Warin & Warin
[2021] FedCFamC1F 269
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Warin & Warin [2021] FedCFamC1F 269
File number(s): MLC7368/2020 Judgment of: WILSON J Date of judgment: 10 December 2021 Catchwords: FAMILY LAW – STANDING – standing of the first respondent who is an undischarged bankrupt.
FAMILY LAW – JOINDER – joinder application refused.
FAMILY LAW – DISCLOSURE – respondent must provide disclosure.Legislation: Bankruptcy Act 1996 (Cth) ss 30, 58(1), 60 and 116
Family Law Act 1975 (Cth) s 79(12)
Federal Circuit and Family Court of Australia (Family Law) Rules 2021
Cases cited: Bacall & Zagar [2020] FamCA 350
Cummings v Claremont Petroleum NL (1996) 185 CLR 124
Glover v Webster [2021] FedCFamC1A 69
In the Marriage of O’Neill (1988) 23 FamLR 326
Division: Division 1 First Instance Number of paragraphs: 34 Date of last submissions: 3 December 2021 Place: Melbourne Solicitor for the Applicant: Vadarlis & Associates Solicitor for the First Respondent: Sebastian Rubera & Associates Solicitor for the Second and Third Respondents: Maddocks Lawyers ORDERS
MLC 7368 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS WARIN
Applicant
AND: MR WARIN
First Respondent
MR STANTON & MR BASFIELD IN THEIR CAPACITY AS TRUSTEES IN BANKRUPTCY OF THE BANKRUPT ESTATE OF THE RESPONDENT HUSBAND
Second Respondent
MS INSTON
Third Respondent
ORDER MADE BY:
WILSON J
DATE OF ORDER:
10 DEMBER 2021
THE COURT ORDERS THAT:
1.The further hearing of this application is adjourned to 9:30am on 1 February 2022.
2.The determination of the question of the first respondents standing is stood over to 1 February 2022.
3.The application to join Mr N and Ms P is dismissed.
4.On or before 4:00pm on 24 December 2021 the first respondent must provide disclosure in response to the requests made by the applicant’s solicitor’s letter to the first respondent’s solicitors dated 14 May 2021, 20 August 2021, 13 September 2021, 20 October 2021, 4 November 2021, 12 November 2021 and 19 November 2021.
5.If the applicant or the trustees in bankruptcy of the first respondent seek to agitate a costs application, any material in support of that application must be filed and served by 4:00pm on 14 January 2022.
6.Any material to be filed in opposition by the third respondent must be filed and served by 4:00pm on 28 January 2022.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
WILSON J
INTRODUCTION
These reasons address three issues most recently agitated before me on 3 December 2021. The first was the standing of the first respondent to participate in this litigation having regard to the fact that the first respondent is an undischarged bankrupt. The second issue was the application to join Mr N and Ms P as respondents. The third was the effect of a deed of settlement between the applicant, the first respondent, Warin Pty Ltd and the Commissioner of Taxation of the Commonwealth of Australia.
As these reasons explain, in my view –
(a)by reason of the paucity of disclosure by the first respondent, it is presently not possible to say whether he has or does not have standing to be separately represented in this litigation or whether the second respondents as his trustees in bankruptcy represent his interests;
(b)the application to join Mr N and Ms P is dismissed; and
(c)disclosure in respect of the deed must be provided.
RELEVANT BACKGROUND
In view of the complex claims and cross claims advanced in this litigation on 6 July 2021, I ordered the applicant to file and serve a statement of claim, which she did. Relevantly paraphrased, the applicant made the following contentions in her statement of claim –
(a)she commenced living with the first respondent in 2015, they married in 2008 and separated in 2018;
(b)the second respondents were appointed trustees of the bankrupt estate of the first respondent on 17 July 2020;
(c)the third respondent is the first respondent’s partner;
(d)when presenting his own petition in bankruptcy, the first respondent falsely stated that he owed debts to a collection of alleged creditors including ANZ bank, M Pty Ltd, O Group, J Solicitors and his lawyers;
(e)the amount allegedly owed to ANZ bank was wrong and no demand for payment of any debts had been made by M Pty Ltd, O Group, J Solicitors and his lawyers;
(f)two days prior to his presenting his own petition in bankruptcy, the first respondent divested himself of over $118,000 in the manner set out in paragraph 21 of the statement of claim;
(g)the first respondent is operating, or deriving benefits from, several companies one of which is owned and controlled by his son from a previous relationship;
(h)the first respondent spends $10,000 monthly on acquisitions through credit cards as well as $72,660 per annum on private school fees for another son;
(i)the applicant seeks orders setting aside the first respondent’s bankruptcy;
(j)the third respondent purchased B Street, D Town for more than $2,380,000 in circumstances where she lacked the financial capacity to source and supply such an amount from her own capital;
(k)funds provided for the acquisition of B Street, D Town were joint funds owned by the applicant and the first respondent; and
(l)the third respondent holds her interest in B Street, D Town on trust for herself, the applicant and the first respondent.
The applicant sought orders setting aside the first respondent’s bankruptcy pursuant to s 30 of the Bankruptcy Act. She sought declaratory relief to the effect that the first respondent holds an equitable interest in four named companies and the applicant sought a declaration concerning the first respondent’s registered proprietorship of B Street, D Town especially the applicant’s entitlement to an equitable interest in that property.
In his defence filed on 6 September 2021 the first respondent admitted to his status as an undischarged bankrupt and that –
(a)by operation of s 60 of the Bankruptcy Act he is prohibited from initiating or continuing a proceeding in his name;
(b)by operation of s 79(12) of the Family Law Act, he is not entitled to participate in this proceeding; and
(c)he has no standing in this proceeding.
The third respondent filed a defence dated 6 September 2021. It was not particularly utile in its exposition of the key matters of fact in contention in this case. For example, factual matters of principle relevance to her in this case related to her acquisition of B Street, D Town and whether she was able to fund that acquisition. She did not put forward a factual version of events from which it was possible to derive her version of events. Instead, rather theatrically, she pleaded as follows in paragraph 19 of her defence –
“That the Third Named Respondent wholly and completely denies the Applicant’s claim.”
For the most part, her defence was directed to her not admitting the applicant’s assertions or that the third respondent did not plead to the applicant’s contentions. If at trial she seeks to advance a factual version of events that goes beyond the matters pleaded by her (limited as those matters are) she is likely to be met with considerable resistance.
The second respondents filed their defence on 6 September 2021. They filed that pleading in their capacities as the first respondent’s trustees in bankruptcy having undertaken investigations into the financial affairs of the first respondent. The following matters arose from the second respondents’ defence –
(a)the first respondent owes ANZ bank over $64,000;
(b)the debts owing to the first respondent’s creditors presently stand at approximately $29 million;
(c)the first respondent’s assets are insufficient to discharge his creditors;
(d)the first respondent’s bankruptcy is genuine and should not be set aside;
(e)the trustees’ investigations to date reveal that the first respondent paid the third respondent a total of $100,000 on 27 and 28 February 2019;
(f)between 27 February and 1 March 2019 the third respondent paid from her Q Bank account amounts totalling $238,000;
(g)the trustees’ preliminary view is that the sum of $100,000 paid to the third respondent on 27 and 28 February 2019 comprised part of the amount paid by the third respondent for the acquisition of B Street, D Town; and
(h)the trustees contended that the third respondent holds her interests in the property known as B Street, D Town on trust for herself, the applicant and the trustees in such proportions as may be determined by this Court.
In support of their position on the three applications before me, the second respondents relied on the affidavit of Mr Basfield affirmed 19 November 2021. Relevantly, paraphrased Mr Basfield affirmed the following –
(a)the property of the first respondent vests in the trustees in bankruptcy;
(b)in and of itself, the vesting of first respondent’s property in the trustees does not provide the trustees with any knowledge of bankrupt’s property;
(c)the trustees’ knowledge about the vested property is entirely dependent upon information provided by the bankrupt and through investigations;
(d)to date the bankrupt has supplied only limited documents;
(e)the trustees have no funds with which to progress investigations; and
(f)the trustees will provide to the applicant such documentation as they have.
The third respondent made an affidavit on 3 August 2021 in relation to the proposed joinder application. The details of that affidavit as well as the response thereto from Amelia Vadarlis, the applicant’s solicitor, are addressed below.
THE BANKRUPT’S STANDING
Soon after 19 November 2021 and prior to 3 December 2020 I brought to all the parties’ attention the then very recent decision of the Full Court in Glover v Webster[1] and I invited the parties to make submissions in respect of it. All parties provided written submissions on point.
[1] [2021] FedCFamC1A 69.
The trustees’ position seemed particularly relevant. They contended as follows –
(a)the bankrupt has no standing in relation to any of the bankrupt’s property vested in the trustees;[2] and
(b)the bankrupt has supplied very little information or documentation.
[2] They relied on s 58(1) of the Bankruptcy Act and Glover v Webster [2021] FedCFamC1A 69. Also relevant is s 116 of the Bankruptcy Act, In the Marriage of O’Neill (1988) 23 FamLR 326 and Cummings v Claremont Petroleum NL (1996) 185 CLR 124.
While the trustees did not say as much in terms, I took from Mr Basfield’s affidavit and from the submissions filed on the trustees’ behalves that the trustees do not have sufficient information in their possession to enable them to form a conclusion about whether the bankrupt’s property generally, or specific items of his property, vested in the trustees. If that is the case, as it seems to be open on the material, then the trustees’ inability to reach that conclusion is the product of the bankrupt’s own failure in relation to the proper provision of disclosure. He should not be permitted to provide defective disclosure then take advantage of his own omissions and deficiencies.
Curiously, in his defence the bankrupt acknowledged he had no standing. However, that position must be confined to the bankrupt’s vested assets (whatever those may be) yet not to the bankrupt’s non-vested assets including his interests in the parties’ self-managed superannuation fund, known as the R Superannuation Fund.
In view of the information to which the trustees deposed, while there seems little doubt that property vests in the trustees upon a bankrupt’s bankruptcy, in this case, by reason of the bankrupt’s approach to disclosure it is difficult, borderline impossible, to assess in precise terms what actual property of the bankrupt has actually vested in the trustees.
That state of affairs represents a most unsatisfactory situation for the applicant and the trustees. For both, the bankrupt’s dereliction of duty in relation to disclosure prevents a determination being made about –
(a)the first respondent’s ongoing status is this litigation, especially whether he is entitled to representation independent of the trustees; and
(b)what actual property vests in the trustees.
But the bankrupt should not be permitted to prevent the brining of the orderly conduct of his bankruptcy to conclusion by reason of his dereliction of duty in relation to disclosure. Equally, the applicant should not be vexed by being required to concurrently deal with the first respondent in his personal capacity as well as with the first respondent’s trustees in bankruptcy merely because the bankrupt failed to do what the rules of the court require him to do, namely to provide disclosure.
In those circumstances I propose to stand over any decision on the bankrupt’s standing in his litigation until 1 February 2022. In the time between the date of these reasons and 1 February 2022 I require the first respondent to exhaustively comply with his disclosure duties as are prescribed in the Federal Circuit and Family Court of Australia (Family Law) Rules 2021. If by 1 February 2022 the first respondent has not exhaustively complied with his disclosure duties then I will entertain a contravention application against him.
The applicant has complained that the third respondent has failed to make full and frank disclosure. According to the affidavit of Amelia Vadarlis sworn 1 October 2021, the third respondent has ignored the applicant’s written requests for disclosure made in correspondence dated 14 May 2021, 20 August 2021, 13 September 2021, 20 October 2021, 4 November 2021, 12 November 2021 and 19 November 2021.
In Bacall & Zagar[3] I surveyed the learning in relation to defective disclosure. Parties should not be permitted to ignore their disclosure obligations. I require the third respondent to exhaustively comply with her disclosure obligations by the same date by which the first respondent must do so. As with the first respondent, if the third respondent fails to do so in the manner and by the date required, in respect of the third respondent I will entertain a contravention application.
[3] [2020] FamCA 350.
JOINDER APPLICATION
Pursuant to paragraph 1 of her application in a case filed 5 August 2021, the third respondent sought orders for the joinder of Mr N and Ms P. The third respondent deposed to the factual basis for the joinder application in her 3 August 2021 affidavit. In précis form, she deposed to the following –
(a)(without saying how she came into possession of the document) she has in her possession a deed of loan and guarantee dated 28 October 2014 (“the deed”);
(b)the deed sets out contractual obligations as between the applicant and first respondent as lenders and the proposed joined parties as borrowers;
(c)the applicant and first respondent took a mortgage over the land known and described as L Street, D Town (“the mortgaged property”);
(d)by operation of a document styled “acknowledgment and authority to compete”, the borrowers authorised the mortgagees to fill in various blanks in loan documentation; and
(e)the mortgaged property was sold to one Mr T yet no documentation exists to reveal that money described in the loan agreement has been repaid to the mortgagees.
Paragraph 12 of the third respondent’s affidavit was a submission and was not a factual matter to which the third respondent was capable of deposing. It was as follows –
That [Mr N] and [Ms P] should be joined as parties so that Orders can be made that will require the repayment of the principal sum advanced pursuant to the Loan Agreement which appears to be not repaid or in the alterative there is no evidence produced or necessarily required to be produced unless [Mr N] and [Ms P] are parties to these proceedings and Orders can be made to compel [Mr N] and [Ms P] to repay the principal sum in circumstances where it cannot be shown that the principal sum has been paid. It is also relevant bearing in mind that the Trustee in Bankruptcy is a party to these proceedings that the Trustee in Bankruptcy would need to make a determination as to whether the principal sum advanced pursuant to the Loan Agreement is property that vests in the Trustee.
Paragraph 13 was also a submission rather than a factual matter. It was as follows –
That on the basis that a person whose rights may be directly affected by an issue in a case and whose participation as a party is necessary for the Court to determine the issues in dispute in a case, that person or persons must be included as parties to the case so that Orders can be made in these proceedings with respect to a significant asset in which both the Applicant, [Ms Warin] and Firs Respondent, [Mr Warin] retain an interest at first instance.
The applicant resisted the joinder application. The applicant contended as follows –
(a)it is not apparent what orders the third respondent seeks against the parties she wishes to join;
(b)the first respondent presented his own petition in bankruptcy on 17 July 2018, four days after having been served with the initiating application by which this proceeding was commenced;
(c)the trustees have not made an election under s 60(3) of the Bankruptcy Act to prosecute or to defend this case;
(d)both Mr N and Ms P were declared bankrupt on 18 August 2017;
(e)any property owned by Mr N and Ms P would, in the ordinary course of events, have vested in the trustees in bankruptcy and so the joinder of Mr N and Ms P would be futile;
(f)the trustees in bankruptcy of Mr N and Ms P are not proposed to be joined;
(g)any remedy arising out of or in pursuance of the alleged loan agreement resides in the trustees’ hands (that is to say, the trustees in bankruptcy of Mr N and Ms P); and
(h)the third respondent does not explain why she should be given power to pursue Mr N and Ms P who remain strangers to this litigation.
Mr N made an affidavit on 6 September 2021. He said he is the applicant’s father and he is 76 years of age. He deposed to his bankruptcy and that the first respondent (his son-in-law) has full and intimate knowledge of his bankruptcy (his words). Mr N said he does not wish to disclose his residential address as he fears the first respondent and the first respondent’s associates. Ms P made her 6 September 2021 affidavit in largely similar terms to the terms of the affidavit of Mr N.
It seemed to me that the applicant made a collection of valid points as has been recorded above at paragraph 24. In my view, the third respondent has not demonstrated that Mr N and Ms P are persons to whom rule 3.01 applies.
The evidence did not go so far as to disclose how Mr N and Ms P’s rights may be directly affected by an issue in a proceeding, as rule 3.01 provides. Nor did the evidence reveal that the participation of Mr N and Ms P as a party is “necessary for the court to determine all issues in dispute in the proceeding” as rule 3.01 additionally provides. As to those requirements of rule 3.01, the following observations emerge –
(a)the applicant has not pleaded any case about a loan deed, liability under it, an unregistered mortgage or any of the matters agitated by the third respondent, despite the alleged loan agreement having been in existence since 2014;
(b)trustees in bankruptcy in relation to the estates of Mr N and Ms P were appointed in July 2018;
(c)no evidence was before me to the effect that any demand for repayment of the allegation loan has ever been made;
(d)if the alleged loan was a substantive matter – or at least an issue to be determined in this litigation – the third respondent should have but has failed to give disclosure of all relevant documentation;
(e)the third respondent glibly asserted that “I have in my possession a document entitled ‘Deed of Loan and Guarantee’ ” when the third respondent is not privy to the loan deed or the guarantee;
(f)the assertions in paragraph 12 of her affidavit made 3 August 2021 are speculative at best and, even if the orders to which she deposes were made, repayment of the loan confers no benefit upon her in which case her request to join Mr N and Ms P borders on meddlesome;
(g)to the extent that the alleged indebtedness of Mr N and Ms P to the respondent is an asset (it being a chose in action) then the first respondent’s trustees may wish to pursue it but any such course of action would be for the benefit of the first respondent’s general body of unsecured creditors, not for the third respondent; and
(h)the trustees are best able to determine against whom claims are to be made in the first respondent’s bankruptcy.
I do not agree that rule 3.01 is invoked. Mr N and Ms P are not necessary parties in this litigation. On behalf of the applicant the following was said at paragraph 25 of her submissions in relation to the joined application –
It is respectfully submitted that there is no utility in granting leave for the joinder of the Bankrupts. The Application dated 5 August 2021 is baseless, is improperly brought and is done solely to frustrate this proceeding and to distress the Wife and her family, to complicate and unnecessarily increase the legal costs of the parties and to distract from the Wife’s proceeding against the Husband and the 3rd respondent.
I agree. I dismiss paragraph one of the third respondent’s application in a case filed 5 August 2021. If the applicant or the trustees in bankruptcy of the first respondent seek their costs of the dismissal of the third respondent’s application to join Mr N and Ms P they must file and serve any affidavit material and submissions in support of their application for costs by 4:00pm on 14 January 2022 and the third respondent must file and serve any affidavit in opposition and submissions by 4:00pm on 28 January 2022 after which I shall determine the costs application on the papers.
THE DEED OF SETTLEMENT
The third issue to be determined related to a document entitled “deed of settlement” between the Commissioner of Taxation of the Commonwealth of Australia and persons (two natural and one corporate) being the applicant, the first respondent and Warin Pty Ltd. The applicant submitted that she is wholly unaware of the existence of the deed or the circumstances surrounding its creations. She seeks orders for disclosure in respect of the deed.
The recitals to the deed (described under the generic heading “context”) purported to set out the circumstances leading to the making of the deed. While lengthy, it is utile to record the recitals. They were –
“A.The Taxpayers are beneficiaries of the [Warin Trust] (the Trust). The trust holds an interest in the [U Joint Venture]. The [U Joint Venture] in turn holds an interest in the [S Joint Venture] (the [S Joint Venture]).
B.On or around 23 June 2008, the [S Joint Venture] completed an agreement to purchase land and buildings, together with improvements, situated at [V Street, W Town] and [X Street, W Town] (collectively, the Property).
C.On or around 18 December 2013, the [S Joint Venture] entered into an agreement to sell the Property to an unrelated third party for $42.3 million with settlement taking place on or around 24 March 2014.
D.The trustee and ultimate beneficiaries of the [Z Trust] and the Commissioners are in dispute as to whether the proceeds from the sale of the Property in the year ended 30 June 2014 should be assessable as ordinary income or on the basis that it was held on capital account.
E.On 14 February 2018, representatives of the respective parties reach and In-Principle Agreement (In-Principle Agreement) in relation to the sale of the Property on the basis that the parties accept a litigation risk of 60/40 in favour of the proceeds from the sale of the Property being ordinary income, that is to treat 60% of the proceeds as ordinary income and 40% of the proceeds on capital income.
F.On 13 November 2018, the Taxpayers objected against their self-assessment for the year ended 30 June 2014 to give effect to the In-Principle Agreement.
G.The Commissioner and the Taxpayers are in dispute as to the income tax in respect of the assessment of the 2014 income (the Dispute).
H.The Commissioner and the Taxpayers nonetheless wish to settle the Dispute making no admissions as to liability, and have agreed on the terms set out in this Deed.”
Certain tax related consequences flow from the deed. They include –
(a)under the terms of the deed the ATO will issue amended assessments to the wife, reducing her taxable income from $194,140 to 177,006;
(b)the result of these amended assessments will be that each of the taxpayers will receive a tax refund, particularly the company's taxable income would be reduced by $552,018; and
(c)these reductions will result in tax refunds for each of the taxpayers the most substantial to the company. At the corporate tax rate of 30% it is estimated that the company will receive a tax refund of $165,605.40, plus any interest paid to the company in accordance with the applicable Act.
On the wife’s behalf, certain factual contentions were advanced in relation to the deed. The more important of them were as follows –
10. The Company was incorporated on 25 November 2011 and voluntarily deregistered on 11 October 2017. According to the ASIC database, at the time of deregistration, the Husband was the sole Director and Secretary
11. Again according to that company search, the sole shareholder of the Company was [BB Nominees Pty Ltd], C/- [Winsor Group], formerly known as [Warin Nominees Pty Ltd] ("[BB Nominees Pty Ltd]").
12. Until 18 July 2020, being the date on which the Husband self-declared bankruptcy, he was the sole Director and Secretary of [BB Nominees Pty Ltd]. On that date one [Mr CC] replace him in both those roles. Further, the Husband transfer the 6 issued shares in [BB Nominees Pty Ltd] to [Mr CC]. The share sale price, if any is not known.
13. The necessary forms to effect these changes were lodged with ASIC on 17 and 18 August 2020, one month after the Husband's bankruptcy.
14. On 15 September 2020, the name was changed from [Warin Nominees Pty Ltd] to [BB Nominees Pty Ltd] 6
15. [Mr CC] remains as the sole Director and Secretary and Shareholder of [BB Nominees Pty Ltd].
16. On 14 September 2021 a court order of the Supreme Court of Victoria made on 13 September 2021 was lodged with ASIC regarding the Company ("SC Order"). It was lodged by DD solicitors, Mr EE 7.
17. By virtue of the SC Order, the company was reinstated.
18. The order recites that [BB Nominees Pty Ltd] applied to have the Company reinstated, supported by affidavit of [Mr Winsor] of 13 August 2021, [finance professional] for [BB Nominees Pty Ltd], an affidavit of [Mr CC] of 13 August 2021 and 2 affidavits by Mr EE as solicitor for [BB Nominees Pty Ltd].
19.The SC Order further recites that [BB Nominees Pty Ltd] was the holder of 100% of the issued capital in the Company, that the Company is entitled to a tax refund from the ATO and that the ATO will not pay the refund unless the Company is reinstated.
20. It is submitted by the Wife that:
a. the Company forms part of the matrimonial pool;
b. that [BB Nominees Pty Ltd] forms part of the matrimonial pool;
21.That the transfer of control and shareholding by the Husband to [Mr CC] was done to avoid those 2 assets forming part of the pool and to put it out of the reach of this Honourable Court and of the Wife.
22. The Wife has no knowledge whatsoever of these matters.
Having regard to the submissions that the applicant has no knowledge at all about the deed, urgent disclosure must be provided about it by the first respondent. He must do so by 4:00pm on 24 December 2021.
I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Wilson. Associate:
Dated: 10 December 2021
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