joseph Atwater, was able to claim in the bankruptcy estate of his wife arising out of the same business operations which demonstrates the involvement of Thelma in the business dealings of Joseph and the applicant.
The respondent relies upon two affidavits sworn 13 March 2008 and 8 April 2008. The earlier affidavit sets out some relevant history, namely that:
a)Joseph Atwater was involved in two businesses, USInvest and Elysian Investments. The two businesses involved acting as a buyers’ agent for the purchase of properties in the United States of America by investors in Australia. Those businesses were conducted by Mr Atwater as a sole proprietor;
b)The bankrupt Thelma Atwater was not, to the Trustee’s knowledge, involved as a partner or joint venturer with Joseph Atwater in the business;
c)
On or about 6 June 2007 the respondent received a proof of debt in the administration of the Estate of the Bankrupt from the applicant, seeking to be added as a creditor of the Estate of the Bankrupt for the sum of $120,000 in relation to a claim that on
9 February 2006 or earlier, the applicant had been involved in an investment scheme with Joseph Carleton Atwater and that the Bankrupt had acted in concert with Joseph Atwater and provided promises to the applicant.
On 6 August 2007 the trustee wrote to the applicant concerning her proof of debt claim and requested the following additional information:
a)Evidence which disclosed the bankrupt was a party to a contract;
b)Evidence of any dealings that the applicant had with the bankrupt in support of the claim;
c)Details of amounts advanced to Joseph Atwater; and
d)Details of payments received from Joseph as rental income.
No response was received from the applicant. Accordingly on
11 December 2007after examining the proof of debt and the grounds of the debt sought to be proved, the trustee rejected the applicant’s proof of debt in full.
There is no written contract between the applicant and Joseph Atwater or between the applicant and Thelma and Joseph Atwater. The trustee argues that the basis of the applicant’s claim (as set out in the applicant’s statements of claim and proofs of debt, lodged in the administration of the affairs of Joseph Atwater) is that the applicant paid to Joseph Atwater the sum of $92,000 but that he did not proceed to acquire the properties agreed to be purchased.
There is no evidence from income tax returns nor business name registration searches nor contracts that Thelma Atwater was in partnership with Joseph Atwater in conducting the USA property acquisition business. There is no legally enforceable claim by the applicant as there is no contract. On the contrary, in the claim successfully pursued by Ms Pecova, there was an engagement agreement signed jointly by the bankrupt and her husband.
Thelma Atwater did answer emails from Ms Sullivan on behalf of the husband but I accept the respondent’s submissions that a partnership cannot be implied from those emails. Thelma Atwater was at best acting in replying to certain creditors to assist her husband in his business affairs. There is no evidentiary basis sufficient to exercise a discretion to review the decision of the respondent in favour of the applicant.
I certify that the preceding (15) fifteen paragraphs are a true copy of the reasons for judgment of Hartnett FM
Deputy Associate: Kate Gray
Date: 1 August 2008
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