Turner as trustee of the Bankrupt Estate of Wallace v Wallace
[2017] FCCA 3044
•8 December 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| TURNER AS TRUSTEE OF THE BANKRUPT ESTATE OF WALLACE v WALLACE | [2017] FCCA 3044 |
| Catchwords: EQUITY – Resulting and constructive trusts – equitable interest between the husband and wife – effect of transfers for natural love and affection. |
| Legislation: Bankruptcy Act 1966, ss.120, 121, 140 Property Law Act 1958 (Vic), s.19A |
| Cases cited: Stavrianakos v The State of Western Australia [2016] WASC 64 Heydon J and Leeming M, Jacobs Law of Trusts (7th Ed) (LexisNexis, Sydney: 2006) |
Applicant: | DENNIS ANTHONY TURNER IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF WARWICK HAROLD WALLACE |
| Respondent: | JUDITH ANN WALLCE |
| File Number: | MLG 1020 of 2015 |
| Judgment of: | Judge Riethmuller |
| Hearing date: | 1, 2, 3 & 4 May 2017 |
| Date of Last Submission: | 1 June 2017 |
| Delivered at: | Melbourne |
| Delivered on: | 8 December 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr Twigg, QC with Mr Morris |
| Solicitors for the Applicant: | Kahns Lawyers |
| Counsel for the Respondent: | Mr Agardy |
| Solicitors for the Respondent: | Nerlich Lawyers Pty Ltd |
THE COURT FINDS THAT:
The transfer by the bankrupt to the respondent, of his half share in land at 140 Easthill Drive, Robina, Queensland (being the property more particularly described in Certificate of Title 50410915) made on
29 April 2013 is void pursuant to section 120 of the Bankruptcy Act 1966.
The transfer by the bankrupt to the respondent, of his half share in land at 134 Beach Road, Sandringham, Victorian (being the property more particularly described in Certificate of Title Volume 7810 Folio 148) made on 7 October 2004 is void pursuant to section 121 of the Bankruptcy Act 1966.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1020 of 2015
| DENNIS ANTHONY TURNER IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF WARWICK HAROLD WALLACE |
Applicant
And
| JUDITH ANN WALLCE |
Respondent
REASONS FOR JUDGMENT
The applicant is the trustee of the bankrupt estate of Warwick Harold Wallace. The trustee seeks declarations that transfers of the bankrupt’s interests in two parcels of land are each void:
a)A declaration that the transfer by the bankrupt to the respondent (his wife) of his half share in land at Robina Queensland, made on 29 April 2013 is void pursuant to section 120 of the Bankruptcy Act 1966 (“the Act”); and
b)A declaration that a transfer by the bankrupt to the respondent (his wife) of his half share in land at Sandringham (near Melbourne) made on 7 October 2004 is void pursuant to section 121 of the Bankruptcy Act 1966.
For the reasons that follow I find that the transactions are void, and that consequential relief should be granted to the trustee.
Background
Personal History of the bankrupt and the respondent
The bankrupt and the respondent formed a relationship in the late 1980s and married in 1996. The bankrupt operated a successful car sales business with a business partner prior to their relationship. The respondent operated a business importing wooden horses until 1992 when she started working part time in the bankrupts business The bankrupt and respondent had recently separated from their first spouses.
In August 1988 the respondent purchased a property at Brighton for $286,000 and became the sole registered proprietor. This was funded in large part through an interest only loan (at 13.5% interest) from solicitors of around $180,000. The balance appears to have been savings of the respondent. After their relationship commenced the bankrupt and the respondent lived together in this property.
By early 1989 the respondent said she received a divorce settlement, following the resolution of the matrimonial issues with her previous husband, which she estimates at $120,000. There are no documents showing where the divorce settlement was paid nor even a copy of the Family Court Orders.
In the same year that the parties were married (1996) the mortgage over the Brighton property was discharged. There are no documents showing where the money to pay the mortgage came from.
In November 1996 a mortgage was registered over Brighton for $40,000 to secure a loan from the Australia & New Zealand Banking Group (“ANZ”). The purpose of this loan is unclear, although it was alleged to be to fund preparatory work for the Sandringham purchase.
On 7 March 1997 the parties purchased the property at Sandringham in joint names for $260,000, funded by $200,000 provided unsecured (and in cash) by a friend of the bankrupt who was an SP Bookmaker, with the balance alleged to be from savings of the respondent.
In early 1998 Brighton was used by the respondent to secure an advance of $300,000 from the ANZ, which she says was to fund the demolition of the existing dwelling on the Sandringham property.
In November 1998 Brighton was transferred to the bankrupt for ‘natural love and affection’, who leased it to tenants. Later that month a joint mortgage was registered to the Commonwealth Bank of Australia (“CBA”) for $760,000 (although only drawn down in the sum of $600,000) which the respondent says was used to fund building works on the Sandringham property in 1998.
In June 2002 the parties purchased the Robina property jointly for $500,000, using $350,000 borrowed from the CBA to effect the purchase at settlement in October 2002. It is not clear where the balance of the funds to effect the purchase came from.
In September 2002 Brighton was sold providing net proceeds of $562,500.
On 7 October 2004 the bankrupt executed transfers to transfer his half share in each of the Sandringham and Robina properties to the respondent for ‘natural love and affection’. Only the Sandringham transfer was registered (the Robina transfer was held by their solicitor).
On 11 September 2012 the CBA wrote to the bankrupt and respondent concerning arrears on a debt secured over the Robina property.
On 10 April 2013 the Sandringham property was sold by the respondent for $2.1 million, the proceeds of which ($1,040,233.70) were distributed to the respondent.
On 29 April 2013 the bankrupt signed another transfer for his half of the Robina property to the respondent for “natural love and affection”. This transfer was registered on 8 June 2013.
On 20 March 2014 the bankrupt was sequestrated. In April 2014, in a statement of affairs of the bankrupt, it was said that there was no transfer or gift made in the last five years.
History of the Bankrupt’s business dealings
Long before the parties met the bankrupt was a director of Ripponlea Motors Pty Ltd, operating a business as a car dealer.
In 1999 the business embarked upon an innovative business model offering to provide fleet cars to businesses on the basis of a promise to purchase the cars back from the businesses at a future date for a guaranteed price. The business model presented the risk that the business would be unable to sell the cars on the second hand market for a price sufficient to ensure that the overall transaction was profitable.
By 2002 the bankrupt’s sons (from his previous relationship) had joined him in running this business, and an agreement had been entered into with his business partner for the bankrupt and his sons to take over the business.
By July 2002 Ripponlea Motors Pty Ltd was in arrears with respect to obligations to Esanda Finance.
A report commissioned by the bankrupt from Mr David Ferrier (based upon information provided by the bankrupt up to June 2002) describes a business facing substantial financial difficulty, making losses on sales, and being funded entirely by debt. Mr Ferrier was of the view that at that time, the business had a deficiency of $1.48 million. Importantly, the bankrupt agreed in cross-examination that the financial statements contained in Mr Ferrier’s report were accurate. The report was relied upon by the bankrupt in proceedings in the Victorian Civil and Administrative Tribunal between him and his former business partner. It appeared clear that the business had made significant losses as the business was unable to sell all the vehicles for prices equivalent to or greater than the buyback proposals.
In 2003 the business purchased a property on the Nepean Highway and secured this against various other properties it owned.
It does not appear that the business had improved by 2004, although when cross-examined on this point the bankrupt continued to assert that he believed the business would have improved marginally. This seems unlikely given that by the end of the 2001/2002 financial year the business had over 100 used vehicles in stock, representing around seven months’ worth of used vehicles stock at the existing rate of sales. It appears that the stock on hand, which had been less than $1 million in 1999 had grown to around $5 million, as financed by St George on the floor plan in 2004.
In early 2004 the bankrupt suffered health problems and the family relationship between him and one of his sons (who was also involved in the business) had become strained.
On 14 October 2004 (a week after he had transferred the Sandringham property to the respondent) the bankrupt and his sons each signed guarantees to St George Bank for the debts of Ripponlea Motors Pty Ltd. St George bank notified the Australian Securities and Investment Commission (“ASIC”) of a $9 million charge over Ripponlea Motors Pty Ltd.
On 20 December 2004 the bankrupt guaranteed mortgages in favour of Banksia Finance for $750,000 owed by Ripponlea Motors Pty Ltd. When making the application to Banksia Finance in 2004 the bankrupt represented that he owned the Sandringham property, estimating its value at $2.04 million.
A further difficulty that confronted the bankrupt and his sons with respect to the operation of the business was the agreement that they had reached with the former business partner of the bankrupt in 2002. In December 2008 a refinance arrangement was entered into with Banksia involving borrowings of $1.8 million in order to repay the existing mortgages to Banksia, settle with the former business partner and obtain $100,000 for duty and costs. It appears the business had not recovered, as the bankrupt provided $258,000 from a Viridian line of credit at the CBA on 30 October 2009 to the business.
On 19 March 2010 the bankrupt represented to St George that Sandringham and Brighton were his assets “held in JA Wallace”. On 6 April 2011 the bankrupt again represented to St George that the properties were his assets, in a statement signed by him. The representation was repeated a third time on 20 June 2012, together with information relating to the existing mortgages, said to be debts of $250,000 and $260,000. The bankrupt, when cross-examined about this, said that he had simply signed whatever his son had given him and he had not intended to make such representations.
On 17 July 2013 Ripponlea Motors Pty Ltd was placed into liquidation by court order.
Issues
This case presents four key issues that the Court must determine:
a)at the time of transfer, whether the bankrupt held all or part of his half interests in the Sandringham and Robina properties on trust for the respondent;
b)whether the transfer of the bankrupt’s half interest in the Robina property was void under section 120 of the Act;
c)whether the main purpose in transferring the half interest in the Sandringham property was to defeat creditors and thus void under section 121(1)(b) of the Act; and
d)whether the respondent has established any of the defences available under sections 120 and 121 of the Act.
In this case the respondent argues that there is a constructive trust based upon the common intention of the parties to hold the properties for the benefit of the respondent, and that she had acted to her detriment based upon that common intention: see generally Stavrianakos v The State of Western Australia [2016] WASC 64 at [289].
It is well settled that an equitable interest is good against the trustee in bankruptcy if it were good against the bankrupt: see Jabbour v Sherwood [2003] FCA 529 at [76] and Parsons v McBain [2001] FCA 316 (2001) 109 FCR 120.
Unless an equitable interest is established (or there is a fraud), the legal title to land will prevail. However, a declaration of trust over land may be upheld even though a transfer is not registered: see, for example, Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253. Where a person pays for land that is registered in the name of another there is a rebuttable presumption of a resulting trust: see Calverley v Green [1984] HCA 81; (1984) 155 CLR 242. Similarly, where there is a transfer of land without any consideration a resulting trust arises. However, ‘natural love and affection’, whilst not ‘valuable’ consideration, is ‘good’ consideration at equity (at least between husband and wife) for the transfer: see Wirth v Wirth (1956) 98 CLR 228 at 236 and Director of Public Prosecutions for Victoria v Le [2007] HCA 52 at [40]
Where a husband and wife purchase a matrimonial home, each contributing to the purchase price, it may be inferred that they intended to each have a one half interest in the property ‘a fortiori, where the title was taken in the joint names of the spouses’: Trustees of Property of Cummins (a bankrupt) v Cummins [2006] HCA 6 at [72]; (2006) 227 CLR 278 at 303.
Generally the information stated in a transfer of land document is persuasive evidence of the nature of the transaction, although it is not conclusive: see, for example, Roman Catholic Church Trust Corporation of the Archdiocese of Hobart v Commissioner of State Revenue [2012] TASSC 43 at [15].
Sections 120 and 121 of the Act relevantly provide (in the context of this case):
120. Undervalued transactions
Transfers that are void against trustee
(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a)the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b)the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
…
Refund of consideration
(4) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
What is not consideration
(5) For the purposes of subsections (1) and (4), the following have no value as consideration:
…
(d) the transferee’s love or affection for the transferor;
Meaning of transfer of property and market value
(7) For the purposes of this section:
…
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; …
121 Transfers to defeat creditors
Transfers that are void
(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a)the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and
(b) the transferor’s main purpose in making the transfer was:
(i)to prevent the transferred property from becoming divisible among the transferor’s creditors; or
(ii)to hinder or delay the process of making property available for division among the transferor’s creditors.
Showing the transferor’s main purpose in making a transfer
(2) The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
…
Transfer not void if transferee acted in good faith
(4) Despite subsection (1), a transfer of property is not void against the trustee if:
(a)the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
…
Refund of consideration
(5) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
What is not consideration
(6) For the purposes of subsections (4) and (5), the following have no value as consideration:
…
(d) the transferee’s love or affection for the transferor; …
Witnesses
A significant part of the evidence was contained in court books, by way of copies of numerous documents. There is no dispute that the copies of the documents in the court books accurately reflect these documents. The trustee in bankruptcy was not required for cross-examination and I accept his affidavit evidence.
The respondent gave evidence and called the bankrupt and their family solicitor who had acted for them at various times.
Evidence of the Respondent
The respondent presented as a pleasant witness although she gave the impression of adding to her version of events as she perceived may have suited her interests during cross-examination. She gave the impression that she was a person quite protective of her own property interests following her divorce. She spoke of her own interests and how she had always been very careful with her money. She told of how the bankrupt had been shocked when he found out that she had kept her own accounts during their relationship. At one point, to explain not using money that she claimed she held on deposit at a bank (the details of which she was vague about) she said that they had borrowed a significant sum from a family friend, which their friend had not sought to have returned, rather it was taken up as a debt of Ripponlea Motors Pty Ltd.
Even if one accepts the version relating to their friend (said to be an SP Bookmaker) it is difficult to understand why the friend would be asked for money (and $200,000 at that) if the respondent held more than sufficient funds on a term deposit. The respondent’s explanation that the friend would loan it interest free seems quite a calculating and exploitative attitude to a long term friend.
Whilst the respondent gave the impression of being very particular about financial matters, this seems inconsistent with the lack of detail that she could recall with respect to central transactions. For example, she owned the Brighton property (mortgaged) which she clearly viewed as her own. The respondent was unable to explain why she transferred the title to this property to the bankrupt, other than saying that the bankrupt handled such matters, and later suggesting the bank required them to transfer the property. The respondent said she left finances to the bankrupt to justify her vague evidence on this topic. To have left such matters to the bankrupt appears inconsistent to her attitude with respect to being careful to retain her own property, such as keeping funds she says she held separately.
The respondent’s evidence about her funds was initially ‘a few small investments’ of ‘a few thousand dollars’, which changed to ‘probably a couple of hundred thousand at one stage’ as cross examination went on. Why she did not pay out the solicitor mortgage before 1996, if she had significant funds (given the mortgage interest rate was 13.5%) was not convincingly explained.
Further, and quite remarkably, despite her claimed history of running a profitable business at one point (her evidence being that she was importing expensive hand carved horses), having worked in Ripponlea Motors Pty Ltd, and having Ms Evans (the family solicitor) acting and advising, she claimed to be unaware of the effect of signing a transfer to the bankrupt. The respondent’s evidence on this issue was unconvincing and I reject it.
Despite her pleasant demeanour I found the respondent an unimpressive witness, who appeared prepared to provide a version most favourable to her, at times portraying herself as a business woman careful with her property interests, yet also prepared to portray herself as acquiescing to the bankrupt’s property decisions and naïve as to the effect of transfers. Whilst I accept that many of the events relevant to this case are in the distant past, and that the respondent is aged in her 70’s I nonetheless struggle to place any reliance upon her evidence.
The bankrupt
The bankrupt also gave evidence in the proceedings. He presented with a quite elderly appearance and suffered some shaking of the hands. Counsel for the trustee urged me to take account of an increase in visible shaking of his hands when giving evidence about crucial points. Whilst I noted this change in presentation I am not prepared to conclude that this observation demonstrated dishonesty rather than simply being the effects of the stress of the proceedings. I prefer to base my impressions on the content of the evidence that he gave. However, having regard to the content of the bankrupt’s evidence I do not find him a reliable witness for a number of reasons.
When cross-examined about the business the bankrupt admitted that he had received ad hoc reports from his son on the finances of the business, yet claimed that he knew how the business was going through walking around and having a feel for things. Even if this were true, he cannot help but have noticed the excessive stock of used cars. When asked about salaries he was simply evasive, responding to questions about whether he and his sons were underpaid with statements such as ‘We paid ourselves the base salaries’, ‘Who hasn’t said that they’re underpaid’, ‘Maybe so. I’m still here’, and ‘I was happy with life, yes.’ The bankrupt rarely, if ever, gave a straight answer to the salaries questions.
Significantly, as noted above, the business valuation that had been prepared by Mr Ferrier was placed into evidence. It was a valuation prepared at the bankrupt’s request as evidence for proceedings in the Victorian Civil and Administrative Tribunal (“VCAT”) between him and his former business partner. The purpose of the valuation was to show the value of the business as at 2002. Despite relying upon the valuer’s report in VCAT proceedings, the bankrupt now sought to resile from a number of the matters in that report in order to give the impression that the business was profitable at that time. For example, he sought to resile from statements in the valuer’s report that letters had been received from Esanda complaining of the company having exceeding its drawing limit and defaulting in its payments.
The bankrupt, despite being an experienced businessman in the motor vehicle industry, claims that his son completed the documents that represented to St George that he was the owner of the properties, despite having signed at least one of the documents. I do not accept it was mere recklessness. It was consistent with an understanding that the business was in difficulty: there is no other satisfying explanation for such dishonesty to the bank.
The only explanation that he now gives for the Brighton property being transferred to him was that the bank wanted it. I find this less than credible when the Sandringham property was being purchased by them jointly and there is no detail around why this transfer occurred.
The version given by the bankrupt of the loan of $200,000 from his friend who is said to have been an SP Bookmaker is also quite odd. The version starts with the impression that the respondent borrowed the money, however changes to him having rung his friend and ‘just discussed it’ following which it is said that DHL couriers simply arrived with a parcel containing $200,000 in cash. For the repayment it is said that the debt was taken on by the company, which made payments of interest to the friend and that the debt was secured by a caveat on a property of the business. The bankrupt said the friend was ultimately paid back on the sale of the property. Later he said that the respondent gave him the money: if this occurred there was no point to the loan from the friend. Whether this incident occurred or not is difficult to determine – it seems so incredible that it is hard to believe at best. It appears to be a debt of the bankrupt to the friend for money he provided to fund the purchase of the property, hence why it was taken up as a debt by the company, at worst simply a ruse to disguise money coming from the business.
Ultimately, I found the bankrupt an unconvincing and unreliable witness, of whose honesty I am entirely unconvinced. As with the respondent, I found him to be a witness who was prepared to say whatever appeared to be in the best interests of the respondent’s claim.
Ms Evans
Ms Evans, a solicitor who has acted for the respondent and bankrupt over many years, was called to give evidence. She prepared her own affidavit from her memory and file notes. She first acted for the bankrupt from 1980, although had known him before that in her capacity as an articled clerk or secretary prior to being admitted to practice.
Ms Evans presented as a careful and honest witness. She portrayed all of the positive qualities of a solicitor who has been a long term legal advisor. I have no hesitation in accepting the truth and accuracy of her evidence. To the extent that she had no clear recollection this was perfectly understandable given the time that had passed and the reality that at the relevant time much of the work she did was neither unusual, nor likely to lead to later disputes. Where she says that she would have made explanations (for example as to the effect of a joint tenancy) and received instructions jointly, I accept that is her usual practice and that she would be careful to adhere to such practices.
As a result I accept that she advised the bankrupt and the respondent as to the differences between joint tenancies and tenants in common with respect to the conveyancing on both properties (on the Robina purchase she acted as agent for a Queensland solicitor). I accept that she drew the documents in accordance with her instructions.
I accept that Ms Evans had, from time to time, given general advice to the bankrupt and the respondent that it was prudent to keep ‘matrimonial assets’ out of the bankrupt’s name and separate from the business.
I also accept Ms Evans’ evidence that, on one occasion, she went to the hospital to see the bankrupt in order to arrange a will and a transfer as the bankrupt wished to ensure that the respondent was ‘looked after’. Ms Evans was unsure as to the dates, but recalled it was when the bankrupt had heart problems (which were in 2006). Ms Evans gave advice that despite the joint tenancy rules it would be prudent for the properties to be transferred into the respondent’s name if there were family issues.
I find that Ms Evans was unaware of any trust claim and never intended to vest a trust when drawing the transfer documents. On her evidence she was aware of the different documents that would have been required to vest a trust interest and that there was no difference in duty payable. I accept that she was never told of any form of trust being vested, and had she been told would have prepared documents to reflect that claim. I accept that the transfers and documents she produced accurately reflected the instructions she was given by the respondent and the bankrupt.
Timing of health issues
I accept that the bankrupt suffered two major health incidences. I find that these events have been merged in the evidence given by the respondent and the bankrupt. The evidence of Ms Evans shows that a will was drawn with respect to the bankrupt’s second health incident. The first was in 2004 where he had prostate related issues requiring hospital visits. I accept that he had no concerns as to imminent mortality at that time and took no steps to make plans for the possibility of death at that time (In this respect I prefer the evidence in cross-examination of the respondent). I accept that in 2006 he was hospitalised with heart problems and underwent significant surgery. I accept he was concerned that there was a real risk that he may die, and thus did make arrangements then to draw a will. I am not persuaded that his actions in 2004 were in any way motivated by his health.
The liquidator
The respondent argues that I should draw an inference from the trustee’s failure to call the liquidator of the company to give evidence. The liquidator’s files and records were subpoenaed. There was no dispute that the limited records produced were all of the records that the liquidator held. The identity of the liquidator was known to both parties. It is not suggested that the liquidator is a party to any of the relevant transactions. I am not persuaded that the trustee’s failure (or even refusal) to call the liquidator of the company can lead to an inference being draw as to the evidence that the liquidator may give in the circumstances of this case: the liquidator knows nothing of the transactions other than through the documents produced on subpoena.
The trust claims
The respondent put her case on the basis that at all times she was the beneficial owner of the entirety of the three properties (Brighton, Sandringham and Robina). If that is the case, the transactions were not transfers within the meaning of ss.120 or 121, but merely vesting of the trust assets in the beneficiary of the trusts.
This claim is put on the basis of oral evidence of the respondent and the bankrupt that it was their common intention and that the respondent acted to her detriment in providing substantial funds towards Sandringham and Robina.
It is also put that a resulting trust arises on the basis that the respondent provided the purchase funds (save that which was borrowed): see Calverley. It is argued that there is no need to consider mortgage repayments as the loans have now all been repaid, although even on the respondent’s case the repayments made by the bankrupt would require equitable accounting. However, the law must be seen in light of the High Court’s judgment in Cummins where the High Court identified a presumption of equality in ownership of a matrimonial home of a married couple. The difficulties that may flow from these decisions are not yet fully explored in the case law; perhaps unsurprisingly given the broad array of different forms of relationships that are now common and in particular the great increase in the number of marriage like relationships where the difference from a formal marriage is often only the lack of solemnization. A very useful and insightful discussion of these issues is provided in Sarmas L, ‘Trusts, third parties and the family home: six years since Cummins and confusion still reigns’ (2012) 36 MULR 216; [2012] MelbULawRw 6.
This case involves a married couple who jointly contributed to the purchase of a matrimonial home at Sandringham, and a home at Robina that was a holiday home, later to become their retirement home.
The respondent’s case for equitable interests is summarised in a schedule produced by counsel for the respondent listing the purchase and sale figures, mortgage amounts and an estimate of rental received on Brighton ($98,000) together with claimed savings of the respondent of $180,000 and the loan from the SP Bookmaker friend of $200,000. However, such a schedule assumes that there is no interest in any of the properties by the bankrupt, no contributions by him, ignores all repayments of interest on debts, and assigns the full benefit of the SP Bookmaker’s loan to the respondent. I am not persuaded that the respondent had any significant cash investments in term deposits.
I find that the table is effectively a self-serving reconstruction designed to support a conclusion that the bankrupt held no interests and made no contributions, rather than offering an explanation of equitable property interests, or providing a useful account of how those interests could be demonstrated or traced.
The respondent claims to have had sufficient cash to purchase the Brighton property (purchased for $286,000) with a solicitor’s mortgage loan for $170,000 or $180,000 together with money she says she either had or had received from her property settlement with her previous husband. This appears likely from the documentary evidence and the time at which the property was purchased.
It is unclear where the funds came from to repay the solicitor’s mortgage loan. The respondent alleges that she either had funds on term deposits or received another tranche of her divorce settlement (although no copy of the property settlement orders was produced). It would be a remarkable coincidence if the bankrupt made no contributions at this point as it was around the time they married. In any event, Brighton was transferred by the respondent to the bankrupt for the ‘Natural love and affection I bear for my husband’. Although natural love and affection is not ‘valuable’ consideration it is ‘good’ consideration and thus sufficient to rebut the presumption of a resulting trust: see Wirth and Le.
Whether s.19A of the Property Law Act 1958 (Vic) also abolishes the presumption of a resulting trust arising as a consequence of a voluntary conveyance (as opposed to the provision of purchase funds) is a more difficult question: there remains considerable uncertainty on this point, for example see Newcastle City Council v Kern Land Pty Ltd (1997) 42 NSWLR 273 at 280; Ryan v Hopkinson & Anor (1990) 14 Fam LR 151; Drayson v Drayson [2011] NSWSC 965; and Schweitzer v Schweitzer [2012] VSCA 260 and the commentary in Heydon J and Leeming M, Jacobs Law of Trusts (7th Ed) (LexisNexis, Sydney: 2006) at [1220]. However, in light of the ‘good consideration’ provided in the transfer, the precise operation of s.19A does not need to be determined in this case.
Sandringham was purchased in joint names and at the time of the purchase of Sandringham, the respondent transferred Brighton to the bankrupt for ‘good’ consideration. The evidence was unclear as to the detail of any agreement with respect to this transfer of Brighton and the purchase of Sandringham. I am not persuaded by the general claim by the respondent and bankrupt that it was always intended that the properties would be those of the respondent, nor the general claims that the transfer of Brighton was at the behest of the bank. It was open to the respondent and bankrupt to arrange their affairs as they saw fit at this point and it appears that they decided to purchase Sandringham jointly to build their future matrimonial home.
However, on the state of the evidence it is difficult to make any finding as to the actual purpose of the transfer of Brighton other than to conclude it was a deliberate structuring of the affairs of the parties by the mechanisms in the legal documents.
As a result I am not persuaded that an equitable interest different to the legal estates arose as a result of representations or joint intentions at this point. There is nothing to suggest unconscionability in the Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621 sense or otherwise. More likely is that Brighton had become their home and there were significant contributions of each. Even if Brighton was held by the bankrupt on trust for the benefit of the respondent, it was later sold in 2002 and the evidence does not permit the tracing of the proceeds into another asset, and in any event the presumption (in the absence of evidence to the contrary) would be that the bankrupt and the respondent held half shares in equity as it was their matrimonial home at that point: see Cummins.
I accept that there is a presumption that Sandringham would be the joint property of the respondent and the bankrupt, given that it was to be the matrimonial home in circumstances where they were married and both contributing to its acquisition: see Cummins. The presumption accords with the title as registered, which I accept was a deliberate choice of the parties following advice from their solicitor. As a result I am not persuaded that a presumption arises in this case that leads to a finding that the respondent held a greater equitable interest in Sandringham than the legal interest as registered.
Sandringham has now been sold and the parties have retired to their home in Robina. The Cummins principles therefore apply to the Robina home, creating a presumption (in the absence of other evidence) that they hold the property in equal shares, as the legal title reflected. As with Sandringham, the presumption accords with the title as registered, which I accept was a deliberate choice of the parties following advice from their solicitor. As a result I am not persuaded that on the evidence in this case there is a proper basis for finding that the respondent held a greater equitable interest in Robina than the legal interest as registered.
Section 120 claim with respect to Robina
The primary claim with respect to the Robina property is that it was transferred without consideration. I have found that the interest in the property registered in the name of the bankrupt was not held on trust for the respondent.
The bankrupt’s interest was transferred to the respondent by way of a transfer noting the consideration as ‘natural love and affection’. The transfer was lodged at the land titles office within 5 years of the sequestration order. ‘Natural love and affection’ is not sufficient consideration to be a defence under s.120.
There is no evidence of any other consideration at the time of this transfer. The transfer was therefore prima facie void against the trustee, subject to any defence that the respondent may have under the section.
Section 121 claim with respect to Sandringham and Robina
The section 121 claim is pleaded primarily with respect to the Sandringham property. It also arises as an alternative claim with respect to the Robina property if the view is taken that the Robina property was gifted in 2004 when the first transfer (which was never lodged) was executed.
It is argued in the alternative that the Robina property was gifted or transferred in equity to the respondent in 2004 when transfers were signed and stamped. The 2004 transfer was never lodged. It is not a case where a gift could be said to be completed at law as the transfer was not registered at the titles office. There is much difficulty with the rules about when a gift is complete, particularly when it concerns land, and of course equity will not complete a gift.
In this case, despite signing the transfers, it is clear that the solicitor acting for the bankrupt and the respondent held the documents on her file. She gave evidence that she asked about the transfers. The solicitor has a file note that the bankrupt was ‘to check + get back to me’. The bankrupt did not instruct her to lodge them. I am not persuaded that the bankrupt’s interest was gifted to the respondent at the time the first transfer was prepared as the bankrupt had not instructed his solicitor to lodge the transfer and therefore she would have held the transfer in escrow for the parties jointly. Thus the donor had not done all that was required of him in the circumstances of this case and therefore it can be no more than an imperfect form of gift: see Corin v Patton [1990] HCA 12; (1990) 169 CLR 540.
The un-lodged transfer alone is insufficient to create a trust. On the evidence I am not persuaded that the transfer was made as a result of any intention to create a trust, nor did it form part of some larger transaction in which the respondent relied upon the transfer of Robina to her. Of course, equity does not perfect a gift.
In the event that I am in error in this regard I proceed to consider what result would flow under s.121 if the first transfer was a perfected gift of the Robina property to the respondent or created a beneficial interest for the respondent.
I have no doubt that, but for the transfers to the respondent, the bankrupt’s shares in the Sandringham and Robina properties would have become a part of the bankrupt’s estate. This seems very clear from the fact that the respondent held the properties for so long and that they have been treated as the respondent’s and bankrupt’s home and holiday home and then their home in their retirement.
The crucial question is whether ‘the main purpose in making the transfer was to prevent the transferred property from becoming divisible among the transferor’s creditors’. In simple terms was it gifted to the respondent to ensure it was not an asset of the bankrupt should he be sued or sequestrated by his creditors?
Provisions of this type have a long history dating back to a version of this legislative provision passed during the reign of Elizabeth I. I have referred to a number of the leading cases in Nelson v Mathai & Ors [2011] FMCA 686 and need not repeat them here.
It is for the applicant to prove the main purpose of the transfers. In this case the trustee does not have the benefit of the presumption in s.121(2) as on the evidence it does not appear that the bankrupt was, at the point of the transfers in 2004 either insolvent or about to become insolvent. He was meeting his personal debts. There is no evidence that the financiers had yet called upon the guarantees. The business had been able to secure refinancing (although it is likely on a questionable basis given the false statements of assets later made by the bankrupt).
While the applicant does not have the benefit of the presumption, proof of the relevant intention can, and almost invariably must be made out on a circumstantial case. As the High Court pointed out in Cummins v Cummins [2006] HCA 6; (2006) 227 CLR 278 at [34]:
[34] What had been required for the Trustees to succeed at trial was that the circumstances appearing in the evidence gave rise to a reasonable and definite inference, not merely to conflicting inferences of equal degree of probability, that, in making the August transactions, Mr Cummins had the “main purpose” required by the statute [FN: See Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1at 5 per Dixon, Williams, Webb, Fullagar and Kitto JJ; Luxton v Vines[1952] HCA 19; (1952) 85 CLR 352at 358 per Dixon, Fullagar and Kitto JJ; Jones v Dunkel(1959) 101 CLR 298 at 304-305 per Dixon CJ, 310 per Menzies J, 318-319 per Windeyer J; Girlock (Sales) Pty Ltd v Hurrell [1982] HCA 15; (1982) 149 CLR 155at 161-162 per Stephen J, 168 per Mason J; Anikin v Sierra[2004] HCA 64; (2004) 79 ALJR 452at 459-460 [45]- [46] per Gleeson CJ, Gummow, Kirby and Hayne JJ; [2004] HCA 64; 211 ALR 621at 631]. Further, counsel for the Trustees accepted that, in determining the inferences to be drawn from the primary facts, regard was to be had to the seriousness of the allegations made against Mr Cummins (although he was not a party) and the gravity of the consequences of findings adverse to him [FN: [2002] FCA 1503; (2002) 124 FCR 67at 95]. Reference was made to the well-known judgment of Dixon J in Briginshaw v Briginshaw [FN: [1938] HCA 34; (1938) 60 CLR 336at 361-362].
I have particular regard to the gravity of the findings in a case such as this and the principles set out in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 and s.140(2) of the Evidence Act 1995.
I turn to note a number of important surrounding facts that I accept:
a)The original purchases were in joint names.
b)The parties had by this point appeared to have joined their finances with respect to the properties, even transferring the Brighton property to the bankrupt as part of the transactions when funding the Sandringham property.
c)The bankrupt had arranged the dubious loan with the SP Bookmaker, which was then taken up as a debt to his company.
d)The company’s debts exceeded its assets by $1.48m as at June 2008.
e)At around the time of the transfers the bankrupt executed guarantees for refinancing of significant sums
f)At the time of the transfers the financial situation of the company was such that it had defaulted on its finance arrangements, and had large amounts of unsold excess stock.
g)The business was in dispute with the bankrupt’s former business partner leading to litigation in VCAT before payment was agreed.
h)The bankrupt was in dispute with a son who was part of the business.
i)The bankrupt had been alerted by his solicitor to the importance of holding assets in the respondent’s name due to business risks.
There is a clear hypothesis available on this evidence in favour of the proposition that the transactions were to defeat the bankrupt’s creditors should the finance guarantees be called upon. However this must be weighed against any competing hypotheses available on the same facts. For the reasons that I rejected the trusts arguments, the hypotheses that the transactions were simply vesting trusts appear most unlikely. It is said that the properties were always considered to be properties of the respondent. If that were correct there is no reason they would be registered in joint names.
The bankrupt and the respondent lived in Sandringham and intended Robina to be a holiday then retirement home. The bankrupt had made considerable contributions to the properties. The respondent, on her case, had hidden some of her financial resources resulting in greater drawings as against the bankrupt’s resources. The only realistic reason that explains the transfers at the relevant times, if they were not motivated by the desire to defeat possible future creditors, appears to be the claim that they were concerned about what may occur if the bankrupt died and there was a family dispute (presumably to defeat a testator family maintenance claim by a son). However, on the evidence, the bankrupt had no concerns that he would die at the time of the transfers in 2004 when he had prostate difficulties: his concerns for estate planning only arose when he had heart surgery two years later (at which time his solicitor saw him in hospital to arrange a will). I do not accept that estate planning was the motivation for the transactions.
Taking the evidence as a whole I am comfortably satisfied on the balance of probabilities that the purpose of these transfers was to defeat the bankrupt’s creditors should the finance guarantees be called upon.
Defences of the Respondent
There is no valuable consideration that is pointed to by the respondent beyond the circumstances relied upon in the trusts claims. I do not accept that she provided valuable consideration, even noting the extended time frame within which consideration can arguably be given upon on the reasoning of Atkinson J in Clout v Markwell [2001] QSC 91 at [23] (between when the agreement or common interest was manifest and the time the transfer was made).
The respondent did not bring a claim for any adjustment of her interest pursuant to s.79 of the Family Law Act 1975. Given the age of the respondent and bankrupt, and the nature and length of the marriage, it is difficult to see how the respondent would obtain more than 50% of the assets if any adjustment were to be made under s.79 of the Family Law Act, in any event. The respondent already has a 50% interest in the properties , and therefore unlikely to be able to show it was just and equitable to make orders under s.79: see Stanford v Stanford [2012] HCA 52.
Conclusions
I will therefore make declarations that the bankrupt’s legal interests in the in the Sandringham and Robina were not subject to any equitable interest in favour of the respondent, and that the transfers to her are void.
I will hear the parties on the terms of any consequential orders after they have had an opportunity to peruse this decision.
I certify that the preceding ninety-five (95) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller
Date: 8 December 2017
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