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Gleeson v Charan & Anor [2011] FMCA 729 (21 September 2011)

Last Updated: 26 September 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

GLEESON v CHARAN & ANOR
[2011] FMCA 729

BANKRUPTCY – Transfer of property from the bankrupt to his parents – void against the Trustee by reason of and pursuant to s.120 and s.121 of the Bankruptcy Act 1966.


Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71
Brown v Brown (1993) 31 NSWLR 582
Calverley v Green [1984] HCA 81; (1984) 155 CLR 242
Cannane v J Cannane Pty Ltd (in liq) [1998] HCA 26; (1998) 192 CLR 557
Charan v Gleeson [2010] FMCA 703
Clout v Markwell [2001] QSC 91
Dinsdale bht Protective Commissioner v Arthur [2006] NSWSC 809
Draper v Official Trustee in Bankruptcy [2006] FCAFC 157; (2006) 156 FCR 53
Fawcett v Fearne [1844] EngR 572; (1844) 6 QB 20
Florance v Andrew (1985) 58 ALR 377
Foley v Foley [2007] FamCA 584
George Lionel Caddy & Anor v Bruce Anthony McInnis & Anor [1995] FCA 1464
Gutta v Ierino [2010] WASC 402
Martin v Martin [1959] HCA 62; (1959) 110 CLR 297
McBain (Trustee) in the matter of Turner (Bankrupt) v Palffy [2009] FCA 260
McVeigh v Long [2002] FMCA 53
Napier v Public Trustee (WA) (1980) 55 ALJR 1
Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538
Parsons v McBain [2001] FCA 376; (2001) 109 FCR 120
Peirs v Peirs [1750] EngR 148; (1750) 27 ER 1180
Rambaldi (as Trustee of the Bankrupt Estate of Volkov) v Volkov [2008] FCA 1957
Re Pittortou (a Bankrupt); Ex Parte Trustee of the Property of the Bankrupt [1985] 1 All ER 285
Sharpe v Rangott [2008] FCAFC 45
Shepherd v Doolan [2005] NSWSC 42
Sui Mei Huen v Official Receiver for and on behalf of The Official Trustee in Bankruptcy [2008] FCAFC 117
Trustees of the property of Cummins (a bankrupt) v Cummins [2006] HCA 6; (2006) 227 CLR 278
Williams v Peters [2009] QCA 180
Worrell v Issitch [1999] FCA 1452

Applicant:
BRUCE GLEESON IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF PRASHANT PRASHIKAR CHARAN

First Respondent:
USHA WATI CHARAN

Second Respondent:
PRABHAKAR CHARAN

File Number:
SYG 2369 of 2010

Judgment of:
Lloyd-Jones FM

Hearing dates:
23 June 2011 and 15 August 2011

Delivered at:
Sydney

Delivered on:
21 September 2011

REPRESENTATION

Counsel for the Applicant:
Mr J. O'Conner

Solicitors for the Applicant:
Ms S. Stojanovski of Gillis Delaney Lawyers

Counsel for the Respondents:
Mr A. Kumar and Mr C.R. de Robilliard

Solicitors for the Respondents:
Mr B. Mistry (withdrawn on 24 May 2011)

DECLARATIONS

(1) The transfer of property being the payment of $195,445.07 from Prashant Prashikar Charan to the Respondents on or about 31 January 2003 became and is void against the Applicant as Trustee in the bankruptcy of the said Prashant Prashikar Charan by reason of and pursuant to ss.120 and 121 of the Bankruptcy Act 1966 (Cth).

ORDERS

(1) The Application in a Case filed on 3 June 2011 is dismissed.
(2) The Respondents pay the Applicant’s costs of these proceedings, as agreed or assessed.
FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 2369 of 2010

BRUCE GLEESON IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF PRASHANT PRASHIKAR CHARAN

Applicant


And


USHA WATI CHARAN

First Respondent

PRABHAKAR CHARAN

Second Respondent


REASONS FOR JUDGMENT

  1. The original Application in this matter was filed on 2 November 2010. On 23 June 2011 an Amended Application was filed by the solicitor for the Applicant seeking the following orders:

Litigation background

  1. This matter was originally listed on 16 November 2010 at 9:45am before a Registrar of this Court in the bankruptcy list. On that date Registrar Hedge made the following orders:

On 8 February 2011 Registrar Hedge adjourned the matter to 5 April 2011.

  1. On 5 April 2011 the matter was referred to me from the Registrar’s bankruptcy list. Mrs Charan appeared as a self-represented litigant and advised the Court that her solicitor had withdrawn and she was seeking new representation. That solicitor, Pheba Netto, filed a Notice of Appearance on 28 March 2008 after the Notice of Withdrawal as Lawyer was filed on 24 March 2011. The matter was adjourned to
    22 April 2011 at 10:15am and the following orders were made:
  2. On 11 May 2011 the Respondents were represented by Mr B. Mistry of Mistry and Fallahi Lawyers and Business Advisors. Mr Mistry advised the Court that he had only been retained on the previous day and made an application for an adjournment in order to obtain instructions from his client. This was granted and the matter was listed for hearing on
    24 May 2011, however by that date, Mr Mistry had filed an Application to Withdraw. Mrs Charan, representing herself and her husband, advised the Court that she was seeking a new legal representative.
    Mr O’Conner, for the Applicant, indicated that he would not oppose the adjournment application provided that his client was reimbursed for costs thrown away. Mr O’Conner drew the Court’s attention to the fact that the matter was listed as a final hearing and that there had been a number of prior adjournments to enable Mrs Charan to obtain legal representation. Mr O’Conner sought the payment for costs thrown away by 3 June 2011 because of growing costs being incurred by his client due to the number of adjournments granted to enable the Respondents to obtain legal representation. The matter was adjourned again to 23 June 2011 for final hearing and the following orders were made:
  3. On 3 June 2011, an Application in a Case was filed by the First Respondent. This Application was dealt with at the beginning of the final hearing.
  4. On 23 June 2011 the final hearing proceeded. Mr Ashok Kumar of Counsel appeared on a direct access basis and appeared with Mr C.R. de Robilliard. After hearing of argument the decision was reserved.
  5. On 7 July 2011 the solicitors for the Applicant sought an urgent relisting in order to file an Application seeking the following orders:
  6. On 7 July 2011 the following orders were made:
  7. The matter was relisted to be heard on 14 July 2011 and the following orders were made:

Evidence

  1. Mr O’Conner relied on the following material:
    1. Affidavit of Bruce Gleeson sworn 27 October 2010 together with Exhibit “BG1”.
      1. The following paragraphs were not read: 5, 11, 12, 15, 22- 29. The remaining paragraphs were accepted into evidence.
    2. Affidavit of Bruce Gleeson sworn 24 may 2011;
      1. Paragraphs 11, 12 , 13, 16 and 17 were not read.
    1. Affidavit of Bruce Gleeson sworn 21 June 2011;
      1. Paragraphs 13, 14, 15 and 16 were not read.
  2. Mr Kumar, for the Respondents, relied on the following material:
    1. Affidavit of Usha Wati Charan affirmed 31 December 2010;
    2. Affidavit of Prabhakar Charan sworn 6 May 2011.
  3. Both Mrs Usha Wati Charan and Mr Prabhakar Charan gave evidence in chief and were cross-examined.

Background

  1. In setting out the following background material I have either paraphrased or quoted directly from the written submissions prepared by both counsel in this matter. I have not made any further direct attribution as this would make the summary unwieldy.
    The information is provided to assist in the understanding of the nature of the Application and not to establish any evidentiary point.
  2. This is an Application by the Trustee, Bruce Gleeson, of the bankrupt estate of Prashant Prashikar Charan (“the Bankrupt”) seeking declarations pursuant to s.120 and s.121 of the Bankruptcy Act 1966 in respect of certain payments to his parents Usha Wati Charan (mother – First Respondent) and Prabhakar Charan (father – Second Respondent) (“the Respondents”).
  3. On about 30 November 2001 the Bankrupt purchased a property at 10 Primula Close, Woongarrah NSW (“the Woongarrah property”) for $130,000. A deposit of $13,000 was paid for the property. The Bankrupt borrowed about $120,000 from a lender known as Seaforth Securities limited. Throughout 2002, a house was built on the property.
  4. The Bankrupt applied for a First Home Owners Grant (“the grant”) from the Federal Government in respect of his purchase of the Woongarrah property. In about October 2002 the Chief Commissioner of State Revenue confirmed that the Application for the grant had been approved and that a “payment of $14,000 would be deposited to your nominated bank account within two working days of settlement or completion of your home”. The Chief Commissioner of state Revenue informed the bankrupt by its letter dated 10 October 2002 that:
  5. Section 12 of the First Home Owner Grant Act 2000 provides:
  6. Mrs Charan states in her affidavit dated 31 December 2010 that:
  7. Mrs Charan says in her affidavit dated 31 December 2010 that the Bankrupt sold the Woongarrah property in December 2002.
    The property was sold for $345,000. Mrs Charan informed the Applicant that:
  8. On 31 January 2003, the sale of the Woongarrah property was settled. From the net proceeds of sale, the Bankrupt repaid about $120,000 to Seaforth Securities and directed that the net balance received from the sale, the sum of $195,445.07 be paid to the Respondents.
  9. The Bankrupt occupied the Woongarrah property from about late August 2002 to December 2002 or January 2003. The Bankrupt therefore failed to comply with section 12(1)(b) of the First Home Owners Grant Act 2000. the Woongarrah property must have been advertised for sale during the construction of the house or shortly after the house was completed. As the Bankrupt did not occupy the Woongarrah property as his principle place of residence for a continuous period of at least 6 months, the Bankrupt did not comply with the necessary conditions to allow him to retain the grant. Therefore as at the sale of the Woongarrah property in January 2003, it is submitted that the Bankrupt knew or ought to have known that he was indebted to the Chief Commissioner of State Revenue in the sum of $14,000 however, the Bankrupt failed to repay the grant to the Chief Commissioner of State Revenue.
  10. On 29 July 2004, the Office of State Revenue demanded the Bankrupt repay the grant. Mrs Charan says in her affidavit dated 31 December 2010 that:
  11. The Bankrupt failed to repay the grant. On 13 April 2006, the Chief Commissioner of State revenue caused a Bankruptcy Notice to be issued on the Bankrupt claiming the amount due in respect of the unpaid grant which, with penalties, had increased to $19,989.94.
    On 29 September 2006 the Commissioner applied to the Federal Magistrates Court for a sequestration order against the Bankrupt’s estate. On 16 November 2006 a sequestration order was made in respect of the Bankrupt’s estate appointing the Applicant as Trustee. Mrs Charan says in her affidavit dated 31 December 2010 that:
  12. The date of the relevant act of bankruptcy was 11 August 2006.
    The debt owed to the Chief Commissioner of State Revenue is $21,151.57, including interest.

Availability of Mr Gleeson, the Trustee, for cross-examination

  1. Mr O’Conner indicated that the three affidavits sworn by Mr Gleeson were read in support of the Application. The Court was advised the Mr Gleeson was unavailable to be cross-examined and the reason that was raised is that two days prior to the hearing the Respondents indicated that Mr Gleeson would be required for cross-examination. Unfortunately Mr Gleeson was unavailable because of prior commitments and an order would be sought under r.15.29A of the Federal Magistrates Court Rules 2001 that the Court dispense with this requirement for cross-examination and direct that Mr Gleeson’s affidavit be allowed into evidence these proceedings. Mr O’Conner handed up a copy of an email sent by his instructing solicitor, Ms Stojanovski to Mrs Charan, dated 22 June 2011. That email set out the relevant matters in respect of the availability of Mr Gleeson.:
We refer to your email received yesterday. We put you on notice that in relation to your request that Mr Gleeson be available for cross-examination, he has confirmed that he is unavailable to attend the hearing tomorrow. We therefore intend to seek an order pursuant to Rule 15.29 of the Federal Magistrates Court Rules 2001 that the Court dispense with Mr Gleeson’s attendance for cross-examination at the hearing tomorrow and make a direction that Mr Gleeson’s affidavits be used without him being cross-examined.
The grounds upon which we will seek an order and direction pursuant to Rule 15.29 include:
We request that you confirm whether you will be represented by Counsel at the hearing tomorrow and confirm the identity of your Barrister so that Counsel may discuss the hearing. In particular, Counsel should discuss whether the Court will entertain or merely dismiss the separate application you have recently filed since the last adjourned hearing particularly given that you seek orders against your former solicitor who is not a party to the proceedings. Furthermore, Counsel should discuss what orders the Court makes in relation to your failure to comply with the Court’s order dated 25 May 2011 that you were to pay our client’s costs of the adjourned hearing in the sum of $5,500 by 3 June 2011.
  1. Mr Kumar raised an objection to this evidence. I pointed out to Mr Kumar that his clients have been represented by various legal practitioners during these proceedings; however they had filed Applications to withdraw shortly after their appearances. There had been considerable tolerance to grant a number of adjournments while Mrs Charan sought different legal representation and in a number of circumstances there was no representation present at listed hearings.
    If there were further adjournments granted in order to examine Mr Gleeson, it was another delay leading to further expense for the parties and the Court. I indicated that I would grant the order under r.15.29A of the Federal Magistrates Court Rules 2001 and that Mr O’Conner would be able to rely on the contents of Mr Gleeson’s affidavits.
  2. Mr Kumar indicated that as the affidavits were to be read, he wished to raise some objections to the contents. This issue was addressed and the paragraphs that were read into evidence are listed above at para.[10]. Mr Kumar also sought leave of the Court to file supplementary submissions as he had only received the brief a short period before the hearing and had not been able to fully prepare and receive detailed instructions from his clients. This leave was granted. Mr Kumar indicated that the material would be prepared by 5pm on 29 June 2011 and I provided a further week for Mr O’Conner to prepare any submissions in reply.
  3. This issue of cross-examination of Mr Gleeson was raised again by Mr Kumar in his supplementary submissions stating that his client had requested for Mr Gleeson to be made available for cross-examination but he chose to absent himself from the hearing without any explanation except for his counsel’s statement that he had ‘other commitments’. Mr Kumar submitted that such behaviour was unacceptable for a Trustee and an officer of the Court. In reply Mr O’Conner indicated that the proceedings were commenced on
    2 November 2010. Mr Gleeson had filed and served affidavits in 2010 and 2011. The Respondents’ request for Mr Gleeson to be available for cross-examination was made two days before the fourth listing of the hearing. The final hearing of this matter was adjourned three times on the Respondents’ Application. Mr O’Conner submits the Court granted the Applicant leave to rely on his affidavit evidence and no adverse findings should be made against the Applicant for being unavailable for cross-examination.
  4. Mr Kumar argued that wherever there is inconsistency between the evidence of Mr Gleeson and that of his clients, the latter evidence should be preferred. In reply Mr O’Conner brought the following issues to the attention of the Court:
    1. The evidence given by the Respondents as the reason for the sale of the Woongarrah property is inconsistent with the reason given by Mrs Charan to Mr Gleeson from 2007.
    2. The evidence given by the Respondents that the Bankrupt was not insolvent is inconsistent with the evidence given by Mrs Charan to Mr Gleeson in 2007.
    1. The Respondents have relied on fabricated documents to argue they were entitled to the $195,445.07 in circumstances where the documents cannot be relied upon to argue that the Respondents were entitled to take that sum from the sale of the Woongarrah property (for example, the Westpac transfer dated March 2001 is dated six months before the Bankrupt discussed purchasing the Woongarrah property).
    1. From 2006 to 2011, Mrs Charan hindered Mr Gleeson’s attempt to determine the basis upon which she claimed to be entitled to sales proceeds from the Woongarrah property which culminated in Mrs Charan:
      1. Lodging a complaint against Mr Gleeson to the ITSA;
      2. Commencing proceedings in this Court against Mr Gleeson (Charan v Gleeson [2010] FMCA 703, a decision of her Honour Barnes FM where she dismissed the Application with costs).
    2. Mrs Charan did not provide any information or assistance to Mr Gleeson from 2006 to May 2011. It was not until Mr Mistry was retained by the Respondents that Mrs Charan prepared and filed an affidavit. Mr Kumar also sought to bring to the Court’s attention that Mr Gleeson is claiming fees (exclusive of legal costs) in excess of $32,000 to reclaim an initial debt of less than $15,000. In reply, Mr O’Conner indicated that from 2006 to 2011 Mrs Charan refused and failed to assist Mr Gleeson to determine the basis upon which she claimed to be entitled to the sale proceeds of the Woongarrah property. This approach taken by Mrs Charan resulted in a complaint to ITSA and proceedings in this Court. Her Honour Barnes FM Provides a convenient summary of the complaint to ITSA in Charan v Gleeson [2010] (supra) at [20] – [22]:
      • [20] In November 2009 Mrs Charan made a complaint to the Insolvency and Trustee Service of Australia (ITSA) in relation to the conduct of Mr Gleeson as Trustee of the bankrupt estate of her son. ITSA has power to intervene if there is evidence of an actual or perceived failure on the part of a Trustee to discharge duties under the Bankruptcy Act.
      • [21] Before the Court is a copy of the ITSA report. Mrs Charan had complained that she had made an offer to purchase the Bankrupt’s share of the Casula property (for $3,000) and that this offer had been rejected by Mr Gleeson who had refused to lift the caveat. She claimed she had tried to negotiate with Mr Gleeson and that there was no surplus from the sale of the Woongarrah property and no equity in the Casula property. She reiterated these contentions in Court. Indeed it must be said that many of the matters she raised in Court were matters that she had previously raised with ITSA. ITSA sought the Trustee’s comments.
      • [22] In December 2009 ITSA found that Mrs Charan’s complaint was not justified. In a letter of 17 December 2009 ITSA stated that the Trustee’s lodgement of a caveat over the Casula property was consistent with his obligation to protect assets of the bankrupt estate. The letter referred to investigations and inquiries by the Trustee and considered whether the Bankrupt and Mrs Charan had provided sufficient cooperation and information to the Trustee to support the removal of the caveat over the Casula property. Importantly, ITSA pointed out that there had been an apparent failure on the part of the Mr and Mrs Charan to provide evidence of security to the Trustee in relation to the sale of the Woongarrah property (from which Mrs Charan and her husband received payment of $195,445) and that there was also an issue about the likely benefit Mr and Mrs Charan would receive in the form of increased equity in the Holsworthy property should the sale of the Casula property proceed first (based on the cross-collateralisation of loans for both properties). It was pointed out that the Trustee had consistently sought specific information from Mrs Charan and from the Bankrupt in relation to sale of the Woongarrah property and also about the extent of the Bankrupt’s interest in contributions to the Casula property which had not been addressed by Mrs Charan. Specific outstanding documentation was referred to by ITSA.

Preliminary issue

  1. The final hearing in this matter was originally listed for 24 May 2011, however on that date Mrs Charan made an application for a further adjournment on the grounds that her solicitor at that time, Mr Mistry, had withdrawn and she was seeking alternative representation.
    The adjournment was granted and the following orders were made:
  2. On 3 June 2011, an Application in a Case was filed by Mrs Charan seeking the following orders:
  3. It was agreed with the parties that this issue be addressed before the substantive matter. In respect of Order 1 which seeks a stay to the costs order made on 24 May 2011, that order should stand as it was made due to the costs thrown away due to a number of prior adjournments.
  4. The second order sought is against Mr Mistry who was Mrs Charan’s former solicitor. However, Mr Mistry is not a party to these proceedings and there has been no Application to join him. Consequently this order is not relevant. The third order sought will depend on the outcome of the substantive matter and, if relevant, would be made when the final judgment orders are delivered.
  5. In the circumstances I believe it is appropriate that the Application in a Case filed on 3 June 2011 be dismissed.

Legislation

  1. As at January 2003, s.120 of the Bankruptcy Act 1966 (“the Act”) provided:
  2. Pursuant to s.127(3) of the Act, an action may be commenced under s.120 by the Trustee within 6 years from the date on which the Bankrupt became bankrupt, in this case on 11 August 2006.
    An Application under s.120 is not limited to Applications being made during the terms of the bankruptcy: McVeigh v Long [2002] FMCA 53.
  3. As at January 2003, s.121 of the Bankruptcy Act 1966 provided:
  4. The Bankruptcy Legislation Amendment (Anti-Avoidance) Act 2006 (Cth) which commenced on 31 May 2006 made a number of significant amendments to s.120 (and s.121). These amendments apply to a transfer of property made on or after 31 May 2006.

Submissions

Consideration given for payment of $195,445.07 to Mr and Mrs Charan on 31 January 2003 and whether the transfer was void pursuant to s.120 of the Bankruptcy Act

  1. Mr O’Connor, on behalf of Mr Gleeson, submits that the Respondents could not have given the Bankrupt any consideration for the debt owed to the Commissioner of Stamp Duty, being the repayment of the grant in the sum of $14,000. The repayment of the grant became due and payable by the Bankrupt at the time he sold the Woongarrah property as he failed to occupy the Woongarrah property as his principle place of residence for a continuous period of at least six months.
  2. Mr O’Conner, in his written submissions, contends that for the purpose of s.120(1)(a) the transfer on 31 January 2003 took place on the period beginning five years before the commencement of the Bankrupt’s bankruptcy on 11 August 2006. In respect of s.120(1)(b) Mr Gleeson says that the Respondents gave no consideration for the transfer of $195,445.07 on 31 January 2003 or alternatively gave consideration of less value to the Bankrupt than that sum.
  3. From the time of his appointment as Trustee as the Bankrupt’s estate, Mr Gleeson repeatedly sought information from the Bankrupt and the Respondents as to the basis upon which the Bankrupt paid $195,445.07 to the Respondents from the net proceeds of the sales of the Woongarrah property. The affidavit of Bruce Gleeson dated 27 October 2010 sets out the Applicant’s attempts to obtain documents from the Respondents to confirm why they say they were entitled to be paid $195,445.07 from the sale of Woongarrah property. The Respondents now contend that they made payments for and on behalf of the Bankrupt in respect of the Woongarrah property and that the payments were made not as a gift but as a loan which justified their receipt of the $195,445.07 from the settlement of its sale on 31 January 2003.
  4. Mr O’Conner submits that as the Bankrupt was the registered proprietor of the Woongarrah property, it was presumed that he had full ownership and there is no beneficial interest in favour of the Respondents. Furthermore, the Respondents did not contribute towards the purchase price of the land. The purchase price was paid for by monies borrowed by the Bankrupt from Seaforth Securities.
    The only alleged contribution made by the Respondents was to the cost of paying for the construction of the house built on that land. There is no presumption of a resulting trust from the making of capital contributions to the improvement of the property: Shepherd v Doolan [2005] NSWSC 42 at [20] – [29].
  5. Mr O’Conner submits that as to the Respondent’s claim that they paid the sum of $165,000.00 for and on behalf of the Bankrupt to pay for the construction of a home on the Woongarrah property Mr Gleeson says:
    1. There is no documentary evidence to prove that any payments were made by the Respondents for and on behalf of the Bankrupt in respect of the Woongarrah property;
    2. There is no documentary evidence to prove that any payment purportedly made by the Respondents were made pursuant to a loan agreement between the Respondent and the Bankrupt;
    1. There is no documentary evidence to prove that the Respondents required the Bankrupt to repay any monies that they had paid on his behalf;
    1. If any payments were made by the Respondents, they were made in circumstances where the Respondents knew that the Bankrupt could not afford and did not have the means to repay the payments; and
    2. As the Woongarrah property was purchased by the Bankrupt for him to live in and not as an investment property, there could not have been an expectation at the time that the Respondents made any payment that the property would be sold or the monies repaid.
  6. The Bankrupt has not given Mr Gleeson or served any evidence to prove that payments purportedly made by the Respondents for and on behalf of the Bankrupt in relation to the Bankrupt’s purchase of the Woongarrah property were made by the Respondents pursuant to a loan agreement between the Bankrupt and his parents. The Bankrupt has not given Mr Gleeson any evidence to prove that he agrees with the Respondent’s claim that he was indebted to his parents and agreed to repay them any monies they purportedly paid on his behalf in relation to the Bankrupt’s purchase of the Woongarrah property.
  7. Mr O’Conner submits that having regard to the evidence, the Respondents have failed to rebut the presumption of advancement. Alternatively, if the payments were made on the basis that the sum would be repaid to the Respondents, the Respondents contributed less than the sum of $195,445.07 that was paid to them by the Bankrupt for the sale of the Woongarrah property.
  8. The Respondents could not have given any consideration to the Bankrupt for that part of the $195,445.07 paid to the Respondents on 31 January 2003, which represented the First Home Buyers Grant ($14,000). That sum should have been repaid to the Commissioner of Stamp Duty in January 2003 from the net proceeds received from the sale of the Woongarrah property. The debt owed to the Commissioner of Stamp Duty as at 31 January 2003 was payable irrespective of any entitlement to the Respondents say they had to any monies they paid to, or on behalf of, the Bankrupt.
  9. Mr Kumar argues that Mr Gleeson failed to provide any evidence of any amount attributed by the Bankrupt towards the purchase of the vacant land and thereafter the construction of the home thereon.
    The only amount in evidence is the amount borrowed by the Bankrupt from Seaforth Securities for the purchase of the land. The Seaforth Securities loan was refinanced with the assistance of the Respondents.
  10. In reply, Mr O’Conner submits that this alleged failure is denied and relies on the following evidence:
    1. Mrs Charan says in an affidavit dated 31 December 2010 that:
      • This land was purchased with the first home owners grant of $14,000.00 which was paid directly to Beechwood homes, the company that constructed the house on this land.
    2. The land was purchased in September 2001.
    1. The Bankrupt entered into a building contract on 19 December 2001.
    1. Schedule F of the building contract which is executed by the Bankrupt refers to the Bankrupt applying for the first home owners grant.
    2. In her letter to Mr Gleeson dated 7 March 2009 Mrs Charan says that:
      • The Woongarrah property was built by the Bankrupt using the first home owners grant for which he was fully eligible.
    3. Mrs Charan says in her affidavit dated 31 December 2010 that:
      • Prashant Prashikar Charan, my son (the discharged Bankrupt) bought a block of land at 10 Primula Close, Woongarrah for $130,000.00 on 30 November 2001. He paid a cash deposit of $13,000.00.
    4. The invoice issued by Yeramba Estates Pty Ltd dated
      14 September 2001 for the payment of the deposit is issued to the Bankrupt.
    5. The Respondents had failed to produce any bank records or documentary evidence to prove that they paid the $13,000.00 on 14 September 2001.
  11. Mr Kumar submits that the Respondent’s evidence is not contradicted. They mortgaged their own property at 5 Yengo Court, Holsworthy (which was subsequently sold to purchase the Casula property) and the property in the adjacent suburb to the Woongarrah property to fund the construction and associated costs of the Bankrupt’s home. These documents are a part of the evidence before the Court.
  12. In reply, Mr O’Conner argues that the Respondents’ evidence is contradicted and the documentary evidence relied upon by the Respondents does not prove what they allege. The Respondents’ evidence does not establish that any monies were paid by the Respondents for the construction of the home on the Woongarrah land. The onus lies on the Respondents to prove that the payments were made as alleged, but the Respondents have failed to meet that onus.
  13. Mr O’Conner submits that paragraph 4 of his submissions merely refers to the letter from the Chief Commissioner of State Revenue to the Bankrupt dated October 2002, which confirms that the grant had been approved. Mr O’Conner submits that the material before the Court establishes that the Bankrupt applied for the grant and used the grant to purchase the land and to pay Beechwood Homes to construct the house on the Woongarrah land.
  14. Mr Kumar advances the proposition that there is no evidence that the Respondents profited in any way from the grant or that the grant was paid into the Respondent’s account. However, Mr O’Conner directs the Court’s attention to the following evidence:
    1. The Bankrupt used the $14,000 grant to purchase the land and/or pay the construction of the house;
    2. The Respondents received the entire $195,445.07 from the sale of the Woongarrah property on 31 January 2003; and
    1. The $14,000 grant formed part of the $195,445.07 paid to the Respondents on 31 January 2003.
  15. The Respondents therefore profited from the $14,000 grant in that they received that sum in settlement of the sale of the property in circumstances where they were not entitled to receive that payment.
  16. Mr Kumar argues that the Amended Application was filed because there was no evidence that the $14,000 formed part of the sum of $195,445.07 transferred to the Respondents on or about 31 August 2003.
    Mr O’Conner states that the Application was amended:
    1. To distinguish the $14,000 grant from the other monies the Respondents claim they were entitled to be paid, having regard to the alleged loan payments;
    2. To give certainty to the Application under s.120 and s.121 in respect to the $14,000 grant;
    1. The $14,000 grant formed part of the $195,445.07 as:
      1. The $14,000 was used to purchase the land or to pay for the construction of the home;
      2. The Respondents were not entitled to be paid the $195,445.07 having regard to their own evidence which fails to prove that they are entitled to that sum.
  17. Mr Kumar contends that the unchallenged evidence is that the Bankrupt decided to sell the Woongarrah property primarily because of an ongoing dispute with a neighbour. There has been no evidence of an improper motive of the Bankrupt’s sale of the home. Mr O’Conner submits that in 2007, before any of the proceedings were commenced, Mrs Charan repeatedly argued that the Bankrupt sold the Woongarrah property due to the Bankrupt being unable to meet his loan repayments. The claim that the house was sold due to a neighbour dispute was first made in December 2010 and is inconsistent with the clear and unambiguous assertions made by Mrs Charan to Mr Gleeson in March 2007 that the Woongarrah property was sold due to the fact that the Bankrupt could not afford to meet his repayments.
  18. Mr Kumar contends that the Respondents cleared the mortgages from the $195,445.07 and that those monies did not constitute the Bankrupt’s equity, but the balance of the Respondents’ money to discharge the mortgage obligations. Mr O’Conner referred the Court to the items listed in Annexure ‘O’ to Mr Prabhakar Charan’s affidavit dated 6 May 2011 where he says that:
    1. As to the deposit on the land ($13,000) the evidence confirms that this amount was paid by the Bankrupt; the Respondents therefore had no entitlement to be paid this amount from the sale proceeds from the Woongarrah property.
    2. As to the interest on the deposit ($867.00), the Respondents are not entitled to this amount as:
      1. The deposit was paid by the Bankrupt;
      2. There is no entitlement to interest.
    1. As to the payment of “legal disbursements” the purchase of the land ($3,484.00) and the interest on that amount ($203.00):
      1. There is no documentary evidence to prove that the Respondents paid these disbursements;
      2. The J A Brown settlement sheet dated 30 November 2001 (Mr Charan’s affidavit, Annexure ‘F’) does not refer to the disbursements.
    1. As to the mortgage repayments on the land, $17,696.00:
      1. This interest claim relates to the interest payments purportedly made to Seaforth Securities for the loan of $120,000.00 to the Bankrupt in about November 2001;
      2. The repayments to Seaforth Securities were $1,264.00 per month (affidavit of Mr Charan, para.29, Annexure ‘E’);
      3. As to the repayments, Mrs Charan says that she relied on the Wizard Home Loan statements; however the Wizard statements have nothing to do with the Seaforth Securities loan to the Bankrupt, but instead relate to the $165,000.00 loan (purportedly used by the Respondents to pay for the building of the house) and a $250,000.00 loan, taken out by the Respondents to purchase the 6 Lavender Close, Woongarrah property.
      4. Mrs Charan says in her affidavit dated 31 December 2010:
        • We also transferred $24,000.00 from our Westpac savings account in Fiji to help with the repayment of Prashant’s house and land loans.
      5. However, the $24,135.82 transferred from Westpac was from the sale of a property in Fiji by the Respondents on
        21 September 2000, one year before the Bankrupt decided to purchase the Woongarrah property (Mrs Charan’s affidavit of 31 December 2010, p.9).
      6. Mr Charan, in his affidavit of 6 May 2011 at para.44 states:
        • In order to assist Prashant with the loan repayments for Seaforth Securities, I arranged for the transfer of approximately $24,134.82 from my Westpac savings account from Fiji to service the mortgage repayments. Annexed hereto and marked “N” is a copy of the documents used to obtain the transfer.
      7. Annexure ‘N’ to Mr Charan’s affidavit is a letter from him to Westpac dated 30 March 2001, sent six months before the Bankrupt proposed to purchase the Woongarrah property. The second page of Annexure ‘N’ is a Westpac document dated 31 January 2001 for the sum of $24,134.82.
      8. Therefore the $24,134.84 transferred in March 2001 from the sale of a Fiji property in September 2000 would not have been transferred “to assist Prashant with the loan repayments” to Seaforth Securities as that loan was not entered into by the Bankrupt until November 2001.
      9. There is no documentary evidence of:
        • (i) The Seaforth Security statement as to the interest payment due to be paid by the Bankrupt;
        • (ii) The actual payment that were made to Seaforth Securities;
        • (iii) The Respondents have paid Seaforth Securities their loan repayments;
      10. If the Respondents are relying on the CBA bank statement (Mr Charan’s affidavit of 6 May 2011, para.46, Exhibit PC2) and their own “writing” on the statement to prove payment to Seaforth Securities, those payments only show seven payments of $1,264.00 (a total of $8,848.00) and not 14 payments totalling $17,696.00;
    2. Interest at 5% for 14 months ($1,032) - this is a claim for interest on purported interest payments made by the Respondents.
      In reply, Mr Gleeson claims that:
      1. There is no evidence of the interest payment;
      2. The Respondents cannot claim interest on interest payments.
    3. Construction of the house on the land ($123,401). As to this claim, Mr Gleeson says:
      1. There are 7 invoices issued by Beechwood Homes at Exhibit PC1 to the affidavit of Mr Charan.
      2. The CBA bank statements (Exhibit PC1 to the Second Respondent’s affidavit) which are relied on by the Respondents to prove payments to Beechwood Homes, do not show the following payments having been made by the Respondents:
        1. Invoice 26 August 2002 for $27,800;
        2. Invoice 5 September 2002 for $10,000;
        1. Invoice 19 September 2002 for $28,105.
    1. Of the $123,401 the Respondents claim they paid to Beechwood Homes, the CBA records only show withdrawals matching the Beechwood invoices which total $56,496.00.
  1. Mortgage repayments on construction loan ($10,949). As to this claim, Mr Gleeson says:
    1. Mr Charan says the construction loan was the $165,000 taken out with Wizard, to which the documents at Exhibit “K” of Mr Charan affidavit relate (para.36 – 38 of the Mr Charan’s affidavit).
    2. The $165,000 loan was taken out on 15 February 2002.
    3. The Respondents say that as they took out the loan to pay for the construction of the Beechwood Home, they are entitled to be paid all interest paid on the $165,000 loan from 15 February 2002 to 31 January 2003.
    4. The invoices issued by Beechwood were dated 8 April 2002 ($4,600); 13 May 2002 ($1,796); 27 June 2002 ($22,300); 17 July 2002 ($27,800); 26 August 2002 ($27,800); 5 September 2002 ($10,000); 19 September 2002 ($28,105).
    5. The Respondents say that they made payments to Beechwood from their CBA bank account (Exhibit PC2); that account has nothing to do with the Wizard Bank statements at Exhibit “K” for the $165,000 loan.
    6. Although there is no documentary evidence to confirm the purpose for which the Respondents used the $165,000, the evidence confirms that it had nothing to do with the construction of a house on the Woongarrah property as the purported payments for the house came from the Respondent’s CBA bank account (not from the Wizard $165,000 account).
    7. The Respondents were therefore not entitled to be repaid interest payments paid on the $165,000 borrowed from Wizard on 15 February 2002 from the sale of the Woongarrah property.
  2. Internal finishing (tiling, carpets, lights) landscape, driveway, fence, turf ($25,877). As to this claim the Applicant says:
    1. There is no documentary evidence that the Respondents paid this amount at all.
    1. Mrs Charan says:
      • Prashant moved into the house towards the end of August 2002 to complete the internal and external finishing: tiling, lights, carpets, driveway and landscape”.
    2. At paragraph 53 of this affidavit of Mrs Charan she says:
      • On or about January 2003, I did not have any knowledge that Prashant was struggling financially and was unable to pay his debts. Prashant was working in full time employment and was working towards being in a financial position to refinance and take over the Prashant Loan from me.
    3. Whilst there is no evidence the Respondents paid the costs of the finishing, there is evidence from the Respondents that the Bankrupt did the work and had the financial means (in mid-2002) to pay for the cost of the work.
  1. Mr Kumar advances the argument that at the January 2003, the transfer of funds was made some four years before the Bankruptcy Notice had been issued and that there could be no credible suggestion that the transfer was made with the intention of defeating any creditor’s rights at a future date. Mr Kumar contends that this suggestion was not put to the Respondents in their respective cross-examinations. In reply, Mr O’Conner argues that the Office of State Revenue’s rights as a creditor arose on 31 January 2003.
  2. Mr Kumar submits that most significantly, Mrs Charan, in cross-examination stated that she would not have put the Woongarrah property in the name of the Bankrupt if there was a possibility that he was insolvent or about to be made bankrupt. In reply, Mr O’Conner argues that the Respondents both claimed that they knew the Bankrupt did not have the capacity to borrow any more than the money he borrowed from Seaforth Security. Mrs Charan says in 2007 that the Woongarrah property was sold due to the fact that the Bankrupt could not make the payments for the loans to buy the land and build the home.
  3. Mr Kumar contends that the lack of any written loan agreement in relation to the funds loaned by the Respondents to the Bankrupt would not be unusual in a family situation such as this one. The Bankrupt was a young person and like many young people in his situation, he needed assistance from his parents, the Respondents, to get a start in the competitive realty market. The fact that he was made bankrupt some three years later for a $14,000 debt could not retrospectively colour the pre-January 2003 transaction. The suggestion that the monies were given for the Bankrupt’s “advancement” lacks substance and are unlikely given that the Respondent’s limited resources and the fact that the Bankrupt had other siblings who would also need assistance.
  4. Mr O’Conner submits that the presumption of advancement applies unless otherwise rebutted by the evidence. The lack of documentary evidence to prove that any monies paid by the Respondents were paid to the Bankrupt as a loan is relevant given that the Respondents both said that the Bankrupt was of limited means and the fact that the Respondents had other children. The suggestion that any money was given for the Bankrupt’s advancement should be accepted by the Court given the Respondents’ admission that they wanted to assist the Bankrupt to have his own home. The Respondents were not of limited means or experience in buying or selling real estate given that they had purchased and sold property in Fiji and Australia before and at the time the Woongarrah property was purchased by the Bankrupt. Mr Kumar argues that the evidence from both Respondents, particularly from Mr Charan, was that their intention was to give the Bankrupt “a start in life”. Mr O’Conner submits that Mr Charan’s evidence is consistent with his intention that any monies paid for the Bankrupt would be a gift.
  5. Mr Kumar contends the fact that the monies were repaid to the Respondents contemporaneously with the settlement of the sale supports rather than contradicts the Respondent’s evidence that a loan was granted to the Bankrupt. Had the funds been for the Bankrupt’s “advancement” one would have expected the bankrupt to have kept control of the proceeds of sale and purchased another property.
    Mr O’Conner contends that the Respondent’s evidence that the Woongarrah property was sold due to the fact that the Bankrupt was unable to pay his debt at the time and the fact that as at 31 January 2003, the Bankrupt knew that on the sale of the Woongarrah Property he became indebted to the Office of State Revenue, suggests that the Bankrupt agreed to pay the entire $195,445.07 to the Respondents from the sale proceeds to avoid having to repay the Office of state Revenue the $14,000 grant.
  6. Mr Kumar advances the argument that in such context, it is difficult to find any credible evidence of any intention to defeat the creditors.
    Mr O’Conner contends that the fact that the Bankrupt chose to pay the entire $195,445.07 to the Respondents from the sale proceeds of the Woongarrah property in certain circumstances where:
    1. The Bankrupt was aware on 31 January 2003 that he was indebted to the Office of State Revenue in the sum of $14,000;
    2. The Bankrupt was aware as at 31 January 2003 he was unable to pay his debts and was insolvent;

suggests that the Bankrupt’s decision to pay the entire $195,445.07 to the Respondents from the sale proceeds to defeat the Office of State Revenue’s entitlement to be repaid the $14,000 grant.

Solvency of the Bankrupt as at 31 January 2003

  1. Mr O’Conner submits that for the purposes of s.120(3) of the Bankruptcy Act, the transfer on 31 January 2003 took place more than two years before the commencement of the bankruptcy in August 2006. However, having regard to the evidence, and for the purposes of s.120(3)(b) of the Bankruptcy Act, the Respondents have failed to satisfy the onus of proving that the Bankrupt was solvent at the time he paid $195,445.07 to the Respondents on 31 January 2003.
    The Respondents have instead argued and relied upon evidence to prove that the Bankrupt was not insolvent as at 31 January 2003.
  2. Section 5(2) requires that a person is solvent, if and only if, the person is able to pay all the person’s debts as and when they become due: McBain (Trustee) in the matter of Turner (Bankrupt) v Palffy [2009] FCA 260 per his Honour Marshall J at [16] – [17]:
  3. For the purposes of s.120, as at 31 January 2003, where a transfer of property is made without valuable consideration in circumstances where the transferor was experiencing financial difficulties, a heavy evidentiary onus is cast on any party seeking to rebut the inference that the transfer was made with the intention to defraud creditors: Cannane v J Cannane Pty Ltd (in liq) [1998] HCA 26; (1998) 192 CLR 557 at [12]. Therefore the Respondents face a heavy onus of proving that the Bankrupt was solvent as at 31 January 2003: McBain (Trustee) in the matter of Turner (Bankrupt) v Palffy (supra) at [12]. The Applicant says that the evidence proves that the Bankrupt was insolvent at the time he paid the Respondents $195,445.07 on 31 January 2003 from the sale of the Woongarrah property.
  4. The Statement of Affairs provided to Mr Gleeson by the Bankrupt in December 2006 indicated as at 6 January 2003 the Bankrupt was indebted to the ANZ Bank in the sum of approximately $12,000.
    In addition to the ANZ debt, the Bankrupt owed $14,000 to the Chief Commissioner of State Revenue upon the sale of the Woongarrah property and a debt of about $120,737.80 to Seaforth Securities, in respect of which Seaforth Securities held the mortgage over the Woongarrah property. The debt owed by the Bankrupt to Seaforth Securities in 2003, being the sum of $120,737.80 is referred to in the settlement sheet (affidavit of Bruce Gleeson, 27 October 2010, Exhibit BG1 at p.11).
  5. Mr O’Conner submits that to prove the Bankrupt was insolvent as at the time he made the transfer to the Respondents on 31 January 2003, Mr Gleeson refers to:
    1. A debt of $12,000 owed to the ANZ Bank;
    2. The debt of $14,000 owed to the Commissioner of State Revenue; and
    1. The evidence given by Mrs Charan in her letter to Mr Gleeson dated 23 February 2009 where she states:
      • My son (the Bankrupt) had committed (his parents) into his property and later could not afford to meet the house and land payments of $2,400 per month. He was on casual employment and earning only $1,600 per month and sometimes he was out of employment for two to three months at a time. All the payments were done by us and we could not meet the repayments of two houses, the Woongarrah property and our own house at Holsworthy. This was the reason for selling the Woongarrah property.
      • (Affidavit of Bruce Gleeson, 22 October 2010, Exhibit BG 1, pages 19-20).
    1. The letter from Mrs Charan to Mr Gleeson dated 7 March 2009 wherein she states that:
      • The Bankrupt could not afford to meet the monthly repayments of $2,600 on the house and land on his monthly casual income of $1,600 per month and therefore the property was sold.
      • (Affidavit of Bruce Gleeson, 22 October 2010, Exhibit BG 1, pages 24-26).
    2. The Bankrupt and the Respondents had not provided Mr Gleeson with any evidence of the Bankrupt’s assets and liabilities as at
      31 January 2003 other than the assets and liabilities listed in the Statement of Affairs. Since these proceedings were commenced in 2010, Mr Gleeson has not received any documents from the Bankrupt or the Respondents to prove that the Bankrupt was able to pay his debts as at January 2003. All of the evidence confirms that the Bankrupt was insolvent as at 31 January 2003.
  6. The Bankrupt has not been called by the Respondents to prove that he was solvent in January 2003: In Sharpe v Rangott [2008] FCAFC 45 it was held that:
  7. In Sharp v Rangott (supra) at [33] the Court held:
  8. Mr O’Conner invited the Court to make an adverse inference against the Respondents for failing to obtain any evidence from the Bankrupt to prove that he was solvent in January 2003. Mr O’Conner submits that for the purposes of s.120(2) of the Bankruptcy Act, the onus lies on the Respondents to prove that the Bankrupt was solvent as at
    31 January 2003. Mrs Charan’s evidence supports the finding that the Bankrupt was insolvent at that time and it is not for the Applicant to prove that the Bankrupt was insolvent.
  9. Mr O’Conner contends that if the proportion of the $195,445.07 paid to the Respondents on 31 January 2003 which represents the debt that was at that time owed to the Commissioner of Stamp Duty ($14,000) is void, upon application the Trustee is empowered by s.139ZQ(1) of the Act to issue a notice to the Respondents requiring that they “pay to the Trustee an amount equal to the money or the value of the property received”.
  10. Mr Kumar in his written submissions submits that it is the Respondents’ un-contradicted and unchallenged evidence that there has been no communication and that there has been a falling out with their son over the last few years. Mr O’Conner challenges this submission and contends that the Respondents have contradictory evidence which is challenged. At the time when the Respondents were in communication with their son, they claim that he was insolvent.
    Mr Kumar submits that by contrast, Mr Gleeson has ample powers under the Bankruptcy Act to extract information from the Bankrupt but has chosen not to use such powers.

Doctrine of Exoneration

  1. Mr Kumar refers the Court to a recent application of the Doctrine of Exoneration in Gutta v Ierino [2010] WASC 402 per his Honour Mazza J, where it was decided that the doctrine is not confined to parties to a marriage but has wider application. His Honour stated at [186]:

The equity can also apply to partly borrowed funds per his Honour at [188] – [193].

  1. Mr Kumar submits that the Respondents entered into their own mortgages to raise finance and support for the Bankrupt and that they stated this in oral evidence and have extensively deposed that the monies advanced were a loan. Consequently, the Bankrupt stood in the shoes of the Respondents and the mortgagors would have relief against him. It is argued that the Respondents have contributed all of the monies by raising the entirety themselves from mortgages and were thus entitled to be fully exonerated for the funds paid by them.
  2. Mr Kumar contends that the Doctrine of Exoneration applies because the parents raised the money by way of mortgage over their residential home to construct the Bankrupt’s house and to meet his mortgage repayments by transferring money from their savings held in Fiji.
    The first home owners grant was not used for the purchase and development of the Bankrupt’s home. Mr Kumar draws the Court’s attention to a very similar case of George Lionel Caddy & Anor v Bruce Anthony McInnis & Anor [1995] FCA 1464 where the bankrupt entered into an agreement with a builder for the construction of a house. Progress payments were made by the lending institution where the funds were borrowed by giving security over a family home in the amount of $99,000 the mortgage exceeded the value of the secured property. There was no element to defraud creditors or undervalue transactions. There was no disposition of property because the Bankrupt did not pay the money but the bank paid for the construction of the house and therefore the amount of $99,000 had to be deducted or apportioned.
  3. Mr Kumar contends that the Respondents, as mortgagees, raised the funds and always maintained that the amounts were loans to the Bankrupt. The Respondents had mortgaged their own house to raise the funding. The Bankrupt did not have the surplus monies and it must follow that under the principle of exoneration the Respondents ought to be exonerated to the full sum in respect of which the Trustee seeks declaration.
  4. Mr Kumar argues that any funds that the Bankrupt has had then could only be traceable to the Casula property: Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71. The Casula property should not be looked at in isolation as the Respondents who gave the monies in the first place have become part-owners. The Casula transaction has also occurred and this demonstrates that there was no intention to defeat creditors but solely to return the parents’ monies. Mr Kumar submits that the evidence given in cross-examination by the Respondents confirms that had there been any inclining as to the Bankrupt’s sequestration order, they would not have involved him. Mr Kumar argues that the Bankrupt’s affairs were arranged and that the sale occurred to protect the son’s safety then no gratuitous benefit was intended. The return of the monies to the Respondents is corroborative of what they have always asserted in that the monies were given as a loan. It is submitted that this is the most corroborative evidence as to what the parties intended and then carried out the intention, well before there was any attempt to impugn the transaction. Consequently, it is submitted that the loans ought to be exonerated on the sale proceeds.
  5. Mr O’Conner advances the contrary argument that the Respondents’ evidence does not prove that they made payments to the value of $195,445.07 for and on behalf of the Bankrupt to justify receiving that sum from the sale of the Woongarrah property. The transfer of $195,445.07 to the Respondents was therefore an undervalued transaction for the purposes of s.120 of the Bankruptcy Act. To the extent that the principle of exoneration applies, the Respondents have failed to prove that they made the payments totalling $195,445.07.
  6. The grant was used to purchase the Bankrupt’s land and to construct the Bankrupt’s house. However, the Respondents held no mortgage over the Woongarrah property. In those circumstances, the Respondents cannot be exonerated to the sum of $195,445.07 as their evidence proves that they did not pay that amount for and on behalf of the Bankrupt in respect of his purchase of the land and construction of the house on the Woongarrah land. The Bankrupt owns a 7/20 share in the Casula property in circumstances where the Respondent say he did not contribute financially to the purchase of that property. This evidence suggests that the payment of $195,445.07 to the Respondents on 31 January 2003 and the subsequent use of that money to purchase the Casula property was done by the Bankrupt and the Respondents to defeat the Office of State Revenue’s entitlement to be paid the $14,000 grant as a creditor of the Bankrupt on 31 January 2003.
  7. Mr O’Conner contends that although the Trustee can object to the automatic discharge of a bankrupt based on the grounds outlined in s.149D of the Bankruptcy Act, the Trustee had no grounds in which to object to the Bankrupt’s automatic discharge. The Trustee made the proper enquiries prior to the Bankrupt’s discharge from bankruptcy. The Trustee’s obligations were frustrated by Mrs Charan objecting to and hindering all attempts made by the Trustee to contact the Bankrupt to investigate the payments of $195,445.07 to the Respondents on
    31 January 2003 and by pursuing the course of behaviour set out at [29(d)&(e)] above. Mr O’Conner argues that contrary to Mr Kumar’s contention of the corroborative evidence of the parties’ intention, the following factors must be considered:
    1. The Bankrupt could not pay his debts in late 2002;
    2. The Bankrupt knew he became indebted to the Office of State Revenue upon the sale of the Woongarrah property;
    1. The Bankrupt paid the Respondents entire net-sale proceeds from the sale of the Woongarrah property;
    1. That money was used to purchase the Casula property, in respect to which the Bankrupt was given a 7/20 interest;

is evidence to confirm that the Bankrupt on his own, or with the knowledge of the Respondents, intentionally attempted to avoid repaying the grant to the Office of State Revenue.

  1. Mr O’Conner argues that despite the claim that the evidence is that these monies took the form of loans, and that the loans ought to be exonerated from the sale proceeds, there are no submissions made on behalf of the Respondents to prove that the documents relied upon by the Respondents established that the sum of $195,445.07 was paid for the benefit of the Bankrupt. The matters detailed in para[56(a)(ii)(h)] above prove that the Respondent did not pay the sum of $195,445.07 for and on behalf of the Bankrupt in respect to his purchase of the land and construction of the house on the Woongarrah property.

Resulting trust and advancement

  1. Mr Kumar submitted as an alternative to the Doctrine of Exoneration, the submission that the proceeds of the sale of the Woongarrah property were in the form of a resulting trust. The Woongarrah property was in the name of the Bankrupt at the time of the disposal of the property and the Trustee’s claim relates to the balance of the sale proceeds from that disposal, being $195,445.07. Mr Kumar contends that it is unclear on what equitable or legal basis it is asserted that the monies are the Bankrupt’s property as the Respondents have demonstrated the composition of those funds. For an action to succeed under s.120 and s.121 the Trustee must demonstrate that the monies are the Bankrupt’s property as the Respondents dispute this issue.
  2. Mr Kumar submits that the Respondents have an equitable interest in the funds by virtue of the contributions to the land purchase and construction. The Trustee has denied the Respondents have an equitable interest despite evidence that the monies in question have been provided by the Respondents from mortgages entered into by them. Mr Kumar contends that this situation arose four years before the Trustee’s appointment and it is unconscionable for the Trustee to claim these monies four years after the funds were distributed and not recognise the Respondents equitable interest: Clout v Markwell [2001] QSC 91 per Atkinson J at [20].
  3. Mr O’Conner argues that Mr Gleeson has not acted unconscionably and the decision of Clout v Markwell (supra) is irrelevant to these proceedings given that in those proceedings the Respondent proved that she had in fact paid the amount she claimed; whereas in this matter the Respondents have failed to prove that they contributed the sum of $195,445.07 to the Bankrupt’s purchase of the land and construction of the house.
  4. Mr Kumar argues that it is unconscionable for the Trustee to deny such equitable interest and consequently a constructive trust arises owing to this unconscionable conduct of the Trustee. It is submitted that this interest existed 3.5 years prior to the Trustee’s appointment and that from the examination of the Bankrupt’s affairs ought to have been aware that the monies were not the Bankrupt’s and pursuant to the constructive trust, it would then fall into the correct hands. Further, the Trustee, as the Applicant in these proceedings, carries the onus of proving his case otherwise.
  5. In reply, Mr O’Conner acknowledges that the Bankrupt owned the Woongarrah property and prima facie he was entitled to the benefit of the proceeds of the sale. However, as the entire proceeds of the sale were paid to the Respondents, who were not named on the title and held no registered mortgage over the property, a constructive trust arises in favour of the Bankrupt, to the proceeds of the sale.
    The $14,000 grant forms part of the $195,445.07 and was used to purchase the land and build the building. The Bankrupt chose to pay the $195,445.07 to the Respondents in circumstances where the evidence proves that they did not pay that amount towards the purchase of the land or construction of the house. The Respondents have failed to prove that they had held an interest in the Woongarrah Property to the value of $195,445.07.
  6. Mr O’Conner indicates that the Trustee relies on the following evidence to argue that the Bankrupt made payments towards the loan to Seaforth Securities and Beechwood homes to construct the house:
    1. Mrs Charan, in her affidavit at para.53:
      • Prashant was working in full time employment and was working towards being in a financial position to refinance and take over the Prashant Loan from me.
    2. In 2002, Mr Charan’s monthly income from Panasonic Australia ($4,154.10 per month) was deposited directly into his National Australia Bank Account (Exhibit ‘PC3’).
    1. The CBA Bank records (Exhibit ‘PC2’ – the account from which the Respondents alleged that the loan repayments were being made) shows that regular monthly deposits being made into that account throughout 2002. The monthly deposits entering the CBA account include:
      • 3 March 2002 - $1,393.95
      • 5 March 2002 - $355.20
      • 8 May 2002 - $1,252.63
      • 24 June 2002 - $1,751.20
      • 5 July 2002 - $1,141.37
      • 1 August 2002 - $1,157.72
      • 5 September 2002 - $1,370.20
      • 20 September 2002 - $2,500.00
      • 2 October 2002 - $683.72
      • 14 October 2002 - $2,519.00
      • 30 October 2002 - $1,223.00
      • 11 November 2002 - $2,658.75
      • 13 December 2002 - $2,952.05
      • 13 January 2003 - $2,889.50
    1. The Respondents’ NAB Account records (Exhibit ‘PC3’) does not include corresponding withdrawals from the monthly deposit account that were made into the CBA Account – Exhibit PC2 therefore the evidence suggests that a third person was depositing income on a monthly basis into the CBA Account, being the account from which the Respondent says loan repayments were being made.

Consideration given for payment of $195,445.07 to Mr and Mrs Charan on 31 January 2003 and whether the transfer was void pursuant to s.121 of the Bankruptcy Act

  1. Mr O’Conner in his written submissions relies on authority in Worrell v Issitch [1999] FCA 1452 per Dowsett J at [62] where his Honour indicated that there was no basis for distinguishing between ss.120 and 121 for the purposes of the application of the principle for determining available relief. In relation to the various sections of the Bankruptcy Act the following applies:
    1. Section 121(4)(a) – the consideration given to the Bankrupt by the Respondents was less than $195,445.07;
    2. Section 121(4)(c) – the Respondents knew the Bankrupt was insolvent as at January 2003 and that is the basis upon which they say that the Woongarrah property had to be sold;
    1. Section 121(6)(a) – the Respondents are related to the Bankrupt; and
    1. Section 121(7) – there is no evidence of a Debt Agreement between the Respondents and the Bankrupt.
  2. The argument advanced on behalf of Mr Gleeson is that had the Bankrupt not transferred the $195,445.07 to the Respondents in January 2003, he would have used that money to purchase the property he purchased with Mrs Charan in 2004 at 804 Flametree Road, Casula (the “Casula property”). The Bankrupt only holds a 7/20 share in the Casula property. Therefore the sum of $195,445.07 including a debt owed to the Commissioner of State Revenue, would have become part of the Bankrupt’s estate in 2006 and would properly have been available to creditors at that time. The debt of $14,000 owed to the Commissioner of Stamp Duty could have been repaid from the sales proceeds received from the sale of the Woongarrah property. It is argued that the evidence confirms that in about late 2002 the Bankrupt could not meet his debts and liabilities and was therefore forced to sell the Woongarrah property. Mr Gleeson maintained that the Respondents could reasonably have inferred from all the circumstances that, at the time of the transfer in January 2003, the Bankrupt was, or about to become, insolvent.
  3. Section 121(2) of the Bankruptcy Act provides that the purpose of making the transfer is taken to be to prevent the transferred property from becoming divisible among the transferors if it can reasonably be inferred from all of the circumstances that, at the time of the transfer the transferor was, or was about to become, insolvent. Mr O’Conner contends that the evidence proves that the Bankrupt was insolvent as at 31 January 2003 and by paying the entire $195,445.07 to the Respondents, the Bankrupt became insolvent as he was unable to pay the ANZ loan and the $14,000 grant to the Office of State Revenue.
  4. It is argued on behalf of Mr Gleeson that it can reasonably be inferred from all of the circumstances that at the time of the transfer of the $195,445.07 to the Respondents, the Bankrupt was insolvent for the purposes of s.121(2) of the Act and the Bankrupt’s main purpose in making the transfer is to prevent the transferred property from becoming divisible among the Bankrupt’s creditors, including the debt owed to the Commissioner of Stamp Duty . The debt of $14,000 owed to the Commissioner of Stamp Duty should have been repaid from the sale proceeds received from the sale of the Woongarrah property.

Consideration

  1. Section 120 enables the Trustee to avoid transfers of property by the Bankrupt to another person within five years prior to the commencement of the bankruptcy, which were at an undervalue and thereby assists in the recovery of property for the equitable distribution amongst creditors generally. It is only the Trustee in Bankruptcy or the Official Receiver who has standing to avoid a transfer under s.120.
  2. An Application under s.120 is not limited to applications being made during the term of the bankruptcy: McVeigh v Long [2002] FMCA 53. Pursuant to s.127(3) of the Act, an action may be commenced under s.120 by the Trustee within up to 6 years from the date on which the Bankrupt became bankrupt on 11 August 2006. Consequently, Mr Gleeson had until 11 August 2012 to commence these proceedings as to whether the transfer was void pursuant to s.120 of the Bankruptcy Act. None of the exceptions in s.120(2) of the Act apply to the payment made by the Bankrupt to the Respondents on 31 January 2003 received from the sale of the Woongarrah property. Section 5(2) of the Act provides that a person is solvent if, and only if, the person is able to pay all the person’s debts as and when they become due.
  3. In Anscor Pty Ltd v Clout (Trustee) [2004] FCAFC 71 his Honour Lindgren J set out general propositions relating to the interpretation of s.120. The remaining two judges, Wilcox and Moore JJ did not find it necessary to make any observations on the matter of general interpretation. His Honour Lindgren J at [43] stated:
  4. The primary relief sought in the Application is a declaration that the transfer of property is void against the Trustee in Bankruptcy.
    The transfer of the property must take place in the period beginning five years before the commencement of the bankruptcy and ending at the date of bankruptcy: s.120(1)(a). This should be read together with s.120(3). The relevant evidence in respect to these issues of timing are set out in paras.[39] and [41] above. Prior to the amendments introduced by the Bankruptcy Legislation Amendment (Anti-Avoidance) Act 2006 (Cth) which is the situation in this matter and where the transfer occurred two years prior to the commencement of the bankruptcy, if the transferee could prove that at the time of the transfer that the transferor was not insolvent, the transfer was not void.
  5. Section 5(2) provides that a person is solvent if, and only if, the person is able to pay all of the person’s debts as and when they become due.
    A person will be insolvent at a particular time if his or her income, as well as assets, are insufficient to meet his or her liabilities. No attempt has been made to lead evidence that the Bankrupt was solvent at the relevant time. Detailed submissions as to solvency of the Bankrupt as at 31 January 2003 have been provided by both counsel (see para.[63] to [72] above). A substantial amount of the evidence before the Court is the various statements made by his mother, Mrs Charan, in respect to her son’s solvency. It is acknowledged that there has been a falling out between the Respondents and the Bankrupt but the other material available does alter the situation sufficiently to not make the inference. In these circumstances, the Court must accept that the Bankrupt was insolvent at the relevant time for the purposes of this provision of the Bankruptcy Act.
  6. The Respondents, as transferees, have sought to raise a defence that the property was held on constructive trust for the transferee. It has been argued that the Respondents contributed directly to the funds used to acquire the property or alternatively, there was a common intention that the Respondents had an interest in the property. To maintain that argument, it is necessary for the Respondents to establish that there was conduct of a character to attract the invocation of equity in Williams v Peters [2009] QCA 180 per Muir JA at [23], his Honour said that a common intention constructive trust requires proof of a real intention by each party that it would be the owners of the relevant property and that this intention was acted upon by the beneficiary to their detriment.
  7. To establish a constructive trust, the Respondents must prove that there was an actual or presumed intention on the part of the Bankrupt that he would hold the property on trust for his parents: Shepherd v Doolan (supra) [30] – [47]. The presumption of advancement applies to any payments made by the Respondents (his parents) for and on behalf of their son, the Bankrupt, in relation to the Woongarrah property: Calverley v Green [1984] HCA 81; (1984) 155 CLR 242. The presumption may be rebutted by evidence of a contrary intention: Sui Mei Huen v Official Receiver for and on behalf of The Official Trustee in Bankruptcy [2008] FCAFC 117 at [55]. The onus lies on the Respondents to rebut the resumption of advancement. To rebut the presumption requires evidence of the actual intention of the Respondents at the time they made payment to the Bankrupt: Nelson v Nelson (1995) 184 CLR 528.
  8. Evidence of conduct after the transaction in question can be relevant in ascertaining the common intention: Draper v Official Trustee in Bankruptcy [2006] FCAFC 157; (2006) 156 FCR 53 at [30]; Rambaldi (as Trustee of the Bankrupt Estate of Volkov) v Volkov [2008] FCA 1957 per Ryan J at [38]. However, in Foley v Foley [2007] FamCA 584 per Bennett J at [71], her Honour said a constructive trust will not be imposed where there is a ‘vacuum of evidence’. As the recipients of the proceeds of the sale of the property by the Bankrupt to which there has been no apparent consideration given for the transfer, may contend in an application by a Trustee that the Bankrupt held the property on a resulting trust for the transferee.
  9. It is argued that the Respondents paid the consideration for the purchase of the property where it was not intended to make a gift or advancement of the money to the Bankrupt. In Williams v Peters (supra) per Muir JA at [23], his Honour said that a resulting trust can only arise in favour of a party making the relevant payment and it arises when the Court can discern an intention by that party to retain its interest in the sum paid. I am satisfied that there is no evidence that is contemporaneous with payment that supports the claim that the Respondents intended to retain an interest in the sum paid such as the term of the loan.
  10. A presumption of a resulting trust may operate where a person provides the purchase price of the property, which is conveyed into the name of the Bankrupt: Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 at 246 – 247.
    In such circumstances, there is an absence of consideration by the person who has the legal title: Napier v Public Trustee (WA) (1980) 55 ALJR 1.
  11. There are relevantly two presumptions of a resulting trust and of advancement which are applicable to determine the beneficial ownership of the property. They operate to place the burden of proof on the person seeking to rebut the presumption: Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538. In either case the presumption may be rebutted by evidence of actual intention of the transferor or person providing the money at the time of the purchase: Nelson v Nelson (supra) at 574; Calverley v Green (supra) at 262. Evidence of intention of relevant parties may be drawn from contemporaneous statements of intention, subsequent provisions or inferred from facts as to subsequent dealings and of surrounding circumstances of transaction: Trustee of the property of Cummins (a bankrupt) v Cummins [2006] HCA 6; (2006) 227 CLR 278; Draper v Official Trustee in Bankruptcy [2006] FCAFC 157 at [30]; Rambaldi (as Trustee of the Bankrupt Estate of Volkov) v Volkov [2008] FCA 1957 per Ryan J at [37].
  12. In respect of certain relationships, equity presumes that any benefit which was provided for one party at the cost of the other has been provided by way of advancement. It is then presumed that the equitable interest follows the legal title. Such presumption is drawn in relationship of father and child: Calverley v Green (supra) at 247 and in capable of being drawn in relationship of mother and child: Nelson v Nelson (supra) at 548 – 549, 574, 585. This presumption or inference may be rebutted by evidence of a contrary intention: Sui Mei Huen v Official Receiver for and on behalf of the Official Trustee in Bankruptcy [2008] FCAFC 117 at [55]. When the presumption of advancement is rebutted, the resulting trust is ‘affirmed’ or ‘presumed’ and it is the resulting trust, not an express trust which is enforced by the Courts: Nelson v Nelson (supra) at 547 – 548; Calverley v Green (supra) at 251 – 252; Brown v Brown (1993) 31 NSWLR 582 at 589D – 590B. The onus is upon the person who seeks to rebut the presumption of advancement: Nelson v Nelson (supra) at 547 – 549; Calverley v Green (supra) at 274, 251 – 252. Where the relation between donor and donee is such that an obligation, either natural or assumed, on the part of the donor to provide for the donee can be inferred, an intention to give may be presumed. A transfer from parent to child is presumed to have been made by way of advancement. In Nelson v Nelson the High Court expressed preference for the approach that the presumption of advancement applies in the case of gifts by a mother.
  13. The presumption of advancement may be rebutted either partially or completely, by evidence that at the time of transfer no gift was intended by the transferor: Calverly v Green (supra). Evidence as to the legal and factual relationship between the parties should also be considered. The burden of rebutting the presumption of advancement lies upon the person asserting that no gift was intended: Martin v Martin [1959] HCA 62; (1959) 110 CLR 297. Evidence of conduct subsequent to the transfer is not admissible unless it occurs so immediately after the transfer as to constitute part of the transaction. The presumption of a gift may be rebutted by appropriate evidence showing that no gift was intended, for example, by declaration by the alleged donor made prior to or contemporaneous with the assurance or transfer, but no declaration made subsequently unless as admissions against the interest or unless they are so connected with the assurance of transfer that they may fairly be regarded as contemporaneous with it. Where a presumption of advancement arises, the burden of proof is placed upon the person asserting that a resulting trust was intended, but the issue is dependent on the intention of the “donor”.
  14. The Court notes that the bankrupt was a registered proprietor of the Woongarrah property and that there was no registered mortgage over the property in the name of the Respondents. Consequently, the Bankrupt was entitled to the benefits of the proceeds of the sale and a constructive trust arises in the favour of the Bankrupt in respect of the proceeds of the sale. After settlement of the mortgage obligations to Seaforth Securities limited, the balance was transferred to the Respondents. I am satisfied that the evidence established that the Respondents did not make any formal pronouncement as to the funds advanced and were thus by way of a gift or advancement, and not a loan. There is an absence of any documentation establishing a loan.
  15. The transfer must be by a person who ‘becomes a bankrupt’. These words were held to mean “commits an available act of bankruptcy”: Fawcett v Fearne [1844] EngR 572; (1844) 6 QB 20. In Florance v Andrew (1985) 58 ALR 377 per Fisher, Lockhart and Jenkinson JJ that the expression makes it clear that the words are used in the subjection to mean when a person is made bankrupt either by the making of a Sequestration Order against his estate or following the presentation of his own petition.
  16. The principle known as ‘equity of exoneration’ was advanced on behalf of the Respondents. The doctrine of exoneration in certain circumstances establishes that equity holds that someone who has advanced money to, or guaranteed the obligation of another person is entitled to have their interest ‘exonerated’ out of the property of that person. In the context of mortgages, the principle has been stated as:

This statement is based on cases such as Peirs v Peirs [1750] EngR 148; (1750) 27 ER 1180 and was adopted by the Full Federal Court in Parsons v McBain [2001] FCA 376; (2001) 109 FCR 120 at 127. In Dinsdale bht Protective Commissioner v Arthur [2006] NSWSC 809 per Brereton J [22] his Honour observed:

[22] The equity of exoneration is an incident of the relationship between surety and principal debtor, and operates as a charge upon the estate of the principal debtor by way of indemnity for the purpose of enforcing against that estate the right which the surety has, as between the surety and the principal debtor, to have the principal debtor’s estate resorted to first for the payment of the debt...
  1. This principle was discussed in Re Pittortou (a Bankrupt); Ex Parte Trustee of the Property of the Bankrupt [1985] 1 All ER 285 per Scott J at 61 where his Honour said:
  2. In Gutta v Ierino (supra) his Honour Mazza J set out the operation of the principle and the recent developments at [185] – [187]:
  3. The argument advanced by Mr Kumar is that the Respondents entered into a mortgage over their residential home at 5 Yengo Court, Holsworthy (which was subsequently sold to purchase the Casula property) in order to provide funds to the Bankrupt in order to construct the house on the Woongarrah property and to assist the Bankrupt in meeting his mortgage repayments.
  4. The equity of exoneration was considered in Parsons v McBain [2001] FCA 376 per Black CJ, Keifel and Finklestein JJ at [21] where their Honours said:
  5. Then at [23] their Honours stated:
  6. A person otherwise entitled to an equity of exoneration may lose that equity if they receive a tangible benefit from the transaction. For the equity to be defeated, the benefit to the co-owner or surety must flow directly from the loan itself. Based on the material before the Court which is set out in detail in the submissions, it is apparent that the Respondents, by receiving from the Bankrupt the amount of $195,445.07 was greater than the amount advanced by them as it clearly incorporated the $14,000 owed to the Office of State Revenue (also see para.[56] above) together with the other amounts sourced by the debtor himself that was pooled to build the house on the Woongarrah property. I am satisfied that any claim based on exoneration cannot be sustained.
  7. The purpose of s.121 is to recover transfers of property by a person who later becomes a bankrupt, where the main purpose of the transfer was to defeat creditors and the property would probably have become part of the estate or would have been available to creditors if the property had not been transferred. This section enables the property to be recovered for the benefit of creditors generally and to enable a rateable distribution amongst creditors. An action under s.121 with respect to a property may be commenced by a Trustee at any time: s.127(4).
  8. There are a number of elements that arise in an application under s.121 that I find to have been established here:
    1. That there was a transfer of property, by a person who later became a bankrupt: s.121(9) contains the definition of transfer of property.
    2. That the property would probably become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred: s.121(1)(a).
    1. It can reasonably be inferred from all of the circumstances at the time of the transfer, the transferor was, or was about to become insolvent. The transferor’s main purpose in making a transfer for the purposes of s.121(1)(b) can then be reasonably inferred.
    1. The Respondents (transferee) could reasonably have inferred that at the time of the transfer, the transferor was, or was about to become, insolvent: s.121(4)(c).
  9. I am satisfied that all of these elements have been established in the evidence and the appropriate orders should be made.

Contempt

  1. In light of the above findings, I do not believe it is necessary for the Court to consider the issue of contempt as arose in the circumstances of the Trustee attempting to recover Court costs that arose as a result of a number of adjournments to enable the Respondents to obtain legal assistance after their previous solicitors had withdrawn on a number of occasions. As the finances will now be in the hands of the Trustee, he is in the best position to recover the various costs orders that have been made by this Court.

I certify that the preceding 117117one hundred117117seventeenone hundredone hundred and seventeen (117) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM


Associate:


Date: 21 September 2011

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