FEDERAL COURT OF AUSTRALIA
Shepard (Trustee) v Behman [2019] FCA 1801
File number(s): NSD 1509 of 2018 Judge(s): THAWLEY J Date of judgment: 1 November 2019 Catchwords: BANKRUPTCY AND INSOLVENCY – transfer of property before bankruptcy – application by trustee for relief under ss 120 and 121 of the Bankruptcy Act 1966 (Cth) and s 37A of the Conveyancing Act 1919 (NSW) in relation to a Deed of Settlement and transfer of property –whether intention to defeat creditors – whether consideration was less than the market value – whether transfer made in good faith – consideration of the transferor’s “main purpose”
EQUITY – claim of equitable interest in property – constructive trust – based on common intention – money contributed to common pool of funds used for mortgage repayments and various other expenses
Legislation: Bankruptcy Act 1966 (Cth) ss 5(2), 5(3), 115, 116(2), 120, 121, 236(1)(d)
Conveyancing Act 1919 (NSW) s 37A
Evidence Act 1995 (Cth) s 140(2)
Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW) s 5(1)
Cases cited: Baumgartner v Baumgartner [1987] HCA 59
Behman v Behman [2016] NSWCA 295
Bringinshaw v Briginshaw (1938) 60 CLR 336
Cannane v J Cannane Pty Ltd (in liquidation) (1998) 192 CLR 557
Chen v Marcolongo; Chen v Lym International Pty Ltd [2009] NSWCA 326
Clout v Markwell [2001] QSC 91
Daniel Terry Behman v Tarek Behman (also known as Terry Behman) [2015] NSWSC 1787
Donnelly v Windoval Pty Ltd [2014] FCA 80
Federal Commissioner of Taxation v Sharpcan [2019] HCA 36
Giumelli v Giumelli (1999) 196 CLR 101
Grant v Edwards [1986] Ch 638
Green v Green (1989) 17 NWSLR 343
Jabbour v Sherwood [2003] FCA 529
Marcolongo v Chen (2011) 242 CLR 546
Muschinski v Dodds (1985) 160 CLR 583
News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563
Parsons v McBain (2001) 109 FCR 120
Prentice v Cummins (No 5) (2002) 124 FCR 67
Shepherd v Doolan & Ors [2005] NSWSC 42 Trustees of the Property of Cummins (a Bankrupt) v Cummins (2006) 227 CLR 278
Date of hearing: 21, 22 and 30 October 2019 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 143 Counsel for the Applicant: Mr VR Gray Solicitor for the Applicant: Somerset Ryckmans Counsel for the Respondents: Mr FFF Salama Solicitor for the Respondents: Miller & Prince Lawyers ORDERS
NSD 1509 of 2018 BETWEEN: ADAM SHEPARD AS TRUSTEE OF THE PROPERTY OF TERRY (TAREK) BEHMAN, A BANKRUPT
Applicant
AND: ANDREW TERRY BEHMAN
First Respondent
MARK TERRY BEHMAN
Second Respondent
JUDGE:
THAWLEY J
DATE OF ORDER:
1 NOVEMBER 2019
THE COURT ORDERS THAT:
1.By 4.00pm on 5 November 2019 the parties provide to the Associate to Justice Thawley agreed minutes of order reflecting these reasons for judgment or, in the absence of agreement, competing minutes of order identifying…
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- AGLC
- Shepard (Trustee) v Behman [2019] FCA 1801
- Case
- [2019] FCA 1801
- Decision Date
CaseChat Overview and Summary
Shepard (Trustee) v Behman involved a dispute over the transfer of property before bankruptcy. The case was heard in the Federal Court of Australia. The central legal issues concerned whether the transfer of property was intended to defeat creditors, whether the consideration was less than the market value, whether the transfer was made in good faith, and the consideration of the transferor’s "main purpose". The case also dealt with claims of equitable interest in the property based on a constructive trust, grounded in a common intention and contributions to a shared pool of funds.
The court examined the evidence and found that Andrew and Mark had an equitable proprietary interest in the property. This interest was derived from their contributions to the family pool and their father's assurances that the property would belong to all of them. The court determined that the transfer by Tarek to Andrew and Mark was void as against the trustee, but the trustee's interest was held subject to the equitable interests of Andrew and Mark. The court rejected the argument that an Anshun estoppel applied or that the claim was an abuse of process. The reasoning hinged on the common intention expressed by Tarek and the contributions made by Andrew and Mark, which were significant factors in retaining the family home.
The final orders required the parties to provide agreed minutes of order by a specified date or, failing agreement, to attend a hearing for argument, including on costs. This ensured that the court's findings and directions were implemented efficiently and that any disputes over costs were resolved in a timely manner.
The court examined the evidence and found that Andrew and Mark had an equitable proprietary interest in the property. This interest was derived from their contributions to the family pool and their father's assurances that the property would belong to all of them. The court determined that the transfer by Tarek to Andrew and Mark was void as against the trustee, but the trustee's interest was held subject to the equitable interests of Andrew and Mark. The court rejected the argument that an Anshun estoppel applied or that the claim was an abuse of process. The reasoning hinged on the common intention expressed by Tarek and the contributions made by Andrew and Mark, which were significant factors in retaining the family home.
The final orders required the parties to provide agreed minutes of order by a specified date or, failing agreement, to attend a hearing for argument, including on costs. This ensured that the court's findings and directions were implemented efficiently and that any disputes over costs were resolved in a timely manner.
Orders
Orders of the court
1. By 4.00pm on 5 November 2019 the parties provide to the Associate to Justice Thawley agreed minutes of order reflecting these reasons for judgment or, in the absence of agreement, competing minutes of order identifying the orders for which the parties contend.
2. In the event orders cannot be agreed, the matter be listed at 11.00am on 6 November 2019 for argument including as to costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
For the reasons which follow, I am satisfied that:(1)Andrew and Mark have an equitable proprietary interest in the property. This interest arises from circumstances which render it unnecessary to consider the trustee’s assertion that an Anshun estoppel applies or that the claim is an abuse of process; and (2)the transfer of the property by Tarek to Andrew and Mark is void as against the trustee, but the trustee’s interest is held subject to the equitable interests of Andrew and Mark.FACTUAL BACKGROUNDEarly History In around 2002, Tarek divorced and was granted sole custody of his four children. Matthew and Daniel were twins then aged 13, Andrew was 11 and Mark was 10. From an early age Matthew, Daniel, Andrew and Mark contributed their earnings to a pool of funds which was used to pay the expenses of the whole family. Matthew moved out of the property in June 2009 and went to live in Melbourne, with his mother. Tarek, Daniel, Andrew and Mark continued to pool their income. From time to time Mark worked in his father’s business without being paid. On 4 October 2012, Tarek pleaded guilty in the District Court of NSW to offences stemming from the making of false statements in relation to the nomination of drivers in respect of traffic infringements, whilst serving as a police officer. In late 2012 Daniel and his father fell out. Daniel left the property in December 2012 or January 2013. That left Tarek, Andrew and Mark at the property, who each continued to contribute to the pool of funds. As he had anticipated from remarks made by the judge when he was found guilty, Tarek was sentenced to imprisonment. He was incarcerated in Silverwater Correctional Complex from 15 February 2013 until 29 October 2014. During the period of Tarek’s incarceration and since his release, Andrew and Mark have pooled their income to meet Tarek’s loan obligations relating to the property, other expenses relating to the property, and various financial obligations, including those of Tarek. The NSW Supreme Court Proceedings On 12 March 2014, Daniel commenced proceedings in the Supreme Court of New South Wales, claiming that Tarek held one fifth of the property for him on constructive trust. He asserted that Tarek agreed, or that it was to be inferred that it was their common intention, that Daniel should have a one fifth interest in the property and that Daniel had acted to his detriment on the basis of the agreement or common intention, making it unconscionable for Tarek to depart from the assumption. Daniel also relied upon proprietary estoppel. The proceedings were heard on 24, 25 and 27 August 2015. On 23 October 2015, Rein J delivered reasons for decision upholding Daniel’s claim: Daniel Terry Behman v Tarek Behman (also known as Terry Behman) [2015] NSWSC 1787. His Honour set out (at [7]) the following portions of Daniel’s evidence:53. After my parent’s separation, from on or around 2001 until approximately 2003, I had conversations with Dad almost every fortnight in which Dad would share information with me about the financial circumstances that the family was in at that time. I believe that he did this because I was the eldest child. There were a large number of these conversations and a recurrent theme of the conversations and the kinds of things Dad said to me were words to the effect of:“we couldn’t pay all the bills this month”; “we are struggling to pay the mortgage”; “we are very tight on money”;“we are in a lot of debt”;“we might have to sell the house”; and “hurry up and start working”.54.In addition to the above Dad told me from time to time that we may have to move to a public school because he couldn’t afford to pay our school fees and the mortgage. In doing so Dad said to me that we had to choose whether to stay in the Family House or stay at our current school, but that we couldn’t afford both.55.During the period 2001 to 2003, Dad regularly said that we needed to sell the Family House and move into an apartment because he couldn’t afford the mortgage56.Throughout 2001 to 2003, Dad also constantly pushed Matthew and I to find a job. Dad would say words to the effect of:“Hurry up and start working”“Hurry up and start working so you can help pay for the mortgage I can’t do it by myself”“If you don’t want to work we might as well sell the house because I can’t afford it by myself”“This isn’t only my house, it’s yours and your brothers so everyone needs to help”.57.From 2003 to December 2012, Dad referred to the Family House and all our assets as “everyone’s” and the “family’s”. Dad would make these references in front of me to family and family-friends at gatherings. The kinds of things Dad said were, including but not limited to, words to the effect of:“I’ve told the boys that this is everyone’s house. I’m not keeping it for me”;“This is everyone’s house. I’ve told them that as long as we stick together, they’ll also have 2 or 3 units by the time they’re 30”;“It’s the family’s house”;“We all own everything, we’re a family”.58.I also had conversations with Dad in which Dad would reaffirm to me that the Family House was “everyone’s” and “the family’s”. These conversations usually occurred when we were discussing our financial position, household bills, and when I wanted to handle my own funds. There were a large number of these conversations and a recurrent theme of the conversations and the kinds of things Dad said to me were including but not limited to, words to the effect of:“This is everyone’s house and as long as we stick together, we’ll be ok”“This isn’t only my house, it’s yours and your brothers so everyone needs to help”“It’s not just my money or your money … we all own the house so we all pay for it as a family”“It’s not my house, it [sic] yours and your brothers”“As long as you all have this house, you’ll always be ok financially”“Whatever you do, always keep this house and you’ll be ok.”And the things that I say Dad said in paragraphs 103 and 112.59.From 2003 and up to approximately November 2012, Dad also commented about “our” tight financial position at least once every few months. In these conversations, Dad would say to me words, including but not limited to, those noted in paragraphs 61, 62, 64, 71, 72, 76, 78, 79, 80, 82, 122, 123, 125.…63.Dad would say words to the effect of “Why didn’t you go to work!?”, “Why am I working to keep the house if you’re not going to help?”, “I can’t do it by myself. If you don’t want to help then I’ll sell it and we can move into a unit and you and your brothers can go to a public school” and “This is your house. I’m only keeping the house for you boys so if you don’t want to help then we might as well just sell it.”
Evidence
Evidence Before The Court
On 25 January 2018, the District Court of New South Wales issued an order for the payment of Daniel’s costs in the amount of $224,595.25. This related to the proceedings determined by Rein J and the subsequent appeal.Tarek’s Evidence Andrew and Mark issued a subpoena to Tarek to give evidence. His evidence, so far as it is not referred to elsewhere in these reasons, may be summarised in the following way. He had contributed nothing towards the property since his incarceration. Together, Mark and Andrew had contributed all the funds towards the property since February 2013. He had “hundreds” of conversations with Mark and Andrew about what would happen with respect to the property once Daniel’s case had been determined. He believed that the decision of the NSW Court of Appeal meant that Andrew and Mark were also entitled to one fifth of the value of the property prior to 2013. Before December 2012 he had told Andrew and Mark and his other sons that “the house will always be [theirs]”. He intended this to mean that they would inherit the house when he died. He did not mean that they had a share in the property at that time, or that they had a proprietary interest in the property. Tarek agreed that he executed the document in front of a Justice of the Peace at Kingsgrove. He had read the document when he signed it, considered he understood it and did not get any advice from any independent person about the substance of the Deed of Settlement. He could not recall when he received the Deed of Settlement before he signed it. He said that he, Andrew and Mark had numerous discussions about the amounts involved. He considered that by effecting the transfer he was reimbursing Andrew and Mark for all the money that they had ever contributed to the property. Schedule A to the Deed of Settlement had changed several times before the Deed of Settlement was executed. So far as Tarek was concerned, he did not particularly care what dollar amount was shown in Annexure A. He gave the following evidence:Q:Whether it was or it wasn’t, whatever the final figure was that you agreed to, what was the significance of that figure for you in relation to Andrew and Mark?A:That figure really wasn’t significant to me in relation to Andrew and Mark. It was – the figure that was significant to Andrew and Mark was – this is all I’ve got. Whether you’re asking for 5 million or 1 million, it really doesn’t matter. There’s only 400,000. So once you’ve demonstrated to me that I owe you more than 400,000, then everything above that is really irrelevant. I can’t give you more than what I have. Tarek wanted to stay out of court in circumstances where Andrew and Mark were threatening to sue him. As Tarek put it in his evidence, in terms which I accept, he preferred to settle their claims rather than spend another three years in litigation and lose the other half of his family. Tarek also gave the following evidence:Q:Any arrangement or agreement that you reached with Andrew and Mark had to, from your point of view, protect your ability to remain living in the house for life. Is that right?A:It wasn’t a matter of living in the house, but it was a matter of making sure I had a roof over my head. That was the most important thing to me.
Decision
Reasons for decision
Meagher JA rejected the argument. His Honour held at [18] that, contrary to the case advanced by Tarek on appeal:[The] evidence justified the primary judge’s finding that by March 2007 the parties intended and understood that the contributions were made on the basis that the respondent had a joint ownership interest. At that time he commenced university and a new job and made clear that he wanted to be independent, to move out of the home and to manage his own affairs. The appellant persuaded him not to do so because the contribution of his wages was necessary to enable the repayment of the mortgage and retention of the family home in which he had a joint interest. Exchanges to that effect continued over the subsequent period and, as the primary judge found, were a “factor in [the respondent] continuing to provide most of his wages and permitting those wages to pay for the mortgage and related property expenses such as council rates” ([54]).Events between the Decision of Rein J and the Deed of Settlement Andrew gave evidence in these proceedings to the effect that, between 2 April 2014 and 23 October 2015 (during the course of the Supreme Court and Court of Appeal litigation), Tarek had encouraged him not to make the claim made by Daniel. Andrew said that his father had said:1.Daniel’s claiming that each of you are entitled to a 1/5th interest in the house.2. If Daniel is right, then that means you have an interest in the house too.3. If Daniel wins, then each of you must have an interest too.4. If Daniel is right, then that mean you and Mark own a share of the house.5.Don’t make the same claim as Daniel. You’ll lose. Daniel’s going to lose because his claim is bullshit.6.Don’t worry about Daniel. No matter what happens, I’ll look after you with the house. Andrew said he responded: I don’t necessarily agree with Daniel, but if it turns out that he’s right and we all have an interest, then Mark and I should get our interest too. Andrew gave evidence of the following conversation with his father after the decision of Rein J was delivered on 23 October 2015 and before the Court of Appeal’s decision:Andrew:The Court said that Daniel has an interest in the house which means Mark and I do too.Mark: Yep.Terry: Andrew, I’m going to appeal. It can’t be right. Just hold off for now.Mark: What are you going to do if you don’t win the appeal?Terry: We’ll deal with it then.Andrew: So Mark and I would have the same interest as Daniel?Terry: Yes. Mark gave broadly similar evidence, including:[I]n 2014, 2015 and 2016 my father told me that he would acknowledge Andrew’s and my interest if Daniel won by saying in words to Andrew and me to the following effect:i. Daniel is claiming that everyone has a 1/5th interest in the house.ii.If Daniel wins, then that means you and Andrew own part of the house too.iii. We can sort out you and Andrew later.iv.The Court said Daniel has an interest in the house, which means you and Andrew have an interest.v.You don’t have to go to Court. I said you will get it. The money will just go to the lawyers.
Ratio Decidendi
Legal Principle Established
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