Roufeil as Trustee of the Bankrupt Estate of Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the MRT Family Trust
[2021] FedCFamC2G 67
•22 September 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)Roufeil as Trustee of the Bankrupt Estate of Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the MRT Family Trust [2021] FedCFamC2G 67
File number(s): SYG 446 of 2021 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 22 September 2021 Catchwords: PRACTICE AND PROCEDURE – application for leave to amend statement of claim to include two additional causes of action, one of which would be directed to persons who are not parties in the proceedings – whether respondent will be prejudiced given the delay in the applicant making the application – application granted in relation to the proposed additional cause of action against the respondent but not in relation to the proposed causes of action against persons who are not parties. Legislation: Bankruptcy Act 1966 (Cth) ss 81, 120, 121, 139ZQ(1), 139ZQ(8) Cases cited: Aon Risk Services Australia Limited v Australian National University [2009] HCA 27
In re Harmony and Montague and Copper Mining Company (1873) LR 8 Ch App 407
Manzi v Smith (1975) 132 CLR 671
Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589
Roufeil as Trustee of the Bankrupt Estate of Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the MRT Family Trust [2021] FCCA 784
Division: Division 2 General Federal Law Number of paragraphs: 29 Date of last submission/s: 22 September 2021 Date of hearing: 21 September 2021 Place: Sydney Counsel for the Applicant: Mr S Golledge SC, by telephone Solicitor for the Applicant: TurksLegal Counsel for the Respondent: Mr Q Rares, by telephone Solicitor for the Respondent: M Russoniello Solicitor ORDERS
SYG 446 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MARK DAMIAN CHARLES ROUFEIL AS TRUSTEE OF THE BANKRUPT ESTATE OF MERVYN ROSS TARRANT
Applicant
AND: TARRANT ENTERPRISES PTY LTD AS TRUSTEE FOR THE MRT FAMILY TRUST ACN 066 439 316
Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
22 SEPTEMBER 2021
THE COURT ORDERS THAT:
1.The applicant has leave to file:
(a)an amended application in the form of the draft amended application annexed to the affidavit of Lisa Gaye Morrissey made on 10 September 2021 except to the extent the draft amended application claims relief against the persons it names as the second and third respondents;
(b)an amended statement of claim in the form of the draft amended statement of claim annexed to the affidavit of Lisa Gaye Morrissey made on 10 September 2021 except to the extent the draft amended statement of claim claims relief against the persons it names as the second and third respondents.
2.The respondent has leave to file an amended defence that includes paragraph 33 of the draft amended defence annexed to the affidavit of Matteo Russoniello made on 10 September 2021.
3.By 24 September 2021 the applicant file and serve the amended application and the amended statement of claim.
4.By 8 October 2021 the respondent file and serve:
(a)an amended defence to the amended statement of claim; and
(b)all affidavits on which the respondent relies.
5.By 15 October 2021 the applicant file and serve:
(a)a reply (if any) to the amended defence; and
(b)any affidavit in reply.
6.Costs are reserved.
7.By 29 September 2021 the applicant has leave to send by email to Judge Manousaridis’ associate a short note on the question of costs of these applications.
8.The parties have liberty to apply on such notice as the circumstances warrant.
THE COURT NOTES THAT:
9.These are the orders of the Federal Circuit and Family Court of Australia (Division 2).
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
On 22 September 2021 I pronounced orders in relation to two applications I heard on 21 September 2021. The first application was brought by the applicant (Trustee) for leave to amend the statement of claim, and the second application was brought by the respondent (Tarrant) for leave to amend its defence. These are the reasons for judgment for the orders I pronounced which, at the time I pronounced them, I said I would publish.
PROCEDURAL BACKGROUND
The Trustee commenced this proceeding as trustee in bankruptcy of the estate of Mervyn Ross Tarrant (Debtor) in circumstances I described in reasons for judgment I published on 23 April 2021.[1]
[1] Roufeil as Trustee of the Bankrupt Estate of Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the MRT Family Trust [2021] FCCA 784
On 28 May 2021 I ordered the parties file pleadings and their evidence, and I set the matter down for hearing on 25 and 26 October 2021. As required by those orders, the Trustee filed a statement of claim on 25 June 2021 in which he pleads three causes of action. The first is based on s 139ZQ(8) of the Bankruptcy Act 1966 (Cth) (Act). The statement of claim alleges the Official Receiver issued a notice (Notice) purportedly pursuant to s 139ZQ(1) of the Act demanding payment of the amount of $194,290, being the sum of payments the Notice claims the Debtor paid to Tarrant that are void against the Trustee under s 120 and s 121 of the Act.
The second cause of action is based on s 120 of the Act. The statement of claims alleges the Debtor made the following payments to Tarrant (Payments):
Date Amount 21/07/2015 $10,000 22/07/2015 $6,000 14/08/2015 $5,300 31/08/2015 $600 31/08/2015 $750 04/09/2015 $8,250 11/09/2015 $400 24/09/2015 $16,000 29/10/2015 $16,000 25/11/2015 $16,000 28/01/2016 $16,000 15/02/2016 $3,000 19/02/2016 $2,000 25/02/2016 $11,000 21/03/2016 $2,000 23/03/2016 $1,0000 [sic] 24/03/2016 $2,000 31/03/2016 $1,000 15/04/2016 $3,340 29/04/2016 $12,000 25/05/2016 $1,150 25/05/2016 $13,000 30/06/2016 $10,000 04/07/2016 $1,500 29/07/2016 $13,000 24/08/2016 $13,000 29/08/2016 $1,000 TOTAL $194,290.00
The statement of claim further alleges that:
(a)each of the Payments was made within the period beginning 5 years before the commencement of the Debtor’s bankruptcy;
(b)Tarrant provided no consideration for any of the Payments, or, in the alternative, if Tarrant provided any consideration it was less than the market value of the Payment or Payments for which it was provided; and
(c)because of (a) and (b), each Payment constituted a transfer of property that was void against the Trustee under s 120 of the Act.
The third cause of action is based on s 121 of the Act. The statement of claim alleges as follows:
(a)There are circumstances from which it could reasonably be inferred that at the time the Debtor made each of the Payments, he was insolvent, or was about to become insolvent. Those circumstances were a judgment for $147,076.51 having been entered against the Debtor in favour of ASIC, a judgment for $1,944,943.10 having been entered against the Debtor in favour of ABL Nominees Pty Ltd and Bendigo and Adelaide Bank Limited; on 26 February 2015 the Debtor’s presenting to Bendigo and Adelaide Bank Limited an asset and liabilities statement that disclosed an asset deficit exceeding $4 million; and an answer in the Debtor’s statement of affairs that he commenced having difficulties paying his debts in December 2015.
(b)Given the matters in (a), s 121(2) of the Act rendered fraudulent, within the meaning of s 121(1) of the Act, the purpose for which the Debtor made each of the Payments.
(c)Further, it could reasonably be inferred the Debtor made each of the Payments for a fraudulent purpose, within the meaning of s 121(1) of the Act, because each of the Payments was for no consideration, and the effect of each of the Payments was to reduce the assets of the Debtor that would otherwise have been available to meet the Debtor’s existing and future debts.
(d)For these reasons, each of the Payments constitutes a transfer of property that is void against the Trustee pursuant to s 121 of the Act.
In its defence filed on 30 July 2021 Tarrant denies it is liable to pay the amount demanded by the Notice. Tarrant alleges the Notice is invalid because the material facts on which Tarrant relies in answer to the causes of action under s 120 and s 121 of the Act “comprise one or more of the lack of jurisdictional facts leading to the consequence that the decision-maker did not have jurisdiction to make the decision”.[2] I identify these alleged material facts in the following paragraph.
[2] Defence, [8]
Tarrant denies it is liable under s 120 or s 121 of the Act in relation to any of the Payments. Tarrant particularly relies on the following matters:
(a)The “transferee” of each payment was National Australia Bank (NAB), not Tarrant; and NAB gave consideration for each Payment, the consideration being the discharge, to the extent of each Payment, of a liability the Debtor had as guarantor “of a loan issued by NAB”.[3]
(b)In the alternative to (a), if Tarrant was the transferee of each Payment, Tarrant provided consideration in the form of reducing (including by way of set off) two classes of amounts the Debtor owed to Tarrant. The first is $1,910,090 which represents the loss Tarrant suffered as the result of negligent advice the Debtor gave Tarrant in his capacity as professional financial advisor. The second class of amounts are “unpaid present entitlements”, $147,470 for the 2016 financial year, and $159,804 for the 2017 financial year.
[3] Defence, [31], first paragraph of paragraph (a) of particulars
PROPOSED AMENDED STATEMENT OF CLAIM
A draft of the proposed amended statement of claim (PASC) is annexed to the affidavit of Ms Morrissey, the Trustee’s lawyer, made on 10 September 2021. The proposed amendments fall into two classes. The first relates to the cause of action based on s 139ZQ(8) of the Act; the Trustee proposes to abandon this cause of action. The second relates to the addition of causes of action, one against Tarrant (subrogation claim), and one against the two directors of Tarrant who are not parties to the proceeding (directors’ claim).
The subrogation claim is predicated on the Court finding the Debtor made any one or more of the Payments to NAB in discharge of a personal guarantee the Debtor gave to NAB. On that assumption the PASC alleges as follows:
(a)From 21 July 2015 until 29 August 2016 the Debtor made the Payments to two loan accounts Tarrant held with NAB.
(b)The Payments made on or before 25 November 2015 were made to the first NAB loan account, and the Payments made on or after 28 January 2016 were made to the second NAB loan account.
(c)If it is determined the Debtor made the payments in accordance with obligations he owed NAB under guarantees he had given in respect of the first and second NAB loan accounts, the Trustee (being the Debtor’s trustee in bankruptcy) would be entitled to be indemnified by Tarrant, the borrower, and, to that extent, the Trustee would be subrogated to the rights NAB has against Tarrant.
As for the directors’ claim, the PASC alleges Payments were made by the Debtor to each of the directors (who are the Debtor’s children) in equal proportions so that each of them received $97,145, and they were made as gifts. The PASC relies on evidence given by the directors, the Debtor, and by a Ms Seco, during an examination conducted under s 81 of the Act. The evidence they gave is recorded in transcripts that are annexed to Ms Morrissey’s affidavit. The Trustee relies on answers given to questions in relation to entries in ledgers. The PASC describes the ledgers as Tarrant’s “General Ledger for the period 1 July 2015 to 30 June 2016”, and Tarrant’s “General Ledger for the period 1 July 2016 to 30 June 2017”. The evidence is to the effect that the entries record gifts from the Debtor to the directors. The PASC alleges that if the Payments are found to have been made to the directors, they would be gifts and, therefore, void under s 120 of the Act.
PARTIES’ SUBMISSIONS
Counsel for the Trustee submits the Trustee should be given leave to file the PASC. Counsel submits there is an evidentiary basis for the directors’ claim, namely the evidence given during the examination; although the PASC seeks to add two additional parties, the directors’ claim arises out of the same facts as the causes of action pleaded in the current statement of claim; and the amendments should not take the directors by surprise because the directors’ claim is based on evidence the directors themselves gave.
Counsel for Tarrant submitted that the principles that should guide my determination of the Trustee’s application to amend are those stated in Aon Risk Services Australia Limited v Australian National University. Counsel particularly relied on the following passage from the judgment of the plurality:[4]
An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. Statements in J L Holdings which suggest only a limited application for case management do not rest upon a principle which has been carefully worked out in a significant succession of cases. On the contrary, the statements are not consonant with this Court's earlier recognition of the effects of delay, not only upon the parties to the proceedings in question, but upon the court and other litigants. Such statements should not be applied in the future.
[4] Aon Risk Services Australia Limited v Australian National University [2009] HCA 27, at [111]
Counsel for Tarrant submitted there are three reasons why leave should not be granted in relation to the directors’ claim. First, there is delay. Counsel submits the Trustee was aware he had a potential claim against the directors since at least 7 May 2019, being the date of a letter from the Trustee’s lawyer to Mr Ellicot. The letter contained the following statements:
1.During the financial years ending 30 June 2016 and 30 June 2017, the Bankrupt made contributions to the MRT Family Trust, which were credited to the capital accounts of Lara Tarrant and Steven Tarrant.
2.Those contributions totalled $163,993 in respect of Lara and $162,493 in respect of Steven.
3.At the time the contributions were made, the Bankrupt was insolvent, or was about to become insolvent.
4.The MRT Family Trust does not trade, nor does it have an income stream other than from funds contributed by the Bankrupt, or on the Bankrupt’s behalf.
5.The funds were used by the MRT Family Trust, to make mortgage repayments on behalf of the Trust in respect of the real property located at . . . (Penthouse).
As a result of the above, my client is of the view that a claim exists against Lara and Steven for:
a)$163,993 and $162,493 respectively, as debts due to the estate; and/or
b)an order that the transfers from the Bankrupt are void by operation of section 121 of the Act (or section 122 of the Act in the event Lara and Steven [assert] they were creditors of the Bankrupt at the time of the transfers); and/or;
c)a claim against the MRT Family Trust asserting that the Bankrupt has an equitable interest in the Penthouse.
Second, counsel for Tarrant submits there will be prejudice to Tarrant if the Trustee is granted leave to file the PASC because there will be a risk the current hearing dates will be vacated. The directors are not parties, they would need time to file a defence, and each of the directors might have available to him or her a substantial set off. Counsel also submitted there would be prejudice to the general administration of justice if leave were granted.
Third, counsel for Tarrant submitted the Trustee has given no explanation for his delay in seeking to rely on the additional causes of action, particularly against the directors. In the course of his submissions in reply, counsel for the Trustee requested a short adjournment to obtain instructions about whether the Trustee would apply for leave to reopen to give evidence of an explanation for the delay. I granted a short adjournment, and when the hearing resumed counsel for the Trustee sought to adduce oral evidence from Ms Morrissey. Counsel for Tarrant objected, but I ruled that I would permit counsel for the Trustee to lead evidence, but reserve to Tarrant the right to object to my relying on it.
Ms Morrissey gave evidence. She was asked whether at the time the Trustee commenced the proceeding she had given any thought about making the claims the Trustee now wishes to make against the directors, and whether she had any communications with the Trustee about making any such claim. Ms Morrissey answered both questions in the negative. Ms Morrissey said she only considered that possibility after she read and considered Tarrant’s defence. The hearing concluded on the basis that I would consider the Trustee’s application for leave to amend the PASC on the assumption that I accepted Ms Morrissey’s evidence but that if, on that assumption, I consider her evidence might prove to be determinative, I would give counsel for Tarrant an opportunity to cross-examine. As will appear shortly, Ms Morrissey’s evidence, which appears wholly unexceptionable, is not determinative.
Counsel for Tarrant also opposed the Trustee being granted leave to add the subrogation claim. Counsel relied on delay and the absence of explanation. Counsel also submitted that, if allowed, a limitations defence may be available to Tarrant, and this may potentially cause a delay because the defence may lead to the Trustee filing a reply and evidence in support of the reply.
DETERMINATION OF APPLICATION FOR LEAVE TO FILE PASC
There is no question there has been substantial delay by the Trustee; and although it is common enough for a lawyer to reconsider a case after pleadings are closed in the course of which the lawyer forms the view that an amendment should be made, that does not, in the circumstances of this case, constitute a reasonable explanation for the Trustee’s delay; the substance of the directors’ claim had been formulated, and was consequently apparent to the Trustee, by May 2019. Further, there is a substantial risk that if the amendments are allowed to include the directors’ claim the hearing dates will be lost. These factors weigh against permitting the Trustee to file an amended application and statement of claim that includes the directors’ claim.
I must also, however, consider the prejudice to the Trustee if I do not grant him leave to file an amended statement of claim that includes the directors’ claim. There are, however, three related matters that make it unlikely the Trustee will suffer any substantial prejudice if I were not to permit the filing of an amended statement of claim that includes the directors’ claim. First, as pleaded, the directors’ claim appears to be weak. It is predicated on payments having been made to the directors; but the only matters the PASC alleges constitute those payments are entries recorded in Tarrant’s general ledger, and admissions that those entries constitute payments.
It is true that entries recorded in a ledger may be evidence of the transfer of money and, therefore, of payment. But the PASC does not allege the Debtor transferred any money to the directors or to a bank account or accounts held by or on behalf of the directors. The PASC instead alleges the Debtor made payments directly to NAB on account of loans NAB had made to Tarrant.
It is also true that payment can be effected by entries made in a ledger without the transfer of money; but before entries can be regarded as a payment they must have been made in particular circumstances pursuant to an agreement between the persons who are said to be parties to the payment. The circumstances in which payment may be effected by book entries were identified by Mellish LJ in In re Harmony and Montague and Copper Mining Company (Spargo’s Case):[5]
Nothing is clearer than that if parties account with each other, and sums are stated to be due on one side, and sums to an equal amount due on the other side on that account, and those accounts are settled by both parties, it is exactly the same thing as if the sums due on both sides have been paid. Indeed, it is a general rule of law, that in every case where a transaction resolves itself into paying money by A. to B., and then handing it back by B. to A., if the parties meet together and agree to set one demand against the other, they need not go through the form and ceremony of handing the money backwards and forwards.
[5] In re Harmony and Montague and Copper Mining Company (1873) LR 8 Ch App 407, at page 414
The PASC does not allege that, as at any of the dates recorded by the entries, there existed mutual debts between the directors on the one hand and the Debtor on the other, or that there was any agreement by which they agreed to settle debts by the making of entries, and that the entries in the ledgers represent the settling of such mutual debts. The PASC instead alleges the payments recorded by the book entries constituted a payment. In the absence of any allegation of mutual debts, however, it is difficult to see how the entries in a ledger on which the PASC relies could by themselves constitute payment. The entries the PASC identifies, and the allegations it makes on the basis of those entries, stand in a similar position to the book entries the High Court held in Manzi v Smith did not constitute or evidence payment.[6]
[6] Manzi v Smith (1975) 132 CLR 671
The second matter that renders it unlikely the Trustee will suffer any substantial prejudice if I were not to permit him to file an amended statement of claim that includes the directors’ claim follows from the first matter. Whether the entries reflect payments from the Debtor to the directors would likely turn on whether at the time the entries were made there were any mutual debts between the directors and the Debtor and, if so, whether there was any agreement between the directors and the Debtor for the settling of those debts by book entry. As matters currently stand it appears unlikely Tarrant will lead any such evidence. That, in turn, makes it unlikely the occasion will arise that will require the Trustee to rely on the directors’ claim as an alternative claim. Even if, however, Tarrant were to file evidence which could reasonably support a finding that the entries constitute payment, that too would not appear to be an occasion for the Trustee to rely on the payment; and that is because if payment were effected by book entry, in the manner referred to in Spargo’s Case, it would have been done by the settling of mutual accounts, which in turn would imply the giving of consideration by the directors in the form of their discharging liabilities the Debtor owed to them.
The third matter that renders it unlikely the Trustee will suffer any substantial prejudice is that it may be open to the Trustee to commence separate proceedings against the directors, if necessary. If that occurs the Trustee may be met with a defence based on estoppel in the sense the High Court considered in Port of Melbourne Authority v Anshun Pty Ltd.[7] The success of such defence, however, would likely turn on whether it was unreasonable for the Trustee not to have pursued the directors’ claim in the proceeding before me. If the Trustee commences separate proceedings to pursue the directors’ claim, and is met with a defence based on Anshun, the Trustee may be able to rely on his having unsuccessfully applied in this proceeding for leave to amend his statement of claim to include the directors’ claim as an answer to any submission that he ought reasonably to have raised the directors’ claim in this proceeding.
[7] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589
For these reasons, I am not satisfied it is in the interests of justice to permit the Trustee to file the PASC to the extent it includes the directors’ claim.
The subrogation claim is in a different position. It is predicated on Tarrant succeeding on the defence on which it relies. It is true that Tarrant’s raising a limitations defence may lead the Trustee to file a reply and additional evidence. It is unlikely, however, that this will require the Trustee to file evidence, or evidence of such nature as will jeopardise the current hearing dates.
APPLICATION FOR LEAVE TO FILE AMENDED DEFENCE
The Trustee does not oppose Tarrant’s application for leave to amend its defence. Counsel for Tarrant briefly explained to me the nature of the proposed amendment. I am satisfied it is appropriate to permit Tarrant to file an amended defence in the form Tarrant proposes.
CONCLUSION
It was for these reasons that on 22 September 2021 I pronounced orders 1 and 2 of the orders that are reproduced on the orders page that accompanies these reasons for judgment. After I pronounced those orders I discussed with Ms Morrissey and Mr Rares, counsel for Tarrant, the further directions I should make. I then made orders 3, 4, 5, 6, 7, and 8 that are reproduced on the orders page that accompanies these reasons for judgment, and I noted the matter reproduced in the orders page.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 23 September 2021
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