Turner in His Capacity as trustee of the Bankrupt Estate of Wallace v Wallace

[2016] FCCA 963

FEDERAL CIRCUIT COURT OF AUSTRALIA

TURNER IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF WALLACE v WALLACE [2016] FCCA 963

Catchwords:
BANKRUPTCY – Husband transferring half interest in matrimonial home to his wife in 2004 for natural love and affection – husband bankrupt in 2014 – whether transfer void against trustee in bankruptcy – wife alleging concluded agreement that husband’s interest be transferred in return for substantial investment by her in matrimonial home – whether representation upon which wife relied to her detriment – whether if transfer void against trustee there should be an equitable accounting in favour of the wife – consideration of methodology to enable equitable accounting to occur. 

Legislation:

Bankruptcy Act 1966 (Cth), s.121

Cases cited:
Prentice v Cummins (2002) 124 FCR 67
Russell, Ex parte; In re Butterworth (1882) 19 Ch D 588
Re Pavlou (A Bankrupt) [1993] 1 WLR 1046
Draper v Official Trustee in Bankruptcy (2006) 236 ALR 499

Applicant: DENNIS ANTHONY TURNER IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF GREGORY THOMAS WALLACE

Respondent: DEBORAH LOUISE WALLACE

File Number: MLG 1017 of 2015

Judgment of: Judge Burchardt

Hearing dates: 15, 16, 17 & 18 March 2016

Date of Last Submission: 18 March 2016

Delivered at: Melbourne

Delivered on: 31 May 2016

REPRESENTATION

Counsel for the Applicant: Mr Twigg QC and Mr Morris

Solicitors for the Applicant: Kahns Lawyers

Counsel for the Respondent: Mr Fary

Solicitors for the Respondent: Mills Oakley Lawyers

DECLARATIONS AND ORDERS

THE COURT DECLARES THAT:

1. The transfer registered with the office of the Victorian Registrar of Titles on or about 19 November 2004 in dealing No AD252490Y in respect of the land described in Certificate of Title Volume 4479 Folio 711 being the land situate and known as 297 New Street, Brighton, Victoria (Brighton Property) by Gregory Thomas Wallace to the respondent, Deborah Louise Wallace, is void as against the applicant trustee pursuant to s.121 of the Bankruptcy Act 1966 (Cth).

THE COURT ORDERS THAT:

1. The proceeding be referred to mediation to be conducted by

   
   

   15 June 2016.

2. The respondent file and serve any expert valuation evidence by

   
   

   18 August 2016.

3. The applicant file and serve any expert valuation evidence by

   
   

   19 September 2016.

4. The further hearing of the proceeding be listed for hearing on

   
   18 October 2016

   at 10:15am in respect of the following issues:

   (a)an accounting between the parties;

   (b)final relief, including, whether the respondent ought to be entitled to purchase the trustee’s interest in the Brighton Property and if so for what price;

   (c)costs.

5. There be liberty to apply.

6. Costs reserved.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 1017 of 2015

DENNIS ANTHONY TURNER IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF GREGORY THOMAS WALLACE

Applicant

And

DEBORAH LOUISE WALLACE

Respondent

REASONS FOR JUDGMENT

Introductory

1. There are two substantive issues in this case.  The first is whether the transfer on 11 October 2004 of the interest held by Gregory Thomas Wallace to the respondent in the property located at 297 New Street, Brighton, is void against Mr Wallace’s trustee in bankruptcy.  The second issue, assuming the first one is decided favourably to the applicant trustee, is whether there should be an equitable accounting in favour of the respondent, who is the wife of the bankrupt, and, if so, what amount should be ascribed to her contributions in respect of the property.

2. For the reasons that follow, I think the first issue must be resolved decisively in favour of the trustee.  The transfer will be declared to be void as the initiating application seeks.  The second issue is much more difficult, in my view, not because in principle it is inappropriate that there be an equitable adjustment but, rather, what methodology should be adopted and what particular results it might achieve.  I will return to this matter in detail later on.

Agreed or uncontroversial matters

1. Notwithstanding the significant disputes between the parties, a number of matters, one might say a considerable number of matters, in this proceeding are not in issue.  In 1955 a company called Ripponlea Motors Pty Ltd was incorporated and commenced operations at premises which, if not then, at least for many years operated from premises in Hotham Street, Ripponlea.  It was, in substance, owned and operated for many years by Warwick Wallace, the father of the bankrupt, and the service manager of the business for many years, John Connelly.

2. Gregory Wallace, whose date of birth does not immediately emerge from the materials (likewise the respondent wife), graduated from Monash University with a Bachelor of Economics in 1986.  From 1986 to 1991, he worked with KPMG in audit and finance as a senior accountant, and, from 1991 to 1993, in KPMG management consulting as a strategic consultant in financial management and operations.

3. Deborah Wallace, the respondent to this proceeding and the wife of Gregory Wallace, of whose earlier education and qualifications little is revealed, nonetheless was in business on her own account, it would seem, by the 1990s.

4. On or about 5 September 1990, the wife bought a property in Spring Street, Port Melbourne, with the assistance of a mortgage from her mother on generous terms, which she thereafter repaid.

5. On 4 March 1995, Mr and Mrs Wallace were married and their children Thomas (born 15 September 1998), Stephanie (born 2 November 2000) and Brigitte (born 26 September 2003) followed thereafter.  In 1993, the husband left KPMG and his uncontradicted evidence is that he received a payment upon leaving which, together with savings, he thereafter applied to the purchase of a property in Glen Eira Road, Elsternwick.  He commenced to work for Ripponlea Motors as an employee and his evidence, once again uncontested, is that he received a salary of some $70,000.  It seems uncontroversial that the Glen Eira Road property was leased to Ripponlea Motors and the rental applied to the mortgage on the Glen Eira Road property, although over time the rental became greater than the payments to be made on the mortgage.

6. In 2002, significant change took place at Ripponlea Motors. 

   
   

   Mr Connelly ceased his involvement, and the husband and his brother Daniel, to an unrevealed extent with the assistance of Warwick Wallace, took over the conduct of the business.  The husband was made a director and company secretary on 20 November 2002.

7. At this point, it is necessary to go back in the narrative to 1999.  In May 1999, the husband and wife bought a property at 297 New Street, Brighton, with which this case is predominantly concerned.  The purchase price was $470,000 (a figure clarified in cross-examination of the wife). A mortgage in their joint names was taken out for the sum of $400,600.

8. On 29 November 2000 a fixed and floating charge in favour of Esanda Finance Corporation Limited for $5 million was created in respect of the property of Ripponlea Motors, and the same was registered on

   
   

   30 November 2000.

9. On 21 February 2003, GTW Investments Pty Ltd was registered as a company with the husband as director and sole shareholder.  The GTW Investment Trust was also created on the same date with Mr Wallace, the wife and the parties’ children as beneficiaries of the trust.

10. On 21 February 2003, 355-359 Nepean Highway Pty Ltd was registered as a company with the shareholders being Daniel and Gregory Wallace.  On 16 April 2003, Nepean Highway Pty Ltd bought real estate at 355-359 Nepean Highway, Parkdale, as trustee of the Nepean Highway Unit Trust.  The husband’s interest in the Nepean Highway Unit Trust was held by GTW Investments.

11. Also on 16 April 2003, a mortgage of 355-359 Nepean Highway was given in favour of Esanda Finance, and the husband transferred his interest in the Glen Eira Road, Elsternwick property to the GTW Investment Trust for $400,000.  That property was mortgaged to Esanda Finance in part to secure the payment of $1,350,000 applied towards the purchase of Nepean Highway.

12. On 31 October 2003, the husband gave a guarantee to Banksia Finance in respect of borrowing by Nepean Highway for $1,883,000.  On

    
    

    5 November 2003, the mortgage in favour of Esanda in respect of the 335-359 Nepean Highway property was discharged.  On the same date, and clearly contemporaneously, there was a mortgage of Nepean Highway to Banksia Mortgages and that money was used to pay out Esanda.  The husband asserts that the figure concerned was $400,000.

13. On 19 June 2004, the wife sold the Port Melbourne property for $503,000 and it settled on 9 July 2004 with some $488,698 paid to the wife.

14. On 11 October 2004, the husband transferred his interest in the matrimonial home (297 New Street, Brighton) to the wife, the consideration being natural love and affection.

15. On 14 October 2004, the husband, together with his father Warwick and his brother Daniel, executed an unlimited guarantee and indemnity for loans in the sum up to $9 million advanced to Ripponlea Motors by St. George Motor Finance Limited for what is described as a vehicle trader floor plan (a form of credit developed for and particular to the motor vehicle industry).

16. On 22 December 2004, the husband executed a further guarantee and indemnity in favour of Banksia Finance for $750,000.  On

    
    

    20 December 2004, demolition of the former matrimonial home commenced and, in February 2005, building commenced, continuing until finished in September 2005.

17. On 19 November 2004, the transfer of land of the matrimonial home was registered in the sole name of the wife.

18. The guarantee given on 22 December 2004 by the husband was supported inter alia by a mortgage by the husband’s mother, Agnes Mary Wallace, over her home at 5 Winton Road, East Malvern.

19. A number of other financial dealings took place thereafter but, in my view, they are not presently of any moment.  What is of moment is that in 2007 the wife paid for the installation of a swimming pool at the matrimonial home.  The cost of the pool appears to be $89,455.

20. On 19 March 2010, the husband provided a personal assets and liabilities statement to Ripponlea’s financier, St. George, in which he listed as an asset, relevantly, his residence valued at $2 million which was described as “held in D.L. Wallace”.

21. On 6 April 2011, the husband provided a further personal assets and liabilities statement to St. George in which he listed as an asset his residence valued at $2,250,000, with no mention of his wife.  He also listed the GTW Investment Trust as a personal asset at a value of $650,000.

22. On 26 June 2012, the husband provided yet a further personal assets and liabilities statement to St.George Finance in which he listed his residence at a value of $2,250,000 and again GTW Investments at $650,000.

The cases put by the parties

1. The trustee’s case is that there was never any agreement that the matrimonial home would be transferred solely to the wife in return for her committing the proceeds of the sale of the Port Melbourne property to building the new matrimonial home.  Rather it is submitted that the husband, who had only recently become potentially liable to very substantial debts through his involvement as a director and guarantor of the affairs of Ripponlea Motors, sought to alienate his interest in the matrimonial home, this being to all effects and purposes the only significant asset he possessed at the time.

2. It should be noted that it is common cause that the mortgage on the matrimonial home at the time of the transfer in October 2004 was $380,000.

3. The value of the mortgage as at the date of bankruptcy on 28 January 2014 was $330,000 and, on 11 March 2016, $307,000.

4. The respondent wife’s case is that she and the husband discussed and ultimately agreed in 2003 to 2004 that she would sell the Port Melbourne property and put the proceeds thereof to the demolition of the former matrimonial home and the building of a new one.  In return, the husband transferred the interest he had in the property to her.  It is her case that she had no notion at the time of any potential indebtedness on the part of the husband.  The husband asserts that the business was doing well at the time and there was no intention on his part to alienate the property from potential creditors.

The evidence

1. What follows does not purport to be a transcript.  It is taken from my notes.  Further, it does not purport to be a comprehensive review of everything that was said or put in evidence.  Rather, it concentrates on those aspects of the evidence that struck me as being of particular significance.

The evidence of the applicant – Mr Turner

1. Mr Turner was not required for cross-examination, and his affidavits are essentially facultative in that they put into evidence matters which are not the subject of dispute, such as the appointment of Mr Turner as the trustee of the bankrupt estate, issues as to the dates of purchase and sale of the Port Melbourne property and the matrimonial home and the like.

2. I note that at paragraph 5 of his affidavit filed 5 February 2016,

   
   

   Mr Turner records tracing statements in relation to payments made on the mortgage of the matrimonial home, and these show that the overwhelming preponderance of the mortgage payments were made from GTW Investments.

3. I note at paragraph 3 of his affidavit filed 17 February 2016, Mr Turner puts into evidence DAT35, which is a Land Information Certificate in respect of the matrimonial home.  DAT35 is at CB401-402, and gives a capital improved value as at 14 August 2015 of the matrimonial home of $1,840,000 and a site value of $1,190,000.

4. Although certain objections were taken to Mr Wallace’s affidavits upon which I ruled during the currency of the proceeding, Mr Turner’s material is otherwise unchallenged, although what he seeks to make of it is, to some extent, another matter.

The evidence of the wife – the respondent

1. The wife’s first affidavit was filed on 22 January 2016.  It deposes to the purchase of the Port Melbourne property in September 1990 and her marriage to the husband on 4 March 1995 and the subsequent birth of their children.

2. Mrs Wallace deposed she was an interior designer and had previously owned her own business, DDG Pty Ltd (“DDG”), and that she earned an income as an interior designer. Additionally she has an investment portfolio valued at approximately $250,000.  In 2008, she received an inheritance from her mother and set up a testamentary trust which held over $500,000.

3. The affidavit deposes to the purchase in May 1999 of the New Street, Brighton property and deposes that the funds therefor were primarily borrowed from the CBA mortgage, a copy of which was annexed as DW3.

4. The affidavit goes on to depose that she and the husband had never had joint bank accounts and kept their financial affairs separate, save for the CBA mortgage.  She deposed “it was intended at that time that the property be in my name”, and she annexed DW4, a copy of the contract note dated 27 February 1999.

5. The affidavit goes on to assert that the matrimonial home was not, in its prior form, able to accommodate the husband and wife and three children.  Importantly for these purposes, at paragraphs 10-12 the wife deposed:

   “In or around February 2003 Gregory and I discussed the need for a larger house to accommodate the family.  The discussions involved moving house or upgrading the Property. 

   Between February 2003 and June 2004 Gregory and I agreed to extend the Property and we discussed how we could fund the upgrade to the Property.  It was my suggestion that I sell the Port Melbourne Property and use the proceeds of that sale to pay for the construction to the Property. 

   At the time of these discussions we also agreed that as a result of my sole ownership of the Port Melbourne property and the fact that I was contributing these funds to the upgrade of the Property, title of the Property should be transferred to me solely.  It was agreed the transfer would occur prior to the engagement of a builder for these works.”

6. The affidavit goes on to depose to the sale of the Port Melbourne property and the receipt of the approximately $488,000 net therefrom.  The affidavit deposes to the transfer in 4 October 2004 and the fact that the mortgage at that time was $380,000.

7. The affidavit deposes to the transfer being registered on 19 November 2004 and that on or around 28 November 2004 the husband and the wife engaged Inform Design and Construction Pty Ltd to construct the new dwelling.  The history of the building works that I have already referred to as agreed is then set out, and I note that at paragraph 21 the wife deposed that in 2005 she paid approximately $503,000 to the builder in respect of the building works.

8. The husband did not contribute any funds to the project.

9. The affidavit then goes on to depose to the engagement in June 2007 of a builder to construct the pool for $89,455.  The wife deposed:

   “I paid for these works from my own funds; Gregory did not contribute to the cost.  Since March 2003 I have made payments in respect of the mortgage over the property.”

10. At paragraphs 27-29 the wife deposed:

    “I had no involvement whatsoever with Ripponlea Motors Pty Ltd, in particular, I did not have any discussion with Gregory or anyone else about transferring the Property into my name to protect it from creditors of Ripponlea Motors Pty Ltd or Gregory.  The reason for entry into the agreement to transfer the property into my name arose in the circumstances mentioned above. 

    I did not know that Gregory had completed the assets and liabilities statements exhibited to the Trustee’s affidavit indicating that he claimed ownership of the Property. 

    At the time of the transfer I did not infer that Gregory would ever become bankrupt.”

11. The wife next filed an affidavit on 15 March 2016 which was marked as exhibit R1 but ultimately copied into the court book at CB631-693.  Relevantly, she deposed at paragraph 4(a)-6:

    “a.     It was agreed between Gregory and I that:

    (i) I would sell the Port Melbourne Property and use the proceeds of that sale to pay for the construction to the Property (paragraph 11 of the first affidavit), and

    (ii) as a result of my sole ownership of the Port Melbourne property, and the fact that I was contributing these funds to the upgrade of the Property, title of the Property would be transferred to me solely (paragraph 12 of the first affidavit);  (together, the Statements). 

    In reliance upon the Statements, I made the payments identified in my First Affidavit.  If the property was not transferred into my name as sole proprietor, I would not have made those payments. 

    In addition to the Building Works and Pool Contract Payments, I made the following payments in relation to the improvements of the property...”

12. A schedule showing $100,714.34 then follows, together with annexures said to prove those payments.  The affidavit further confirms that the CBA loan balance as at commencement was $400,000, at the date of transfer was $380,000, on 28 January 2014 approximately $330,000, and on 11 March 2016, $216,307.

13. The affidavit goes on to assert that the deponent regarded there being no amount owed by the husband to the wife in respect of payments made against the CBA loan and that the husband had not paid any rent to the wife for his use of the property.  When called to give evidence, the wife adopted her affidavits as true and correct.  She clarified that the purchase price of the matrimonial home was $470,000 (to which obviously would have been added stamp duty).

The wife under cross-examination

1. The wife first clarified, as earlier indicated, that the purchase price for the matrimonial home was $470,000.  She then gave the history of the purchase of her former home in Port Melbourne, bought for a price of approximately $250,000.

2. The wife had her own business in 1990 but was unable to recall its turnover.  She said it was definitely more than $50,000 per year but was unable to say what surplus was left over after she repaid her mother the moneys advanced by way of mortgage.

1. She confirmed that DDG was set up to import products, namely furniture, from Spain, and there were three participants in the company:  herself, David Salvison and her husband.  David Salvison was bought out.  The wife confirmed that she ceased work in 1997 and was at home with the children, and her company earned no money in the period 1997 to 2000.  She made very little money as an interior designer in the same period.  From 1992 to 1997 the business was struggling.

2. The mother confirmed that she worked for Ontera Carpets in 1993 with wages of approximately $65,000 per year.  She was unable to say what her earnings were in 1994 and 1995 because her husband looked after the accounts.

3. She confirmed that she and the husband never had a joint bank account.  She paid her mother monthly by cheque for the mortgage loan, and the husband, after he moved in following marriage, helped with food and other bills.  The wife confirmed that between 1992 until 2002 the husband worked with his father.  She said she had general conversations only with him, although she did visit the business occasionally.  She confirmed writing to Warwick Wallace in 2000, expressing dissatisfaction with her husband’s treatment.  When further questioned about these matters, she confirmed that the husband was not obtaining the salary he was hoping for, and that she received assistance from her parents while she was not working.  She conceded that both she and the husband were paying bills for the family between 1997 to 2000.  She said that she took responsibility for the mortgage but the other day-to-day payments were more from the husband.

4. The wife was taken to the Contract Note for the matrimonial home (CB419-421).  She confirmed that she had contributed shares in the sum of $20,000 towards the deposit, with the remainder coming from the husband and his mother.  She was taxed with the fact that the Contract Note shows the purchaser as Deborah Louise Wallace and/or nominee but said she did not know what this meant.  Nonetheless, she had to concede when taken to CB421 – a purchaser’s declaration – that she had, in fact, nominated the husband as a co-purchaser of the property before the sale was completed.  It was put to the wife that the assertion at paragraph 8 of her affidavit (CB48) that the property was intended to be in her name was untrue.  The wife said she did not know what this meant, but that she was unable to obtain a loan from the CBA because she had no regular income.  She said both she and her husband went to the CBA for the loan.

5. It was put to the wife that the caveat lodged in respect of the forthcoming purchase on 12 March 1999 was in both her name and that of her husband (CB101), and she was unable to explain why both were parties to the caveat.

6. When asked who paid the mortgage between 2000 and 2004, the wife said she had rental income from her own property in Port Melbourne which was paid into the mortgage.  She said the mortgage on Port Melbourne had been largely paid off by about 1999 to 2000.

7. The wife was next cross-examined about the husband’s land at Glen Eira Road, and she said that he owned this land in 1992.  Cars were parked on it, and it was her understanding that rent was paid for this.  She said she did not discuss any of the refinancing in 2003, the GTW Trust or GTW Investments Pty Ltd, but did discuss the purchase of the Nepean Highway property.

8. The wife confirmed that she was a CBA customer in 1999.  The loan was taken out with that bank to buy the matrimonial home, and was interest only for the first two years then interest and capital.  The wife was taken to a file note dated 5 March 1999 made by C.G. Hurst (CB177).  This note appears to show that the property was to be purchased in joint names and the loan also taken out in joint names.  I note that, according to the note, the rental on the Port Melbourne property would have paid most of the initial mortgage costs.  The wife said that the mortgage was paid out in two years, and indicated that in part this was from distributions from her mother.  She was unable to say how these were paid to her, and I should interpolate that her evidence in this regard struck me as being evasive.  She said there might have been periodic payments from a trust.  She was unable to say how the approximately $2000 per month paid in respect of interest was paid, nor from which account the monthly funds were derived to do so.

9. The wife was cross-examined about the CBA loan balances disclosed at paragraph 7 of her second affidavit (CB633-634).  She said that these had been from a bank statement.  She had produced many bank statements and had held her CBA bank account for a long time.  The wife’s evidence appeared to be designed to suggest that she had effectively little, if any, knowledge of her bank accounts, but I should record that I do not accept that this was so.  When it was put to her that the records at CB663 showed cheque numbered 5 issued on 8 April 2005 and that the account must have started shortly before this, she was unable to give any convincing explanation.  She said she also had a Bank of Melbourne account and it was all a long time ago.  When pressed with questions about her bank accounts, the wife became visibly flustered.

10. The wife was cross-examined about a payment made by the Deborah Louise Wallace Testamentary Trust as a home loan repayment for $2600 (CB288).  She confirmed that the beneficiaries of the testamentary trust are her children and she is the trustee.  When asked how the trust funds could be applied to the home loan, she responded that it was going into the house that the children would, in due course, inherit.  It is clear from this answer that on occasion the wife treats the trust funds as effectively her own.

11. The wife was asked about the operation of DDG and confirmed that both she and her husband were involved in the accounts.  She could not recall if there had been profit distributions and could not recall how it worked.

12. When pressed again as to the figures asserted as to the mortgage in May 1999 and October 2004, the wife was not able to remember where the figures came from.  She denied making the figures up. 

13. The wife said that her husband did not pay the home loan.  She said the GTW Trust paid.  She said the children are beneficiaries of the trust but she knew very little about it.  She said she made most of the payments.  She was unable to recall if the mortgage account records had been included in the bank record statements that she had given to her lawyers.

14. I interpolate again and say it is immediately apparent that the wife did not make most of the payments in respect of the mortgage.  They were made by GTW.

15. Some of the wife’s answers as to how the mortgage was, in fact, paid on the matrimonial home, in my view, had all the appearance of being made up on the run.

16. The wife was cross-examined about her affidavit description of how the asserted agreement for the transfer of the property came to pass (CB49).  She said that the matter was discussed many times.  They engaged a builder, an architect, and it was a long process.  She said there were no other funds to extend the property.  It was essential to extend because there was a third child coming.  They looked at other houses but this one was in the perfect position for private schools and, indeed, primary schools.  The girls are now at Firbank and the boy is in his last year at Brighton Grammar.

17. When questioned about the transfer of the Glen Eira Road property to GTW in April 2003 she said she knew that this had occurred.  She said the rent from the Glen Eira property did not come to her and her husband.  She was aware he had a salary and knew he had a floor plan with Esanda but not more than that.

18. So far as the design and building of the matrimonial home was concerned, the wife said that plans were drawn by an architect and then a quote was obtained from a builder.  Then the matter was completely replanned as it was such a big job and Inform redesigned.  They started early in 2004 and were committed to rebuilding by September 2004.  The deposit was paid in 18 November 2004.  The wife said that the parties were committed when they paid the tender deposit in March 2004, and the exhibit R2 from Inform is consistent with this.  The wife confirmed that she engaged a real estate agent to sell the Port Melbourne property in 2004 but could not say which month.  The sale price for the building was $503,000.  The solicitors she used were Middletons, and the wife confirmed that the reference to RRE at CB434 was a reference to Rosemary Evans.  She said that they used her husband’s father’s solicitor.  She did not have a solicitor at the time, and Ms Evans was acting for Ripponlea Motors.

19. The wife said it was a lengthy process in a build and it was premature to say that they were committed at an earlier date.  Her main concern was conveyancing.  When pressed as to why, given the asserted agreement between her and her husband, they had not used the solicitor to effect the transfer of the husband’s interest to her in June 2004, the wife, in my view unconvincingly, replied that it was not an issue at that point.

20. In the ultimate, they used Mills Oakley to effect the transfer, who had worked for the wife’s family before.

21. The wife confirmed that there was an expansion of Ripponlea Motors in 2003 but she was not aware of the intricacies of the purchase of the Nepean Highway property. She said that she and her husband had always decided to keep things separate.  She said she had no advice about the transfer or the effect of the transfer if there were a family law dispute.

22. The wife said that the payments made by GTW to the mortgage are made on the children’s behalf.  She said she understands that she and the children are beneficiaries.  She did not accept that her affairs and those of her husband were intermingled in 1999, and that she had no advice about capital gains tax in respect of Port Melbourne, and did not know about losing the exemption.  She said capital gains tax was not a consideration in selling.  She was unable to recall when Ripponlea Motors moved to Parkdale, and had no idea of Ripponlea’s borrowing.

23. The wife said it was time to effect the transfer just before they demolished the existing building.  She said they had discussed it many times and were about to break ground.  She did not accept that they discussed the husband’s debt.  She said he had Glen Eira and did not transfer his interest in the home to protect himself against possible business losses.  It was transferred because she rolled Port Melbourne into New Street.  They never discussed protecting the husband.  She knew he had liabilities but not what they were.

24. The wife said that the car industry is a nightmare industry, but then went onto say that it was good at that time, and this was the reason for the expansion of the business.  This last answer, once again, had all the appearance of being made up on the run to qualify the answer that the car industry is a nightmare industry.

25. The wife said that she had never received any rent from the husband for the matrimonial home.  She had never expected any rent from him.

26. The wife confirmed that the net sums received from Port Melbourne were $488,698.  She said she thought she paid $503,000 in respect of the new building and that this was approximately correct.  She said exhibit R2 (the Inform document) did not take into account additions and paving or landscaping.  She said what she received from Port Melbourne wholly paid for the new house.  Her answers as to how much she paid in this regard were, in my view, evasive and shifting.

27. Cross-examination then moved to the construction of the pool.  Counsel put it to the wife that the contract for the new pool was taken out between her and her husband (CB479).  When this was put to her, she said that the writing on the contract was that of the pool constructor.  It was also put to her that the contract with Inform was jointly taken out with her husband, and this is clearly so (see exhibit R3).  When it was put to her that she and her husband were both included in the contract and asked if this was wrong, the wife responded “technically yes”.  She said she had no reason to amend the document, “[t]he husband always referred to it as ‘my house’, right from the start, right from the outset”.  She denied that this was a fiction to suit this case.  This assertion, of course, runs contrary to the fact that the house was bought jointly and the mortgage was taken out in joint names also.

28. Cross-examination then moved to a detailed examination of the matters set out in the wife’s second affidavit as the additional $100,000-odd asserted by the wife to have been expended.  I do not propose to traverse this in any detail for reasons which I hope will become apparent.  When challenged about the actual payments to Brighton Pools (CB638, 637 and 640) the wife said that not all payments were made through her CBA bank account.  She said her mother paid the final payment on the pool.  Once again, her answers about this matter struck me as being made up on the run.

29. The wife did confirm that her own mother had had her own money.  There was no joint account between her and her husband.  She said it was intended to keep money separate, and this was never an issue.  She and her own husband never had a conversation about it.  She never expected the parties to have a combined bank account.

30. The wife was taken to the accounts of GTW.  Inter alia this showed no income on the part of GTW in the financial years 2003 to 2005.  When taken to CB347 – Statement of Financial Performance for the year ended 30 June 2008 – the wife was unable to explain the figures there disclosed.  She was unable to say where the GTW funds applied to the home mortgage came from.

31. In my view, nothing of any significant moment emerged in re-examination.

The evidence of Gregory Thomas Wallace – the husband

1. Mr Wallace gave evidence-in-chief that his affidavits were true and correct.  He tendered as exhibit R4 his affidavit sworn on 11 March 2016.  When questioned about the mortgage, he said that in October 2004 it was approximately $380,000 and at the time of his bankruptcy, $307,000.

2. The husband was extensively cross-examined.

3. Cross-examination began with a very extensive – one might say at times slightly laborious – cross-examination about the husband’s curriculum vitae (exhibit A2).  The document, in my view, speaks for itself.  The husband has been a chartered accountant since 1990, and was at KPMG for about six to seven years.  Between 1991 and 1993, he conducted reviews for large corporations, such as looking at the admissions system for a hospital.  He had worked for Ripponlea Motors from 1993 to 2013.  He did not start as an owner/director.  He was an employee until November 2002, at which time John Connelly retired.  The husband, his brother Daniel and his father Warwick took over.  From 1993 to 2003, he was the general manager and Warwick was the dealer principal.  Esanda provided finance from 1993 to 2002.  Before 2003, Ripponlea Motors had about 20 employees and had spare parts and repairs and new and used cars all at its premises on Hotham Street.  The husband’s property on Glen Eira Road was close to Hotham Street and was used by the business from 1992 to 2003.

4. The husband was one of two people who had a direct relationship with Esanda, the other being his father.  John Connelly was the service manager.  The Glen Eira Road property was used for storage and rent was paid in respect of this.  It started at $1500 per month but was up to $2500 by 2003.  In 2003, he transferred the property to GTW.  The business needed external funding from time to time and, as the witness put it, “we negotiated and put it together”.  Esanda had its own one-page form but later provided a more substantial package which the husband put in place.  The company was not computerised in 1993 and he started upgrading in 1995.

5. The husband knew how to get finance.  Esanda had available a floor plan which is an evergreen funding facility for car dealers.  Esanda had a fixed and floating charge over the company’s property.  There was a separate facility for new and used cars.  A buy-back arrangement was for a long-standing fleet customer.  Between 1999 and 2004, the buy-back scheme was extended.  It grew very significantly.  The company started with 70 vehicles and moved to a few hundred.

6. By 2003, matters were expanding to a point where the business was selling cars into other states, and the fleet program expanded the business significantly.

7. The husband said it took time to learn the business.  Between 1993 to 2003, he was paid a salary of some $70,000-$80,000 which included a car and superannuation.  He had borrowings on the Glen Eira property but, over time, the rent was more than the mortgage.

8. He started living with the wife the day they married in 1995.  He said she looked after the house and did the shopping. They had separate bank accounts and he gave her cash weekly.  Bills were paid as they came.  The first child came in 1998, and the wife did not work till June 1999.

9. The husband was a director of DDG from 1992 onwards.  In 1998 to 1999, DDG made money importing Spanish products.  He did not know where the money came from to pay for the products.

10. The husband said he grew the business Ripponlea Motors to a turnover of $22 million in 2010.  The business was tired and rundown in 1993, but was not like that for long.  It was better than marginally profitable.  The second site started in July 2003 at Nepean Highway, Parkdale.  Two sites were operated until 2009.

11. The Hotham Street property was owned by Warwick Wallace and John Connelly and his wife until 2008.  Between 1999 to 2013, the husband led the team.

12. The husband confirmed that the motor vehicle industry is hyper-competitive and was extremely volatile between 1999 and 2013.  He was well aware of this from being in the business.

13. The husband confirmed that the GTW trust is a discretionary trust.  GTW Investments has been struck off.  The beneficiaries are the wife, the children and the husband, and is open to others.  The husband understands that beneficiaries do not own trust property.  He said he was the sole owner of the Glen Eira Road property when the trust was set up, and the land was transferred to GTW for $400,000.  He confirmed that 5 Winton Road, East Malvern, was his mother’s address and that he lived there prior to marriage.

14. He said he obtained a payment when he left KPMG, and the cost of the Glen Eira Road land was $150,000.  He had savings in addition to the payment he received when he left KPMG, and the piece of land in Glen Eira Road was one he was familiar with and he decided to invest.  He thought about opening a nursery but rented the land to Ripponlea Motors not long after settlement.  The husband gave detailed evidence about the purchase of the Nepean Highway property.  The trust advanced funds to Nepean Highway Pty Ltd, and the trust owned 50 per cent of the units in the Nepean Highway Unit Trust.  He said he was still, in fact, owed $400,000.  That was the sum advanced to the purchase.  The balance of the purchase price, over $900,000, was borrowed from Esanda.  The floor plan limit was $3.6 million at the time.

15. The husband was taken to the guarantee he executed in favour of Banksia on 31 October 2003 (CB122).  The advance of $1,883,300 was remitted to Esanda because that was what Esanda requested.  Esanda had a charge over Nepean Highway property.  The husband conceded that it was quite possible that the $3.6 million was exceeded with Esanda.

16. The company had more used cars in stock in 2003 and had over seven months of such stock.  The husband worked closely with Esanda because there were several difficulties in 2003.  There were simply too many used cars and also nowhere to park them.  In January 2003, the company owed $3 million, but this was up to $3.35 million in August.  The $1.883 million received from Banksia was fully drawn down by 2004.  The business supported those loans.

1. The husband was taken to the guarantee dated 14 October 2004, executed by the husband, his brother Daniel and father Warwick in favour of St. George Bank Limited (CB136-137).  The amount was unlimited.  It was associated with a charge also dated 14 October 2004, signed by the husband on behalf of Ripponlea in favour of St.George (CB152).  Although a total limit of $9 million was available, this was not fully drawn.  The facility received was nowhere near that in the floor plan facility.

2. The company also had a working capital loan through Banksia of about $300,000.

3. The husband described how the business opened the Nepean Highway premises, and I note the evidence that it was always the plan from 2003 on to relocate the business there.

4. The husband was also taken to a further borrowing by Ripponlea Motors on 18 October 2004 signed by the husband on behalf of the company to Banksia for $750,000.  This was part of working capital and additional to the $300,000 already owed to Banksia.  The business was expanding and growing.

5. Although Esanda had been the business’ financier since the 1970s, the business moved to dealing with Mitsubishi, which is very close to St.George, and Esanda were wary in any event of Mitsubishi. The change took place.

6. The loan of $750,000 by Banksia was also supported by a guarantee executed at the same time by the husband (CB155 and following).

7. The husband explained the security given for the Banksia $750,000 included a mortgage over his mother’s home.  She was not a director or shareholder of the Ripponlea Motors business at the time.

8. The husband said that there were many aspects to the expansion of the business.  His father used debt finance whereas he had asset-backed debt finance.  He expected a substantial profit and had no intention to have other partners than those he had.

9. The husband said that if they were able to obtain two per cent of turnover, this being an industry norm, they would make half a million dollars per year.  He said this was diversified by getting Parkdale and a used car floor plan. 

10. The husband said that he and the wife discussed expanding the family home in 2002.  They had a child in 1999 and intended to have more children.  They intended to stay at the Brighton property until the children finished school but the anticipated arrival of a third child caused them to consider renovation. 

11. It was put to the husband that he became the director of Ripponlea Motors in November 2002 and he responded that he thought he would be better able to provide for his family.  Discussions took place in 2003-2004 and an architect was engaged.  The Port Melbourne home was sold in 2004 and Rosemary Evans was used as the solicitor.  The husband introduced Ms Evans to the wife who had not used Ms Evans’ services before.

12. The husband said he suggested the transfer of his interest to the wife in the first discussions between them about the matter.  Exhibit R2 was put to him showing the tender of a deposit on 22 March 2004.  The husband said they were not committed to the project until the wife said it would occur which was in about May 2004 when she said words effectively, “[t]his is what we will do”.

13. The husband was questioned as to why the transfer of his half-interest in the Brighton property was not effected with Ms Evans in June 2004 and the husband replied that what Ms Evans was doing did not involve him at all.  He said the transfer never crossed his mind.

14. He confirmed that in October 2003 loans were taken out from St George and also Banksia with other homes as securities.  He said it never occurred to him to protect the wife by the transfer of his interest in the family home.  He said that the first time he was personally responsible for the company debts was in the period 2002 to 2004 but the thought of protecting the wife never occurred to him.

15. The husband confirmed that he completed the application to Banksia for $750,000 worth of funds (CB522-524).  He said that the information contained was true.  When taken to the schedule showing his personal assets and liabilities at CB526 he confirmed that Rosemary Evans had acted for him but said that some of the information recorded was not true.  He said that his declared ownership of the Brighton property was not true but he had not knowingly misled anyone in completing it.  He said he spoke directly to Kevin Mason about this. 

16. He also said that the Glen Eira Road property was not owned by him in 2004 and that the Nepean Highway property was not his.  He said the statements were untrue.  He said the figure ascribed to the Brighton property of $900,000 was an arbitrary figure but was a reasonable figure.  When it was put to him that the Nepean Highway property was bought for $1.5 million and was thus valued 18 months later at $3.25 million, the husband replied that professional valuers said it was worth $2.8 million.  He said that the, “documents accurately recorded what we controlled,” and had not misled the financier at all. I have to say that this passage of the husband’s evidence was extremely unconvincingly given. 

17. The husband was next taken to his personal assets and liabilities statement to St George dated 19 March 2010 (CB169-170).  He acknowledged that it was in his handwriting and said that it was part of the annual floor plan review.  He was taken to the description of the residence as, “Held in DL Wallace”.  He said this was put in to give a better picture to St George of his financial commitments.  He noted that he had a liability to the CBA. 

18. He noted that the Glen Eira Road property was also secured to St George.  He conceded this could be misleading.  He said the unit trust was net valuation held by GTW.  He noted that his brother had a 50 per cent interest in 355 Nepean Highway.  He said he had been given specific instructions by St George who wanted the full picture.  This was because it was after the GFC (Global Financial Crisis).  This was the sole document St George asked him to complete.

19. The husband was next taken to his personal assets and liability statement provided to St. George and dated 6 April 2011 (CB281).  The house was represented as being his own and the husband conceded this was not accurate.  He said, however, that he had not told St George something that was untrue.  The figure of $4.25 million allotted to 355 Nepean Highway (Trust) was an arbitrary figure that the husband thought appropriate. 

20. The $650,000 described as held by the GTW Investment Trust was a loan on the sale of the Glen Eira Road property.  This was for business efficiency.  The situation with Brighton had not changed and he continued to have no interest in that residence.  He conceded that he did not have a net surplus of $5.182 million but said this was not a lie.  He said that if St George wanted clarification they would ask for it.  He conceded that as a chartered accountant he had ethical responsibilities. 

21. The husband was next cross-examined about the solicitor who performed the necessary work to effect the transfer of the husband’s interest to the wife.  He said he knew Mr Brown before this but did not know in 2004 that Mr Brown was an insolvency specialist.  When it was put to him that he had sought out Mr Brown’s services as an insolvency specialist the husband said that he did not go to an insolvency specialist and that this was “150 per cent rejected”. This latter remark was given with conviction and I accept it. 

22. The husband was then taken to his statement of financial position to St George dated 26 June 2012 (CB174).  He said that the reference to Nepean Highway (in Trust) (50%) with a value of $2,125,000 was untrue.  It was not his asset.

23. A receiver was appointed to Ripponlea Motors on 7 July 2013.  It would have been worth $1.5 million if it had been realised in 2012.  The husband had not put contingent liabilities into his statement of financial position.  He said there were guarantees also to Castrol and BP and to the landlord in Bayside. 

24. The husband was then cross-examined about GTW Investments.  It was registered in early 2003 and the witness confirmed the Resolution of Director Distribution of Trust Income for the year 2005 (CB338). This showed the balance of net income, after two $700 payments to the children, being distributed to the wife. 

25. He confirmed that rents were received from Ripponlea Motors for use of the Glen Eira Road.

26. From CB345 the husband confirmed that in 2008 GTW still held the units in Nepean Highway.  There was, however, no income from the units in Nepean Highway recorded in the 2008 records.  The husband could not recall if there were distributions in 2006 and was unable to say whether the sums referred to at CB348 were borrowed or whether he was the lender.  The husband confirmed that Glen Eira Road was sold in 2010.  There was no distribution on the sale of Glen Eira Road to either the husband or the wife. 

27. When it was put to him that there was very little profit from which distributions could have been made, the husband said, “[t]his was different from cash flow and distribution statements”.  In effect he said he was asserting that counsel did not understand the way in which the affairs of an entity such as GTW were managed. 

28. In re-examination the husband confirmed that payments were made by GTW to the mortgage on the matrimonial home.  He said these were paid by the trust as part of normal distributions. 

Findings as the credit of the witnesses

1. When evaluating the evidence of the wife I bear in mind that although she is obviously an educated and intelligent woman, the process of cross-examination by senior counsel was clearly stressful and difficult for her.  Her demeanour indicated as much.  It would have been an intimidating process within the straight jacket that counsel’s questions impose.  It was only natural that she would be nervous. 

2. Having said that I regret to say that the wife was not, in a general way, a compelling witness.  I have indicated some instances where her answers were evasive or made up on the run.  This was particularly so in relation to the alleged agreement for the transfer to her of her husband’s share of the matrimonial home in return for her investment of the funds from the sale of the Port Melbourne property.

3. The evidence of the husband was almost divisible into two parts.  In the first part of his evidence when he was dealing with the history of Ripponlea Motors and the like his evidence was given with an impressive and clear recall.  He impressed me as being an exceptionally intelligent man with a measured and careful approach to the questions put to him. 

4. Once matters moved, however, towards areas of difficulty such as the imprecision of the arrangements asserted that led to the alleged agreement for the transfer of the property, and more particularly the statements of personal assets made to St George, this measured approach disappeared.  His answers seeking to explain away the patently inaccurate schedules of assets and liabilities he had provided were, I am afraid, wholly unimpressive.

Findings on the facts

1. As I indicated earlier in this judgement many of the underlying background facts are not the subject of disagreement.  The husband and wife met and ultimately married in 1995. Unsurprisingly, they lived in the house that the wife already owned.  I accept that she continued to make payments on the mortgage to her mother thereafter.  She was already in the practice of doing so.  It is clear, however, from the evidence given that the husband also contributed, as one would only expect.  At that stage he was a salaried employee with a more modest salary of some $70,000, a figure nonetheless roughly commensurate with average weekly earnings now and well in excess at the time.  It is far more probable than otherwise that he made equal contributions to the running of the household. 

2. I accept that the mother and her own mother were in the habit of keeping a relative measure of financial independence.  The wife’s evidence that her own mother had separate financial arrangements was given with conviction and I also accept that in the era in which this occurred, such arrangements may be have been less common than they may now be.  Nonetheless, arrangements whereby couples keep separate bank accounts and to an extent run their affairs separately (I note the wife has a separate tranche of shares in her possession) are, in my view, quite unremarkable. 

3. This, however, does not mean, as a matter of ordinary human experience, that couples who marry and commit themselves to a united future really intend that not only should their day-to-day finances be conducted separately, something that is inherently practical and workable, but also that neither should ever benefit from whatever financial gains or losses the other might undergo.  Marriage involves a commitment to a shared future and whatever the arrangements were that the husband and wife entered into, I am not able to accept that it was ever intended that all their financial affairs should be conducted separately. 

4. In saying this I am not just moved by what might be described as a common sense appreciation of ordinary human affairs.  I have heard and seen the wife and her husband given evidence.  I do not believe that their finances were ever intended to be wholly separate and most particularly so in relation to the matrimonial home.  The wife’s assertion that it was always intended that the house should be hers alone is plainly untenable.  The house was bought by the parties jointly and the mortgage that they took out was also entered into jointly. 

5. True it is, of course, that the CBA would have been most unlikely to lend the relevant monies to the wife given that she had no regular income in 1999.  This fact makes the reality of the husband’s contributions to the family’s finances all the more obvious.  From the birth of her first child onwards the wife worked increasingly fewer periods of time and from 1997 onwards she did not work at all, effectively, for a period of some years.  The house was bought as a family home no doubt to provide both more space and   the proximity to the private schools in the area where the parents wished to live. 

6. Thereafter in 2002 to 2003 the husband moved from being a salaried employee of Ripponlea Motors to being one of the prime movers in it.  His own evidence makes it clear that at the start, when he first commenced, the business was tired and rundown.  He said this did not last for long and one might infer that things improved therefore in the mid-1990s. 

7. What is clear, however, that in the context of the retirement/removal of John Connelly, the husband and his brother Daniel, together to an extent not possibly readily to discern their father Warwick, took over the running of the business.  The fleet program and the operations of Ripponlea Motors more generally expanded very substantially in the late 1990s and early 2000s.  Substantial further finance was going to be necessary to make it work.

8. It is not necessary to go through again the detail of the numerous and very significant financial obligations that the husband underwrote by guarantee, mortgage and the like at this time.  What is apparent, and beyond any question, is that he was at this stage making himself potentially liable, in a way which he never had been before, for very substantial amounts of money.  I am quite prepared to accept that at the time Ripponlea Motors was doing well and there was no reason to suppose that the husband thought he would be liable for the contingent debts that he was exposing himself to.  It is most improbable that he would have done so had he had any serious apprehension that this would be the case. 

9. Nonetheless, the husband is a chartered accountant.  He is well aware of matters of business.  He would have been well aware that in moving to becoming a director, and a guarantor of the company’s obligations, he was exposing himself to considerable risk. 

10. In 2003 to 2004 the wife and husband were faced with an obvious practical difficulty.   No doubt in the time in between the purchase of the property and 2004 they had both contributed to the reduction of the mortgage by some $20,000 (a not inconsiderable reduction given the two years interest only and the heavy interest imposed in the early years of any mortgage) and no doubt largely contributed to by the husband’s business wage.  The wife’s earnings at this period were, on any view, minimal.

11. The practical difficulty to which I refer, of course, was the imminent and expected arrival of a third child.  The parties simply did not immediately have available funds from any other source with which to accommodate some move to a larger dwelling, whether on the site they occupied or elsewhere, without a significant capital infusion.  The capital infusion available came from the sale of the Port Melbourne property. 

12. Having considered their options and bearing in mind the proximity of the site they occupied to the schools they wished to send their children to, the wife and the husband made the very sensible decision to demolish the existing dwelling and replace it with a bigger and better one.  Having seen the wife and husband give their evidence I have no doubt whatsoever that the decision to sell the Port Melbourne property and invest it, so to speak, in the Brighton property arose solely and simply because they needed a bigger home and the only way they could get it was from selling the Port Melbourne property. 

13. It should be noted that although the husband had confident expectations that the expansion of the business, ultimately to Nepean Highway, would produce very significant profits, those do not appear to have occurred at this time and it is reasonable to conclude, as I do, that it was not open to the husband to borrow further funds to construct a new dwelling.

14. This brings us to a consideration of the critical central issue advanced by the wife in her defence.  Was there a concluded agreement that because she would sell Port Melbourne and apply the funds to the new property that she should therefore become the registered owner of the matrimonial home?  Alternatively was a representation made that if she sold the Port Melbourne property and invested the funds in the Brighton property she would be the sole owner thereof, and, did the wife rely upon this to her detriment by selling the Port Melbourne property and committing those funds?

15. In the ultimate, in my opinion, these questions can be answered shortly, important albeit it as they are.  I did not find the evidence given by either the wife or the husband about the alleged agreement at all compelling or convincing.  I have seen and heard them give their evidence and I do not believe them.  I am prepared to accept that the wife largely left financial matters to her husband.  She stated that he prepared some of her tax returns and was unable to answer questions about her affairs in those periods. It is not surprising that this was the case given that he is a chartered accountant and was at the time a successful businessman.  Thus it may well be the case that they did not discuss alienating the family home from possible creditors by transferring it to the wife.  It is also possible that they discussed it but the matters simply did not make any impression upon the wife’s understanding.

16. Nonetheless, I am totally satisfied that the reason that the wife sold the Port Melbourne property was simply to get a bigger home in Brighton.  She did not act in reliance on any representations made by the husband because, in my view, none were made.

17. It is telling that the husband and wife gave different versions of the crystallisation of the agreement upon the commitment to the building at Brighton.  It would, of course, be unremarkable if some sort of project was discussed over time and this continued until it was ultimately completed.  The trouble is that I just do not think this is what occurred.  It should be noted that when the property was bought in mid-2004 the transfer of the husband’s interest to the wife was not then effected. 

1. There is a contemporaneity between the husband’s underwriting of the very significant obligations that he committed to in respect of the business with the transfer of his interest in the property to his wife.  If it was agreed that the wife would only sell Port Melbourne and invest the funds in the matrimonial home because the husband was to transfer his interest in the property to her, then it is entirely probable that the parties would have transferred the husband’s interest as soon as the funds were committed.  That, after all, is the bargain as they put it. 

2. A lawyer was well available to them to enable such a transfer to occur but it was only some months later that it actually happened.  It should be noted that although the capital sum injected by the wife was substantial (and I shall return to how large it was later) the submission of the wife that the husband had but little interest in the matrimonial home in 2004 is not, in my view, made out. 

3. First the property was bought for a price of $470,000 with a mortgage of $400,000.  That is almost 20 per cent of the property as equity from the start, a by no means negligible amount.  Furthermore, although there is no evidence as to exactly what the property was worth in 2004, the husband himself valued it on 21 September 2005 at $900,000 (CB526).  Even accepting a measure of puffery in a document that was supposed to be completed on a truthful basis, the thesis that the court should conclude that the agreement was reached as the wife and husband was based upon minimal equity in the property is not made out. 

4. Furthermore the husband’s personal assets and liability statements show beyond any doubt that at least as against third parties, and over a protracted period of time, he was representing himself as having a continued ownership of the matrimonial home.  Indeed, the majority of his personal assets and liability statements record the property as being entirely his and give no credit to the wife for her interest whatsoever. 

5. Personal assets and liability statements were given to financiers who on the husband’s version of events required knowing the true picture.  They cannot simply be set aside.  The husband’s evidence about these documents was manifestly unsatisfactory.  They were, on any version of the events, untruthful. 

6. Taken as a whole, the evidence is overwhelming.  I have not referred but will do so in passing to the fact that albeit it that the business Ripponlea Motors was anticipated to do well in the period of the early 2000s, it had been necessary not only for the husband’s brother and father but also for his own mother (and other family members) to put their homes up as collateral for the loans the business was taking out.

7. In short, a combination of my assessment of the evidence given in court together with the objective facts to which I have referred above leads inexorably to a conclusion that while no doubt it was discussed that the Port Melbourne home would be sold and the proceeds applied to the matrimonial home rebuild, there was never an agreement that in return the wife would become the sole owner of the property.  Nor was any representation to that effect ever made.

The operation of these conclusions on s.121 of the Bankruptcy Act 1966

1. Although I have found that the agreement upon which the wife’s defence rests is not made out, this does not, of course, mean of itself alone that the transfer to her of the husband’s interest makes the transfer void pursuant to s.121 of the Bankruptcy Act 1966 (“the Act”).  The husband, after all, has denied that the transfer of the property was in any way designed to defeat creditors.  He says he had no idea at the time that he would have any such creditors. 

2. S.121 of the Act relevantly reads:

   “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.

   Other ways of showing the transferor’s main purpose in making a transfer

   (3)  Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.

   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

   (b)  the transferee did not know, and could not reasonably have inferred, that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and

   (c)  the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.”

3. It should immediately be noted that there is no suggestion that the husband was or was about to become insolvent at the time of the transfer.

4. It should be noted that despite attempts to qualify their evidence both the wife and the husband independently asserted that the motor vehicle industry is an exceptionally volatile and difficult one and remained so throughout all relevant periods.

5. I have been provided with substantial quantities of authority dealing with the operation of s.121. Without I hope doing disservice to the helpful submissions made, I refer for present purposes to two decisions only. In Prentice v Cummins (2002) 124 FCR 67, Sackville J said at [100]:

   “As I have noted, Mr Brereton contended that s121 of the Bankruptcy Act does not apply to an established professional person who, for more abundant caution, transfers his or her assets to family members in order to ensure that those assets will not be at risk in the event of a change in the law permitting claims for "in court" negligence. He argued that such a case is different from the "hazardous venture" cases. For this proposition he relied on the decision of the Court of Appeal in Ex parte Mercer; In re Wise (1886) 17 QBD 290.”

6. Having dealt with the facts of Ex parte Mercer, Sackville J continued at [102]-[103]:

   “It does not seem to me that Ex parte Mercer necessarily means that a barrister who transfers assets in order to keep them out of the hands of clients or potential clients who, at some stage in the future might sue for professional negligence, is outside the scope of s121(1)(b) of the Bankruptcy Act should the transfer be subsequently impugned. It must be borne in mind that s121(1)(b) may be satisfied even if the transferor was solvent at the time of the transfer and even if the transferor had no creditors at that time. It seems to me that the answer to the question is likely to depend on the facts of the particular case.

   I am prepared to assume for the purposes of this case, without deciding, that if all that is known is that a professional person

   · transfers the bulk of his or her assets to a family member for no consideration; 

   ·  has no creditors at the time of the transfer (or retains assets sufficient to meet all liabilities known at that time); 

   · is not engaged and does not propose to engage in any hazardous financial ventures; and 

   · intends to protect the transferred assets from any action brought by a client who might in the future sue for professional negligence (there being no such suit in the offing at the time of the transfer), 

   then s121(1) of the Bankruptcy Act does not render the transfer void against the person's trustee in bankruptcy. For reasons that will appear, I do not think that this assumption is of assistance to the respondents in the circumstances of the present case.”

7. It is immediately apparent, therefore, that although his Honour adopted the remarks in paragraph 103 on a contingent basis, so to speak, (his Honour expressly did not decide them to be correct) his Honour, in fact, was far from convinced that Ex parte Mercer had the effect for which the professional person contended.  That was a case about a barrister against a background where actions brought in professional negligence in court are understood not to be available.  It is completely different to a person engaging in an industry like the motor industry which is known to be hazardous according both to the wife and particularly the husband who has considerable experience in it.

8. In my opinion, the more applicable area of authority is that in Russell, Ex parte; In re Butterworth (1882) 19 Ch D 588 at [598] where Jessel MR said relevantly:

   “The principle of Mackay v Douglas, and that line of cases, is this, that a man is not entitled to go into a hazardous business, and immediately before doing so settle all his property voluntarily, the object being this:  “If I succeed in business, I make a fortune for myself.  If I fail, I leave my creditors unpaid.  They will bear the loss.”

9. Whether this case fits in to the line of “hazardous” cases is open to question.  I am satisfied, however, that the reason that the husband transferred his interest in the Brighton property to his wife was indeed because he wished to place it beyond the reach of creditors.  This is so even though at the time there is no evidence that the business was not performing at least adequately and, indeed, the crash did not come for almost a decade.  Both the husband and members of his family were heavily mortgaged in support of the business and it is true to say, as senior counsel for the trustee did, that his interest in the matrimonial home was effectively the only significant property of his own that the husband possessed.

10. True it is that he had no creditors but as Sackville J pointed out in Prentice that is not a necessary component.  Rather, having seen him give his evidence, and formed a high opinion of his intelligence and business awareness, I think that Mr Wallace, being well aware of the potential long-term risks, decided to quarantine his property.

11. Furthermore, although the wife denied it, I think the husband and the wife must have discussed this.  It was a major alienation of property.  It altered the legal ownership of it.  There is, in my mind, no doubt that a couple happily married (and the wife was an intelligent woman and a business woman herself) would have failed to discuss the matter of so much moment. The underlying detail of the potential risks in Ripponlea Motors may well not have been fully disclosed to the wife but I have no doubt that it is more probable than otherwise that the intention and effect of the transfer was.

    
    
    

12. Against this position and these findings it is clear that the property would probably have become part of the transferor’s estate and would probably have been available to creditors if the property had not been transferred.

13. It is, of course, conceivable that the husband would have mortgaged his own home to support the company’s debts.  Nonetheless, it is noteworthy that he prevailed upon his mother to do so at an early stage.  He continued to represent the property as his own effectively throughout but never mortgaged it or otherwise gave it as a security in respect of the business’ obligations. 

14. It is far more probable than otherwise that he never had any intention to do so.  This was a property he wanted to keep for himself and his family, very understandably.  It is still in the wife’s possession and they are still married.  Had the transfer not taken place I am comfortably satisfied that the property would have been available to creditors if the property had not been transferred.

15. Likewise, on the evidence I have no doubt that the husband’s main purpose in making the transfer was to prevent the transferred property from becoming divisible among his creditors should there ultimately be any.  I make this finding in essence for two interrelated reasons.  First of all because I do not accept and indeed entirely reject the explanation that the wife and the husband have proffered.  I do not accept that there was any representation or agreement as they have alleged.

16. Second, that explanation being rejected, no other explanation makes any real sense.  It seems clear to me beyond doubt that in transferring the property to his wife the husband was protecting it against creditors even though he may or may not have had any active appreciation that there would be some.  He was on any view very heavily personally committed to the business by the time the transfer took place.

17. Finally, I have to consider the matter of s.121(4).

18. There is no evidence that the monies contributed by the wife to the property were as least as valuable as the market value of the property.  It should be noted that the property had a house on it before it was demolished and the new one built.  There is no evidence of what the cumulative value of what the house and land were then worth. 

19. What is known is that the only estimate given within a year of the transfer was that the property was worth $900,000. I am completely satisfied that the wife has not established that the amount of money she advanced comes within the terms of s.121(4)(a). Furthermore, I do not accept that the wife as transferee did not know and could not reasonably have inferred that main purpose in the transfer was the purpose described in s.121(1)(b). To the contrary, as a woman of intelligence and education she must have known. In these circumstances the defence available under s.121(4) is not made out.

20. It follows that in my opinion the transfer is void as against the trustee and a declaration to that effect should be made.

Equitable accounting

1. This, to my way of thinking, is one of the most difficult aspects of this case.  The authorities on equitable accounting to which I have been referred are not easy to reconcile and to an extent do not say what some of the authorities say the earlier authorities meant. 

2. It will be noted that for these purposes the trustee stands, so to speak, in the shoes of the husband.  This creates a number of anomalies.  I referred in passing to the methodology used in family law property proceedings which, inter alia, assesses contribution as between the parties to a lengthy marriage such as that in this instance (even if one were to have assumed it came to an end in 2014 when the husband became bankrupt).  A capital contribution of this sort made by the wife so long ago would probably achieve a measure of loading (in such matters where all is very much a matter of impression and discretionary assessment) in the range of some 5 to 10 per cent.

3. No one has suggested, perhaps apart from myself in passing, that this is an appropriate methodology for an equitable accounting in this instance.  A number of the authorities dealing with equitable accounting (see, for example, Re Pavlou (A Bankrupt) [1993] 1 WLR 1046) deal with circumstances where there are two owners of a property who are, in effect, at arm’s length. We are, of course, concerned here with a marriage.

4. Nonetheless, the case of Draper v Official Trustee in Bankruptcy (2006) 236 ALR 499 gives some guidance.

5. It should be noted that that was a case which turned substantially on its own facts.  The husband became bankrupt on 12 July 1989 and the day before he and his wife became jointly registered as owners of the property.  The bankruptcy severed the joint tenancy and they continued thereafter as tenants in common.  On 16 November 1989 the trustee became registered as holder of the bankrupt’s half interest.  This remained true until the property was sold in late 2005.  It was then sold.  In the meantime the wife (or the Draper’s together) paid interest on the mortgage, paid off mortgages, paid current outgoings and paid for the improvements to the property.  As Mansfield J recorded at [11]:

   “The position taken by the trustee is not an obviously attractive one.  Following Mr Draper’s bankruptcy, the trustee took no action to realise the half share of the MacDonald Park property for some 16 years.  The trustee’s inactivity is consistent with the view of the trustee at material times, at least up until about 1996, that there was no equity in the property.  During that time, Mrs Draper or the Draper’s paid interest on the mortgage, paid off the mortgages, paid the recurrent outgoings and paid for the improvements to the property.  The trustee made no approach to the principal (and in essence the only) creditor in Mr Draper’s bankruptcy state for funds to proceed with any action against them or in relation to the property.  The trustee’s earlier suggestion that the value of the Draper’s continued occupation of the property could offset those payments must been seen in the light of the property being declared unfit for habitation and the relevant local authority having declared that the property could not be leased for more than $30 per week.”

6. His Honour went on to find at [30], contrary to the decision of the Federal Magistrate at first instance, that Mr Draper had only become a joint owner of the property at the request of the lending institution and that he held his half interest in trust with his wife.  That decision, of course, turned very much on the facts, one of the most noteworthy of which was that Mr Draper knew he was going to go bankrupt in two days’ time at the time he became an owner or part owner in law of the property. 

7. Having reviewed the history of payments, Mansfield J said at [54]-[57] under the heading “Equitable Accounting”:

   “[54] The trustee, by submissions filed after the hearing, accepts that in any event the appeal should be allowed for the purpose of determining the extent of any accounting which the trustee should give to Mrs Draper or the Drapers for moneys paid in respect of the MacDonald Park property.

   [55] The starting point for such an accounting in equity is the contributions made to the payment of capital and interest on the two mortgages. As noted, there is evidence Mrs Draper paid off the vendor mortgage, and it is unlikely that Mr Draper could have done so during bankruptcy. The direct evidence also is that Mrs Draper paid all the capital and interest payments on the first mortgage, including a lump sum of $5500 in 1996 to finally discharge it; whether that resulted from the pooling of income is a matter which, in my view, should, if relevant, be determined upon the rehearing. However, again, any significant payments by or with the support of Mr Draper during his bankruptcy should be known to the trustee. After his discharge from bankruptcy, any payments made by Mr Draper should be taken into account in equity for the purposes of the accounting in any event. For example, if after his discharge Mr Draper paid to discharge the mortgage or for improvements, there would appear to be no reason why the trustee should not have to account to him for those payments. The rehearing can also address the amount of payment for recurrent outgoings and for improvements by Mrs Draper, and by Mr Draper or the Drapers jointly after Mr Draper’s bankruptcy came to an end. The payments by Mrs Draper, and the payments by Mr Draper or by the Drapers jointly after 25 July 1992, should be brought to account.

   [56] Any benefit to Mrs Draper through the use and occupation of the MacDonald Park property should also be taken into account: Baumgartner at CLR 151; ALR 85–6;Fam LR 924 per Mason CJ, Wilson and Deane JJ. The trustee should be entitled to a proper rental, but on the evidence that could not exceed half of $30 per week.

   [57] Re Pavlou (a bankrupt) [1993] 1 WLR 1046 ; [1993] 3 All ER 955 suggests that the accounting should reflect the extent to which the value of the MacDonald Park property increased by reason of the improvements. That would be significant only in respect of improvements Mrs Draper paid for, or those made after 25 July 1992. In the light of the amount in issue, it may not be necessary to take that step. My rough estimates, assuming most of the capital repayment of the first mortgage was “back-ended”; that is, effected towards the end of the loan period, is that the amount to be brought to account (assuming that the payments in respect of the first mortgage were from joint resources) will include the capital and interest on the vendor mortgage, part of the interest and most of the capital on the first mortgage, and, depending when the improvements were made (assuming they were jointly funded), some of the improvements. If Mrs Draper is accepted to have made all the repayments, the amount to be brought to account increases. I have assumed in those estimates the recurrent outgoings for rates and taxes approximates the allowance the other way for occupation rental, but so far as I can see there is no evidence of the amount of the outgoings; that would have to be addressed at any further hearing.”

1. I would interpolate and point out that, of course, the reference to rent to the trustee in that case necessarily arose in circumstances where Mr Draper had been bankrupt for very substantial periods of the Draper’s occupancy of the property.  No such situation arose in this case because the husband did not become bankrupt until 2014.

2. Besanko J considered the question of equitable accounting at [163]-[173].  At [163] his Honour said:

   “[163] In the circumstances of this case, the principles relevant on an equitable accounting are as follows:

   (1) A co-owner who has not occupied the property will not have a claim for occupation rent from a co-owner who has been in occupation unless he or she was excluded from the property (and there appears to be no evidence of this) or the co-owner who has been in occupation makes a claim for the cost of improvements: Scapinello v Scapinello [1968] SASR 316 (Scapinello); Chatterton v Chatterton (1989) 52 SASR 337; Forgeard; Ryan v Dries [2002] NSWCA 3 (Ryan). I would follow what Sheller and Hodgson JJA said in Ryan and hold that the same principle applies if the co-owner in occupation makes a claim in relation to mortgage repayments instead of the cost or value of improvements. I note that in Pavlou, Millett J said (at 960) the repayments of interest may be offset against a claim for occupation rent. In this case, Mrs Draper makes a claim for the cost of carrying out improvements in excess of her one-half share and a claim based on the repayment of the mortgage debts in excess of one-half. In those circumstances on the face of it she will be liable to the trustee for an occupation rent.

   (2) If one of two co-owners makes improvements to the property then, on partition or sale, or in analogous circumstances, he or she may have a claim against the other co-owner. The claim is restricted to the lesser of one-half of the cost of the improvements or one-half of the increase in the value of the property resulting from the improvements. I have already referred to the relevant authorities: at [135].

   The cost of repairs and maintenance to a property are recoverable on the same basis as improvements if, and only if, they have increased the value of the property: Leigh v Dickeson (1884) 15 QBD 60; Ryanat [67] per Hodgson JA.

   (3) If a co-owner in the position of Mrs Draper repaid more than one-half of the mortgage debts, either by way of capital or interest, then that co-owner is able to recover that excess from a co-owner in the position of the trustee. That right arises because by repaying the mortgage debts that co-owner has increased the value of the property for those entitled to it (or the proceeds of sale) after the mortgages have been discharged. Without more, the right does not give rise to a trust, constructive or otherwise, but a right to recover moneys paid by a co-owner in excess of his or her proportionate share.

   (4) If one of two co-owners of property pays more than one-half of the rates, taxes and other outgoings in relation to the property then, on a partition or sale, or in analogous circumstances, he or she may have a claim for the amount paid in excess of one-half. Whether the co-owner has such a claim will depend on whether there is a joint liability for the rates, taxes or other outgoings or some other basis for liability: Scapinello (above) per Bright J at 319...”

3. The reference to paragraph [135] of the judgment is in these terms:

   “There are other reasons why the repayment of a mortgage debt does not give rise to a constructive trust. First, the High Court has said that before the court imposes a constructive trust as a remedy it should first decide whether, having regard to the issues in the action, there are other means available to quell the controversy: Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 ; 157 ALR 414 ;  [1998] HCA 59at [42]; Giumelli v Giumelli (1999) 196 CLR 101 ; 161 ALR 473 ;  [1999] HCA 10 per Gleeson CJ, McHugh, Gummow and Callinan JJ at [10]. See also R P Meagher, J D Heydon and M J Leeming, Equity: Doctrines and Remedies, 4th ed, LexisNexis, Sydney, 2002, para [25–065]. There is another means in this case, namely, the recognition of rights on an equitable accounting. Second, although a co-owner making improvements to jointly-owned property is different from a co-owner paying more than his or her proportionate share of a mortgage debt, in my opinion it would be odd if the latter situation gave rise to a superior remedy for a claimant compared with the former situation. A co-owner making improvements is restricted to the lesser of the cost of the improvements or the increase in the value of the property as a result of the improvements: Pavlouat 1049; Forgeard v Shanahan (1994) 35 NSWLR 206 at 223 ; 18 Fam LR 281 at 297 (Forgeard) per Meagher JA (with whom Mahoney JA agreed). I reject the submission that, on the assumption that Mrs Draper repaid the whole of the mortgage debts, a constructive trust arose in her favour.”

4. I note that at [135] his Honour suggested that the co-owner was restricted to the lesser of the costs of improvements or the increase in the value of the property but at [163] his Honour said that this was restricted to one half of the costs of the improvements.  Doubtless this is because the improvements have obviously benefited both parties.

5. Against this consideration of authorities, which I note are in the ultimate concerned to ensure that equity is done with parties in the particular circumstances in which they find themselves, I have to make findings as to what the wife’s improvements and/or excess contributions are worth.  Turning to the latter first, I do not accept that the wife made any significant payments to the mortgage at all.  The records show that the payments of the mortgage were in the overwhelming degree made by GTW. 

6. GTW was at all material times the creature of the husband.  He treated GTW as his own and listed it as his own resource in his personal statements of assets and liabilities.  I have no doubt that at all times, despite the terms of the trust, the husband treated GTW as his own creature.  He says that senior counsel did not understand cash flow and the like, but the reality is that the assertion that the mortgage payments were distributions to the wife from time to time is just not made out on the evidence. 

7. The accounts of GTW do not show anything remotely like the sums distributed in the form of the mortgage payments that were actually made.  Indeed the accounts must, one assumes, be untruthful because they simply do not show an income sufficient to enable the payments to have been made.  The smoke and mirrors effect of so many accounts in family beneficiary trusts is a fact of life which anyone who deals with family law comes to be familiar.  Each case, of course, is required to be considered on its own facts and there are no universal rules. 

8. In this instance I am satisfied that the income received by GTW was applied to the mortgage and that at all times it was in substance that of the husband.  He mortgaged and dealt with the property of GTW entirely as he wished (he was himself after all, as he says, a beneficiary of the trust although he was of course also the sole shareholder of the trustee company).  To describe the payments made by GTW as payments made by the wife is to ignore the reality, even if one were to accept that they were distributions as it were passed through her.  They were at all times either rent from the Glen Eira Road property, or one must assume earnings distributed through GTW from the Nepean Highway Unit Trust.

9. Furthermore, although there is no evidence of how much money the husband was effectively making, there is no doubt that he must have had by far the greater income in the period from 2002 to 2014.  All the evidence points overwhelmingly in that direction.  The mother had the three children to look after and her business DDG was simply not going all that well.  She had a salary from time to time and I have no doubt that, as married couples do, they both contributed what they had available towards their financial needs including the mortgage on the matrimonial home.  There is simply no proper basis for accepting that the wife has made out a case that she made a substantially greater (or indeed greater at all) contributions to the mortgage and the routine upkeep of the matrimonial home.

10. Turning to the question of improvements the matter is, however, otherwise.  It is clear that the wife made contributions of some $486,000 at least to the matrimonial home.  She also, as I find, paid additional sums up to the $503,000 figure she asserted.  In this regard at least her evidence had conviction and I accept it.  She furthermore made the payments in respect to the pool in the sum of some $89,000.  The wife has additionally asserted that she has paid the sums set out at CB63 to improve the property. 

11. Having heard her evidence I accept that, with the exception of Kent’s Storage in December 2004, all the payments in 2004 to 2005 were associated with the improvement of the property that the new dwelling represented.  All the payments thereafter, in my opinion, have not been established to have improved the property but have the character of maintenance.  The wife will be entitled to a credit for those amounts. 

12. Consistent with what was said by Besanko J in Draper she is entitled to credit for half of the value of the cost of these improvements.  There is no evidence to say what increase in value the improvements may have engendered, although they must have improved it somewhat.  There is no evidence of what the property was worth before the demolition of the prior property.

13. In my opinion a simple process of addition of the costs expended is not an appropriate way to proceed if there is any better way of doing it.  What I am minded to do is to see whether it is possible to obtain evidence as to how much the building of the new property improved the value of the Brighton property from what it was before the work took place.  It is artificial, as it were, in my opinion, to treat the property as having had no dwelling on it at all before the new one was erected.

Conclusion

1. As will be apparent I have not been able to arrive at a definitive resolution of this matter.  It seems clear there should be an equitable accounting by the trustee to the wife but it faces the difficulties I have described.  I will give the parties the opportunity to consider these reasons for judgment and hear them (I would hope briefly) as to how the equitable accounting exercise should be concluded.

I certify that the preceding one-hundred and ninety-two (192) paragraphs are a true copy of the reasons for judgment of Judge Burchardt

Associate: 

Date:  31 May 2016