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Pascoe v Boensch & Anor (No.9) [2009] FMCA 769 (13 August 2009)
Last Updated: 18 August 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
PASCOE v BOENSCH &
ANOR (No.9)
|
|
PRACTICE AND PROCEDURE – Amendment of
pleadings – where applicant sought leave to amend points of claim some
three years
after proceedings commenced – where party in default claimed
it had always intended to make those amendments – where
significant
prejudice to other party – decision in J L Holdings considered
– summary judgment – whether reasonable prospect of success –
tests for insolvency considered. |
|
First Respondent:
|
FRANZ BOENSCH
|
|
Second Respondent:
|
SABINE BOENSCH
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|
Delivered on:
|
13 August 2009
|
REPRESENTATION
Counsel for the
Applicant: |
Mr P Walsh
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Solicitors for the Applicant: |
McLean & Associates
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|
Respondent:
|
Malcolm Wright Lawyer
|
ORDERS
(1) Applicant’s application to amend dismissed.
(2) Substantive application dismissed.
(3) Applicant to pay the Respondent’s costs of the proceedings including
any reserved costs, such costs to be taxed or assessed
at 80 percent of the
Federal Court
scale.
|
FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT
SYDNEY
|
SYG 1995 of 2006
Applicant
And
First Respondent
Second Respondent
REASONS FOR JUDGMENT
- There
are two interim applications before me in this matter that commenced on 19 July
2006 as proceedings brought by a Trustee in
bankruptcy to set aside what he
considered was a purported declaration of trust made in 1999 and formalised in
2004. The original
application was supported by a points of claim and sought
relief under s.121 of the Bankruptcy Act 1966 (Cth) (the
“Act”) in respect of the 1999 memorandum and under s.120 in
respect of a Deed of Trust dated 18 March 2004.
- After
the proceedings commenced a preliminary issue was determined relating to the
validity of a 1999 memorandum. This Court held
in Pascoe v Boensch & Anor
(No. 6) [2007] FMCA 2038 that a valid declaration of trust had been made by
Mr Boensch, who had been made bankrupt on 23 August 2005. The Court’s
decision
was appealed to the Federal Court of Australia where a Full Bench,
Finn, Dowsett and Edmonds JJ, dismissed the appeal and confirmed
that a valid
declaration of trust had been made; Pascoe v Boensch [2008] FCAFC 147.
Because a valid declaration of trust had been made in 1999 it has been accepted
that there is no need to deal with the particularly
contentious 2004
transaction.
- The
first interim application was filed on behalf of Mr Boensch on
1 September
2008. It sought an order
- “[t]hat
the Applicant’s Application against the First Respondent be dismissed
pursuant to Federal Magistrate’s
Court Rules Rule 13(10) and or
alternatively judgment in favour of the First Respondent against the Applicant
pursuant to s.17(A)(2)
of the Federal Magistrates Court Act 1999
(Cth).”
That application was not proceeded with
immediately because of an application to the High Court for special leave to
appeal the decision
of the Full Court. Special leave was not granted. On 9 April
2009 the Trustee took out an interim application seeking, relevantly,
that
“[l]eave be granted to the applicant to file and serve amended points of
claim on or before 12 May 2009 in the form annexed
and marked “B” to
the Affidavit of Scott Darren Pascoe sworn 6 April 2009.”
- Although
the respondent’s application was the first in time, the Court dealt with
the matter by hearing the Trustee’s
application because it was felt that
if that was not successful then the bankrupt’s application must succeed.
As it transpired,
the applicant argued that even if his application was
unsuccessful he could continue on the basis of the original application and
it
was therefore necessary for me to consider, but not conflate, Mr Boensch’s
application as well. In order to understand the
amendments that the applicant
seeks to make it is necessary to set out paragraphs 13 and 17 of the original
points of claim:
- “13. On
23 August 1999 the Respondents purported to create a trust for the benefit of
the Boensch family with the most important
purpose to provide secure means of
support to the children of the marriage, Dominic Boensch and Stefanie Boensch,
after the divorce
of their parents, identifying the trust property as being the
Property and purporting to provide for the second respondent to cause
her share
of ownership of the property to be transferred to the first respondent for him
to hold the whole of the land upon the trust
set forth in the document.
- ...
- 17. The
document referred to in paragraph 13 above to the extent that it is valid and
effectual at law and in equity, it is or was
constituted at the time that it was
made a transfer of property by the First Respondent in favour of himself on
trust and is void
against the applicant, the transfer of the Property being such
that the Property would have remained part of the estate of the First
Respondent
or would probably have been available to creditors if the interest reflected in
the document referred to in paragraph
13 above had not been transferred, and the
main purpose of the transfer or in making the transfer was to hinder or delay
the process
of making property available for division among the creditors of the
first respondent.”
The applicant concedes that the
reference to the transfer of property by the first respondent in favour of
himself on trust is an
incorrect description of what occurred and the wording
should read “in favour of his children”. The proposed
amendments to the points of claim are found at paragraphs 14A, 14B, 15A, 16A and
particulars of 16A (a) – (i) and
in 17. These are:
“14A. The 1999 Trust was a declaration relating to the entirety of the
Property and without reference to any indebtedness
secured against the
property.
14B. The 1999 Trust constitutes a Transfer for the purposes of Section 121 of
the Bankruptcy Act 1966 (the “Transfer”)
15A. Because of the existence of the 1999 Trust, as a matter of law, the First
Respondent was unable to utilise the Property in
his capacity as trustee to
satisfy personal indebtedness existing on his part before 23 August 1999.
16A. At the time of the Transfer on and from 23 August 1999, the First
Respondent was insolvent.
PARTICULARS
(a) The First Respondent at the time of the Transfer had an outstanding
liability to the Commonwealth Bank of Australia in respect
of the indebtedness
under the mortgage.
(b) The First Respondent at the time of the Transfer had an outstanding
obligation under the indemnity given by him in favour of
the Second Respondent
referred to in order 3 made on 18 may 1998.
(c) The First Respondent had little or no income available with which to
satisfy current and prospective liabilities associated
with the conduct of his
business upon the property.
(d) The First Respondent had little or no plant and equipment to which he had
a beneficial interest which would be available to
him to realise for the
purposes of satisfying the indebtedness due to the Commonwealth Bank of
Australia and arising from the conduct
of his mechanic repair business upon the
property.
(e) The First Respondent had little or no other personal assets to which he
had a beneficial interest which would be available
to him to realise for the
purposes of satisfying the indebtedness due to the Commonwealth Bank of
Australia or any other creditor
at the time of the Transfer.
(f) The First Respondent failed or neglected to properly disclose the true
position in relation to the First Respondent’s
expenditure of wages paid
by him in the course of his business at the time of the Transfer and the actual
wages paid were grossly
in excess of the amount disclosed in his income tax
return.
(g) The First Respondent at the time of the Transfer had an outstanding
liability to the Reginald Keith Wright in respect of his
indebtedness under a
loan.
(h) The First Respondent at the time of the Transfer had the ongoing
obligation to contribute 50% of the reasonable costs of the
care of the
Children.
(i) List of unsecured creditors in the First Respondent’s Statement of
Affairs being Exhibit SDP2 at pages 16 and 17 to the
affidavit of Scott Darren
Pascoe sworn 17 July 2006.”
- The
Trustee’s application was supported by an affidavit from
Mr Pascoe
dated 26 May 2009. The affidavit refers to examinations of the bankrupt and
persons associated with him which Mr Pascoe
arranged between 17 December 2008
and 17 March 2009. These examinations therefore took place long after the
original decision of
this Court and after all the appeals against that decision
had been exhausted. Mr Pascoe’s affidavit relies on information
obtained from the examinations to make findings about Mr Boensch’s income
and expenditure for periods between 1997 and 2002.
In my view the relevant time
to look at is when the memorandum of trust was created and the property was
transferred in equity. The
“Summary and Conclusions” of the
affidavit are found in section 8 as follows:
- “8.1
Over the period between 1992 and 2002 the bankrupt had an average net income of
$9,165. His highest net income was $12,853
in 2002.
- 8.2 Since his
separation in 1997 the living expenses of the bankrupt together with 50% of the
costs of the care of his children
is estimated to have exceeded his income. No
surplus income was likely to be available.
- 8.3 After
making the declaration of trust on 23 August 1999 the bankrupt had no assets
which he might finance or sell to raise any
fund to pay any debts as they fell
due.
- 8.4 The
bankrupt remained liable for the debt secured against the property to
Commonwealth Bank. This debt has not been paid.
- 8.5 The
bankrupt incurred a further debt to Reginald Wright after the declaration of
trust. This debt has not been paid.
- 8.6 Since
August 1999 the bankrupt has been unable to pay his debts as they fell due.
- 8.7 In my
opinion the bankrupt became insolvent at the time of entering into the
memorandum of trust or shortly thereafter. The
bankrupt remained insolvent up to
the date of bankruptcy.”
In paragraph 3 of his
affidavit, Mr Pascoe states
“3. For the purpose of these proceedings I have prepared a preliminary
report as to the solvency of the bankrupt for the periods
around 1998, 1999 and
later which are relevant to the claims made in these proceedings.”
and at [12]:
“I believe that at any final hearing of this matter I will be able to
provide evidence to the Court to support the matters
referred to in my report
which support my findings and conclusions, either by documents referred to and
further material as well
as by examination and cross examination of persons
relevant to the affairs of the bankrupt.”
- On
9 July 2008 Mr Boensch filed an affidavit in this Court and on the same day
there was filed on his behalf an affidavit of George
Nikolaou sworn on 8 July
2009. This latter affidavit addresses Mr Pascoe’s affidavit. I was also
referred to an affidavit of
Malcolm John Wright sworn 10 September 2008 and
filed on 15 September 2008 annexing a transcript of the application for leave to
appeal my original decision before Branson J.
The Amendment Application
- The
guiding principles that a Court should follow when considering an application
for an amendment of a statement of claim some three
years after the proceedings
have commenced and after a preliminary issue has already been heard are those
discussed by the High Court
in Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997)
189 CLR 146. At [30] Dawson, Gaudron and McHugh JJ said:
- “In this
case, which is of a commercial nature, the litigants are on the one side a
developer and on the other side government,
and there is nothing which would
indicate any personal strain which would justify the conclusion that costs are
not an adequate remedy
for prejudice caused by the amendment sought to the
pleadings.
- In our view,
the matters referred to by the primary judge were insufficient to justify her
Honour’s refusal of the application
by the applicants to amend their
defence and nothing has been made to appear before us which would otherwise
support that refusal.
Justice is the paramount consideration in determining an
application such as the one in question. Save and in so far as costs may
be
awarded against the party seeking the amendment, such an application is not the
occasion for the punishment of a party for its
mistake or for its delay in
making the application. Case management, involving as it does the efficiency of
the procedures of the
court, was in this case a relevant consideration. But it
should not have been allowed to prevail over the injustice of shutting the
applicants out from raising an arguable defence, thus precluding the
determination of an issue between the parties. In taking an
opposite view, the
primary judge was, in our view, in error in the exercise of her
discretion.”
- It
would be fair to say that the views expressed by the High Court in JL
Holdings have undergone some modification since 1997. In 2001 Heydon JA, as
he then was, considered the case in Micallef v ICI Australia Operations Pty
Ltd & Anor [2001] NSWCA 274 at [63] and [64] indicating that, in his
view, JL Holdings did not support the proposition that in every case
complete justice to the party in default is the paramount consideration. Heydon
J approved of the views expressed by Lord Denning MR in Allen v Sir Alfred
McAlpine & Sons Ltd [1968] 2 QB 229 at [245] where his Lordship, after
considering the Magna Carta, Hamlet and Bleak House, noted of the power to
strike out:
- “This is
a stern measure. But it is within the inherent justice of the Court. And the
Rules of Court expressly permit it.”
In Black
& Decker (Australasia) Pty Ltd v GMCA Pty Ltd [2007] FCA 1623
Finkelstein J suggested that the approach taken in JL Holdings be
revisited, particularly when a case involves significant commercial litigation.
At [5] his Honour said:
“I am of the firm view that parties should not be treated as leniently as
they have been in the past. Commercial parties expect
this approach from the
Courts and their expectation should be met. The useful rule to adopt is to allow
an extension only if the
failure to meet the existing timetable is the result of
excusable non-compliance.”
- These
views were considered and approved by Jacobson J in Chameleon Mining NL v
Murchison Metals Ltd [2009] FCA 137. Chameleon was a case in which
the plaintiff sought to file experts’ reports at a late stage in the
proceedings. At [13] his Honour said
in what the respondent here considers an
echo of his own situation:
- “It
seems to me that, applying those principles, I ought to refuse to grant leave
for two principal reasons. First this case
was commenced by statement of claim
filed nearly 15 months ago. The allegations made in [81] have been known to all
parties since
then. Particulars were sought by the second defendant in March
2008 and the plaintiff responded by stating that “this is a
matter of
evidence”. Notwithstanding this, no evidence was filed on the question of
valuation by the former solicitors before
their retainer was withdrawn in
November 2008.”
- “[14] It
seems to me that I am entitled to infer that a decision must have been taken by
the former solicitors that expert
evidence is not to be called on that issue,
particularly in light of the fact that it is an alternative claim to the primary
claim
made in [81].”
- In
Re AWB Ltd (No.3), Re; Australian Securities and Investments
Commission v Lindberg [2009] VSC 209 Robson J also considered
the question of an amendment stating at [48]:
- “I
accept, as senior counsel for ASIC contends, that I am bound by JL
Holdings but it does not follow I must, in my discretion, allow the
amendment. I accept that justice is the paramount consideration. However,
in
this case, costs or an adjournment are not an adequate remedy for the prejudice
likely to be caused to Mr Lindberg. My decision
on this issue is not motivated
by any desire to punish ASIC for its mistakes and failures. In fact, I make no
such findings against
ASIC. Rather, as explained above, I am primarily concerned
by the prejudice to Mr Lindberg through the effluxion of time between
the time
of the alleged conduct and the trial and the delay in hearing allegations that
go to his professional reputation, competence
and probity.”
- The
Trustee argues that there is nothing new about the amendments. He says that it
has always been known that a s.121 claim is to be made in relation to the 1999
declaration of trust. He says that all the amendment does is to provide proper
particulars
of the claim. He states that the Trustee has never resiled from that
claim or elected to abandon it. He says that, whilst it is true
that he hoped
the resolution of the preliminary issue would resolve the matter (in his
favour), he is entitled to proceed with the
originally intimated claim even
though those hopes were not realised.
- This
is not how Mr Boensch sees it. In the affidavit of Mr Wright there is annexed
the transcript of the hearing before Branson J.
The context of the application
was that the Trustee was seeking leave to appeal what was an interlocutory order
in the proceedings.
He was required to persuade her Honour that the Federal
Court should hear the appeal before the balance of the proceedings had been
concluded. At T2 [26] Counsel for the Trustee said to her Honour:
- Mr
Johnson: “The problem we have with this judgment, your Honour, is that
it, to put it in the vernacular, nails much of our claim. There
is no evidence
available as to Mr Boensch being insolvent at the time of this document being
entered into. There is evidence, from
our viewpoint, there is evidence of the
time of the deed of confirmation being entered into. If this document remains
upheld it is
going to be virtually impossible for practical purposes – I
say this for the purposes of argument before your Honour, not to
estop any
submissions that might be made. It would be virtually impossible for us to
attack the deed of confirmation because the
underlying transaction would be
valid as a result of this.”
It is clear that, at
that time, this was the case. There was no evidence relating to the 1999
declaration of trust. It would not be
unreasonable to draw the inference from
the submissions made that, at that time, the intention of the Trustee was to
fold his tent
should he be unsuccessful. Her Honour was concerned at the costs
that might be involved in conducting the appeal before the rest
of the case was
heard and, in her decision, found at T8 she says:
“I propose to grant the leave sought. Obviously the judgment of the
learned Federal Magistrate is interlocutory or the application
wouldn’t be
made but balancing what seems to be the risk of additional costs in the
magistrates court which might in the event
be ill spent if the answer given by
his Honour of the question that he posed to himself is proved to be the wrong
answer, I think
it appropriate to have that question determined ahead of his
Honour proceeding. For that reason the leave sought is granted.”
What her Honour did not say because, in my respectful opinion,
Mr Johnson had said it for her, was that there was no point in continuing
with the hearing because the only remaining claim at that stage was the s.121
claim that Mr Johnson had said his client had no evidence to support. Mr Boensch
has testified in his affidavit to the prejudice
that the amendment will bring to
him. He notes that he has paid all the legal fees on behalf of the Trust to date
in the sum of $163,648.28
out of a loan made by Mr Cates on an unsecured basis.
He says that Mr Cates has informed him that he will not make any further
advances
to the Trust. Although Mr Boensch has been awarded his costs all the
way through, those costs have not been paid by the Trustee.
The only asset of
the Trust is the property at 255 Victoria Rd, Rydalmere. The Trustee has placed
a caveat on the title. The Commonwealth
Bank of Australia has told Mr Boensch
that it will not advance any further monies to him pursuant to the first
mortgage and the caveat
has priority over any second mortgage so that cannot be
utilised to raise funds. The property does produce an income. That income
is
just about sufficient to pay the mortgage and the usual outgoings together with
interest on Mr Cate’s loan. Mr Boensch has
no other financial resources.
Mr Boensch deposes in his affidavit to having lost 67 days work in attending
Court for the hearings
in this matter, for the examinations that were conducted
and to brief and instruct his legal advisors. It goes without saying that
these
proceedings must be placing a considerable strain upon him mentally. He has at
all times resisted the attacks made upon the
1999 transaction and his resistance
has been vindicated. The Trustee originally claimed that the transaction was a
sham but that
was not upheld by this Court and was withdrawn before the Full
Bench.
- I
am sensible of the fact that the Trustee has placed no emphasis on the argument
that should he be successful in these proceedings
and obtain the property there
will be a benefit to creditors. I believe the Court can draw on its experience
in these matters to
infer that after payment of the mortgage and of the
Trustee’s fees and costs, not to mention Mr Boensch’s costs,
there
will be very little left for the benefit of creditors and thus the public
interest purposes of the Bankruptcy Act should not be allowed to weigh
too heavily on the Court’s discretion.
- It
is also necessary to look at the case currently mounted by the Trustee. The
extracts from his affidavit quoted in [5] of these reasons would seem to
indicate he is not certain that this time he has the necessary evidence to
succeed. Relying on cross-examination
to make a case is always a dangerous
assumption. I am of the view, which I set out in more detail in my consideration
of Mr Boensch’s
application, that the case made by the Trustee is not
particularly strong. Whilst it is clear that Mr Boensch has been less than
frank
in his dealings with the Taxation Commissioner and does not appear to have
exhibited a clear understanding of the duties of
a Trustee, it would be
difficult to say that as at 1999 he was not able to pay his debts as and when
they fell due because they clearly
were paid and continued to be paid up until
the time of the petitioning creditor’s judgment. Interestingly, some of
the loans
which the Trustee in his affidavit relies upon to indicate insolvency
have been rejected as proofs of debt. As Mr Nikolaou points
out in his
affidavit, the cash position of Mr Boensch has not been accurately calculated by
the Trustee because it neglects both
payments of social security monies banked
into an increasing Westpac account, exhibited to his affidavit, and the fact
that, whilst
depreciation reduces income for tax and accounting purposes, it
does not reduce net cash inflow. As Mr Nikolaou points out, taking
these two
matters into account, over the years 1997 to 2001 Mr Boensch’s actual cash
resources exceed the estimated household
expenditure suggested by the Trustee.
- Since
the preceding paragraphs were composed the High Court has handed down its
decision in Aon Risk Services Limited v Australian National University
[2009] HCA 27. In that case the High Court held that J L Holdings has
ceased to be of authority [111]. In the joint judgment of Gummow, Hayne,
Crennan, Kieffel and Bell JJ it was found that although
the “just
resolution” of a matter may be paramount, the consideration of what is
just must take account of other litigants and the impact on them
of increased
costs and delays.
- “[95]
... What may be just, when amendment is sought, requires account to be taken of
other litigants, not just the parties
to the proceedings in question. The
statement is consistent with what was said in Sali v SPC, which
reflected a proper understanding of case management. The statements in
J L Holdings do not reflect such an understanding and are not
consistent with what was said in Sali v SPC. To say that case
management principles should only be applied "in extreme circumstances"
to refuse an amendment implies that considerations such as delay and costs can
never be as important as the raising of an arguable
case; and it denies the
wider effects of delay upon others.”
At [102] their
Honours concluded:
“It is the extent of the delay and the costs associated with it, together
with the prejudice which might reasonably be assumed
to follow and that which is
shown, which are to be weighed against the grant of permission to a party to
alter its case. Much may
depend upon the point the litigation has reached
relative to a trial when the application to amend is made. There may be cases
where
it may properly be concluded that a party has had sufficient opportunity
to plead their case and that it is too late for a further
amendment, having
regard to the other party and other litigants awaiting trial
dates.”
- This
reasoning is consistent with the conclusion already foreshadowed in the instant
case. I am of the view that the prejudice to
Mr Boensch by the Trustee being
allowed at this very late stage to amend his application and particularise the
s.121 claim in the manner he proposes, outweighs any benefit to be obtained by
allowing the amendment. The attainment of justice will not
be achieved by
granting the leave to amend sought and further delaying the finalisation of this
matter and increasing the already
very considerable costs. I refuse to grant the
amendment.
Summary Judgment Application
- Mr
Boensch asks me to strike out the applicant’s claim under s.121 on the
grounds that as it stands (without the amendments) the Trustee has no reasonable
prospect of successfully prosecuting the
claim. Rule 13.10 in the Federal
Magistrates Court Rules 2001 is in identical form to Order 20 Rule 5 of the
Federal Court Rules which itself is based upon s.31A of the Federal
Court of Australia Act 1976. In Commissioner of Taxation v Grimaldi (No.
5) [2009] FCA 765 Graham J explained the background to s.31A at [28 –
37]. His Honour noted that the effect of s.31A was to soften the test for a
successful application for summary judgment reminding us at [31] that paragraph
22 of the relevant
explanatory memorandum said:
- “Section
31A(3) provides that for the purposes of giving summary judgment a proceeding or
part of a proceeding or a defence to a proceeding or part
of a proceeding need
not be hopeless or bound to fail for it to have no reasonable prospect of
success.”
His Honour noted the comments of Rares J
in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty
Ltd [2006] FCA 1352 at [44]:
“In a case to which s31A applies, where there is a real issue of fact to
be decided in the sense identified in the above principle [a reference to [43]
and
to Hocking v Bell [1945] HCA 16; (1945) 71 CLR 430 at 441 – 442] and,
possibly, where there is a real issue of law of a similar kind, it is obviously
appropriate that the matter
goes to trial.”
In the instant
case the applicant asserts a real issue of fact and law to be tried, namely
solvency of Mr Boensch at the time he entered
into the Trust arrangements.
However, for the reasons which I give below I am not satisfied that on the
unamended pleadings (which
I believe is the proper test) or even on the
unamended pleadings plus particulars as they appear in the proposed amendment
there
is a real issue about Mr Boensch’s solvency.
- The
evidence relied upon by the applicant is expert evidence from an experienced
Trustee. Mr Pascoe acknowledges that there are two
tests for insolvency, the
balance sheet test and the cash flow test. It is now evident that attention
should be principally drawn
to the cash flow test, the balance sheet test only
having subsidiary relevance; Keith Smith East West Transport Pty Ltd (in liq)
v Australian Taxation Office [2002] NSWCA 264; (2002) 42 ACSR 501, Expile Pty Ltd v
Jaab’s Excavations Pty Ltd [2003] NSWCA 163; (2003) 45 ACSR 711, Lewis v Doran
[2005] NSWCA 243; (2005) 219 ALR 555, Box Valley Pty Ltd v Kidd [2006] NSWCA 26; (2006) 24 ACLC 471,
Sutherland v Hanson Construction Materials Pty Ltd [2009] NSWSC 232; (2009) 254 ALR 650. A
decision is also required to be made as to whether the bankrupt is suffering
from a temporary lack of liquidity or an endemic shortage
of working capital. In
Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243 Palmer J referred to this distinction
and observed at [266]:
- “The
first is an embarrassment, the second is a disaster. It is easy enough to tell
the difference in hindsight, when the company
has either weathered the storm or
foundered with all hands; sometimes it is not so easy when the company is still
contending with
the waves.”
His Honour felt that one
was obliged to look at the extent of cash and other liquid assets compared with
the quantum of debts due
and payable and to become due and payable in the
immediate future. In 1999 the only substantial debt that Mr Boensch had to pay
was
the $50,000.00 he was required to give to his former wife under the Family
Court settlement. This money was paid. Exactly how Mr
Boensch raised the money
is the subject of some conflicting evidence but no one has suggested that, to
the extent it was borrowed,
there was any immediate requirement for repayment.
There is no suggestion he was unable to pay his trade creditors in his mechanic
business. He paid his mortgage (or rather he paid the mortgage on behalf of the
Trust) and other outgoings due on the property. True
it is that he obtained
loans from Mr Wright and whilst that debt has not been repaid, there is no
suggestion that it was being called
in 1999 (when it was given) or at a time
that could be said to be in the immediate future. Mr Pascoe in his affidavit
seeks to demonstrate
that this could not possibly be the case on the figures he
has obtained or calculated from extrinsic sources. But apart from the
two
important matters that I have already alluded to – the social security
payments and the non-reductive effect of depreciation
– there is always
the possibility that Mr Boensch’s actual income was in excess of the
amount that he was prepared to
advise the Taxation Commissioner of.
- The
balance sheets test is also of little assistance to the Trustee. Mr Pascoe
relies upon Mr Boensch’s personal covenant to
pay the mortgage debt in
respect of a property he no longer owns. Looking at this from a balance sheet
point of view, Mr Boensch
would clearly be insolvent but it should not be
forgotten that the bank had a charge over the property to secure the loan and
there
has never been any debate that the amount of the mortgage was considerably
less than the value of the property. Thus there would
be little prospect of the
Commonwealth Bank having to look to Mr Boensch. I am of the view that as the
pleadings and the evidence
stands at the present time I do not believe that the
applicant has reasonable prospects of success in establishing Mr Boensch’s
insolvency at the time he entered into the declaration of trust.
- Although
given the views I have come to is not strictly necessary, I should deal with
some further submissions made by Mr Heath on
behalf of Mr
Boensch.
- “[3] The
thrust of the Applicant’s submission is that, notwithstanding the finding
of this court as to existence of a
trust (as confirmed by the Full Court) he can
still rely on s121(2).
- [4] The First
Respondent submits it cannot for the following reason. Section 121(2) is not a
separate cause of action. The subsection
is a deeming provision relating to the
cause of action set out in s121(1). So much is clear from the terms of s121(2)
itself and
the reference to “paragraph 1(b)” of s121(1)
within it.
- [5] This court
has determined what the main purpose of the trust was for the purposes of
s121(1)(b) when it answered the separate question. This is because questions of
purpose and
solvency were considered when answering the separate question. Part
of the Applicant’s case was that the 1999 document was
‘sham’. The court could have considered the question of
whether the document was a sham without also considering the matter relevant
to
s121.”
I accept that s.121(2) is not a separate
cause of action, it is a shorthand way of establishing the requirement of
s.121(1)(b) but
I cannot accept the contention that a transferor cannot have
more than one intention when he proposes to transfer the property.
In fact if
there had been any real evidence that in the instant case Mr Boensch was aware
of impending financial difficulties then
he could well have had the dual
intention of providing for his children in a way that kept the property which he
was utilising for
that purpose away from his creditors. The views which I have
expressed about Mr Boensch’s solvency effectively deal with s.121(2).
I
have indicated that I do not believe the Trustee can make out this case and I
would apply s.31A to dismiss it.
Mr Boensch also raises through his counsel submissions on what he describes
as “cause of action estoppel argument” based upon the
statements made to the Court and contained in the transcript annexed to the
affidavit of Mr Wright and previously
referred to. I am of the view that it is
not necessary to engage in this contentious discussion because of the findings I
have come
to. I would only say that given the purposes of the Bankruptcy Act
and the power of a Trustee in bankruptcy, particularly the powers to examine a
bankrupt and persons relevant to his affairs, it might
not be easy to persuade a
court that Mr Johnson’s statements before Branson J amounted to
concessions which would bind the
Trustee for ever more.
- For
all the reasons given above I would accede to the respondent’s request and
dismiss the substantive application. I order
that the applicant pays the
respondent’s costs of the proceedings including any reserved costs, such
costs to be taxed or assessed
at 80 percent of the on the Federal Court
scale.
I certify that the preceding twenty one (21) paragraphs
are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 13 August 2009
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URL: http://www.austlii.edu.au/au/cases/cth/FMCA/2009/769.html
