Trustees of the Property of Batavia (Bankrupt) and Batavia & Ors

[2018] FamCA 860

FAMILY COURT OF AUSTRALIA

TRUSTEES OF THE PROPERTY OF BATAVIA (BANKRUPT) & BATAVIA AND ORS [2018] FamCA 860

FAMILY LAW – PROPERTY SETTLEMENT – where the trustees of the estate of a bankrupt commence proceedings to set aside financial agreements under section 90K(1)(aa) of the Family Law Act 1975 (Cth) in the Federal Circuit Court in those proceedings are transferred to this Court and consolidated with proceedings brought by liquidators previously controlled by the bankrupt – where the Court finds that a constructive trust arises as a result of the financial dealings between the bankrupt husband and the respondent wife – where the wife does not file material as required by Court orders and the trustee seeks and is granted, leave to proceed on an undefended basis – where the Court is satisfied that the financial agreements were entered into by the bankrupt and the respondent wife the purposes of defeating the claims of a creditor – where the legal title to the parties home always vested with respondent wife but where at all times, the bankrupt husband had an equitable interest in those properties – where it is appropriate to make declarations as to the ownership according to equity – where the agreement between the trustees and the liquidators is that the entitlement of the liquidators pursuant orders of the Court should be satisfied first – where the trustees of the bankrupt’s estate are satisfied secondly and thereafter, any proceeds of sale left are the subject of a garnishment order from the Australian Taxation Office

FAMILY LAW – COSTS – where the proceedings were brought under the Bankruptcy Act 1966 (Cth) within jurisdiction and costs should follow the cause

Bankruptcy Act 1966 (Cth)
Family Law Act 1975 (Cth)
Federal Circuit Court Act 1999 (Cth)
Federal Court of Australia Act 1976 (Cth)
Property Law Act 1958 (Vic)

Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137
Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583

APPLICANTS: Mr Russo and Mr Yates
as the Trustees of the Property of Mr Batavia, a Bankrupt

FIRST RESPONDENT: Mr Batavia

SECOND RESPONDENT: Ms Batavia

THIRD RESPONDENT: Ms Vacanu

FOURTH RESPONDENT: U Pty Ltd (ACN …)

FIFTH RESPONDENT: M Pty Ltd (ACN …)

SIXTH RESPONDENT: B Pty Ltd (in liquidation) (ACN …)

EIGHTH RESPONDENT: Mr Vacanu

NINTH RESPONDENT: Ms V Batavia

TENTH RESPONDENT: Mr W Batavia

FILE NUMBER: MLC 3497 of 2017

DATE DELIVERED: 26 October 2018

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Cronin J

HEARING DATE: 19 October 2018

REPRESENTATION

COUNSEL FOR THE APPLICANTS: Mr Fary with Mr Silver

SOLICITOR FOR THE APPLICANTS: Craddock Murray Neumann

THE FIRST RESPONDENT:	No Appearance
THE SECOND RESPONDENT:	No Appearance

COUNSEL FOR THE THIRD, FOURTH,

FIFTH AND EIGHTH RESPONDENT:

Mr Atkinson with Mr Murphy

SOLICITOR FOR THE THIRD, FOURTH,

FIFTH AND EIGHTH RESPONDENT:

M A Legal

COUNSEL FOR THE SIXTH RESPONDENT: Mr McKillop

SOLICITOR FOR THE SIXTH 

RESPONDENT:

Hwl Ebsworth Lawyers

THE EIGHTH RESPONDENT: No Appearance

THE NINTH RESPONDENT: No Appearance

THE TENTH RESPONDENT: No Appearance

Orders

THE COURT MAKES THE FOLLOWING DECLARATIONS:

1. The proceeds of the sale of D Street, Suburb E (the D Street proceeds) currently held upon a trust in a controlled monies account are the identifiable substitute for the properties at D Street, Suburb E and P Street, Suburb E as referred to in the reasons for judgment this day.

2. The trustees have a beneficial interest in the D Street proceeds to the extent of one half plus interest.

3. The trustees are entitled to the payment of the amounts referred to in paragraph 2.

THE COURT MAKES THE FOLLOWING ORDERS:

1. The Respondent Ms Batavia pay the costs of and incidental to this discrete proceeding and those costs be paid out of the balance of the D Street proceeds on a pari passu basis.

2. That subject to the satisfaction of the orders made on 19 October 2018 in the proceedings numbered (P)MLC9174/2017 between the liquidators there referred to and Ms Batavia, the funds to which the declarations in  paragraphs 1, 2 and 3 shall be forthwith paid to the trustees.

3. The financial agreement (relating to the Australian assets) between Mr Batavia and Ms Batavia dated 1 October 2015 is set aside pursuant to s 90K(1)(aa) of the Family Law Act 1975 (Cth).

4. All parties have liberty to apply.

5. The balance of the funds remaining after satisfaction of these orders are noted as being the subject of a garnishee.

6. The discrete claim set out in the application filed 19 October 2018 as between the trustees and Ms Batavia is otherwise dismissed.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Trustees of the Property of Batavia (Bankrupt) & Batavia and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 3497  of 2017

Mr Russo and Mr Yates as the Trustees of the Property of Mr Batavia, a Bankrupt

Applicant

And

Mr Batavia 

First Respondent

And

Ms Batavia 

Second Respondent

And

Ms Vacanu

Third Respondent

And

U Pty Ltd (ACN …)

Fourth Respondent

And

M Pty Ltd (ACN …)

Fifth Respondent

And

B Pty Ltd (in liquidation) (ACN …)

Sixth Respondent

And

Mr Vacanu

Eighth Respondent

And

Ms V Batavia

Ninth Respondent

And

Mr W Batavia

Tenth Respondent

REASONS FOR JUDGMENT

1. The trustees of the property of Mr Batavia (“the Trustees”) seek orders against the property of Ms Batavia (“the respondent”).

2. The respondent and Mr Batavia (“the Bankrupt”) were married to each other and had children. They currently live in Country J. The act of bankruptcy which was found by the Federal Circuit Court to have given rise to the sequestration order was the Bankrupt’s departure from Australia.

3. The following reasons have to be read in conjunction with those in an associated dispute involving B Proprietary Limited (in liquidation) (“BPL”) and C Propriety Limited (in liquidation) (“CPL”).

4. In respect of the matter just mentioned, Orders were made on 19 October 2018. The Trustees were also a defendant/respondent to those proceedings but they agreed to allow the liquidators to proceed first and did not dispute the orders that were sought.

5. It is important to note the position of the respondents. I repeat what I said in the proceedings involving BPL and CPL where again, the respondent was a defendant. I there observed:

   [6] This final hearing was set down by the Court on 9 May 2018. To give it some context, on 9 May 2018, I gave the following published reasons:

   [4]Upon the trustees of the husband’s bankrupt estate bringing the proceedings to set aside the financial agreement, the wife filed a Notice of Address for Service notifying a firm of lawyers were acting for her. On 28 August 2017, that firm of lawyers filed a Notice of Ceasing to Act nominating the wife’s address at the [D Street] property as the place to which the court should address correspondence. As best I can determine from an examination of the file, the wife has not attended any of the hearings in this court but more importantly, has not filed any document in the current proceedings indicating what, if any, relief she is seeking. If I am wrong about that, and no counsel at the hearing on 9 May 2018 was able to indicate otherwise, the orders that I now propose to make setting this case down for trial will give the wife an opportunity to rectify that situation. If she fails to do so, the other parties may seek to proceed against her interests on an undefended basis.

   [7] Since 9 May 2018, save for what I refer later to as her formal defence filed 14 November 2017 and outside the time required by an order made on 1 September 2017, Ms Batavia has not filed any other responding documentation seeking substantive relief.

   [15] It is asserted by the Trustees (as distinct from the liquidators) and found to be the case by the Federal Circuit Court, that the Bankrupt left Australia on 1 October 2015 and because he was aware of the outstanding taxation issues, that was an act of bankruptcy. Ms Batavia confirms by her affidavit her knowledge of the assessments but maintains no responsibility. There is currently an outstanding appeal to the Federal Court of Australia from the Administrative Appeals Tribunal in relation to the taxation assessments and she was a participant.

   [16] Ms Batavia complained about the Plaintiffs’ and the Trustees’ actions saying that they had tried to prevent her from “fighting” all of these matters by not allowing her access to funds from the sale of her house. As will be seen below, there was every justification from precluding her from having access to those funds.

   [19] Ms Batavia did not participate, other than to file a defence and the affidavit which I have just referred, and there was no formal application within the Family Law Rules to attend electronically albeit it might be read that that was part of her application in a case. Importantly, Ms Batavia has not provided any address for service of documents in Australia.

   [20] Notwithstanding all of that, the position of Ms Batavia as described above seemed to alter as the court hearing was about to begin. On 19 October 2018 (the day the matter was listed to begin) Ms Batavia emailed the Court and all other relevant practitioners the following:

   Dear All,

   …

   Please be advised that I have appointed a Trustee in Bankruptcy. She has been notified of the above matters on foot.  Her details are as follows:

   [Ms K]

   Partner

   [L Accountants]   

   …

   Regards,

   [Ms Batavia]

   [21] Enquiries of L Accountants were made by the solicitors for the Trustee and the solicitors for the liquidator as well as for the other participants in these proceedings. Confirmation was received that as Ms Batavia has not had a debtors petition accepted she is currently not a bankrupt.

6. I then rejected any suggestion that an adjournment was warranted to see what action the respondent would take.

7. The principal creditor of the Bankrupt is the Australian Taxation Office.  The Bankrupt and his companies accrued significant taxation liabilities between 2008 and 2012.  The businesses conducted by the Bankrupt were through the entities BPL and CPL.  During the same period of time, the Bankrupt and the respondent accrued wealth. It is said that the Bankrupt and the respondent are separated and shortly before leaving Australia, they entered into two financial agreements relying upon the provisions of the Family Law Act 1975 (Cth) (“the Family Law Act”). The first of those agreements related to what was described as Australian assets and in the second, it related to assets in Country J. There was said to be two agreements because the parties were uncertain as to whether they could incorporate the Country J assets into the agreement relating to the Australian assets.

8. The Trustees’ case is that the Bankrupt endeavoured to put assets beyond the reach of creditors both by the way the assets were acquired but also the purported alteration of property interests under the financial agreements. The Trustees now seek to claw back those assets.

9. Insofar as there are assets in Country J, the Court was not asked to deal with either those or the financial agreement that was said to relate to them. That part of the application has been adjourned indefinitely.  There are pending proceedings in Country J by way of an appeal and it is uncertain when that will be completed. 

10. The proceedings were originated in the Federal Circuit Court and transferred to this court on 6 April 2017 by Judge Hartnett. The Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) provides for the transfer to this Court (see section 35A).

11. Although the order of 6 April 2017 which transferred the “proceedings” to this Court was said to be pursuant to s 35 of the Bankruptcy Act, that provision could only apply if there was extant property settlement proceedings of some kind. However, s 35A of the Bankruptcy Act provides that if a proceeding is pending in the Federal Circuit Court, that court may, on its own initiative, transfer the proceeding to this Court. If, as I suspect was intended here, that occurred, s 35A(3) provides that this Court has jurisdiction to hear and determine matters not otherwise within its jurisdiction associated with the proceeding and may grant such remedies and make orders of the nature and type that the Federal Court of Australia could have made in such a proceeding.

12. Thus, the reference in the order of 6 April 2017 to s 39 of the Federal Circuit Court Act 1999 (Cth) and the relevant rules named thereunder was superfluous.

13. Under s 19 of the Federal Court of Australia Act 1976 (Cth) (“the Federal Court of Australia Act”), the Federal Court has such original jurisdiction as is vested in it by laws made by the Parliament.

14. In addition, in its original jurisdiction, the Federal Court may make binding declarations of right (s 21 of the Federal Court of Australia Act).

15. Under s 22 of the Federal Court of Australia Act, that court shall grant all remedies to which any of the parties appear to be entitled in respect of legal or equitable claims brought before the Court.

16. Importantly for the purposes of the present proceeding, the court has power to make such orders as it thinks appropriate (s 23 of the Federal Court of Australia Act).

17. Specific jurisdiction has been given to the Federal Circuit Court as a “bankruptcy court” under the Bankruptcy Act and apart from the capacity to transfer such a proceeding to this Court, it along with the Federal Court has exclusive jurisdiction save for the High Court of Australia and the jurisdiction of this Court under s 35A of the Bankruptcy Act. I am satisfied that this Court has jurisdiction to hear the various matters before it and the powers to make orders and declarations is very wide. That becomes important because the trustees seek not only orders under the Bankruptcy Act but also declarations relating to the ownership of property.

18. It is not contentious that the Trustee can stand in the shoes of the Bankrupt to bring a proceeding under s 90K(1) of the Family Law Act.

19. For the purposes of this claim, the Trustees relied upon an amended statement of claim filed on 19 October 2018 and that was supported by an affidavit of Mr Yates filed in the Federal Circuit Court in December 2016.

20. The application seeks orders under a variety of legislative provisions. The first is under the Family Law Act relating to setting aside the financial agreements relying upon s 90K. The second relates to ss 58, 116, 120 and 121 of the Bankruptcy Act 1966. The Trustees also relied upon s 172 of the Property Law Act 1958 (Vic). In my view the Victorian provision becomes unnecessary as will become apparent.

21. The main focus of the proceedings was on the proceeds of the sale of a home in D Street, Suburb E. The trustees claim an equitable interest in that property by way of a presumed and/or resulting and/or constructive trust and/or equitable charge or lien to secure right of indemnity and/or are entitled to avoid various transfers of property traceable to the D Street property. 

22. The setting aside of the financial agreements would then give rise to this Court having jurisdiction under the Family Law Act to alter interests in property; I accept the submission of the Trustees that based on all the surrounding facts, the financial agreements were no more than a tactic on the part of the respondent and the Bankrupt to distract attention from the fact that both of them always had interests in the two relevant real properties albeit that the respondent was the legal owner. For the reasons that follow, I am satisfied that the Bankrupt had an equitable interest in those properties.

23. Ultimately, the claim for relief is against money held in a controlled monies account of a solicitor. The relevant tracing provisions in this case show that the money came from the sale of the D Street property which both directly and indirectly earlier, had come in part from the sale of a property at P Street, Suburb E.  The sale of the D Street property was the subject of an agreement with the Trustees on the basis that the funds were held pending a determination.  As I earlier mentioned, the respondent did not participate in the proceedings and as such, the Court was bereft of any evidence provided by her that would assist in that the determination of the matters. However, assistance was received through the investigative work of Mr Yates who provided a copy of the evidence given by the respondent to the Administrative Appeals Tribunal (“the AAT”) in respect of a dispute over the taxation liability.  That evidence indicates that the respondent could not argue before this Court that the Trustees’ argument was flawed.

24. It is necessary to understand the specific property transactions. In the proceedings involving BPL and CPL, I canvassed the relevant evidence about those properties and made findings (noting there that the respondent is referred to as Ms Batavia). I repeat those matters now:

    [39]As indicated, the Bankrupt was a licensed professional. His business was initially operated by CPL; Ms Batavia worked there between 2002 and at least 2013. She was an office worker between 2002 and 2008 and between 2009 and 2013, a manager. She was also a registered agent.  Prior to 2002, Ms Batavia appears to have been in full-time employment of the state of Victoria.  That seems to have ended in 2002. An examination of her earnings showed that she earned modest amounts until 2010 when CPL paid her wages of $150,000. In 2010 through to 2013, she had wages of $150,000 in each year but assessable income higher than that.

    [40] In 2007, at an auction, the Bankrupt executed the contract to purchase a house at P Street, Suburb E. The handwritten contract of sale shows that he had contemplated either himself or a nominee ultimately being the purchaser because those words were added.  The purchase price was $1.6 million.

    [41] In January 2008, CPL made a payment of $100,000 to the Q super fund. That money came from the CPL office account. The vendors of P Street wanted that sum to be paid directly into their superannuation fund in any event, but it formed part of the purchase price.

    [42] Around 1 February 2008, the transfer of land was executed by which stage, Ms Batavia had been substituted for the Bankrupt.

    [43] The R Bank provided a loan of $600,000 towards the purchase which was then completed.

    [44] Over five years later, both the Bankrupt and Ms Batavia entered into a loan facility with O Bank. Initially, it was the CPL office account that was nominated as the account from which the repayments of the O Bank facility were authorised to be made. There was a direct debit request executed. Ms Batavia also signed a declaration as to the purpose of credit declaring to the O Bank that the loan was to be applied wholly or predominantly for business purposes or investment purposes other than investment in residential property.  Despite that, on 23 June 2011, Ms Batavia granted a mortgage over the P Street property to O Bank to secure the O Bank loan facility.  The mortgage document is in evidence.  The registration of the mortgage is also shown on the title as coinciding with the discharge of the R Bank’s mortgage.

    [45]Between June 2011 and 30 September 2014, BPL and CPL made loan payments of $94,502.97 and $49,615.26 in reduction of a debt owing by the Bankrupt and Ms Batavia under the O Bank loan facility.  It must be concluded that they were procured by the Bankrupt as he was the sole director.

    [48]Around 8 August 2014, Ms Batavia signed a contract to sell the P Street property for $2.01 million. The deposit was paid by the purchasers.

1. In relation to P Street, I repeat what I earlier said:

   [61] To the extent necessary to say so, the Plaintiffs pleaded that P Street was to be a matrimonial home for both the Bankrupt as well as Ms Batavia and the family. That was not admitted by Ms Batavia however she conceded that the Bankrupt had been appointed to attend the auction and purchase the property on her behalf.  This was apparently something to do with the original deed of ownership document to which I earlier referred but it is not controversial that it was the home for both persons including their children.

   [62]Between June 2011 and September 2014, the mortgage instalment payments in respect of P Street were made by BPL and CPL.  Ms Batavia’s defence asserted that the payments had been made on account of monies owed by those entities to her. There is no evidence to support such an assertion. Apart from the absence of any plausible evidence being provided by Ms Batavia or for that matter the Bankrupt, nothing in the records of the companies would corroborate her assertion.  Indeed, it was said that the books of accounts were “a mess”. Bearing in mind the professional nature of the business conducted by the Bankrupt and for that matter, Ms Batavia, not to mention that the accountant for the business was the Bankrupt’s brother, this “mess”, is hard to understand.

   [63]Ms Batavia pleaded that payments relating to loan accounts were “moneys” borrowed by the Bankrupt to “loan” to the self-managed superannuation fund and “BPL super fund” for the purchase of two properties rented by the two companies and the impugned payments were made on account of rent. There is no evidence to support such a conclusion.

2. In addition to the matters to which I turn below relating to a constructive trust that should be imposed here, I am satisfied that the respondent obtained the legal ownership of the relevant properties from funds predominantly earned by the Bankrupt and for which there is no indication of any gift by him to her and in respect of any servicing of the relevant mortgages, the payments were drawn from BPL and CPL. Contrary to the assertions of the respondent, there is no evidence of loans and/or outstanding wages due by those entities. 

3. The respondent asserts that she and the Bankrupt had an intention to create the legal ownership and hence by inference, that the Bankrupt had no equitable interest in in those properties. That was said to arise from what was described as the “deed of ownership”. That was signed on 10 September 2001 by the respondent and the Bankrupt.  I find it is simply an indication of their intentions but that cannot override the relevant statutory provisions nor can it ignore the reality of what they were doing. This is an example of the adage that actions speak louder than words.

4. It is evident from the only affidavit filed by the respondent that she does not intend to return to Australia and her proposed debtor’s petition confirms that. As this case has been awaiting a determination through a variety of courts and hearings for some years now, it is appropriate to determine it in the absence of the respondent on the basis of the material before the court. 

5. Even a cursory reading of the financial agreement relating to the Australian assets shows that no mention appears of the debt due to the Australian Taxation Office. The assessments to which the respondent objected were issued in August 2014. Those were the subject of the AAT hearing and currently an appeal to the Federal Court of Australia. Doing the best I can, the respondent’s position has always been that she had nothing to do with the income that gave rise to those assessments and that they were entirely a matter for the Bankrupt. The respondent also argued that at the time the financial agreements were executed, she was unaware that there was any move a foot under the Bankruptcy Act against the Bankrupt. It is the execution of the financial agreements at a time when the Bankrupt and the respondent were aware of the claim by the creditor that gives rise to the provisions of s 90K of the Family Law Act. That provision says that a court may make an order setting aside a financial agreement if, and only if, the court is satisfied that a party to the agreement entered into it either for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party or with reckless disregard of the interest of a creditor or creditors of the party.

6. The Trustees rely upon that provision.  Counsel for the Trustees submitted that the financial agreements were little more than crude obstacles thrown in the path of the Australian Taxation Office as well as the Trustees (as they were to become). There is substance to that submission.

7. The sheer absence of any mention of the creditor even allowing for the fact that there was a dispute about the liability and quantum, enables a finding that the Bankrupt certainly ignored those interests.  It must be remembered that at the time the financial agreements were executed, again albeit disputed, the respondent was also the subject of an assessment and therefore, had a creditor whose interests were completely ignored by the agreement. 

8. Section 90K(1) (aa)(ii) of the Family Law Act describes the circumstances under which the court may exercise its discretionary power to set aside a financial agreement as arising where a party had a reckless disregard for the interests of the creditors. There is no definition of “reckless disregard” in the Family Law Act and it should be used in its widest sense. In my view, the section here is referring to a situation in which a party to the agreement is on notice of a creditors claim and having regard to the significance of the agreement and its impact upon that creditor, fails to take either the creditor’s interest into account or to give notice that their interests may be prejudiced by the agreement. A failure to give that notice in a case where the respondent was aware of the claim both against her and the Bankrupt, indicates a reckless disregard for the interests of the Australian Taxation Office.

9. Section 90K(1A) of the Family Law Act adds support for that observation because it says that for the purposes of paragraph (1)(aa), “creditor” includes a person who could reasonably have been foreseen to be reasonably likely to become a creditor. In this case, there can be no doubt that both the respondent and the Bankrupt were aware of the claim.

10. I am satisfied that the financial agreement relating to the Australian assets should be set aside.

11. The Trustees submit that the Bankrupt had an equitable interest as I earlier described.  For the reasons that follow, I am satisfied that by virtue of a constructive trust that arises from the following matters, the Bankrupt had an equitable interest in the D Street property and thereafter the proceeds of its sale.  That arises from:

    a)The bankrupt’s beneficial interest in the P Street property (to which I turn in a moment);

    b)The relationship between the Bankrupt and the respondent (as husband-and-wife);

    c)The use of both the P Street and D Street properties as the family’s homes;

    d)The contributions towards the acquisition, conservation and improvement of either or both of the homes by the Bankrupt;

    e)Repayments made by the Bankrupt on the relevant mortgages; and

    f)The admissions made by the respondent about the financial control by the Bankrupt of the party’s finances and his efforts being the primary source of the acquisition, conservation and improvement of the relevant properties. 

12. It is not controversial that the marriage relationship continued for a number of years and the respondent and the Bankrupt lived there as a family with their children. The Bankrupt’s business as a lawyer funded the lifestyle of the family. That included the payment of private school fees for their children. Whilst the respondent showed an income stream in her own right, it is not controversial but it came from the business activities that largely emanated from the Bankrupt. Whilst it seems that the respondent was involved in the business, it was the Bankrupt who was the licensed professional.  Thus, all of the objective evidence establishes that the family unit relied upon the Bankrupt’s professional activities for their support.

13. The objective evidence also shows that BPL and CPL, which were under the control of the Bankrupt, funded the lifestyle indirectly as well including making the payments on the relevant mortgages that secured the funding that gave rise to the acquisition in the first place. 

14. Notwithstanding the picture portrayed by the respondent that all of the responsibility for the liabilities raised by creditors was a matter for the Bankrupt, the objective evidence supports a conclusion to the contrary. The respondent enjoyed the benefits of what I can only describe as a pooling of resources and that gives rise to the issue of what, if any, equitable interest, the Bankrupt had in the relevant properties. 

15. The Trustees argue that as a result of the conduct of the Bankrupt and the respondent (to which I turn in these reasons relating to the use to which their respective monies were put), despite the legal title to both P Street and D Street being held by the respondent alone, a constructive trust arises such that the bankrupt had an equitable interest in both real properties.

16. For that argument and submission to succeed, the Trustees have to show that equity needs to intervene here.

17. In Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137, Mason CJ, Wilson and Deane JJ considered a situation where a property was acquired by one party during his de facto relationship with the other but, for a variety of reasons, the legal title was created as his alone. The issue upon the breakdown of their relationship was whether equity should intervene to ensure that an injustice was not done.

18. The trial judge found that the de facto wife generally gave the de facto husband her pay packet and they regarded this a “pooling of resources”. Various expenses including rent, mortgage instalments and other expenses were then paid. A similar situation can be seen here. The respondent argued in her defence to the liquidators’ claim that there was an agreement (the Deed of Ownership) that property would only be acquired in her name. However, the overwhelming evidence is that regardless of what might have been her (or their) intention, the creation of corporate entities and the bankrupt and the respondent living together and paying such things as school fees shows something quite different to what is portrayed by the respondent in her defence.

19. The structure of their financial lives was a blurring of boundaries as can be seen in the fact that they lived in the respective properties as a family, the bankrupt went to the auction and acquired the P Street property as purchaser, and put into the contract a nominee clause which, at settlement, was acted upon and he was removed. The acquisition of P Street could not have occurred without borrowed funds and the bankrupt was as much a debtor as was the respondent. However, despite what conclusion might be drawn from the defence to the contrary, the trustees’ witness, Mr Yates, relied upon a statement made by the respondent to the AAT. There, the respondent said that because of her health difficulties, she relied on the bankrupt who had “always been responsible for our financial affairs”. She acknowledged that when she worked in the bankrupt’s business, she “never had any involvement in our financial affairs”. All decisions were said to have been made by the bankrupt and usually without consultation with her.

20. In respect of the acquisition of property and in particular the two real properties at the heart of this dispute, the respondent’s defence would suggest that the bankrupt told her what to do. However, in her evidence to the AAT, she said “(W)hen we purchased property, I would ask (the bankrupt) about whether our financial situation allowed for such a purchase”.

21. Despite her assertion in the present proceedings that she alone was the owner of the P Street property, she told the AAT “(the bankrupt) and I bought” it. She said that P Street was “put under” her name because that was the agreement they had. According to the respondent, the bankrupt arranged the loan “and for the mortgage to be paid”.

22. The subsequent acquisition of D Street was not differently described. Like P Street, D Street was the family home.

23. The source of income for the family was initially undoubtedly that of the bankrupt. There is no more telling piece of her own evidence than the following:

    [54] I do not recall discussing a salary with (the bankrupt) or how my salary is (sic) to be paid. That was because I wasn’t doing it for the money and my financial needs (and the financial needs of the children) were attended to by (the bankrupt).

24. The picture presented to the AAT is very different to that provided to this Court. Rather than two individuals who had an agreement and were financially independent of one another, I find the financial circumstances were very much driven by the bankrupt and he made the decisions. Those decisions included how, and to what extent, the respondent received a wage from the business he conducted. The respondent’s position as seen in her defence to at least the liquidators’ claim was that she was owed wages and money. Not only is there no evidence of that but the respondent’s own statement to the AAT indicates that she had little to do with the decisions about money.

25. Thus, in the Baumgartner sense, this was a case of pooling resources for the one family objective. The decisions about who owned the properties leads to the inescapable inference that the bankrupt was making the decisions he did for asset protection purposes. As I have found in the case of the claim by the liquidators, the payments that the respondent says were all under the control of the Bankrupt, were indeed made from the companies’ resources quite inappropriately as if they were the monies of the Bankrupt and respondent as husband and the wife.

26. The trustees argued here that one approach was to find that there was a resulting trust but in my view, the better approach is to accept that the facts justify the imposition of a constructive trust in equity. That is because, as Deane J said in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583, the constructive trust is a remedial institution which is imposed by equity without regard to the actual or presumed intentions of the parties.

27. In this case, the Trustees stand in the shoes of the Bankrupt and equity must declare the existence of a constructive trust over the traced property from the two homes here because it would otherwise be unconscionable on the part of the respondent to refuse to recognise the existence of all that the bankrupt did in pooling their resources. The fact that there was some form of agreement otherwise becomes irrelevant if the stance taken by the respondent offends equity as it does here. The respondent’s conduct in this Court in insisting that some agreement prevails in the light of her own evidence to the AAT amounts to unconscionable conduct and attracts the intervention of equity.

28. The two real properties were undoubtedly acquired with funds that ultimately can be traced to the efforts of the bankrupt even allowing for the roles (including a non-financial role) of the respondent. Thus, in determining the terms of the trust, the two properties were acquired as the parties’ homes, renovated for that purpose and used to raise their children. The funding was, as I have set out above, from what could only be seen as pooled resources. Equity favours equality and as the parties lived together and worked together for many years, I can see no reason why they should not share the beneficial ownership equally as tenants in common. Any argument by the respondent as to contribution and the relevant factors under s 79(4)(e) of the Family Law Act were not the subject of evidence nor more importantly, any claim by the respondent. It is not a subject of interest to the trustees. Accordingly, in terms of fixing the terms of the trust, I see no basis to make any adjustment to a determination of equality.

29. I find in the circumstances that it is appropriate to set aside the financial agreement relating to the Australian assets.

30. The Trustee submits further that any transfers of property by the respondent are voidable by virtue of s 120 of the Bankruptcy Act because they were transfers of property by a person who later became bankrupt and that they took place within a five year period provided for in s 120 of the Bankruptcy Act. In my view, that claim is unnecessary having regard to the finding I have made that having regard to the setting aside of the financial agreement relating to the Australian assets, the Bankrupt had an equitable interest as to 50 per cent of the nett proceeds of the sale of the D Street property.

31. As this was a claim under the Bankruptcy Act, the provisions of s 117 of the Family Law Act relating to costs do not apply and costs should follow the cause. As the claim of the Trustees also included interest, the trustees are entitled to share in the interest accrued on the nett proceeds.

32. The nett proceeds are subject to the Orders made on 19 October 2018 and the balance thereafter must satisfy Orders arising out of these reasons. To the extent that the respondent thereafter has any entitlement to the said proceeds, those are subject to a garnishee by the Australian Taxation Office.

I certify that the preceding fifty-six (56) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 26 October 2018.

Acting Associate:

Date:  26 October 2018