Weston (Trustee) v Sanna

Case [2019] FCA 32

FEDERAL COURT OF AUSTRALIA

Weston (Trustee) v Sanna [2019] FCA 32

File numbers: NSD 276 of 2016
NSD 619 of 2016
Judge: MARKOVIC J
Date of judgment: 24 January 2019
Catchwords: BANKRUPTCY – whether the transfers of two properties to the respondent are respectively void against the trustee pursuant to s 120 or, in the alternative, s 121 of the Bankruptcy Act 1966 (Cth) (Act) – whether the bankrupt’s main purpose in transferring the properties was to prevent them from becoming divisible among the bankrupt’s creditors or to hinder or delay that process – whether the properties would probably have become part of the bankrupt’s estate or would be available to creditors if the properties had not been transferred.
Legislation:

Bankruptcy Act 1966 (Cth) ss 120, 121

Family Law Act 1975 (Cth) ss 90C, 90K

Cases cited:

Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372

Official Trustee v Marchiori (1983) 69 FLR 291

Re Jury; Ashton v Prentice (1999) 92 FCR 68

Sheahan (Trustee) in the matter of Frost (Bankrupt) v Frost(No 2) [2011] FCA 686
Dates of hearing: 12, 13, 14 March 2018
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Category: Catchwords
Number of paragraphs: 159
Counsel for the Applicant in NSD 276 of 2016 and NSD 619 of 2016: Mr A Spencer
Solicitor for the Applicant in NSD 276 of 2016 and NSD 619 of 2016: Dentons
Counsel for the Respondent in NSD 276 of 2016: Mr D Allen
Solicitor for the Respondent in NSD 276 of 2016: Kekatos Lawyers

ORDERS

NSD 619 of 2016
NSD 276 of 2016
BETWEEN:

PAUL GERARD WESTON AS TRUSTEE OF THE BANKRUPT ESTATE OF LEPA SANNA

Applicant
AND:

CORRADO SANNA

Respondent

JUDGE:

MARKOVIC J

DATE OF ORDER:

24 January 2019

THE COURT ORDERS THAT:

1.On or before 14 February 2019, the parties are to provide to the Associate to Markovic J draft short minutes of order giving effect to these reasons and, if required, a proposed timetable for the second stage of the proceeding.

2.If the parties are unable to agree on a form of draft short minutes as contemplated by Order 1, on or before 14 February 2019 the applicant and respondent should each provide the Associate to Markovic J with a form of draft orders and submissions, not exceeding 3 pages in length, explaining why their form of order is proposed and the basis of any disagreement.

3.The matter be listed for case management hearing on 21 February 2019.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

MARKOVIC J:

background

  1. This proceeding concerns two properties: one situated at 33-35 Circulo Drive, Copacabana (Copacabana Property) and the second situated at 83B Lindeman Crescent, Green Valley (Green Valley Property). 

  2. By transfer registered no AH755747 dated 8 May 2013 for consideration of $1.00 (Copacabana Transfer), Lepa Sanna transferred the Copacabana Property…

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AGLC
Weston (Trustee) v Sanna [2019] FCA 32
Case
[2019] FCA 32
Decision Date

CaseChat Overview and Summary

Weston (Trustee) v Sanna involved a dispute over the validity of two property transfers made by the bankrupt, Mrs Sanna, to the respondent, Mr Sanna. The dispute was brought before the court pursuant to the Bankruptcy Act 1966 (Cth) (Act) to determine whether the transfers were void against the trustee. The court had to decide if the transfers were made with the intent to hinder or delay creditors, as required by sections 120 and 121 of the Act. The central issues were whether Mrs Sanna's main purpose in transferring the properties was to prevent them from becoming divisible among her creditors, and whether the properties would have become part of her estate or would be available to creditors if the transfers had not occurred.

The court's reasoning focused on the circumstances surrounding the transfers, the financial status of Mrs Sanna, and the legal implications of sections 120 and 121 of the Act. The court found that Mrs Sanna was indeed insolvent at the time of the transfers, which aligned with the provisions of section 121(2) of the Act. This section presumes that the transferor's main purpose was to hinder or delay creditors if she was insolvent at the time of the transfer. The court noted that Mrs Sanna had been in financial difficulty for some time and had been unable to meet her financial commitments, which supported the inference that her main purpose in making the transfers was to hinder or delay her creditors. The court also considered the implications of the transfers on the potential availability of the properties to creditors if they had not been transferred, concluding that the transfers were likely to prevent the properties from being available to creditors.

The court's decision was that the Copacabana Transfer and the Green Valley Transfer were void against the trustee pursuant to section 121(1) of the Act. The court ordered that the parties submit draft short minutes of order reflecting these reasons and, if necessary, a timetable to address any unresolved issues. The matter was listed for a case management hearing to consider the form of declarations or orders on 21 February 2019. The court also noted that the issue of costs would be addressed after the determination of the second stage of the proceeding.

Orders

Orders of the court

1. On or before 14 February 2019, the parties are to provide to the Associate to Markovic J draft short minutes of order giving effect to these reasons and, if required, a proposed timetable for the second stage of the proceeding.

2. If the parties are unable to agree on a form of draft short minutes as contemplated by Order 1, on or before 14 February 2019 the applicant and respondent should each provide the Associate to Markovic J with a form of draft orders and submissions, not exceeding 3 pages in length, explaining why their form of order is proposed and the basis of any disagreement.

3. The matter be listed for case management hearing on 21 February 2019.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

At this point it is relevant to observe an inconsistency in the Defence. That is, Mr Sanna denies that, as at the date of the Copacabana Transfer, there was no financial agreement pursuant to s 90C of the Family Law Act between him and Mrs Sanna but admits that there was no such agreement between them as at the date of the Green Valley Transfer. facts Much of the evidence relied on by the parties was documentary. Only Mr Sanna gave evidence to attempt to make good the matters raised by him in defence of the Trustee’s claim. Mr Sanna provided an explanation of the transactions which occurred and was cross-examined. Mrs Sanna did not give evidence. Before proceeding to the detail of the evidence and the inferences that the parties invited me to draw from the evidence, I make some general observations about Mr Sanna as a witness and his evidence. Mr Sanna is a company director and has been involved in the construction industry for some time. He is a director of DCL Constructions Pty Limited (DCL) which has operated since about 2010 or 2011 and was involved in the management, but was not a director, of DCL Constructions (NSW) Pty Limited (DCL (NSW)) which is now in liquidation. DCL is a building subcontractor involved in concrete, steel and formwork. DCL (NSW) undertook the same type of activity now undertaken by DCL. Mr Sanna has also been involved in property development, namely two joint ventures between Castle Property Group and Danic Holdings Pty Ltd (Danic), a company which was run by Mrs Sanna and of which she was a director. The first joint venture involved the construction of 36 industrial units at Wisemans Ferry Road, Somersby and the second involved the construction of 22 industrial units and a coffee shop at Kangoo Road, Somersby. Danic and Castle Property Group purchased the land, obtained the development approvals and were the developers. Mr Sanna was involved with the architects and the council at the time of obtaining the development approvals and the concrete, steel and formwork on the developments was subcontracted to DCL. Notwithstanding Mr Sanna’s experience and years in business, he was prepared to outsource the preparation of important documents, including applications for loans, to others, in particular, Mr Dimitriou who he engaged on the terms set out at [31]-[33] below. Mr Sanna was also prepared to sign documents without considering or reading their content or checking their accuracy. He gave the impression that he did not care about the detail or veracity of the information he provided in documents of some significance. An example of this was his tax return for the financial year ended 30 June 2012. He left its preparation to his accountants and did not check its contents because, according to Mr Sanna, you did not do so with Mr Dimitriou. Mr Sanna was unconcerned with the document’s accuracy and simply signed the documents sent to him. Similarly, Mr Sanna signed a loan application to Westpac, in circumstances described at [78]-[79] below, without reading it.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

No submissions were made by the Trustee about the relief sought in NSD619/2016 in relation to the Green Valley Property. To the extent the Trustee still seeks an order pursuant to s 58 of the Act that should be the subject of submissions in the second stage of the proceeding.conclusion It follows from the matters set out above that declarations should be made pursuant to s 121(1) of the Act declaring the Copacabana Transfer and the Green Valley Transfer void. Unless the parties can agree on the form of any consequential relief there will need to be a further hearing to consider that issue. The parties should, within three weeks of the date of these reasons, submit a form of agreed draft declarations and orders reflecting these reasons and, to the extent that agreement cannot be reached on consequential relief, provide for a timetable to address the second stage of the matter. If no agreement can be reached on the form of declarations and orders, each party should submit draft short minutes of order with accompanying submissions, not exceeding three pages in length, explaining why their form of order is proposed and the basis of any disagreement. The matter will be listed for case management hearing to consider the form of and, if thought fit, make any declarations or orders on 21 February 2019. I will make orders accordingly. There remains the question of costs of the proceeding. In the absence of agreement, I will hear the parties on costs and address that issue once there has been a determination of the second stage of the proceeding.

Ratio Decidendi

Legal Principle Established

For the purposes of s 120 and s 121 of the Act the “market value” of property transferred is defined as its market value at the time of transfer: see s 120(7)(c) and s 121(9)(c) of the Act.considerationThe Copacabana PropertyIs the Copacabana Transfer void against the Trustee? I turn first to consider the Trustee’s claim pursuant to s 121 of the Act which was the primary basis on which the Trustee sought to impugn the Copacabana Transfer. It is clearly the case, as required by s 121(1)(a) of the Act that, but for the Copacabana Transfer, the Copacabana Property would probably have become part of Mrs Sanna’s estate or been available to creditors. The next matter which the Trustee must establish is Mrs Sanna’s main purpose in making the Copacabana Transfer and, in particular, whether it was to prevent the Copacabana Property from becoming divisible among her creditors or to hinder or delay that process as required by s 121(1)(b) of the Act. In that regard, the Trustee relies on s 121(2) of the Act which facilitates proving a transferor’s main purpose. That is, Mrs Sanna’s main purpose will be taken to be a purpose listed in s 121(1)(b) of the Act if it can reasonably be inferred from all of the circumstances that, at the time of the Copacabana Transfer, she was or was about to become insolvent. At the hearing counsel for Mr Sanna conceded that Mrs Sanna was insolvent as at 8 May 2013, the date of the Copacabana Transfer (at T144). That being so, s 121(2) of the Act operates to establish that Mrs Sanna’s main purpose in making the Copacabana Transfer was as set out in s 121(1)(b). Even absent that concession, I would readily find that Mrs Sanna’s main purpose in entering into the Copacabana Transfer was as set out in s 121(1)(b) for the following reasons. First, the evidence established that, at the time she made the Copacabana Transfer, Mrs Sanna was in financial difficulty and had been for some time. She had been unable to meet her recurring financial commitments to AETL since 2009 and, despite the refinance on the Copacabana Property, had remained indebted to AETL for the balance of the AETL Loan, which she could not pay. Her financial difficulties were exacerbated by the fact that for a period, due to illness, she had been unable to work. Further, shortly after the date of the Copacabana Transfer, Perpetual obtained judgment for the balance of the AETL Loan against her of $478,583.54. The Boral Proceeding, in which Boral claimed $180,469.77 from Mrs Sanna, among others, was also commenced on that date. In those circumstances it could be reasonably inferred that, at the time of the Copacabana Transfer, Mrs Sanna was, or was about to become, insolvent. Secondly, as the Trustee submitted, the Court would be obliged to draw such an inference about Mrs Sanna’s intention. In Official Trustee v Marchiori (1983) 69 FLR 291 at 294, in considering an application by the applicant trustee challenging the disposition of a motor vehicle by the bankrupt to the respondent under a former version of s 121 of the Act, Fisher J noted that it was settled law that the onus of establishing that the disposition was made with the intent to defraud creditors lay upon the applicant. At 296, after finding that the bankrupt made the disposition in question with the necessary intent, his Honour said:… In this case the words of Brennan J. in delivering the judgment of the Full Court of the Federal Court in Noakes v. Harvy Holmes & Son (1979) 26 A.L.R. 297 are very much in point. He said at page 303: The case falls squarely within the line of authorities of which Freeman v. Pope (1870) 5 Ch. App. 538 is the leading example, where Lord Hatherley L.C. said (at 541): ‘But it is established by the authorities in the absence of any such direct proof of intention, if a person owing debts makes a settlement which subtracts from the property which is the proper fund for the payment of those debts, an amount without which the debts cannot be paid, then, since it is the necessary consequence of the settlement (supposing it effectual) that some creditors must remain unpaid, it would be the duty of the judge to direct the jury that they must infer the intent of the settlor to have been to defeat or delay his creditors, and that the case is within the statute’.That proposition does not trespass upon the rule as to onus of proof; it is a particular illustration of the discharge of the onus by inference from the known facts (cf. Re Holland; Gregg v. Holland [1902] 2 Ch. 360 at 381).…