Stolyar and Inspector-General in Bankruptcy
[2021] AATA 3398
•22 September 2021
Stolyar and Inspector-General in Bankruptcy [2021] AATA 3398 (22 September 2021)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2020/2623
Re:Ian Stolyar
APPLICANT
AndInspector-General in Bankruptcy
RESPONDENT
DECISION
Tribunal:Senior Member Linda Kirk
Date:22 September 2021
Place:Sydney
The Reviewable Decision is affirmed.
.........................SGD...............................................
Senior Member Linda Kirk
CATCHWORDS
BANKRUPTCY – notice of objection from discharge– objection to specify a special ground - failure by bankrupt to disclose beneficial interest – sufficient evidence to support special ground exists - bankrupt had requisite intent not to disclose beneficial interest – bankrupt does not have reasonable excuse for failure to disclose beneficial interest – decision affirmed
LEGISLATION
Bankruptcy Act 1966 (Cth)
Bankruptcy Legislation Amendment Act 2002 (Cth)
CASES
Adami and Inspector-General in Bankruptcy [2001] AATA 363
Cannane v Cannane Pty Limited; Cannane v Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of Cannane (1998) 192 CLR 557
Caruana and Inspector-General in Bankruptcy [2008] AATA 307
Combe v Inspector-General in Bankruptcy [2005] FCA 1101
Crofter Hand Woven Harris Tweed Co Ltd v Veitch and Anor [1942] AC 435
Fitzgibbon v Inspector-General in Bankruptcy [2000] FCA 1677
Lloyds Bank Ltd v Marcan [1973] 2 All ER 359
Michael John Fuller and Hugh Jenner Wily [1998] AATA 577
Puels v Exelerate Funding Pty Limited [2005] FCAFC 38
R v Helmhout [1980] 30 ACTR 1
Rimanic and Inspector-General in Bankruptcy [2010] AATA 875
SECONDARY MATERIALS
Explanatory Memorandum, Bankruptcy Legislation Amendment Act 2002 (Cth)
Inspector-General Practice Direction 7
REASONS FOR DECISION
Senior Member Linda Kirk
22 September 2021
BACKGROUND
On 29 September 2016, Ian Stolyar (‘the Applicant’) became bankrupt by a Sequestration Order. On the same day Andrew John Scott (‘the Trustee’) was appointed as Trustee of the Applicant’s estate.
On 24 December 2019 the Trustee issued a notice to objection from discharge (‘Notice of Objection’) pursuant to section 149D(1)(ma) of the Bankruptcy Act 1966 (Cth) (‘the Act’) on the ground that ‘the bankrupt intentionally failed to disclose to the trustee the bankrupt’s beneficial interest in any property’. The effect of the Notice of Objection was to extend the Applicant’s bankruptcy discharge date from 21 February 2020 to 21 February 2025 unless the Objection is withdrawn or cancelled: sections 149A(2) and (3) of the Act.
On 20 January 2020 the Trustee issued a further notice to objection from discharge (‘Further Notice’) pursuant to section 149D(1)(f) of the Act on the ground that ‘the bankrupt failed to pay to the trustee an amount that the bankrupt was liable to pay under section 139ZG’. The effect of the Further Notice was to extend the Applicant’s discharge date from 21 February 2020 to 21 February 2025.
On 4 February 2020 the Applicant submitted an application to the Inspector-General in Bankruptcy (‘the Respondent’) for a review of the Trustee’s Notice of Objection and Further Notice.
On 3 April 2020, pursuant to section 139ZD of the Act, the Respondent confirmed the Trustee’s decisions of 24 December 2019 and 20 January 2020 (‘the Reviewable Decision’).
On 3 April 2020, the Applicant made an application to this Tribunal for review of the Reviewable Decision under section 149N of the Act.
On 20 July 2020 the Trustee withdrew his Further Notice pursuant to section 149D(1)(f) of the Act.
The Notice of Objection pursuant to section 149D(1)(ma) of the Act remains in place.
The review application was heard by the Tribunal on 13 May 2021. The Applicant appeared via video-conference and was self-represented.
The following persons gave oral evidence at the hearing:
·The Applicant; and
·Ms Beth Ngoc Nguyen (the Applicant’s wife).
The following documents were accepted into evidence at the hearing:
·Exhibit A1 - Applicant's Statement dated 9 November 2020;
·Exhibit A2 - Affidavit of Beth Ngoc Nguyen dated 9 September 2019;
·Exhibit A3 - Applicant’s Statement dated 5 April 2021;
·Exhibit A4 - Witness Statement of Beth Nguyen dated 5 April 2021;
·Exhibit R1 - Letter from Matthews Folbigg Lawyers to Drayton Sher Lawyers dated 15 December 2020;
·Exhibit R2 - Section 37 T-Documents (T1 – T23, pages 1 – 103); and
·Exhibit R3 - Letter in reply from Drayton Sher Lawyers to Matthews Folbigg Lawyers dated 18 December 2020.
LEGISLATIVE FRAMEWORK
The objection to discharge provisions of the Act allow bankruptcy trustees to lodge an objection to the bankrupt’s automatic discharge at the end of the three-year standard period of bankruptcy. The Act provides that depending on the grounds of objection, the standard bankruptcy period can be extended by two years or, in more serious cases, by five years.
Division 2 of Part VII of the Act deals with discharge by operation of law from bankruptcy. The relevant sections of the Act are found in Subdivisions B and C.
Section 149(4) of the Act provides for the discharge of a person from bankruptcy:
If the bankrupt becomes a bankrupt after the commencement of section 27 of the Bankruptcy Amendment Act 1991, the bankrupt is discharged at the end of the period of 3 years from the date on which the bankrupt filed his or her statement of affairs.
Section 149A relevantly provides that if an objection is made to the discharge of a bankrupt then the date of discharge of the person from bankruptcy is extended from three years to, depending on the grounds of the objection, five years or eight years:
(1) If an objection to the discharge of a bankrupt has taken effect in accordance with section 149G, then, unless the objection is withdrawn or cancelled, the reference in whichever of subsections 149(2), (3) and (4) applies in relation to the bankrupt to the period of 3 years from the date on which the bankrupt filed his or her statement of affairs is taken to be a reference to the prescribed number of years from the prescribed date.
(2) For the purposes of subsection (1):
(a) the prescribed number of years is:
(i) if the objection was made on a ground, or on grounds that included a ground, referred to in paragraph 149D(1)(ab), (ac), (ad), (d), (da), (e), (f), (g), (h), (ha), (ia), (k) or (ma) – 8 years; or
(ii) in any other case – 5 years;…
Section 149B confers a discretion on the trustee to object to a discharge where the trustee is satisfied that the evidentiary material establishes one or more permissible grounds.
(1) Subject to the following provisions of this Subdivision, at any time before a bankrupt is discharged from bankruptcy under section 149, the trustee may file with the Official Receiver a written notice of objection to the discharge.
(2) The trustee of a bankrupt's estate must file a notice of objection to the discharge if the trustee believes:
(a) that doing so will help make the bankrupt discharge a duty that the bankrupt has not discharged; and
(b) that there is no other way for the trustee to induce the bankrupt to discharge any duties that the bankrupt has not discharged.
Section 149C of the Act relevantly provides what is required to be included in a notice of objection:
(1) A notice of objection must:
(a) set out the ground or each of the grounds of objection, being a ground or grounds set out in subsection 149D(1) but not being a ground or grounds of a previous objection to the discharge that was cancelled; and
(b) refer to the evidence or other material that, in the opinion of the trustee, establishes that ground or each of those grounds; and
(c) state the reasons of the trustee for objecting to the discharge on that ground or those grounds.
(1A) Paragraph (1)(c) does not apply to a ground specified in paragraph 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (ia), (k) or (ma).
(2) A notice of objection is not invalid merely because it does not state the ground or grounds of objection precisely as set out in subsection 149D(1) provided that the ground or grounds can reasonably be identified from the terms of the notice.
Section 149D(1) of the Act specifies the grounds of objection that may be set out in a notice of objection. The relevant ground in the present proceeding is s 149D(1)(ma).
(1) The grounds of objection that may be set out in a notice of objection are as follows:
…
(ma) the bankrupt intentionally failed to disclose to the trustee the bankrupt’s beneficial interest in any property
Unless at least one of the grounds in section 149D(1) exists and the trustee exercises his or her discretion to object, the bankrupt is automatically discharged from bankruptcy at the end of three years from when he or she files a statement of affairs.
Section 149K of the Act provides for review by the Respondent of decisions of the trustee:
(1) The Inspector-General may review a decision of the trustee to file a notice of objection:
(a) on the Inspector-General's own initiative; or
(b) if requested to do so by the bankrupt for reasons that appear to the Inspector-General to be sufficient to justify such a review.
(2) …
(3) A request by the bankrupt to the Inspector-General for the review of such a decision must:
(a) be in writing and given to the Inspector-General not later than 60 days after the day on which the bankrupt is notified of the trustee's objection; and
(b) be accompanied by:
(i) a copy of the notice of objection; and
(ii) any documents on which the bankrupt relies in support of the request.
(5) Within 60 days after the request is received, the Inspector-General must:
(a) decide whether to review the decision; and
(b) if the Inspector-General decides to review the decision – make his or her decision on the review.
Section 149N of the Act relevantly provides for the powers of the Inspector-General in reaching a decision on a review and states:
(1) On a review of a decision, if the Inspector-General is satisfied that:
(a) the ground or grounds on which the objection was made was not a ground or were not grounds specified in subsection 149D(1); or
(b) there is insufficient evidence to support the existence of the ground or grounds of objection; or
(c) the reasons given for objecting on that ground or those grounds do not justify the making of the objection; or
(d) a previous objection that was made on that ground or those grounds, or on grounds that included that ground or those grounds, was cancelled;
the Inspector-General must cancel the objection.
(1A) An objection must not be cancelled under subsection (1) if:
(a) the objection specifies at least one special ground; and
(b) there is sufficient evidence to support the existence of at least one special ground specified in the objection; and
(c) the bankrupt fails to establish that the bankrupt had a reasonable excuse for the conduct or failure that constituted the special ground.
For this purpose, special ground means a ground specified in paragraph 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (ia), (k) or (ma).
(1B) In applying subsection(1A), no notice is to be taken of any conduct of the bankrupt after the time when the ground concerned first commenced to exist
(2) The cancellation does not take effect until:
(a) the end of the period within which an application may be made to the Administrative Appeals Tribunal for the review of the decision of the Inspector-General; or
(b) if such an application is made—the decision of the Tribunal is given.
(3) If the Inspector-General is not satisfied as mentioned in subsection (1), the Inspector-General must confirm the decision
Section 149Q provides for a review by the Tribunal of decisions:
An application may be made to the Administrative Appeals Tribunal for the review of:
(a) a decision of the Inspector-General on the review of a decision of the trustee to file a notice of objection; or
(b)
…
ISSUES FOR DETERMINATION
It is not in dispute that the Notice of Objection conforms with the requirements of the Act, that the grounds of objection it contains are grounds specified in section 149D(1), being subsection 149D(1)(ma), of the Act, and that there was no previous objection cancelled on those grounds.
The issues for determination by the Tribunal are:
(a)whether there is sufficient evidence to support the existence of the ground relied upon, specifically whether the Applicant intentionally failed to disclose to the trustee the bankrupt’s beneficial interest in any property; and if so
(b)whether the Applicant had a reasonable excuse for his failure to disclose the same.
EVIDENCE BEFORE THE TRIBUNAL
Execution of section 77AA Notice
On 19 June 2019, the Official Receiver executed a section 77AA notice on the Applicant.[1] During execution of the section 77AA notice, the Applicant was observed by the Trustee wearing a Rolex watch on his wrist, and he allowed a photograph to be taken of the watch when requested.[2] An invoice from J Farren-Price Jewellers issued in the name of the Applicant was also located.[3]
[1] Exhibit R2, T8, pp. 50 – 56.
[2] Exhibit R2, T8, pp. 55 – 56.
[3] Exhibit R2, T9, p. 58; T12, p. 65.
A file note of the Trustee relevantly records the discussion between him and the Applicant in relation to the watch and other items:[4]
AS:There are numerous items we have identified throughout course of today which need to be delivered now to us. Starting with your Rolex watch [note: which was on his wrist].
IS:This is an old watch I’ve had for many years
AS:You purchased it for $45K. We’ve seen the invoice from J-Farren Price. Can I please take a photo?
IS:Sure but I don’t believe you’re entitled. It’s also very old.
…
IS:… Regarding the watch I’m not sure it even works and it is not worth very much.
[4] Exhibit R2, T8, p. 55.
In his statement dated 5 April 2021 the Applicant wrote:[5]
[5] Exhibit A3.
‘On about 19 June 2019, Mr Scott, my Trustee in Bankruptcy attended at my mother’s home at Dumaresq Road, Rose Bay with a s77A notice. I was there at the time wearing a watch. The Trustee and I had a conversation to the following effect:
AS: Can I have a look at the watch that you are wearing?
IS: Sure, It is a very old watch.
AS: I need to take it from you.
IS: No, the watch is not mine, I cannot give it you I will need to get some advice.
AS: O.K. Can I take a photo of the watch?
I agreed to a photograph of the Rolex watch being taken.
I do not own a Rolex watch. From memory my mother purchased the watch more than 10 years ago when she traded in my father's gold Rolex Daytona watch. I have no recollection of how much she paid for it and I have no knowledge of the watch's current location. On the 19 June 2019, I was wearing the watch as my own Tag Heuer watch needed to be repaired and my mother lent it to me for a week or so until my Tag Heuer was ready.
I did not disclose the watch in my Statement of Affairs at section 37 or otherwise as I do not own a Rolex watch and have not paid for it.
I refer to the documents which are at T12 and 13 of pages 65 and 66 of the T Documents. These invoices are in my name but they do not relate to any watch in my possession following my bankruptcy and they do not relate to the watch photographed by the Trustee on my hand.
It is also not clear from the documents above that the watches were paid for at all.
The Trustee and the Respondent have access to all my banking records going as far back as 2001.
As far as I know the Respondent does not have any evidence that the Applicant made any payments to J Farren Price.
On the contrary in fact, the Respondent has evidence in her possession, in the form of email exchange between Adam Treffiletti of PWC and Julian Farren Price, referred to in the document T15 pages 68-70, that there is no evidence that the watches were paid for and that Mr Price cannot confirm that the watch on the photograph was the same watch that was described on the invoices.
…’
In his oral evidence at the hearing, the Applicant gave his account of what occurred in relation to the identification by the Trustee of the Rolex watch:[6]
‘The background to this Rolex watch was that in about June/July 2019 the trustee raided under Section 77AA - a 77AA notice - raided my mother's Rose Bay House to find - basically to find evidence against my mother in their case against her and I was wearing a Rolex watch which was basically owned by my mother at the time. He asked to take a photo of it, which I let him have it and he took a photo of it and then went away and then he asked for it to be produced and my mother wouldn't let it to be produced because it was my mother's watch and I wrote him that away …’
[6] Transcript of proceedings dated 13 May 2021, pp. 3-4.
On 28 June 2019, the Trustee issued a notice to deliver assets to the Applicant, which included delivery of the Rolex watch (‘the Notice of Delivery’).[7]
[7] Exhibit R2, T10, pp. 62 - 63.
On 4 July 2019, the Applicant responded to the Notice of Delivery stating, ‘Ian Stolyar does not own a Rolex watch’.[8]
[8] Exhibit R2, T11, p. 64.
In his evidence at the hearing, the Applicant conceded that he sent the Trustee that response in relation to the Notice of Delivery.[9] He also conceded that he did not tell the Trustee who owned the watch,[10] and that he did not produce the watch to the Trustee.[11]
[9] Transcript of proceedings dated 13 May 2021, p. 16.
[10] Transcript of proceedings dated 13 May 2021, p. 16.
[11] Transcript of proceedings dated 13 May 2021, p. 31.
The Applicant told the Tribunal that he returned the Rolex watch to his mother in June or July 2019 when his Tag Heuer was fixed. He does not know whether she still has the watch in her possession.[12]
[12] Transcript of proceedings dated 13 May 2021, p. 26.
In her evidence to the Tribunal, the Applicant’s wife, Ms Beth Ngoc Nyguen, confirmed that the Applicant had never owned or paid for a Rolex watch. She saw him wearing a Rolex for a couple of days, including on the day the s77AA notice was executed. He was wearing this watch because he had a problem with his own watch. She believes he returned it to his mother, but she did not see him do so.[13]
[13] Transcript of proceedings dated 13 May 2021, p. 40.
On 26 August 2019, the Applicant emailed the Trustee stating:
‘…us owning the watches seems highly improbable … As my watch was broken at the time, I borrowed a watch to wear until my watch got repaired. Although the watch had an appearance of a Rolex watch, I highly doubt that it was real. Hence I do not own $45,000 Rolex watch, and have been consistent with this throughout.’[14]
[14] Exhibit R2, T14, p. 67.
On 27 August 2019 Mr Julian Farren-Price, Managing Director of J Farren-Price sent the following email to the clerical assistant to the Trustee, Adam Treffiletti:
‘…I attach a down payment invoice and final invoice for the purchase of 2 watches by [the Applicant]. These are the only transactions we have under his name[15].’
[15] Exhibit R2, T15, p. 70.
The two invoices issued in the name of the Applicant are as follows:[16]
·payment by a VISA credit card of a deposit of $14,000 on 27 October 2006 for two watches, including a Rolex Yacht Master #116689/78219; and
·payment by a VISA credit card of an amount of $49,000 on 22 November 2007 for two watches, including a Rolex Yacht Master #116689/78219.
[16] Exhibit R2, T12, p. 65; T13, p. 66.
On 28 August 2019, Mr Treffiletti, sent the following email to Mr Farren-Price:[17]
‘Dear Julian
Thank you for your email and your time on the phone. We appreciate your assistance
I understand that you do not have the credit card numbers used by [the Applicant] for the purchase of the watches.
Would you be able to confirm whether the image of the attached Rolex watch is the same as that disclosed on the invoices?’
[17] Exhibit R2, T15, p. 70.
On the same day, Mr Farren-Price replied:[18]
‘This is indeed Rolex model 116689 white gold Sky Dweller, the same reference number as on the docket I provided you for [the Applicant].
I cannot confirm this is the actual watch though as this is made in significant quantity and all look the same. If I have the watch in my possession I can get the serial numbers from it to confirm it is the actual watch sold to [the Applicant].’
[18] Exhibit R2, T15, p. 69.
Later the same day, Mr Farren-Price sent a further email in reply to a query from Mr Treffiletti, apologising and confirming the Rolex watch was a Yacht-Master II, not a Sky Dweller as he had earlier stated.
On 16 September 2019, the Applicant provided the following statement in a statutory declaration in compliance with the Orders made by Griffiths J:[19]
‘To the best of my knowledge, I do not own a Rolex watch. From memory my mother purchased the watch more than 10 years ago when she traded in my father's gold Rolex Daytona watch. I have no recollection of how much she paid for it and I have no knowledge of the watch's current location. On the 19 June 2019, I was wearing the watch as my own Tag Heuer watch needed to be repaired and my mother lent it to me for a week or so until my Tag Heuer was ready.’
[19] Exhibit R2, T19, p. 93.
On 17 March 2020, the Applicant advised the Respondent that he did not pay for the Rolex watch, nor did he own one. In relation to the invoices he stated that he could ‘only speculate the invoices were made out in [his] name to avoid paying GST at the time as [he] was travelling overseas.[20]’ He therefore ‘has no provable beneficial interest in the Rolex, and hence could not disclose any benefit.[21]
[20] Exhibit R2, T20, p. 95.
[21] Exhibit R2, T20, p. 95.
Under cross examination, the Applicant was not able to provide an explanation as to why the J Farren-Price invoices were in his name.[22] He told the Tribunal that somebody - who he could not identify - might have asked him to purchase the watch on their behalf. .[23] He stated:
‘So I'm saying - the explanation why it’s in my name would've been one of the - because we were going overseas and it could've been they were asked us to pay for it so that they wouldn't be liable for the GST. That's the only explanation that I can give. The explanation that I'm basically giving is that I didn't pay for the watch. (Indistinct) done 15 years ago or whatever, I have no memory - I can only speculate. And there's been no evidence produced to me over the last three years that the trustee had all our financial records from all our banks, all our credit cards - nothing has been given to show that we paid any money at – to Farren-Price or any - even close to that amount going out from our bank accounts or from our credit cards.’[24]
[22] Transcript of proceedings dated 13 May 2021, pp. 18 - 20.
[23] Transcript of proceedings dated 13 May 2021, p. 18.
[24] Transcript of proceedings dated 13 May 2021, pp. 19 - 20.
During cross-examination at the hearing, the Applicant conceded that he was aware that he had obligations as a bankrupt in terms of the disclosures he was required to make.[25] He agreed that he decided what he thought was important to hand over to his Trustee.[26] Further, he decided when, and how much information, he would provide the Trustee in relation to the Rolex watch.
[25] Transcript of proceedings dated 13 May 2021, pp. 8, 27 and 28.
[26] Transcript of proceedings dated 13 May 2021, p. 11.
The Applicant was questioned about why he did not ask his mother to provide a statement in relation to the Rolex watch. He stated:
‘If someone asked me to provide a statement from my mother, I would have asked her to do it as well. I didn’t know it was required or it would have helped or – I didn’t know anything like that. I wasn’t aware. Nobody asked me about that.’[27]
[27] Transcript of proceedings dated 13 May 2021, p. 27.
The Applicant was asked why he did not call his mother to give evidence in relation to the Rolex watch. He stated:
‘She’s 80 years old. She can hardly speak English - you want me to call an old woman to give evidence - about something that is not even mine?’[28]
[28] Transcript of proceedings dated 13 May 2021, p. 15.
Federal Court orders
On 13 September 2019, in a proceeding before the Federal Court of Australia, Justice Griffiths accepted from the Applicant various undertakings from the Applicant and made orders in respect of Rolex watch.[29]
[29] Exhibit R2, T16, pp. 74 - 75.
Specifically, Griffiths J ordered that:
a)the Applicant not dispose of any of the assets identified in the Notice to Deliver dated 28 June 2019 until the Trustee’s investigations into the ownership of those assets is finalised;
b)by no later than noon on 16 September 2019, the Applicant provide to the Trustee for the purposes of him obtaining valuations all the assets identified in the Notice to Deliver dated 28 June 2019 which are in his possession; and
c)by no later than close of business on 16 September 2019, the Applicant will provide the Trustee with a statutory declaration which states, to the best of the Applicant’s knowledge and belief, in respect of each of the assets identified in the Notice to Deliver dated 28 June 2019:
(i)how and when the asset was acquired, including the purchase price;
(ii)to whom each of the assets belongs; and
(iii)how any of the assets came to be in the possession of the Applicant.[30]
[30] Exhibit R2, T17, pp. 89 - 91.
In response to questioning, the Applicant agreed under cross-examination that:
·He knew the effect of making an undertaking to the Court;[31]
·He gave an undertaking to the Court that he would not dispose of any of the assets identified in the Notice to Deliver dated 28 June 2019 until the Trustee’s investigations into the ownership of those assets was finalised, and that the Notice to Deliver specifically included the Rolex watch;[32] and
·At the time he gave the undertaking, he did not disclose to the Court that he was not in possession of the Rolex.[33]
[31] Transcript of proceedings dated 13 May 2021, p. 21.
[32] Transcript of proceedings dated 13 May 2021, p. 22.
[33] Transcript of proceedings dated 13 May 2021, pp. 23, 25, 26 and 32.
Under cross-examination, the Applicant told the Tribunal that at the time these orders were made he was not in possession of the watch because he had already returned it to his mother.[34] The Applicant’s wife in her evidence told the Tribunal that on the day of the Court hearing the Applicant was not wearing the Rolex watch, so it would probably have been with his mother.[35]
[34] Transcript of proceedings dated 13 May 2021, p. 48.
[35] Transcript of proceedings dated 13 May 2021, p. 41.
The Respondent’s records record that as the Orders referred to above were being negotiated between the parties and their respective legal representatives, one of the Trustee’s solicitors overheard the Applicant say, ‘The watch is gone. It’s flown away, like a bird. Gone’.[36] During cross-examination, the Applicant was asked whether he made this statement to which he replied, ‘That's a complete lie. That's a complete and utter lie…I don't talk like that’.[37]
SUBMISSIONS
[36] Exhibit R2, T18, p 92.
[37] Transcript of proceedings dated 13 May 2021, p. 25.
Applicant
The Trustee did not ask the Applicant who the watch belonged to at the time of the execution of the section 77AA Notice. The Applicant has always maintained that he does not own the Rolex watch as he has not paid for it. The Trustee has used all of his powers to issue subpoenas to all Australian Banks and Credit Card issuers to provide him with all records in the Applicant’s and/or his wife’s name going back to 2001, and has not been able to provide any evidence that the Applicant made any payment to J Farren-Price Jewellers.[38]
[38] Exhibit A3, p. 2.
The Respondent has evidence in his possession, in the form of email exchange between Mr Treffiletti and Mr Farren-Price, that there is no evidence that the watches were paid for by the Applicant and that Mr Farren-Price cannot confirm that the watch on the photograph was the same watch that was described on the invoices.[39]
[39] Exhibit A3, p. 2.
Griffiths J made it clear on 13 September 2019, that it was up the Trustee to ‘continue his investigations’ into the ownership of the ‘Assets’ which included the disputed Rolex watch. To this date, neither the Trustee nor the Respondent has been able to provide any evidence that the watch is owned and paid for by the Applicant.[40]
[40] Exhibit A3, p. 2.
Respondent
The Trustee relied on the Applicant’s failure to disclose to him the Applicant’s beneficial interest the Rolex watch in lodging the Notice of Objection.[41]
[41] RSFIC at 35.
The Applicant denies having ever owned the Rolex. However, the Applicant’s various emails, oral explanations and declarations given to the Trustee in respect of the Rolex are inconsistent, at best, and intentionally misleading at worst.[42] Further, the Applicant has failed to satisfactorily explain the existence of contemporaneous records held by an independent third party, J Farren-Price, which record the Applicant as owner of the Rolex.[43]
[42] RSFIC at 37.
[43] RSFIC at 38.
Intention is to be inferred from all the circumstances and the burden of proof which the Trustee will bear if the objection is challenged is on the balance of probabilities.[44]
[44] RSFIC at 34; citing Paragraph 52 of the explanatory memorandum to the Bankruptcy Legislation Amendment Bill 2002.
Having regard to the factual circumstances, the Respondent concluded, based on all the circumstances and on the balance of probabilities, that the Applicant had intentionally failed to disclose to the Trustee his beneficial interest in property, being the Rolex.[45]
[45] RSFIC at 39.
CONSIDERATION AND REASONS
It is a fundamental principle of bankruptcy law that bankrupts have a presumption of automatic discharge by operation of the law. In Michael John Fuller and Hugh Jenner Wily,[46] Deputy President Burns stated that when a trustee exercises the discretion whether to object to a discharge, ‘this presumption in favour of the bankrupt is uppermost in the mind of the decision maker to be carefully weighed against any reasons for objecting to discharge.’[47] Therefore, a trustee and, on a review, the Respondent must give due consideration to the ‘purpose, utility and relevance an objection has in the bankruptcy context.’[48] The decision-maker must be satisfied that the objects of the Act will be served and, where the ground relied upon is not a ‘special ground’[49] the reasons why.[50] The relevant objection in this proceeding concerns a special ground.
[46] [1998] AATA 577 (31 July 1998).
[47] Ibid, 84.
[48] Inspector-General Practice Direction 7, [2.10].
[49] See s 149C(1A) of the Act.
[50] This is necessary to satisfy the requirements of s.149C(1)(c) of the Act.
The role of the Tribunal in conducting a review of the Respondent’s decision is limited by the legislative regime, in particular s 149N of the Act. In Combe v Inspector-General in Bankruptcy,[51] the Federal Court observed that, ‘the Tribunal has no power generally to review the conduct of the trustee. The Tribunal stands in the shoes of Inspector-General whose powers are set out in s 149N’.[52] In Fitzgibbon v Inspector-General in Bankruptcy,[53] the Court recognised that the Tribunal ‘is not at large in this matter and is confined by the statutory criteria which applied to the Respondent when making the decision under review’.[54] As the Tribunal stated in Adami and Inspector-General in Bankruptcy,[55] ‘.. [there is] no inherent jurisdiction in this Tribunal to go outside the terms of section 149N of the Act’.[56]
[51] [2005] FCA 1101.
[52] Ibid, 29.
[53] [2000] FCA 1677.
[54] Adami and Inspector-General in Bankruptcy [2001] AATA 363 at [4] citing Fitzgibbon v Inspector-General in Bankruptcy.
[55] [2001] AATA 363; See also Young and Inspector-General [2006] AATA 502 and De La Hunty and Inspector-General in Bankruptcy [2006] AATA 610.
[56] At [34]
The Bankruptcy Legislation Amendment Act 2002 (Cth) (‘BLAA’) introduced ‘special grounds’ of objection into the Act. The Explanatory Memorandum to the BLAA stated that its objects included to:[57]
‘Strengthen the objection-to-discharge provisions of the Bankruptcy Act 1966 (the Act) by making it easier for trustees to lodge objections to a person’s discharge from bankruptcy and harder for bankrupts to sustain challenges to objections.’
[57] Explanatory Memorandum, Bankruptcy Legislation Amendment Act 2002 (Cth), 3.
The Explanatory Memorandum also stated:[58]
‘In practice, trustees have often found it difficult to maintain objections. Frequently objections have been cancelled on review by the Inspector-General, the Administrative Appeals Tribunal (AAT) or the Federal Court. The reasons for cancellation vary. Some trustees have found it difficult to differentiate clearly the ground(s) of an objection and the reason for filing the objection. Moreover, on occasions, the AAT has upheld a bankrupt’s challenge to an objection simply because, either during an AAT hearing or just before it occurs, the bankrupt eventually has provided information long sought by the trustee and the non-supply of which information was the ground of the trustee’s objection. Such decisions undermine a prime purpose of the objection regime which is to induce a bankrupt to cooperate, promptly, with the trustee of the bankrupt estate.
…
To address these deficiencies in the present law which have hampered a trustee’s capacity to elicit cooperation from some bankrupts, and to strengthen the trustee’s hand, the Bill proposes a tougher objection-to-discharge regime under which it is expected that more objections will withstand the review process.
It is proposed that trustee objections will fall into one of two groups, namely, those which specify at least one ‘special ground’ and those which specify none. In the first group, the trustee’s notice of objection still will have to set out the ground(s) of objection and the evidence relied on to establish it or them, but need not state the reasons for filing an objection to the bankrupt’s discharge from bankruptcy. For objections which contain no ‘special ground’, the trustee will be obliged, as now, to provide in the notice the trustee’s reasons for filing an objection.
... Special grounds are directed at deliberate actions by the bankrupt to defeat creditors or to hinder the trustee’s administration. The bankrupt’s pre-objection conduct, rather than the trustee’s capacity to show that an objection will advance the conduct of the administration, will determine whether any notice of objection will have to state the reason(s) why it has been lodged...’
[58] Ibid, 47 – 51.
The special grounds are set out in section149D(1) of the Act. The mere existence of an available ground does not automatically lead to an extension of a bankruptcy. Notice must be given setting out the ground relied upon, the evidence which establishes the ground and the reasons given, subject to section149C(1A) of the Act, for objecting to the discharge on the specified ground.
Does the Objection specify at least one ‘special ground’?
The Objection specifies only one ground, namely, that under section 149D(1)(ma) of the Act:
(ma) the bankrupt intentionally failed to disclose to the trustee the bankrupt’s beneficial interest in any property
Section 149N(1A) of the Act specifies the ground identified in section 149D(1)(ma) of the Act as a ‘special ground’ for the purposes of section 149N(1A). The Tribunal is therefore satisfied that the ground specified in the Objection is a special ground for the purposes of s 149N(1A) of the Act.
Is there sufficient evidence to support the existence of at least one special ground specified in the objection?
As there is a special ground, by operation of section 149N(1A) of the Act, the Objection must not be cancelled if:
a)there is sufficient evidence to support the existence of that special ground; and
b)the Applicant has failed to establish that he had a reasonable excuse for the failure to disclose to the Trustee his beneficial interest in any property.
Previous Tribunal decisions have the considered the inter-relationship between sections 149N(1) and 149N(1A) of the Act. In Rimanic and Inspector-General in Bankruptcy (‘Rimanic’),[59] Deputy President Forgie referenced at [28], the following explanation by Senior Member Friedman in Caruana and Inspector-General in Bankruptcy[60] of the inter-relationship between the provisions:
‘In order to succeed in obtaining a cancellation of a special ground of objection Mr Caruana must show that at least one of the conditions in s 149N(1) of the Act applies and that the circumstances in s 149N(1A) of the Act do not apply, otherwise the Tribunal must confirm the decision under s 149N(3).’[61]
[59] [2010] AATA 875.
[60] [2008] AATA 307.
[61] at [13].
Deputy President Forgie emphasised that there is no burden or onus of proof on the bankrupt to establish that one of the circumstances identified in subsections (a) to (d) of section 149N(1) exists:
‘… All that is required in relation to s 149N(1) is that the Inspector-General, and so the Tribunal, is “satisfied”. That does not impose a burden of proof upon a party to the application. All that it does is indicate the standard to which the Inspector-General, and so the Tribunal, must be persuaded. In the absence of any statutory provision to the contrary, the standard of proof applicable in civil proceedings in the courts is that applicable in the Tribunal i.e. on the balance of probabilities.’[62]
[62] Rimanic [31].
Against this background of the relevant legal principles, the Tribunal has considered whether there is sufficient evidence to support the existence of the identified special ground.
What intent is required for section 149D(1)(ma) of the Act?
Section 149D(1)(ma) is a special ground of objection and was introduced by the BLAA. The Explanatory Memorandum to the Bankruptcy Legislation Amendment Bill 2002 (Cth) states:
‘Proposed new subsection 149N(1A) identifies the special ground paragraphs. As noted, they relate to deliberate actions which can disrupt a trustee’s administration, or which are intended to defeat creditors. While it can be difficult to infer intention, in each instance the burden of proof which the trustee will bear if an objection is challenged is the civil onus, i.e., proof on the balance of probabilities.’[63] (Emphasis added)
[63] Explanatory Memorandum, Bankruptcy Legislation Amendment Act 2002 (Cth), 52.
The Respondent contends, and that Tribunal accepts for the reasons that follow, that the relevant test, for the purposes of section149D(1)(ma), is general intent. General intent usually takes the form of recklessness (involving actual awareness of a risk and the culpable taking of that risk), or negligence (involving blameworthy inadvertence).[64] Intention should be understood to encompass the consequences which may reasonably flow from what is deliberately done, on the basis that a person is to be treated as intending the reasonable consequences of his or her actions: Crofter Hand Woven Harris Tweed Co Ltd v Veitch and Anor.[65]
[64] RSFIC at 48.
[65] [1942] AC 435.
Whereas the consequences of establishing an objection under section 149D(1)(ma) of the Act are of a serious nature and deprive an individual of a range of economic and personal rights, the Respondent submits, and the Tribunal finds, for the reasons that follow, that specific intent is not required to establish the objection. Instead the requisite intent may be met if the facts and circumstances lend themselves to inferences being drawn arising from a number of factors.
In Lloyds Bank Ltd v Marcan[66] (‘Lloyds’) Pennycuick V-C in determining what was meant by intent stated at [367]:
‘…the word “intent” denotes a state of mind. A man’s intention is a question of fact. Actual intent may unquestionably be proved by direct evidence or may be inferred from surrounding circumstances. Intent may also be imputed on the basis that a man must be presumed to intend the natural consequences of his own act.’
[66] [1973] 2 All ER 359.
The Court in Lloyds also accepted that intent can be imputed, and a person can be presumed to intend the natural consequences of his or her act.[67]
[67] Lloyds, 367.
In R v Helmhout[68] in determining what was meant by ‘intent’ within the criminal law context, the Court found it meant a state of mind that preceded or accompanied an act. That is, a mental state that involved a purpose, aim, or design; a determination to do a certain thing.
[68] [1980] 30 ACTR 1.
Within the bankruptcy jurisdiction, the Courts have considered the requisite intent for the purposes of an intent to defeat or delay a debtor’s creditors under section 41(c) of the Act, and intent to defraud creditors under the former provisions of section 121 of the Act. Whereas there has been no specific judicial consideration of ‘intent’ as it is relevant to section149D(1)(ma) of the Act, analogies may be drawn with interpretations of ‘intent’ adopted by the courts in the context of sections 41(c) and 121 of the Act.
In respect of the necessary intent to defeat or delay a debtor’s creditors under section 41(c), in Puels v Exelerate Funding Pty Limited[69] Weinberg J stated at [4]:
‘Intent to defeat or delay creditors is an essential element in the act of bankruptcy defined by s.40(1)(c). The onus rest upon the petitioning creditor to prove such intent. However, direct evidence of intent will rarely be available. Proof of intent must, generally speaking be a matter of inference from all of the circumstances of each case; re: A Debtor [1952] 1 All ER 519 at [520-1].’
[69] [2005] FCAFC 38.
In Cannane v Cannane Pty Limited; Cannane v Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of Cannane (‘Cannane’),[70] the High Court considered the requisite intent required under the former section 121 of the Act. In his judgment, Kirby J considered the competing approaches to establishing the requisite intent to defraud creditors:[71]
‘As evident in the reasoning of the Full Court, there has been something of a divergence in the approaches taken by Australian judges to the requirements of s 121, by which, to secure avoidance of a disposition of property, the trustee (or liquidator) must prove that the disposition was made "with intent to defraud creditors". At one end of the spectrum, expressing the theory of the section, is a view of the section requiring very considerable rigour in the establishment of "an actual intention to defeat or defraud creditors". Perhaps the strongest statement of this approach is that of Kitto J, in this Court, in Hardie v Hanson. Although expressed in a somewhat different context, the approach was embraced by the appellants before this Court. Kitto J there said:
[T]he onus lay on the respondent to prove affirmatively that the carrying on of the company's business ... was characterised by an intent ... to defraud creditors of the company. An actual purpose, consciously pursued, of swindling creditors out of their money had to be established against the appellant before a declaration under the section could be made. It was not enough for the respondent to prove that the appellant acted with blameworthy irresponsibility, knowing that he was gambling (in effect) with his creditors' money as well as his own, and with much more of their money than of his. ... [W]ith what intent he pursued it is the question ... In whatever terms his conduct may be condemned, his intent is not, I think, to be described as an intent to defraud the creditors.
The other theory of the section is that expressed by the authors of Lewis' Australian Bankruptcy Law. Before this litigation, their opinion had been approved in a decision of the Full Federal Court. Writing of the then operation of s 52(b) of the Bankruptcy Act 1924 (Cth), the authors said:
The general principle may be stated that any dealing with property (other than by sale for a reasonable price) made with the object of putting it beyond the reach of present or future creditors comes within the definition of a fraudulent conveyance if the person concerned cannot immediately pay his debts or anticipates some event which may render him unable to pay his debts in future; such a dealing will be treated as fraudulent irrespective of the presence or absence of a conscious fraudulent intent on the part of the debtor if the necessary result of the dealing is to put the property beyond the reach of his creditors. Typical examples are transfers of property to the debtor's wife, transfers to a trustee to hold for the debtor, and transfers to one or a group of creditors to stave off threatened action. The word 'fraudulent' indeed has received an interpretation in bankruptcy matters somewhat wider than its ordinary use, and it may be defined as equivalent to 'with an intention to deprive creditors of recourse against all or any of his assets'.’
[70] (1998) 192 CLR 557.
[71] Ibid [89].
In Cannane, the Court held that the intent necessary for the purposes of establishing an intent to defraud creditors did not require the establishment of actual intent, and that intent could be inferred from the circumstances. As to the requisite intent, it stated:[72]
‘Proof of the intention of a person presents notorious difficulties in every area of the law where it is encountered. Even when the distinction between intention and motive is kept in mind, knowledge of subjective intention will ordinarily, or often, be reserved to the person whose interests may be so affected that an assertion, one way or the other, cannot necessarily be accepted at face value. That is why, at least in a provision such as s 121, it is not necessary to establish that the transferor of the property in question actually had in mind an intention to defraud creditors if the effect of what that person did would reasonably be expected to have such a consequence. Courts will therefore infer the intention in issue, deciding it as a question of fact. This does not mean that the intention so derived is one imputed by the law. It is not a fiction. It is the real intention of the transferor decided objectively rather than upon protestations of innocence on the part of the debtor or outraged accusations on the part of suspicious creditors.
In order to decide whether the requisite intent existed at the relevant time, and whether the disposition was made with that intent, the decision-maker must look at all the circumstances surrounding the impugned transaction.’
[72] Ibid, [92].
The relevant authorities in relation to the requisite intent required for the purposes of an intent to defeat or delay a debtor’s creditors under section 41(c) of the Act, and intent to defraud creditors under the former provisions of section 121 of the Act, by analogy support a finding that the intent required for the purposes of section149D(1)(ma) is general intent.
Is the requisite intent satisfied?
The evidence before the Tribunal is that when the section 77AA notice was executed on 19 June 2019, the Trustee observed the Applicant wearing a Rolex watch, and also located an invoice for a Rolex watch from J Farren-Price Jewellers issued in the name of the Applicant. The Applicant told the Trustee that the watch he was wearing was ‘old’ and did not belong to him, and he would not give it to the Trustee. He did not indicate to whom the watch belonged. In response to the Notice of Delivery dated 28 June 2019 which sought delivery up of the Rolex watch, amongst other assets, the Applicant stated in an email dated 4 July 2019 that he does not own a Rolex watch. He did not indicate at this time to whom the Rolex watch belonged. With respect to other assets, specifically the stamp collection and coin collection, he identified the owners of these items.
On 26 August 2019 the Applicant advised the Trustee that it ‘seems highly improbable’ that he owned the watch, and that at the time of the execution of the s 77AA notice on 19 June 2019 he was wearing a watch he had borrowed, which although it ‘had an appearance of a Rolex watch’ he ‘highly doubt[ed] that it was real’. He again denied that he owned a $45,000 Rolex and did not indicate from whom he had borrowed the watch, nor did he advise where the watch was then located.
In relation to the invoices in the Applicant’s name for the payment of a deposit and final payment for two watches to J Farren-Price, the evidence before the Tribunal is that the Applicant advised the Trustee on 17 March 2020 that he did not pay for the watch. He stated that he could ‘only speculate the invoices were made out in [his] name to avoid paying GST at the time as [he] was travelling overseas’ and he ‘has no provable beneficial interest in the Rolex and could not disclose any benefit.[73] He reiterated this explanation in his oral evidence at the hearing.
[73] Exhibit R2, T20, p, 95.
With respect to the hearing before Griffiths J in September 2019, the Applicant agreed that he gave an undertaking to the Court that he would not dispose of any assets identified in the Notice of Delivery, which included the Rolex watch. The watch was not the subject of any evidence given by the Applicant to the Court. The Applicant denies that he stated on the day of the hearing that the watch had ‘flown away, like a bird.’
In his statutory declaration dated 16 September 2019 in response to the orders made by Griffiths J, the Applicant stated that the Rolex watch belonged to his mother and she purchased it more than 10 years ago when she traded in his father’s gold Rolex watch. He claimed that he was wearing this watch in June 2019 because his mother had loaned it to him to wear while his own Tag Heuer watch was being repaired. He reiterated this version of events in his statement dated 5 April 2021, and in his oral evidence at the hearing. His evidence is that he did not dispose of the watch contrary to the orders of Griffiths J and the undertakings he made to the Court, because at the time he did not have possession of it as he had returned to his mother.
On the basis of the Applicant’s own evidence and the documentary evidence before it, the Tribunal is satisfied that there is sufficient evidence from which it can infer that the Applicant’s conduct has been reckless or negligent in relation to his disclosures with respect to his beneficial interest in the Rolex watch. The Applicant’s explanations to the Trustee in relation to the ownership of the watch are inconsistent at their best, and misleading and deceptive at their worst.[74] The explanation the Applicant provided to the Trustee about the provenance of the watch at the date of the execution of the s77AA notice in June 2019, and the explanation he gave in July 2019 when the Notice of Delivery was issued, did not identify the owner of the watch and suggested that it was likely a fake. These explanations are inconsistent with the explanations he gave in September 2019, and which he maintained in his April 2021 statement and at the hearing, that the watch is a genuine Rolex, and it belongs to his mother, and was only on loan to him for a short period in June 2019 while his own watch was being repaired. On the basis of the evidence, the Tribunal is satisfied that the Rolex watch the Applicant was wearing on 19 June 2019 belonged to him and that his conduct was reckless or negligent in relation to his disclosures with respect to his beneficial interest in the watch.
[74] RSFIC at 37.
This finding is supported by the evidence before the Tribunal provided by Mr Farren-Price that the watch photographed by the Trustee which the Applicant was wearing on 19 June 2019 is a Rolex Yacht-Master II, which is the type of watch he sold to the Applicant in November 2006. The Tribunal does not find it plausible the Applicant’s explanation that the two invoices in his name for a deposit and payment by a VISA card for two watches, including a Rolex Yacht-Master II, were purchased by a person unknown to him in his name as he was travelling overseas and therefore would be exempt from payment of GST.
The Tribunal is satisfied that the Applicant had the requisite intent not to disclose his beneficial interest in the watch and that the likely consequences that would flow from the Applicant not disclosing this interest is the objection to discharge which was made by the Trustee.
Does the Applicant have a reasonable excuse for the failure?
The Applicant’s evidence is that the reason he did not disclose his beneficial ownership in the Rolex watch is that it does not belong with him but was on loan to him from his mother on 19 June 2019. For the reasons stated above, the Tribunal finds on the balance of probabilities that the Applicant is, and was at all relevant times, the owner of the watch. Accordingly, as the Applicant falsely denied his ownership of the watch, the Tribunal finds that his excuse for the failure to disclose his beneficial interest in it to the Trustee is not reasonable.
CONCLUSION
On the basis of the evidence before it and for the reasons stated above, the Tribunal is satisfied there is sufficient evidence to support the existence of the ground relied upon by the Trustee under section 149D(1)(ma) of the Act, namely that the Applicant intentionally failed to disclose to the Trustee his beneficial interest in the Rolex Yacht-Master II watch.
The Tribunal is also satisfied for the stated reasons that the Applicant did not have a reasonable excuse for his failure to disclose the same.
DECISION
The Reviewable Decision is affirmed.
I certify that the preceding ninety-one (91) paragraphs are a true copy of the reasons for the decision herein of Senior Member Linda Kirk
.............................SGD..........................................
Dated: 22 September 2021
Date of hearing: 13 May 2021 Date final submissions received: 10 June 2021 Applicant: In person Counsel for Respondent: Ms Gobbo
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