CATCHWORDS
BANKRUPTCY - Bankruptcy Act 1966 (Cth) s 121 - disposition of property - money sums and interests in property - intention to defraud creditors - admissions made in criminal proceedings - whether admissible and if so against which respondents - assets placed into family trust structures to shield against failure of hazardous venture or undertaking - valuable consideration and good faith - state of mind of company - form of relief - whether dispositions of money to trustee companies "traceable" into assets acquired by the companies - disponee under a void disposition acquires defeasible title - title defeased by institution of proceedings to avoid disposition - costs - partial success.
Bankruptcy Act 1966 (Cth) ss 5, 6, 121
13 Eliz, c5
Conveyancing Act 1919 (NSW) s 37A
Crimes Act 1914 (Cth) s 86(1)(e)
Official Receiver v Barton (1983) 52 ALR 95
SS Hontestroom v SS Sagaporack (1927) AC 37
Abalos v Australian Postal Commission (1990) 171 CLR 167
Devries v Australian National Railways Commission (1993) 177 CLR 472
Warren v Coombes (1979) 142 CLR 531
Barton v Official Receiver (1984) 4 FCR 380 (FC); (1986) 161 CLR 75 (HC)
Williams v Lloyd (1934) 50 CLR 341
Norgard v Rocom Pty Ltd (unreported, Federal Court of Australia (FC), 16 August 1990) Trautwein v Richardson [1946] ALR 129
In re Eichholz, decd [1959] 1 Ch 708
Barton v Vantrey Thuysen (1867) 11 Hare 126; 68 ER 1215
Jack v Smail (1905) 2 CLR 684
Union Trustee Co of Australia v Webb (1915) 19 CLR 669
Commissioner of Stamp Duties v Gale (1958) 101 CLR 91
Shaw v Forster (1872) LR 5 HL 321
In re Thackwray and Young's Contract (1888) 40 Ch D 34
Knight Sugar Co Ltd v Alberta Railway and Irrigation Co [1938] All ER 266
Svanosio v McNamara (1953) 96 CLR 186
Calverley v Green (1984) 155 CLR 242
Bloch v Bloch (1981) 55 ALJR 701; 37 ALR 55
Croton v The Queen (1967) 117 CLR 326
Catlin v Cyprus Finance Corporation (London) Ltd [1983] 1 QB 759
Re Marchiori (1983) FLR 290
Re Edelstein; Ex parte Donnelly (unreported, Federal Court of Australia, 9 June 1992, Northrop J)
Morton v Morton [1937] P 151
Walton v The Queen (1989) 166 CLR 283
Dobson v Morris (1986) 4 NSWLR 681
Concrete Constructions Pty Ltd v Plumbers and Gasfitters Employees' Union (1987) 15 FCR 64
Shoshana Pty Ltd v 10th Cantanae Pty Ltd (1987) 18 FCR 285
Italiano v Barbaro (1993) 40 FCR 303
PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515
Official Trustee v Marchiori (1983) 69 FLR 290
Noakes v J Harvy Holmes & Son (1979) 37 FLR 5
Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370
Mackay v Douglas (1872) LR 14 Eq 106
Ex parte Russell; In re Butterworth (1882) 19 Ch D 588
Lloyd v Blumenthal (1884) 5 LR (NSW) Eq 99
Jones v Dunkel (1959) 101 CLR 298
Re Rossfield Group Operations and Morton Holdings (ACT) Pty Limited [1981] QdR 372
Brady v Stapleton (1952) 88 CLR 332
Harrods Limited v Stanton [1923] 1 KB 516
In re Mouat; Kingston Cotton Mills Company v Mouat [1899] 1 Ch 831
Caddy v McInnes (1995) 131 ALR 277
Re Diplock [1948] 1 Ch 465
Daly v Sydney Stock Exchange (1986) 160 CLR 371
Re Goode (1974) 24 FLR 61
Sharrment Pty Ltd v Official Trustee (1988) 18 FCR 448 (FC)
Napier v Public Trustee (Western Australia) (1980) 32 ALR 153
Muschinski v Dodds (1985) 160 CLR 583
Official Trustee in Bankruptcy v Giuseppe Alvaro, Girolama Alvaro, Paul Alvaro, Carmine Alvaro, Combran Pty Ld, Rita Alvaro and Maria Concetta Alvaro
No. SG 85 of 1994
Official Trustee in Bankruptcy v Paul Alvaro, Rosina alvaro, P & R Alvaro Enterprises Pty Ltd, Paul Alvaro Jnr, Elena Alvaro and Maria Concetta Alvaro
No SG 86 of 1994
Wilcox, Cooper and Moore JJ
Sydney (Heard in Adelaide)
22 May 1996
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
No SG 85 of 1994
ON APPEAL FROM A JUDGE
OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN: THE OFFICIAL TRUSTEE IN BANKRUPTCY
Appellant
AND: GIUSEPPE ALVARO, GIROLAMA ALVARO,
PAUL ALVARO, CARMINE ALVARO, COMBRAN
PTY LTD, RITA ALVARO and MARIA CONCETTA
ALVARO
Respondents
JUDGES MAKING ORDER: Wilcox, Cooper and Moore JJ
WHERE MADE: Sydney (Heard in Adelaide)
DATE: 22 May 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
1. The appeal be allowed.
2. The orders made by Heerey J on 31 October 1994 be set aside and, in lieu thereof, it be ordered that:
(a) a declaration be made that the transfer by Giuseppe Alvaro on 5 June 1981 of his right, title and interest in the house property at 18 Itala Avenue, Croydon Park, South Australia to Paul Alvaro as trustee of the Giuseppe Alvaro Family Trust is void as against the Official Trustee in Bankruptcy;
(b) Paul Alvaro (as trustee of the Giuseppe Alvaro Family Trust) take all necessary steps and do all necessary things to enable title in the house property at 18 Itala Avenue, Croydon Park, South Australia to be transferred to the official Trustee in Bankruptcy as trustee of the bankrupt estate of Giuseppe Alvaro;
(c) Giuseppe Alvaro and Paul Alvaro (as trustee of the Giuseppe Alvaro Family Trust) pay to the Official Trustee in Bankruptcy one half of the costs incurred by him in relation to the proceeding; and
(d) the Official Trustee in Bankruptcy pay to Girolama Alvaro and Carmine Alvaro the costs incurred by each of them in relation to the proceeding.
3. Giuseppe Alvaro and Paul Alvaro (as trustee of the Giuseppe Alvaro Family Trust) pay to the Official Trustee in Bankruptcy one half of the costs incurred by him in relation to the appeal.
4. The Official Trustee in Bankruptcy pay to Carmine Alvaro and Rita Alvaro the costs incurred by them in relation to the appeal, such costs being assessed as if those two people were jointly represented on the appeal.
5. The parties have liberty to apply for any further orders or directions as may be required to give effect to these declarations and orders.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
No. SG 86 of 1994
ON APPEAL FROM A JUDGE OF THE
FEDERAL COURT OF AUSTRALIA
BETWEEN: THE OFFICIAL TRUSTEE IN BANKRUPTCY
Appellant
AND; PAUL ALVARO, ROSINA ALVARO, P & R ALVARO
ENTERPRISES PTY LTD, PAUL ALVARO JNR,
ELENA ALVARO and MARIA CONCETTA ALVARO
Respondents
JUDGES MAKING ORDER: Wilcox, Cooper and Moore JJ
WHERE MADE: Sydney (Heard in Adelaide)
DATE: 22 May 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
1. The appeal be allowed.
2. The orders made by Heerey J on 31 October 1994 be set aside and, in lieu thereof:
(a) a declaration be made that:
(i) the disposition of $35,750 made by Paul Alvaro on 30 November 1981 to P & R Alvaro Enterprises Pty Ltd is void as against the Official Trustee in Bankruptcy;
(ii) the house property 14-16 Lombard Street, North Adelaide, South Australia, is charged with the payment to the Official Trustee in Bankruptcy of $35,750 plus interest at ten percent per annum from 2 December 1992;
(iii) the disposition of $9,389 made by Paul Alvaro on 14 December 1983 is void as against the Official Trustee in Bankruptcy; and
(iv) the house property at 630 Seaview Road, Grant, South Australia is charged with the payment to the Official Trustee in Bankruptcy of $9,389 plus interest at ten percent per
annum from 2 December 1992; and
(b) The Official Trustee in Bankruptcy pay to Paul Alvaro Jnr, Elena Alvaro and Maria Concetta Alvaro any costs incurred by them in the proceeding that are not costs that were incurred in connection with the representation of any other party.
3. Paul Alvaro, Rosina Alvaro and P & R Alvaro Enterprises Pty Ltd (as trustee of the Paul Alvaro Family Trust) pay to the Official Trustee in Bankruptcy thirty percent of the costs incurred by him in relation to the appeal.
4. The Official Trustee in Bankruptcy pay to Paul Alvaro Jnr, Elena Alvaro and Maria Concetta Alvaro any costs incurred by them in the appeal that are not costs that were incurred in connection with the representation of any other party.
5. The parties have liberty to apply for any further orders or directions as may be required to give effect to these declarations and orders.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
No SG 85 of 1994
ON APPEAL FROM A JUDGE
OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN: THE OFFICIAL TRUSTEE IN BANKRUPTCY
Appellant
AND: GIUSEPPE ALVARO, GIROLAMA ALVARO,
PAUL ALVARO, CARMINE ALVARO, COMBRAN
PTY LTD, RITA ALVARO and MARIA CONCETTA
ALVARO
Respondents
No. SG 86 of 1994
BETWEEN: THE OFFICIAL TRUSTEE IN BANKRUPTCY
Appellant
AND; PAUL ALVARO, ROSINA ALVARO, P & R ALVARO
ENTERPRISES PTY LTD, PAUL ALVARO JNR,
ELENA ALVARO and MARIA CONCETTA ALVARO
Respondents
CORAM: Wilcox, Cooper and Moore JJ
PLACE: Sydney (Heard in Adelaide)
DATE: 22 May 1996
REASONS FOR JUDGMENT
Wilcox and Cooper JJ
These appeals arise out of applications made by the Official Trustee in Bankruptcy ("the Official Trustee") in the administration of the bankrupt estates of Giuseppe Alvaro and Paul and Rosina Alvaro. The former was made bankrupt on 3 December 1990 and the latter were made bankrupt on 18 February 1991. In each estate,
a proof of debt was lodged by the Commissioner of Taxation ("the Commissioner") and by no other creditors. It is unclear whether the bankruptcies have ended. For the sake of convenience, Giuseppe, Paul and Rosina Alvaro will on occasion be referred to as "the bankrupts".
In respect of the estates of Paul and Rosina Alvaro, the Official Trustee sought the following final relief by application filed 2 December 1992 :-
"2. A Declaration that the house property at 14-16 Lombard Street North Adelaide in the said State registered in the name of the Respondent P & R Alvaro Enterprises Pty Ltd herein and comprised in Certificate of Title Register Book Volume 3784 Folio 190 vests in the Applicant as property of Paul Alvaro and Rosina Alvaro.
3. That the aforesaid house property at 14-16 Lombard Street North Adelaide in the said State be transferred to the Applicant as trustee of the estate of Paul Alvaro and Rosina Alvaro.
...
5. A Declaration that the house property at 630 Seaview Road Grange in the said State registered in the name of the Respondent P & R Alvaro Enterprises Pty Ltd herein and comprised in Certificate of Title Register Book Volume 2153 Folio 125 vests in the Applicant as property of Paul Alvaro and Rosina Alvaro.
6. That the aforesaid house property at 630 Seaview Road Grange in the said State be transferred to the Applicant as trustee of the estate of Paul Alvaro and Rosina Alvaro.
...
8. A Declaration that the net proceeds from the sale of the property at 188-190 Tynte Street North Adelaide in the said State currently registered in the name of the Respondent P & R Alvaro Enterprises Pty Ltd herein and comprised in Certificates of Title Register Book Volumes 4210 Folio 530 and Volume 202 Folio 184 vests in the Applicant as property of Paul Alvaro and Rosina Alvaro.
9. That the aforesaid net proceeds from the sale of the property at 188-190 Tynte Street North Adelaide in the said State be transferred to the Applicant as trustee of the Estate of Paul Alvaro and Rosina
Alvaro.
...
12. A Declaration that the allotment of twelve shares in the respondent P & R Alvaro Enterprises Pty Ltd four shares having been allotted to each of the respondents Paul Alvaro, Elena Galimi and Maria Concetta Alvaro on the 21st day of September 1990 vests in the Applicant as property of Paul Alvaro and Rosina Alvaro.
13. That the aforesaid twelve shares in respondent P & R Alvaro Enterprises Pty Ltd be transferred to the Applicant as trustee of the estate of Paul Alvaro and Rosina Alvaro.
..."
In respect of the estate of Giuseppe Alvaro the Official Trustee sought the following final relief by application filed 24 February 1993 :-
"1. A Declaration that one undivided moiety in the house property at 8 Coronado Court West Lakes in the said State registered in the name of the Respondent Girolama Alvaro herein and comprised in Certificate of Title Register Book Volume 4146 Folio 514 vests in the Applicant as property of Giuseppe Alvaro.
2. That the aforesaid house property at 8 Coronado Court West Lakes in the said State be transferred to the Applicant as trustee of the estate of Giuseppe Alvaro.
...
4. A Declaration that the house property at 18 Itala Avenue Croydon Park in the said State registered in the name of the Respondent Paul Alvaro herein and comprised in Certificate of Title Register Book Volume 3785 Folio 131 vests in the Applicant as property of Giuseppe Alvaro.
5. That the aforesaid house property at 18 Itala Avenue Croydon Park in the said State be transferred to the Applicant as trustee of the estate of Giuseppe Alvaro.
...
7. A Declaration that the house property at 10 Sierra Avenue Grange in the said State registered in the name of the Respondent Carmine
Alvaro herein and comprised in Certificate of Title Register Book Volume 4010 Folio 662 vests in the Applicant as property of Giuseppe Alvaro.
8. That the aforesaid house property at 10 Sierra Avenue Grange in the said State be transferred to the Applicant as trustee of the estate of Giuseppe Alvaro.
...
10. A Declaration that the house property at 67 George Street Royal Park in the said State registered in the name of the Respondent Combran Pty Ltd herein and comprised in Certificate of Title Register Book Volume 4090 Folio 537 vests in the Applicant as property of Giuseppe Alvaro.
11. That the aforesaid house property at 67 George Street Royal Park in the said State be transferred to the applicant as trustee of the estate of Giuseppe Alvaro.
...
13. A Declaration that the house property at 127 Crown Terrace Royal Park in the said State registered in the name of the Respondent Combran Pty Ltd herein and comprised in Certificate of Title Register Book Volume 3863 Folio 30 vests in the Applicant as property of Giuseppe Alvaro.
14. That the aforesaid house property at 127 Crown Terrace Royal Park in the said State be transferred to the Applicant as trustee of the estate of Giuseppe Alvaro.
..."
The Official Trustee contended that he was entitled to the relief sought in consequence of the operation of s 121 of the Bankruptcy Act 1966 (Cth) ("the Act") or alternatively, that certain of the transactions whereby trustees of family trusts and relatives of the bankrupts acquired title to the relevant properties were shams or alternatively, in the circumstances in which they occurred, the transactions gave rise to a resulting trust of the properties in favour of the relevant bankrupt. The applications were
heard consecutively by Heerey J. By agreement, the evidence in the Paul and Rosina Alvaro matter ("Official Trustee v Paul Alvaro") was treated as evidence in the Giuseppe Alvaro matter ("Official Trustee v Giuseppe Alvaro"). Heerey J dismissed each application with costs. The appeals to this Court are from the dismissal by Heerey J of each application and against the orders for costs. The appeals were heard together by consent of the parties.
Section 121 of the Act provides :-
"121(1) Subject to this section, a disposition of property, whether made before or after the commencement of this Act, with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is, if the person making the disposition subsequently becomes a bankrupt, void as against the trustee in the bankruptcy.
(2) Nothing in this section shall be taken to affect or prejudice the title or interest of a person who has, in good faith and for valuable consideration, purchased or acquired the property the subject of the disposition or any interest in that property.
(3) In this section `disposition of property' includes a mortgage of property or a charge on or in respect of property."
"Property" is defined in s 5 of the Act :-
"`property' means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incidental to any such real or personal property."
In order to attract the operation of s 121 of the Act, the Official Trustee bears the onus of establishing, in respect of each of the properties attacked, that there was a disposition of property by a person who subsequently became bankrupt, that the
disposition was made with an intention to defraud creditors and that the disposition was not one for valuable consideration in favour of a person who acted in good faith (Official Receiver v Barton (1983) 52 ALR 95 at 121).
Each element of s 121 of the Act requires a close analysis of the facts and circumstances surrounding the impugned disposition. It is appropriate therefore to briefly state the position of this Court on appeal so far as the finding of facts and the drawing of inferences from proved facts is concerned.
None of the principal respondents gave evidence before Heerey J. The only member of the extended Alvaro family to give evidence was Rita Alvaro, Giuseppe Alvaro's daughter-in-law. Her evidence was accepted by Heerey J and no basis was shown on the appeals to suggest that his Honour erred in this regard. Other than for that evidence, this is not a case where the demeanour of the witnesses or the trial judge's estimation of them played any part in the trial judge's reasons for judgment. It follows that this is not a case for the application of the principles stated by Lord Sumner in SS Hontestroom v SS Sagaporack (1927) AC 37 at 47, by McHugh J (with whom Mason CJ, Deane, Dawson and Gaudron JJ agreed) in Abalos v Australian Postal Commission (1990) 171 CLR 167 at 178 and by Brennan, Gaudron and McHugh JJ in Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479. This Court is as equipped to determine the facts as was the trial judge. The appeals to this Court are by way of re-hearing and the Court has a right and a duty to determine the facts for itself (see Warren v Coombes (1979) 142 CLR 531).
DISPOSITION OF PROPERTY
(i) The Paul and Rosina Alvaro Transactions
Section 121 operates, assuming the other elements to be made out, to avoid the relevant disposition of property. The section does not operate upon the entire transaction surrounding the disposition but has the specific effect of avoiding, as against the trustee in bankruptcy, the disposition of property which is attacked. It is necessary, therefore, to closely examine the factual circumstances so that the disposition of property sought to be avoided can be precisely identified.
In respect of Paul and Rosina Alvaro, we are concerned with dealings in relation to three real estate properties by the bankrupts and the trustee of a family trust. A share transaction is also impugned.
14 - 16 Lombard Street, North Adelaide
On 17 November 1981 P & R Alvaro Enterprises Pty Ltd ("the company"), the trustee of the Paul Alvaro Family Trust ("the PAF Trust"), entered into a contract for the purchase of 14-16 Lombard Street, North Adelaide ("Lombard Street") for $40,000. The contract was completed on 30 November 1981 and was settled by two cheques drawn on the company's operating bank account. The total cost was $40,910. On that day a cash deposit of $35,750 was made to the company's operating bank account. A document prepared by officers of the Australian Taxation Office ("ATO") shows that on 30 November 1981 Paul Alvaro withdrew $35,750 from his Commonwealth Bank account number 700243-001. In the absence of any evidence to the contrary it is reasonable to infer, and we do, that this amount represents the $35,750 deposited in the company's operating bank account on that day and was used for the settlement of the contract to purchase Lombard Street.
188, 190 and 190A Tynte Street, North Adelaide
On 22 February 1983 Paul Alvaro offered by tender to purchase 188, 190 and 190A Tynte Street, North Adelaide ("Tynte Street") from the Corporation of the City of Adelaide for $77,500. Paul Alvaro's offer was accepted by letter from the Town Clerk dated 10 May 1983 which required the payment of a deposit of $7,750 at the expiration of a statutory "cooling off" period. On 17 May 1983, it is apparent from an account reconstruction prepared by an officer of the ATO, a cheque in the amount of $7,750 was drawn on a bank account operated by Paul and Rosina Alvaro in the false name "Romano". From this we infer that the deposit was paid from monies drawn from the Romano account.
By Deed of Assignment dated 22 June 1983 Paul Alvaro assigned all his right, title and interest in the contract to purchase Tynte Street to the company in consideration of the sum of $7,750. On 27 June 1983 an amount of $69,783.44 due to the vendor on settlement was paid out of the company's operating bank account. On that day the transfer of the property from the Corporation of the City of Adelaide to the company was registered. The $69,783.44 paid by the company on settlement was funded by a term loan from the Commonwealth Bank to the company of $70,000. The term loan was repaid by automatic bank transfer of $1,300 per month from the company's operating bank account (at least until 1 August 1986 after which no bank statements are in evidence). Settlement costs amounted to $2,880.30. Heerey J found that it was
reasonable to assume that these costs were paid by Paul Alvaro. We see no reason to disturb this finding.
During the 1984 and 1985 financial years the Tynte Street properties were renovated at a cost of $30,584. Mr Harmer, an accountant called at trial by the respondents, concluded that of these costs, $1,050 came from Paul Alvaro and was debited to his loan account, and the rest, $15,887 in the 1984 financial year and $13,647 in the 1985 financial year came from the company's operating bank account. Heerey J concluded, based on "circumstantial evidence the details of which were contained in the applicant's final submissions", that these amounts came from the Romano account.
No alternative explanation as to the source of the funds used to undertake the improvements was advanced by the respondents at trial or on appeal. There do not appear to be any identifiable drawings on the company's operating bank account which could be readily attributed to the improvements to Tynte Street and there is evidence of the depletion of cash funds from the Romano account during the relevant period. From this we infer that funds from the Romano account were used to pay for the improvements to Tynte Street. The real question, as will be seen, is whether the money was paid into the operating bank account of the company and then to the person or persons who undertook the improvements, or was paid directly to that person or persons. Because of the absence of identifiable drawings on the company's operating bank account, we conclude that the funds were applied from the Romano account directly to the relevant person or persons.
In 1987 Tynte Street was given as security for a guarantee to the ANZ Bank for the repayment of a loan made to T Tigani Nominees Pty Ltd which company was the trustee of the T Tigani Family Trust. The business operated by the T Tigani Family Trust failed and the ANZ Bank called in the guarantee seeking payment by the company of $695,448.44. The company instituted legal action against the ANZ Bank which action was settled by a Deed of Settlement dated 15 August 1992 whereby the ANZ Bank agreed to accept $200,000 plus accrued interest from the proceeds of the sale of Tynte Street in satisfaction of the company's obligations under the guarantee. Tynte Street was sold in late November or early December 1992 (settlement seems to have occurred on 7 December 1992) for $334,893.54. The ANZ Bank was paid $210,509.59 pursuant to the Deed of Settlement and the costs of sale amounted to $12,361. The remainder, $112,022.95, was paid into the Commonwealth Development Bank as a Trust Term Deposit in the name "Official Trustee in Bankruptcy as Trustee for the Estate of Paul and Rosina Alvaro". This money was ultimately applied towards the reduction of a commercial bill facility with the consent of the Official Trustee.
630 Seaview Road, Grange
On 14 December 1983 the company entered into a contract to purchase 630 Seaview Road, Grange ("Seaview Road") for $93,890. The deposit of $9,389, it is apparent, was paid by cheque number 000160 drawn on Paul Alvaro's Commonwealth Bank account number 100600 at North Adelaide. On 26 January 1984 the Commonwealth Bank approved a loan of $80,000 to the company. The balance owing on settlement, $84,645.94, was paid from the company's operating bank account on 2 February 1984. Costs of acquisition amounted to $3,282. On 26 January 1984 $8,000 in
cash was withdrawn from Paul and Rosina Alvaro's Commonwealth Bank account number 5001535. The same day $4,718 was deposited in the company's operating bank account. It seems reasonable to conclude that the difference ($8,000 less $4,718), $3,282, represented payment by Paul and Rosina Alvaro of the costs of acquisition of the property. The transfer to the company was registered on 31 January 1984.
The loan was repaid from the company's operating bank account at a rate of $1,510 per month until 14 May 1987 when the balance then owing of $33,585.01 was paid out of part of the proceeds of the commercial bill facility to which we will refer below.
Units were subsequently constructed at Seaview Road at an additional cost of $154,030. An amount of $1,528 included by Heerey J based on the reconstruction of the PAF Trust accounts by Mr Harmer as "stamp duty" seems to be a balancing figure and may be disregarded for present purposes.
On 5 May 1987 the Commonwealth Bank approved a commercial bill facility of $187,000 gross, $176,840.46 net. Of this, $33,589.01 was used to repay the balance of the company's fully drawn loan and $143,251.25 was credited to the company's operating bank account. The difference between the construction costs of $154,030 and the $143,251.25 made available from the commercial bill facility is unaccounted for. At this time the company had the benefit of the rental income from Lombard Street and Tynte Street and it is reasonable to conclude that the $10,778.75 difference was paid out of this operating income. It also seems reasonable to conclude
that the commercial bill facility was repaid from the operating cash flow of the company which, after the construction of the units on Seaview Road, included the rental income from Lombard Street, Tynte Street and Seaview Road. The commercial bill facility continued until 1993 appearing each year in the company taxation returns until it was discharged with the consent of the Official Trustee using the proceeds of the sale of Tynte Street.
The Share Transaction
The company was incorporated on 22 May 1981 with Paul and Rosina Alvaro as directors. Ten shares were allotted, nine to Paul Alvaro and one to Rosina Alvaro. The PAF Trust was established by trust deed dated 12 June 1981. The "specified beneficiaries" of the PAF Trust were Paul Alvaro, his spouse, child or remoter issue, any company whose shares were owned by such a person or such persons, the trustees of any other trust for such person or any charitable institution selected by the trustee.
On 21 September 1990 Paul and Rosina Alvaro executed a document excluding themselves as specified beneficiaries under the PAF Trust. Paul Alvaro Junior, then aged 20 years, a nephew of Paul and Rosina Alvaro, and two of their nieces, Elena and Maria Alvaro, both eighteen years old, were appointed directors and were each allotted four $1 shares.
(ii) The Giuseppe Alvaro Transactions
In the bankrupt estate of Giuseppe Alvaro, Paul Alvaro's brother, the
Official Trustee sought orders in respect of five real estate properties.
18 Itala Avenue, Croydon Park
Giuseppe Alvaro lived with his first wife, Giuseppina, at 16A Itala Avenue, Croydon Park which they had purchased in their joint names in 1972 for $15,995. On 17 January 1977 Giuseppe Alvaro entered into a contract for the purchase of 18 Itala Avenue, Croydon Park ("Itala Avenue") the adjoining property, for $24,500. Title to Itala Avenue was registered in Giuseppe Alvaro's name on 22 February 1977.
On 12 February 1981 the Giuseppe Alvaro Family Trust ("the GAF Trust") was established by deed. Paul Alvaro was the trustee and the "specified beneficiaries" were Giuseppe Alvaro, his spouse, children and remoter issue. On 27 February 1981 Giuseppe Alvaro signed a transfer of 18 Itala Avenue to Paul Alvaro "as trustee for the Giuseppe Alvaro Family Trust". Those words have been crossed off the transfer and initialled, apparently so that the transfer conformed to Titles Office practice which did not allow trusts to appear on the register. The transfer recorded "nil" consideration and stated the value of the property to be $24,000, although stamp duty was paid on a value of $30,400. The transfer was registered on 5 June 1981.
10 Sierra Avenue, Grange
On 2 March 1981 Giuseppe Alvaro's son, Carmine, entered into a contract to purchase 10 Sierra Avenue, Grange ("Sierra Avenue") for $55,000. The property was registered in Carmine Alvaro's name on 6 April 1981. The total purchase price paid was $55,775. Of this, $20,000 came from a loan from the Commonwealth Bank secured by mortgage over the property. Giuseppe Alvaro contributed $21,698.74 from savings bank accounts held as follows: $9,939.95 by Giuseppe Alvaro as trustee for Carmine Alvaro, $8,358.79 by Giuseppe Alvaro as trustee for Concetta Alvaro, his daughter, and $3,400 by Giuseppe Alvaro absolutely. These funds, as well as $13,400 cash, the source of which is not directly disclosed by the evidence, were deposited into an account in Carmine Alvaro's name and applied to the purchase price of Sierra Avenue. In the absence of any evidence to the contrary, it seems reasonable to infer that the $13,400 came from Giuseppe Alvaro.
At a later time Giuseppe Alvaro received $6,800 from an insurance company in relation to a motor vehicle claim. That amount was made over to Carmine Alvaro and applied towards the repayment of the Commonwealth Bank loan.
The Commonwealth Bank loan was repaid by monthly instalments of $204. There is no suggestion that Carmine Alvaro did not repay the loan out of his own funds or those of his wife Rita, whom he married in 1986. As noted by Heerey J, between the time the property was acquired and his marriage, Carmine Alvaro lived with his family and was employed as an apprentice hairdresser by his uncle, Paul Alvaro. His wife Rita was given $3,000 by her mother upon her marriage which she banked in an account in the names of her and her husband. At the time of her marriage, Rita Alvaro had more than $12,000 of her own funds.
For these reasons it is reasonable to infer that the Commonwealth Bank loan was repaid, apart from the $6,800 insurance money, out of funds of Carmine Alvaro
and/or joint funds of Carmine and Rita Alvaro.
8 Coronado Court, Westlakes
On 27 December 1981 Condo Developments Pty Ltd ("Condo Developments") "or nominee" contracted to purchase 8 Coronado Court, Westlakes ("Coronado Court") for $54,000. On 27 January 1982 Coronado Court was registered in the names of Giuseppe and his second wife Girolama Alvaro. A substantial house was constructed upon the land and was occupied by Giuseppe and Girolama Alvaro as their matrimonial home.
The evidence surrounding the source of funds for the payment of the purchase price and construction costs is indecipherable. Counsel were unable to assist us in any meaningful way in this regard. Nonetheless, there seems to us to be little doubt that the purchase price and construction costs, including a loan of $30,000 from the Commonwealth Bank, were paid, directly or indirectly, out of funds provided by or on behalf of Giuseppe Alvaro.
67 George Street, Royal Park
The Official Trustee submitted that this property was acquired and improved at least in part with the proceeds of the sale of a delicatessen called the "Arndale Deli" and that such proceeds should be treated as a contribution by Giuseppe Alvaro to the purchase price of and improvements to the property. Accordingly, it is necessary to have regard to the circumstances of the purchase, operation and sale of the "Arndale Deli" and the application of the proceeds of its sale to the purchase and
improvement of the property at 67 George Street, Royal Park ("George Street").
On 21 July 1982 the Alvaro Family Trust ("the AF Trust") was settled, Combran Pty Ltd ("Combran") being appointed as trustee. On 31 August 1982 Combran purchased the "Arndale Deli" for $66,392. The purchase was funded by a term loan of $69,000 from the Commonwealth Bank. The term loan was repaid at the rate of $1,635 per month from Combran's operating bank account until 11 January 1984.
On 11 January 1984 the balance of the term loan ($55,233.58) was paid out from a new term loan account. The new term loan of $88,000 had been granted by the Commonwealth Bank on 10 January 1984. Of the balance of the $88,000 new term loan, $1,616.42 was paid into Combran's operating bank account and $31,150 was paid to Cosimo and Francesca Alvaro. The new term loan was repaid at a rate of $2,060 per month from Combran's operating bank account until 28 August 1984 when the balance of $81,206.50 was paid out of the proceeds of sale of the "Arndale Deli".
On 13 March 1984 "Giuseppe Alvaro and/or Nominee" contracted to purchase George Street for $42,000. On 11 April 1984 the contract was settled for $42,000 with settlement costs of $1,773. The transfer to Combran was registered on that day. The purchase was funded by a Commonwealth Bank fully drawn loan in the amount of $43,000 which was transferred to Combran's operating bank account on 11 April 1984. On 24 August 1984 $4,144 was transferred from Combran's operating bank account in reduction of the fully drawn loan and on 28 August 1984 the balance of the fully drawn loan ($41,668.17) was repaid from the proceeds of sale of "Arndale Deli".
The "Arndale Deli" was sold on 28 August 1984 for $165,000 plus stock at valuation of $5,220. The costs of sale were $11,321.71 leaving $158,898.22 available for distribution. Of this, as has been noted, $81,206.56 was applied to pay off the term loan account and $41,668.17 was applied to pay off the fully drawn loan account. The remaining $36,023.49 was transferred into Combran's operating bank account on 10 October 1984.
In the 1984/1985 financial year two rental units were constructed at George Street at a total cost of $65,798.17. Construction was funded as follows :-
$36,023.49 - proceeds of sale of the "Arndale Deli" drawn from Combran's operating bank account;
$20,000 - Commonwealth Bank bridging loan to Combran;
$9,774.68 - Commonwealth Bank overdraft facility.
The bridging loan was repaid by monthly debits from Combran's operating bank account until September 1986 when the loan was fully repaid.
127 Crown Terrace, Royal Park
On 27 September 1988 Combran contracted to purchase 127 Crown Terrace, Royal Park ("Crown Terrace") for $85,000. The contract was settled on 14 October 1988. Stamp duty and costs of $3,287 were paid and Combran was registered on that day.
The purchase was funded by a Commonwealth Bank small business loan of $90,000. The loan was repaid by regular deductions, initially $1,355 per month and then $500 per week, from Combran's operating bank account.
There is evidence that Giuseppe Alvaro's daughter and son-in-law, Maria Concetta and Natale Licari resided at Crown Terrace from August or September 1988 and paid rent of $120 per week to Combran.
(iii) The Judgment of Heerey J
In Official Trustee v Paul Alvaro, Heerey J said (at pp 21-24) :-
"The applicant correctly submitted that if a debtor purchases property with his or her own money and procures the title to be taken in the name of a third party, there can be a `disposition of property' by the debtor to the third party even though title passes directly from vendor to third party: Trautwein v Richardson [1946] Arg LR 129 per Latham CJ at 130, per Starke J at 112 and per Dixon J at 133, Re Hermann (1916) 16 SR (NSW) 264 per Street J at 269.
Hermann was concerned with the question of `settlement' under s55 of the Bankruptcy Act 1898 (NSW). In Trautwein the court had to consider s37A of the Conveyancing Act 1919 (NSW) which makes `any alienation of property with intent to defraud creditors voidable at the instance of any person thereby prejudiced'. Dixon J pointed out (at 133) that the statute was `an attempt to re-express the text' of the Statute of Fraudulent Conveyances 1571 (13 Eliz, c5) in modern form. The New South Wales statute was not, Dixon J said, `intended to disturb the traditional and well settled operation of this branch of law'. Likewise, in my respectful opinion, the concepts of `disposition' and `the person making the disposition' should be construed consistently with the way in which the statutory law has been applied since the days of Elizabeth I (cf Re La Rosa; ex parte Norgard, 7 February 1990, unreported, French J). Thus the term `disposition' in s121 must be taken to bear a somewhat extended meaning. In its ordinary meaning `disposition' is not apt to apply to a dealing with property which the alleged disponor never owned; nemo dat quod non habet.
However the statements in Trautwein and Hermann all express the
principle in terms of the debtor providing the money for the purchase. The reason is not hard to see. Whether the debtor pays $100,000 to X, or transfers Blackacre to X, or pays $100,000 to Y to transfer Blackacre to X, the net result is the same; the estate of the debtor has been depleted by the disposition of money or money's worth.
But if X pays the vendor of Blackacre by borrowing the purchase price, the analysis must be different - and this is so even if the borrowing is from the debtor himself or from another lender and secured over property of the debtor. X's borrowing from the debtor creates an equivalent asset in the debtor's estate in the form of a loan. In neither case is there the depletion of the estate with which s121 is concerned.
In the present case, Lombard Street was purchased with funds borrowed by the Company from Mr Alvaro. For the reasons already stated, his contribution is not to be characterised as a gift. Even if the source of the funds was illicit, in the sense of being undisclosed assessable income, the contribution was none the less a loan.
Seaview Road was purchased with the aid of ordinary bank finance on arm's length commercial terms.
I conclude therefore that the acquisitions of Lombard Street and Seaview Road were not dispositions of property by Mr and Mrs Alvaro within the meaning of s121. The application, insofar as it is based on s121, therefore fails at the outset in respect of those properties.
Tynte Street stands on a different footing since Mr Alvaro became the owner in equity and formally assigned his rights to the Company. That would be a `disposition' within the ordinary meaning of the word without recourse to the historical doctrine mentioned.
As to the shares, no authority was cited to support the proposition that the issue and allotment of shares in a company is a disposition of the shares by persons controlling the company. In the absence of specific legislative provision, such as used to exist in probate duty legislation, such a contention is in my opinion contrary to fundamental concepts of company law."
Heerey J's reasons for judgment in Official Trustee v Paul Alvaro were incorporated by reference into his Honour's reasons in Official Trustee v Giuseppe Alvaro, which were delivered on the same day. His Honour dealt with each of the
properties in turn.
Speaking of Itala Avenue, Heerey J said, "As Giuseppe was the registered proprietor, there was clearly enough a disposition by him".
In relation to Sierra Avenue, Heerey J said (at p 18) :-
"The purchase of the property was not a disposition within the meaning of the principles discussed in Official Trustee v Paul Alvaro. I say this because it seems on the evidence that Carmine was the moving force in the purchase. He conducted the negotiations with the vendor's agent and arranged the mortgage loan from the bank. Also Carmine himself provided a substantial part of the purchase price by accepting the obligations under the mortgage. The mortgage loan, together with the $9,939.95 to which he was beneficially entitled from the trustee savings account, made up over half the purchase price. I am not satisfied that this was a case of Giuseppe providing money to the vendor to transfer the property to Carmine."
Heerey J was satisfied that there had been a disposition of property by Giuseppe Alvaro in relation to Coronado Court. His Honour found that the land was purchased with cash provided by or on behalf of Giuseppe Alvaro and that the cost of construction of the house, over and above the $30,000 Commonwealth Bank loan, was provided by Giuseppe Alvaro.
It is implicit in his Honour's reasoning in respect of George Street that he was satisfied that there had been a disposition of property, in the relevant sense, by Giuseppe Alvaro.
Conversely, "[f]or the reasons discussed in Official Trustee v Paul Alvaro" Heerey J found that there was no disposition of property in Crown Terrace by Giuseppe Alvaro.
(iv) Submissions on the Appeals
One of the difficulties which has arisen in these appeals is that the Official Trustee sought to characterise the relevant dispositions in relation to certain properties differently from the characterisation contended for below. It is clear from the form of relief sought in the applications, from the reasons of Heerey J and from written submissions tendered by the Official Trustee below and used as an opening, that the dispositions which were attacked were dispositions of estates or interests in the various properties. The written opening in Official Trustee v Paul Alvaro contained the following :-
"Legal Principles - S.121 Application
13. The applicant's primary case is based on the application of Section 121 Bankruptcy Act 1966 (fraudulent dispositions).
14. The section applies to dispositions of property. The properties attacked are the three lands acquired out of monies supplied by the bankrupts, the disposition being the point in time when they directed that those properties be registered in the name of the company, and the transfer consequent thereon. The act of disposition is the transfer into the name of the company."
Similarly in Official Trustee v Giuseppe Alvaro, the written opening contained the following :-
"Legal Principles - S.121 Application
14. The applicant's primary case is based on the application of Section 121 Bankruptcy Act 1966 (fraudulent dispositions).
15. The section applies to dispositions of property. The properties attacked are the five lands acquired out of monies supplied by the
bankrupt, the disposition being the point in time when he directed that those properties be registered in the name of Paul Alvaro, Carmine Alvaro, Girolama Alvaro or the company, and the transfer consequent thereon. The act of disposition is the transfer into the name of Paul Alvaro, Carmine Alvaro, Girolama Alvaro or the company."
In both matters, the section of the written opening dealing with s 121 of the Act concluded :-
"29. The consequence of establishing a fraudulent disposition is to render the disposition void (Section 121(1)). In consequence the transfers into the name of the company should be set aside and transfers of the remaining lands into the name of the applicant as trustee of estate of the bankrupt should be ordered."
On the appeals, however, the Official Trustee differently characterised the relevant dispositions :-
"30. ... Thus, the bankrupts over some years bestowed a fund of money and property on their families or their family trusts, and it is the bestowal of that fund that is the disposition. The respondents take far too narrow a view. At trial and on appeal, though to a lesser extent, they restrict disposition to the act of conveyance or disposal, and fail to appreciate the wider view.
31. In the course of argument we were asked what is the disposition, and we answered the money. The answer is too limited. The disposition is the fund of property (in its most general sense) bestowed upon the respondents, in whatever form that fund may be from time to time. At present it comprises the properties, but in earlier times it may have taken and probably did take the form of monies. In respect of Crown and George Street, it will be observed that we contend the evidence reveals a movement of the fund through businesses before being placed in the properties where it is today. The disposition is the fund; the fund is found today in the subject properties."
On this basis, the Official Trustee sought to "trace" the monies into the
properties and thereby, it was submitted, entitle him to a conveyance of each of the properties attacked in the absence of any other party establishing a right to or an interest in one or more of them. It was submitted for the respondents that they would suffer prejudice if the Official Trustee was permitted to pursue this new case on appeal having regard to the way the case was run below and strategic decisions which were made in relation to the presentation of evidence. In particular, the respondents contended that the decision not to call the bankrupts may have been reconsidered and reversed to meet the case run by the Official Trustee on the appeals, if that case had been run below.
We do not accept those submissions. We do not think that there is any question of prejudice. Notwithstanding the form of the relief claimed in the filed applications and the terms of counsel's written openings, there was a clear understanding at the trials that a key issue for determination was the reason for the bankrupts bestowing money and property on their family trusts and relatives. The parties appreciated that they were concerned with payments of money, as is evidenced by the fact that the accountant, Mr Harmer, was called to reconstruct the money payments. It follows that there can be no prejudice in giving effect to whatever conclusions flow from the evidence in respect of such payments, whether to a family trust or someone else.
(v) Conclusions Regarding Disposition - Principles
We turn to the legal principles which apply to the concept of disposition of property and the application of those principles to the facts and circumstances surrounding each property.
A payment of money whether by way of gift or loan constitutes "a disposition of property" for the purpose of s 121(1): Barton v Official Receiver (1984) 4 FCR 380 (FC) at 386, 387, 394; (1986) 161 CLR 75 (HC) at 78; Williams v Lloyd (1934) 50 CLR 341 at 364, 375; Norgard v Rocom Pty Ltd (unreported, Federal Court of Australia (FC), 16 August 1990, per Northrop and Davies JJ at 8 - 9). For the purposes of these appeals it is unnecessary to determine whether or not any payment or transfer by any bankrupt in the circumstance in which it occurred was also a "settlement" of property within the meaning of s 120 of the Act.
Where there has been a purchase of a property with money provided by a person who subsequently becomes bankrupt, it is a question of fact whether the bankrupt purchased the beneficial interest in the property or merely provided the transferee with a sum of money to purchase the property for himself (Trautwein v Richardson [1946] ALR 129 at 133 per Starke J). The distinction is an important one because it identifies the relevant "property" the subject of the disposition by the bankrupt, which is the property to be restored to the trustee in bankruptcy on the avoidance of the disposition.
As a general rule, a person who pays the vendor the purchase price of a property is entitled to the beneficial equitable estate in that property, although the legal title will pass from the vendor to the transferee. If that person subsequently passes the beneficial equitable estate to the transferee, this constitutes a disposition of property that may be avoided by the operation of s 121 of the Act. If the disposition is avoided the beneficial equitable estate in the property forms part of the bankrupt's property and vests in the trustee in bankruptcy (Williams v Lloyd at 372 - 374; In re Eichholz, decd [1959]
1 Ch 708 at 728 - 730; Barton v Vantrey Thuysen (1867) 11 Hare 126 at 129 - 130; 68 ER 1215 at 1217). Once the disposition is avoided at the option of the trustee in bankruptcy the transferee thereafter holds the property in trust beneficially for the trustee in bankruptcy (Williams v Lloyd at 374 - 375).
Where the relevant disposition of property is the beneficial interest in the fund constituted by the money provided to the transferee by the bankrupt, that is the property which is to be made over to the trustee in bankruptcy upon avoidance of the disposition, if it continues to exist in specie. This is because upon the avoidance of the payment of money, ie the transfer of the fund, the donee's title to retain the fund as against the trustee in bankruptcy is gone and the donee thereafter holds the fund in trust for the trustee in bankruptcy.
Thus in Trautwein v Richardson where Latham CJ said (at 130) :-
"... the son urges that sec 37A deals only with dispositions made by the bankrupt, and that, for example, a transfer of land to the son by a third party at the instance of the father and paid for by the father would not fall within the statute. If such a transfer were declared void, it is argued, the result would be to revest the land in the vendor and not in the father. But the courts have not taken this view of 13 Eliz, c5, the substance of which is reproduced in sec 37A of the Conveyancing Act. The courts have treated the provisions of 13 Eliz, c5 as producing the result that property bought with the debtor's money and procured by him to be vested in a volunteer with the intent of defrauding his creditors can be treated as if it belonged to the debtor - see the cases cited in Laws of England (2nd ed), vol XV, p246; In re Mouat [1899] 1 Ch 831. Thus there is authority to support the declarations made in the order under appeal that purchases of property arranged by the bankrupt in the name of his son were alienations of property by the bankrupt."
The Chief Justice was dealing with the situation where the acquisition of property was by the bankrupt and the title was vested in the son as a volunteer. It was not a situation where the property was acquired by the son with funds provided to the son by the bankrupt. The distinction is clear in the full unreported reasons of Latham CJ. The statement reported in (1946) ALR 129 at 130 appears at pp 9 - 10 in the unreported reasons for judgment. At p 11 of his unreported reasons Latham CJ begins a consideration of each of the dealings in issue on the appeal. The first was the Royal Hotel, Riverstone. His Honour said :-
"Royal Hotel, Riverstone. This hotel was purchased on 15th September 1936 for £19,800 under a contract made between William Joseph East as vendor and the son as purchaser. The bankrupt negotiated the purchase. The hotel was transferred to the son. £10,000 was paid to East and the son gave him a mortgage for the balance of purchase money - £9,800.
The bankrupt never owned the hotel: he did not alienate it or transfer it. Thus the trustee cannot obtain the hotel under either the Conveyancing Act, sec 37A, or the Bankruptcy Act, sec 94."
(Original emphasis)
As to the acquisition of the Oceanic Hotel, Coogee his Honour said (at p 15 of his unreported reasons) :-
"Oceanic Hotel. The order declares that the son's interest in the Oceanic Hotel, Coogee, belonged to the trustee in bankruptcy on the ground that the son was at the commencement of the bankruptcy a trustee of the same for the bankrupt.
This hotel, with furniture and effects, was purchased on 14th June 1939 in the names of the son and daughter as tenants in common from the City Mutual Life Assurance Society Ltd, selling as mortgagee. The father never owned the hotel and did not alienate or transfer it. Accordingly the provisions of the Conveyancing Act, sec 37A, and Bankruptcy Act, sec 94, are of no avail to the trustee in relation to the hotel itself or to the respondent's interests in the hotel."
Starke J categorised the transactions as the purchase of properties by the bankrupt and thus within the then s 37A of the Conveyancing Act 1919 (NSW). His
Honour said (at p 17 of his unreported reasons) :-
"So in the case before the Court the purchase of property by the bankrupt in the name of the appellant and conveyed, transferred or assured to him by the vendors as arranged by the bankrupt constituted an alienation of property by him within the meaning of the Conveyancing Act and having been so purchased and assurances obtained with intent to defraud his creditors the dispositions are void at the instance of the trustee in bankruptcy."
Dixon J agreed with the trial judge that the bankrupt was at all times dealing with his own property and using the names of his relatives and others for the purpose. It was this property which the bankrupt caused to be taken by the son to defeat his creditor, the Commissioner of Taxation. In these circumstances his Honour said (at pp 8 - 10 of his unreported reasons) :-
"In other declarations the providing of the money by the bankrupt for the purchasing of an hotel in his son's name or the purchase of shares in his son's name is declared to be an alienation with intent to defraud creditors and to be void as against the trustee in bankruptcy. These declarations appear to me to be in accordance with the law as established by authority under 13 Eliz c5 and I do not think that we should regard the attempt to re-express the text of the statute in modern form as intended to disturb the traditional and well settled operation of this branch of law. Under that operation a purchase made in the name of another or in the joint names of the debtor and another has been considered property available, at the instance of creditors or a trustee in bankruptcy, for the satisfaction of debts, if the purpose of placing it in the name of the other party or in the joint names was to defeat or delay creditors: see Stileman v Ashdown, 1742 2 Atkyns 477 and 608; 26 ER 688; French v French 1855 6 De G Mac & G 95 at pp102 - 3; 43 ER, 1166 at 1169; Barrack v McCullough, 1856 2 K & J, 110; 69 ER, 1043; Neale v Day, 1858 28 LJ Ch 45; cf re Herman (1916) 16 SR (NSW) 264; re Player No 1 (1885) 54 LJ QB 553; 53 LJ 768: 2 Movr 261; Brown v Bellaris, 1820 5 Madd 53; 56 ER 815, cases under bankruptcy legislation. By analogous reasoning changes in the form of property made over by the debtor with intent to defraud have been held not to stand in the way of relief; creditors may follow the fund: re Mouat, 1899 1 Ch, 831. I should add that similar reasoning applies with reference to sec 84 of the Bankruptcy Act ..."
The relevant findings of fact in Trautwein v Richardson identified the interest in land as the relevant property disposed of to a third party volunteer. The decision does not stand as authority for the proposition that for the purposes of 13 Eliz, c5 and its modern derivatives, wherever property is acquired with money provided by a debtor or a bankrupt, the property so acquired shall be regarded as property disposed of by the debtor or bankrupt to the donee. Whether or not the property so acquired is to be regarded as property disposed of by the debtor or bankrupt to the donee is a question of fact to be determined in each case.
(vi) Conclusions Regarding Disposition - Paul and Rosina Alvaro
Lombard Street
It is not open to find or infer that the entire purchase price, paid out of the company's operating bank account, was provided by Paul Alvaro. On 4 June 1981, Paul and Rosina Alvaro sold "Headlines" to the company which thereafter carried on the business as trustee. The company thus had a source of income. Even if Paul Alvaro's admissions in the criminal proceedings were admissible in evidence to prove the source of any funds, they do not go so far as to support the contention that he provided the entire purchase price. It was for the Official Trustee, if he wished to assert that Paul and/or Rosina Alvaro had provided all the funds for the acquisition of Lombard Street, to tender evidence of that fact or from which that fact could be inferred. The onus of establishing a right to the entirety of the asset on the basis that it represented an asset acquired solely with funds provided by the bankrupts rested upon the Official Trustee (Jack v Smail (1905) 2 CLR 684).
For there to have been a disposition of Lombard Street or an estate or interest in it within the meaning of s 121 of the Act, Paul and/or Rosina Alvaro must have acquired an estate or interest in the real estate which they or one of them passed to the company as donee (see Trautwein v Richardson per Latham CJ at 11, 15 of his unreported reasons; Union Trustee Co of Australia v Webb (1915) 19 CLR 669 at 676 per Isaacs J; Commissioner of Stamp Duties v Gale (1958) 101 CLR 91 at 108 - 109, 111 - 112 per Dixon CJ). An analysis of the factual circumstances of the purchase of Lombard Street shows that neither Paul nor Rosina Alvaro acquired any estate or interest in the property. On the evidence, it was always intended that the legal estate would pass from the vendor to the company as trustee of the PAF Trust to hold in terms of the trust deed. The position in relation to Lombard Street can be contrasted with what occurred in Trautwein v Richardson where the acquisitions by the son and daughter were either as trustee for the father or were purchased by the father exercising his right as purchaser to direct a conveyance to a third party.
There was, however, clearly enough a disposition of $35,750 by Paul Alvaro depositing that sum into the company's operating bank account on 30 November 1981.
Tynte Street
Upon entry into the contract to purchase Tynte Street, Paul Alvaro became the owner of the property in equity (subject to the payment of the balance of the purchase price) and thus acquired the right to have the contract specifically performed by registration of a transfer to him of title to the property (Shaw v Forster (1872) LR 5 HL
321 at 338; In re Thackwray and Young's Contract (1888) 40 Ch D 34 at 38; Megarry and Wade, "The Law of Real Property", 5th ed, 1984 at p 601).
The relevant disposition for the purposes of s 121 of the Act was the assignment by Paul Alvaro of the rights which he had acquired under the contract, viz, the right to have the contract specifically performed subject only to a requirement to pay the balance of the purchase price. When the company paid this balance and the transfer from the Corporation of the City of Adelaide to it was registered, the contract was performed and the company's right to call for specific performance was spent. The rights and obligations of the parties under the contract merged in the transfer, there being no suggestion that the contract expressly or impliedly provided otherwise (Knight Sugar Co Ltd v Alberta Railway and Irrigation Co [1938] All ER 266 at 269 (PC); Svanosio v McNamara (1953) 96 CLR 186 at 206 - 207 per McTiernan, Williams and Webb JJ).
The property disposed of by Paul Alvaro ceased to have an independent existence at that time and there is not now in existence any property relevantly disposed of which can revest in the Official Trustee as part of Paul Alvaro's bankrupt estate.
On the appeals the Official Trustee submitted that, having regard to the large number of unexplained cash deposits to the company's operating bank account, we should infer that these deposits were made from funds of the bankrupts. Therefore, it was submitted, monies provided by Paul and Rosina Alvaro were used to repay the $70,000 term loan which funded the purchase of Tynte Street. The Official Trustee submitted that it was entitled to relief in respect of these payments and in respect of the
improvements paid for from the Romano bank account operated by the bankrupts, Paul and Rosina Alvaro.
The repayment of a mortgage is not a purchase of the land against which the mortgage is registered. Where money is borrowed and used to pay the purchase price of property, that money is paid over by the purchaser as money in respect of which he or she holds the beneficial interest. The indebtedness to the bank is merely secured by a mortgage. Payments to the bank are payments to reduce indebtedness, they are not payments to acquire an interest in land. In Calverley v Green (1984) 155 CLR 242, Mason and Brennan JJ said (at 257 - 258) :-
"The first question is whether the plaintiff was a contributor to the purchase price of the property, as the court of Appeal found, or whether she was not, as Rath J found. The defendant's payment of the instalments due under the memorandum of mortgage, in accordance with the arrangement made between the parties, may be thought to be, or to be the equivalent of, the provision pro tanto of the purchase price of the property. After all, the only moneys which were actually paid out of what the parties had owned before settlement of the contract for the purchase of the Baulkham Hills property or out of what they had earned thereafter had come out of the defendant's pocket. The property was purchased on the basis that the purchasers should pay it off over twenty years, a basis familiar to many home buyers. It is understandable but erroneous to regard the payment of mortgage instalments as payment of the purchase price of a home. The purchase price is what is paid in order to acquire the property; the mortgage instalments are paid to the lender from whom the money to pay some or all of the purchase price is borrowed. In this case, the price was $27,250, of which $18,000 was borrowed from the mortgagee by the plaintiff and defendant jointly. The balance was paid by the defendant out of his own funds, being part of the proceeds of the sale of the Mount Pritchard property. Thus the plaintiff and defendant both contributed to the purchase price of the Baulkham Hills property. They mortgaged that property to secure the performance of their joint and several obligation to repay principal and to pay interest. The payment of instalments under the mortgage was not a payment of the purchase price but a payment towards securing the release of the charge which the parties created over the property purchased."
(cf Bloch v Bloch (1981) 55 ALJR 701; 37 ALR 55).
Therefore, even if it is inferred that the bankrupts' monies were used to repay the loan which funded the acquisition of Lombard Street, there has been no disposition or acquisition of an interest in that property by Paul and/or Rosina Alvaro or the company by virtue of repayment of the bank loan.
For the purposes of s 121 of the Act, the payment of monies by Paul and Rosina Alvaro to the company, which monies were used by the company to retire debt owing by it, must be treated as a disposition or a series of dispositions of money by Paul and Rosina Alvaro to the company.
The payment by Paul and Rosina Alvaro of the costs of the improvements to Tynte Street out of the Romano account must be treated the same way. That is, not as a disposition of any estate or interest in Tynte Street, but as a disposition, or a series of dispositions of money by Paul and Rosina Alvaro to the person or persons who undertook the improvements.
Of the $30,584 expended on the improvements to Tynte Street, $1,050 came from Paul Alvaro and the remainder from the Romano account operated by him and his wife. In the absence of any evidence to the contrary, the inference to be drawn is that the monies withdrawn from the Romano account were jointly owned by Paul and Rosina Alvaro (Paget's Law of Banking, 8th ed, Butterworths 1982 at 134; Croton v The Queen (1967) 117 CLR 326 at 338, 340; Catlin v Cyprus Finance Corporation (London) Ltd [1983] 1 QB 759 at 770 - 771). Therefore there was a joint disposition by Paul and Rosina Alvaro of $29,534 and by Paul Alvaro of $1,050 to the person or
persons who undertook the improvements.
Paul Alvaro also paid the sum of $2,880.30 being the costs associated with the acquisition and registration of the land in the name of the company. Those costs did not form part of the purchase price but were costs to the company of and incidental to procuring registration of the transfer from the registered proprietor. The payment of those costs by Paul Alvaro operated as a disposition by him of $2,880.30 to the solicitors. The $7,750 deposit paid out of the Romano account was expressed to be the consideration for the assignment by Paul Alvaro of his right, title and interest in the contract to purchase Tynte Street. For reasons stated earlier, that interest ceased to exist on the transfer of the legal estate upon conveyance. Nonetheless, there was a joint disposition of an amount of $7,750 by Paul and Rosina Alvaro.
Seaview Road
There is no evidence to suggest that Paul Alvaro was the purchaser of Seaview Road or that the title to Seaview Road was acquired for the company by Paul Alvaro exercising a power or right to direct the conveyance to it. The company acquired Seaview Road itself as purchaser subject to the terms of the PAF Trust. There was, therefore, no disposition of any estate or interest in Seaview Road by Paul Alvaro in respect of which s 121 of the Act would have an application.
To the extent that, if at all, funds of Paul and/or Rosina Alvaro were deposited by them into the company's operating bank account and applied to the repayment of the Commonwealth Bank loan and the commercial bill facility, the
principles discussed in relation to Tynte Street apply. Any funds so deposited and applied must, for the purposes of s 121 of the Act, be treated as dispositions of money by Paul and/or Rosina Alvaro to the company.
The other relevant dispositions in relation to Seaview Road were the $9,389 deposit paid by Paul Alvaro on 14 December 1983 and the $3,282 costs of acquisition of the property paid to the solicitors by Paul and Rosina Alvaro.
The Share Transaction
We are unaware of any authority which would support the contention that the issue and allotment of shares in a company is a disposition of property by the persons controlling the company. We agree with Heerey J that such a contention is contrary to the fundamental concepts of company law. The Official Trustee fails at the outset in respect of the share transaction.
(vii) Conclusions Regarding Disposition - Giuseppe Alvaro
Itala Avenue
There can be no doubt that the transfer of Itala Avenue from Giuseppe Alvaro to the GAF Trust on 5 June 1981 was a disposition of Giuseppe Alvaro's right, title and interest in the property for the purposes of s 121 of the Act.
Sierra Avenue
Giuseppe Alvaro did not acquire any estate or interest in Sierra Avenue. On the evidence, his son Carmine purchased the property. Giuseppe Alvaro's role in the purchase was to assist his son in the endeavour by money contributions. He did not acquire the property and direct a transfer to his son. It is these contributions, namely the $21,698.74 held in various savings bank accounts, the $13,400 cash and the $6,800 insurance claim money which are the relevant dispositions for present purposes.
Coronado Court
The facts and circumstances surrounding the purchase of Coronado Court by Condo Developments and the registration of it in the joint name of Giuseppe Alvaro and his wife where Giuseppe Alvaro provided the entire purchase price are reminiscent of those in Trautwein v Richardson. In our view Giuseppe Alvaro was the true purchaser of Coronado Court and disposed of, in the relevant sense, a one-half interest in it to his wife, Girolama, upon registration on 27 January 1982.
The provision by Giuseppe of the funds to undertake the improvements, at least for the purposes of s 121 of the Act, is to be treated differently. That is, it is to be treated as a series of dispositions of money to the person or persons who undertook the improvements or in the case of the repayment of the $30,000 loan from the Commonwealth Bank, as a series of dispositions of money into the general funds of the bank to retire debt.
George Street
There is no basis to treat the acquisition of the "Arndale Deli" as other than an acquisition of an operating business by Combran as trustee of the AF Trust funded by way of a loan from the Commonwealth Bank. Those funds of Giuseppe
Alvaro, if any, deposited into Combran's operating bank account and applied to the repayment of that loan must be treated conformably with the approach set out above in relation to Tynte Street and Seaview Road. A similar approach should be taken in relation to all other money said to have been paid by Giuseppe Alvaro into Combran's operating bank account and applied to the repayment of the loans used for whatever purpose. On this basis, the Official Trustee's submission that the proceeds of sale of the "Arndale Deli" used to acquire George Street should be treated as a contribution by Giuseppe Alvaro to that acquisition is misconceived.
Upon entry into the contract to purchase George Street on 13 March 1984, Giuseppe Alvaro acquired the right, subject to the payment of the purchase price, to require a conveyance of the property to himself or his nominee. When the conveyance to Combran was complete, that right was spent and all of the parties' rights under the contract merged in the conveyance (see the analysis in relation to Tynte Street).
In our view, Giuseppe Alvaro was not the true purchaser of George Street. He paid no part of the purchase price and acquired no interest, legal or equitable, in George Street. Any rights he acquired were contractual rights which, for the reasons set out in relation to Tynte Street, ceased to have separate existence upon completion of the conveyance to Combran. There was no disposition of any interest in George Street by Giuseppe Alvaro.
Crown Terrace
Crown Terrace was purchased by Combran and financed by a Commonwealth Bank small business loan. At no time did Giuseppe Alvaro acquire any estate or interest in the property. Therefore, there can have been no disposition by him of any such estate or interest.
On the appeals the Official Trustee submitted that, having regard to the difference between the actual income earned from Crown Terrace and the monthly and then weekly repayments made, Giuseppe Alvaro must have made contributions to Combran's operating bank account to enable the small business loan to be repaid. Conformably with the approach taken in relation to other monies contributed by the bankrupts and applied to the repayment of the bank loans, such monies, if in fact so contributed, must be treated as a series of dispositions of money for the purposes of s 121 of the Act.
INTENTION TO DEFRAUD CREDITORS
(i) The Criminal Proceedings
During the period of the 1978 to 1984 financial years, Paul, Rosina and Giuseppe Alvaro failed to declare substantial amounts of otherwise assessable income. Paul and Rosina Alvaro's only disclosed source of income during this period was the small amount derived from the hairdressing business "Headlines", which they operated in partnership. Similarly, Giuseppe Alvaro's only disclosed sources of income for most of the years in question were social security payments and rental income. His declared income for the relevant years ranged between $5,171 and $8,370.
The ATO had been conducting investigations into the taxation affairs of
Paul, Rosina and Giuseppe Alvaro and in February 1985 issued amended tax assessments against Paul Alvaro for the 1978 to 1984 financial years and against Rosina Alvaro for the 1978 and 1980 to 1984 years and against Giuseppe Alvaro for the 1979 and 1981 to 1983 years. The amended assessments were challenged unsuccessfully by each of them.
A combined National Crime Authority ("NCA") and ATO task force was established in 1988 to investigate the affairs of Paul, Rosina and Giuseppe Alvaro and other members of the extended Alvaro family.
On 25 September 1989 Paul, Rosina and Giuseppe Alvaro, amongst others, were charged with conspiracy to defraud the Commonwealth under the Crimes Act 1914 (Cth)("the Crimes Act"). During the course of committal proceedings before Mr Harris SM, which commenced on 14 May 1990, negotiations took place between Mr Brian Martin QC and Ms Robyn Layton on behalf of the Commonwealth Director of Public Prosecutions ("DPP") and counsel for the Alvaros. On 27 September 1990 Paul, Rosina and Giuseppe Alvaro and the other defendants entered pleas of guilty to charges of conspiracy to defraud, between 1978 and 1984, contrary to s 86(1)(e) of the Crimes Act and acknowledged the commission of a similar offence between 1984 and 1990.
Counsel for the DPP and for the various defendants participated in the preparation of a number of documents: a "heads of agreement", an "Agreed Statement of Facts" covering all the accused and separate statements by each of them. The "Agreed Statement of Facts" was as follows :-
"INTRODUCTION
1. The essence of the Crown case is that three brothers Giuseppe, Cosimo and Paul Alvaro conspired together to defraud the Commissioner for Taxation by concealing taxable income, Thomas Tigani and the wives of Cosimo and Paul Alvaro, namely, Francesca and Rosina Alvaro, joined the conspiracy and participated in a limited way.
2. The conspiracy was hatched in approximately 1978/79 and continued until about 1990 during which time tax returns were submitted to the Commissioner understating the taxable income of the three Alvaro families in each year and, following betterment assessments and other enquiries by the Commissioner of Taxation, the conspirators gave false information to the Commissioner through their accountant, Mr Rugari and took extensive steps to cover up the failure to disclose income.
3. Australian Tax Office investigations commenced in 1983 and are continuing. Assessments raised for each of the financial years, have been met by the lodging of objections which contained false information as to ownership of assets, sources of income and expenses together with voluminous correspondence containing false information.
4. The primary methods of disguising or concealing assessable income were centred upon the purchase of real estate, the operation of undisclosed bank accounts, the use of bookmakers and a travel agent in order to falsely represent assessable income as being non-assessable, the purchase of cars and the creation of numerous false loans evidenced by false statutory declarations and/or false acknowledgements of debt to support such loans.
Over the period 1978-1989 there have been 19 properties owned or purchased by or through the 3 Alvaro families. Details of those dealings and current holdings are set out in the respective signed statements of fact signed by each defendant.
These properties have variously and in part been purchased with undeclared assessable income.
Over ten years, the three Alvaro families have operated between them in excess of 100 bank accounts. Some of these bank accounts were opened and closed after being in operation for only a week, some were in false names and others were in the names of relatives but were operated for their own benefit. Other accounts were opened by Cosimo Alvaro and Giuseppe Alvaro as trustee accounts for children but were used for their own purposes and not for their stated beneficiary.
5. The Australian Taxation Office estimates investigations costs in the vicinity of $1,000,000 and those of the National Crime Authority are estimated to be in excess of $2,500,000.00.
6. The main particulars of the involvement of each defendant are set out in separate memoranda."
The content of the statements of Paul and Giuseppe Alvaro are important to a submission made by the Official Trustee. Paul Alvaro's statement was as follows :-
"I, PAUL ALVARO of 11 North East Road, Collinswood in the State of South Australia, Hairdresser, admit that I am guilty of Conspiracy to Defraud the Commissioner for Taxation over the period 1978 to 1984 inclusive as charged in the Information and thereafter until 1990 and I agree to the following facts for the purposes of sentencing.
1. Over the period 1978 to 1987 I declared assessable income to the Commissioner for Taxation totalling $77,243.00 which income was derived partly from my hairdressing business. That figure comprised the following:
YEAR DECLARED ASSESSABLE INCOME
1978 $ 7,054.00
1979 $ 4,998.00
1980 $ 3,753.00
1981 $ 5,857.00
1982 $ 3,987.00
1983 $15,288.00
1984 $ 7,020.00
1985 $ 9,460.00
1986 $14,772.00
1987 $ 5,054.00
2. Over the same period my wife Rosina declared the following assessable income:
YEAR DECLARED ASSESSABLE INCOME
1978 Nil
1979 Nil
1980 $ 3,488.00
1981 $ 5,857.00
1982 $ 3,987.00
1983 $12,787.00
1984 $ 7,010.00
1985 $12,979.00
1986 $13,137.00
1987 $ 3,644.00
Making a total of $62,899.00.
3. Over the period from 1978 to 1987 I received certain additional assessable income other than that declared in the taxation returns. The DPP upon the basis of their calculations according to a betterment assessment method allege a minimum omitted income to be as follows :-
YEAR OMITTED INCOME
1978 $ 28,577.00
1979 $ 6,016.00
1980 $ 53,816.00
1981 $ 80,624.00
1982 $107,060.00
1983 $ 23,657.00
1984 $ 58,191.00
1985 $ 54,645.00
1986 $ 34,088.00
1987 $ 25,974.00
The DPP alleges that a total of $472,264 was omitted and a total taxation evaded was approximately half namely $236,132. I agree that tax at the rate of approximately 50% is payable upon my omitted income.
In addition to the above tax liability I understand that pursuant to Section 224 of the Income Tax Assessment Act I am liable for an amount of up to 200% of the said sums at the discretion of the Commissioner for Taxation.
I acknowledge that my wife and I omitted at least $200,000 assessable income. I agree that, for the purposes of sentencing, it is unnecessary for the sentencing judge to resolve the dispute as to the total omitted income (which dispute is currently before the Federal Court) as I agree that the difference is not relevant to issues of sentence.
4. Over the said period my wife and I have purchased and/or sold the following assets :-
(1) 22 Prinse Street, West Beach purchased on 25.6.76 for $16,762.00 and on which a house was built in 1976/77 for
$33,500.00 and further improvements in 1983 amounting to $15,000.00. This property was sold on 30th November, 1984 for $150,000.
(2) 588-594 Seaview Road purchased on 29 August, 1980 for $73,000 in our names and later transferred to the Family Trust P & R Alvaro Enterprises Pty Ltd. The property consisted of 4 shops and was sold on the 22.6.84 for $120,000.
(3) 12-18 Lombard Street, North Adelaide purchased in the name of the Family Trust P & R Alvaro Enterprises Pty Ltd on the 30.11.81 for the sum of $40,000.00 which consists of 3 flats.
(4) 188-190A Tynte Street, North Adelaide purchased on 27th June, 1983 by me and later transferred into P & R Alvaro Enterprises Pty Ltd being 2 shops and 2 units in the sum of $77,500.00.
(5) 630 Seaview Road, Grange purchased in the name of the Family Trust P & R Alvaro Enterprises Pty Ltd on the 31st of January 1984 being units in the sum of $93,890.00.
(6) 9-11 North East Road, Collinswood purchased by my wife and myself on the 22.6.84 for the sum of $234,032.00 which is our present home.
During the period 1978-1987 undeclared assessable income was utilised in either purchasing and/or improving the said properties either directly or indirectly.
5. I falsely informed the Commissioner for Taxation that the purchase of the shops at 588-594 Seaview Road had been acquired through loans from friends totalling $30,000.00. I was responsible for a number of false statutory declarations and/or acknowledgment of debt being forwarded to the Commissioner in support of such loans.
6. I have travelled overseas on three occasions between 1979 and 1987. On the 28th of March 1982 being one of these overseas trips I paid a sum of $5,112.00 for travel. I subsequently claimed that the sum of $5,112.00 was a gift from the travel agent to myself for the purpose of disguising assessable income. In addition on the 28th of July 1980 I falsely purported to obtain travellers cheques to the value of $10,000.00 from my travel agent. This transaction was false and was a means of falsely representing $10,000.00 as non-assessable income. I subsequently falsely claimed this amount to be a loan to the Commissioner for Taxation in a Notice of Objection lodged by me in order to disguise assessable income.
7. I purchased a 1986 Mitsubishi Pajero for a sum of $21,000.00 and registered it in the name of a friend and falsely denied ownership of that vehicle to the Commissioner for Taxation for the purpose of disguising assessable income. In addition I falsely informed the Commissioner of Taxation for the purpose of disguising assessable income that a 1979 Alfa Romeo purchased for the sum of $10,800.00 in the financial year 1981 was a gift from a relative.
8. I arranged for 5 kilograms of silver to be purchased in the name of ALGEAS for a sum of $1,523.00 which silver was then deposited in that false name in a safety deposit box at the Commonwealth Savings Bank thereby disguising assessable income.
9. In 1978 I arranged through a bookmaker to record false bets which would give rise to false winnings amounting to $16,160.00. I repeated a similar transaction through a bookmaker in May 1981 for the sum of $30,030.00. These actions were done for the purpose of disguising assessable income and representing those sums as non-assessable income.
10. My wife and I used and operated "false name" bank accounts in the names of ROMANO, TIANI and CREA for the purpose of disguising certain income.
(1) During the period of operation of those accounts there were various deposits totalling $100,000 and various withdrawals and non-disclosed interest $19,823.95 (total $119,823.95).
Particulars of those accounts are as follows :-
ROMANO - 16.7.79 opened with $10,000 cash (closed 4.6.84)
Non Disclosed deposits $100,000.00
Non Disclosed interest $15,019.28
TOTAL $115,019.28
TIANI - 12.3.84 opened with $500 cash (withdrawal from Romano) (Closed 18.3.85)
Non Disclosed deposits $Transfer Only
Non Disclosed interest $2,531.95
TOTAL $2,531.95
CREA - 15.3.84 opened with $25,000.00 cash (withdrawal from ROMANO) (closed 29.3.85)
Non Disclosed deposits $Transfers Only
Non Disclosed interest $2,272.72
TOTAL $2,272.72
(2) My wife and I failed to declare certain assessable income contained in those bank accounts in Taxation Returns lodged in the Income Years 1979 to 1985.
(3) Objections lodged by my wife and I to assessments in relation to the years 1979 ti 1985 contained false information in that they did not disclose certain assessable income contained in those bank accounts.
(4) In response to a Section 264 Notice from the Commissioner for Taxation concerning those bank accounts, through my accountant I falsely informed the Commissioner that I had no knowledge of those accounts."
Giuseppe Alvaro signed the following statement :-
"GUISEPPE [sic] ALVARO of 8 Coronado Court West Lakes in the State of South Australia, Unemployed admit that I am guilty of Conspiracy to Defraud the Commissioner for Taxation over the period 1978 to 1984 inclusive as charged in the Information and thereafter until 1990 and I agree to the following facts for the purposes of sentencing.
1. Over the period 1978 to 1987 I declared assessable income to the Commissioner for Taxation totalling $69,359.00 which income was derived solely from Social Security benefits. That figure comprised the following:
YEAR DECLARE ASSESSABLE INCOME
1978 $ 4,587.00
1979 $ 6,797.00
1980 $ 6,178.00
1981 $ 5,809.00
1982 $ 5,171.00
1983 $ 8,370.00
1984 $ 8.336.00
1985 $ 7,928.00
1986 $ 8,274.00
1987 $ 7,907.00
2. Over the same period from 1978 to 1987 I received certain additional assessable income other than that declared in the taxation returns. The DPP on the basis of their calculations using a betterment assessment method allege a minimum omitted income to be as follows :-
YEAR OMITTED INCOME
1979 $ 8,741.00
1980 $ 26,21.00
1981 $ 32,460.00
1982 $134,934.00
1983 $ 58,172.00
1984 $ 93,533.00
1985 $ 33,070.00
1986 $ 34,953.00
1987 $ 17,966.00
The DPP alleges that total of $440,048.00 was omitted and a total taxation evaded was approximately half namely $220,024.00. I agree that tax at the rate of approximately 50% is payable upon any omitted income.
In addition to the above tax liability I understand that pursuant to Section 224 of the Income Tax Assessment Act I am liable for an amount of up to 200% of the said sums at the discretion of the Commissioner for Taxation.
I acknowledge that I omitted at least $250,000 assessable income. I agree that, for the purposes of sentencing, it is unnecessary for the sentencing judge to resolve the dispute as to the total omitted income (which dispute is currently before the Federal Court) as I agree that the difference is not relevant to issues of sentence.
3. Over the said period I purchased and/or sold the following assets.
(1) 16a Itala Avenue, Croydon Park purchased on 18 June 1972 for $15,995.00 which I sold on 5.4.82 for $60,076.00.
(2) 18 Itala Avenue, Croydon Park purchased on 22.2.77 for $24,915.00 which I transferred to my Family Trust in the financial year 1981.
(3) 8 Coronado Court, West Lakes which I purchased on 21.1.82 and on which I built my present house. The cost of the block was $55,768.00 and the cost of building the house in 1982 exceeded $213,768.00 and the cost of building the house in 1982 exceeded $213,891.00 (plans and photographs attached).
(4) 10 Sierra Avenue, Grange a house which I assisted my son Carmine Alvaro to purchase for $55,775.00 in the financial year 1981 my contribution being a sum of $35,775.00 which included a sum of $8358.79 from a trustee account in the
name of my daughter Concetta.
(5) 1 Holthouse Road, Fulham Gardens a house which I assisted my daughter Concetta and her husband Natale Licari to purchase in September 1981 in the sum of $66,025.00 of which I contributed $36,025.00.
(6) 67 George Street, Royal Park purchased in the name of a family trust Combran Pty Ltd in November 1984 for a sum of $42,000.00.
(7) 125 Crown Terrace, Royal Park purchased in the name of Combran Pty Ltd in October 1988 for the sum of $85,000.
During the period 1978-1990 undeclared assessable income was utilised either directly or indirectly in either purchasing and/or improving the properties numbered (3) to (7) inclusive.
4. I falsely informed the Commissioner for Taxation that the purchase and building of 8 Coronado Court aforesaid in which my wife and myself presently live, as having been acquired through loans and gifts totalling $179,000.00 from friends and/or family including trustee accounts of my children. One of the false gifts included in that said sum is $30,150.00 which my son Carmine Alvaro obtained by arranging to record false bets of $30,150.00 of my money through a bookmaker on my behalf. I was responsible for a number of false statutory declarations and/or acknowledgment of debt being forwarded to the Commissioner in support of such loans.
5. I have also travelled overseas to Italy on three occasions between 1979 and 1987 and in relation to that travel in 1979, I falsely declared to the Commissioner for Taxation that such travel was paid for as a consequence of a gift from a relative in the sum of $6,000.00.
6. I falsely informed the Commissioner for Taxation that a Bluebird Datsun valued at $7,000.00 and registered in my wife's name, was a gift from a relative. I also purchased a Volvo for the sum of $13,000.00 and registered it first in the name of a friend and falsely denied ownership of that vehicle to the Commissioner for Taxation.
7. I used and operated false name bank accounts in the names of CONDELLO, VIOLI and VITALONE for the purpose of disguising certain income. The total of deposits in those accounts was $98,000 plus interest $7,782.77 (total $105,782.77). Particulars of those accounts are as follows:
CONDELL - 30.9.93 opened with $3,000 cash (closed 12.4.85)
Non Disclosed deposits $60,000.00
Non Disclosed interest $2,697.80
TOTAL $52,697.80
VIOLI - 6.3.84 opened with $500 cash withdrawn from CONDELLO account (closed 25.3.85)
Non Disclosed deposits $24,000.00
Non Disclosed interest $ 2,697.80
TOTAL $26,697.80
VITALONE - 23.3.84 opened with $24,000 cash withdrawn from CONDELLO account (closed 15.4.85)
Non Disclosed deposits $24,000.00
Non Disclosed interest $ 2,557.44
TOTAL $26,557.44"
The "heads of agreement" recorded an agreement between counsel as follows :-
"IN THE MATTER OF THE DIRECTOR OF PUBLIC PROSECUTIONS v COSIMO ALVARO, GUISEPPE [sic] ALVARO, PAUL ALVARO, FRANCESCA ALVARO and ROSINA ALVARO
1 The abovenamed defendants will plead guilty before Mr Harris SM to a charge of Conspiracy to Defraud (Section 86(1)(e)) between 1978 and 1984 (pre the 1984 amendment) upon the bases set forth in the Agreed Statement of Facts and the memorandum signed by each defendant.
2 The abovenamed defendants will agree before Mr Harris SM to be committed for sentence to the Supreme Court, or if the Learned Magistrate considers such committal should be made to the District Court, then to the subsequent filing of an ex officio Information in the Supreme Court for the purposes of being sentenced in the Supreme Court.
3 The defendants Cosimo Alvaro, Giuseppe Alvaro and Paul Alvaro will sign and tender to Mr Harris SM for transmission to the Supreme Court an acknowledgment of the commission of a further offence, namely, Conspiracy to Defraud between 1984 and 1990. The DPP and the defendants named in this clause will request the sentencing Judge to take such offence into account pursuant to
Section 16BA of the Crimes Act.
4 Acknowledgements of guilt and agreed statements of facts concerning each defendant will be tendered to Mr Harris SM for use by the sentencing Judge.
5 No additional Federal charge or charges will be laid against the abovenamed defendants or any of them or other persons named in the Informations in relation to the subject matter of the prosecution. In these heads of agreement "the prosecution" includes the matters the subject of allegations made with respect to or connected with the Information dated the 30th April, 1989 and the same as amended from time to time and the Informations laid on 26th September, 1990 as well as the exhibits or other documents in so far as those exhibits or documents were used or proposed to be used in these proceedings.
6 For the purposes of sentencing, no allegations will be made by the DPP or by the abovenamed defendants or their counsel as to the source of the undisclosed income.
7 The DPP will not apply in these proceedings for confiscation of alleged profits under the Proceeds of Crime Act 1987.
8 All the abovenamed defendants, Girolama Alvaro, Natale Licari, Maria Concetta Licari, Carmine Alvaro, Natale Rugari and Francesco Condo agree that no complaint or claim will be made by them or on their behalf in respect of the investigation or prosecution. This clause is not intended to suggest that there exists any cause for complaint or claim.
9 The DPP is at liberty to present such submissions he sees fit with respect to penalty, including costs of the investigation or prosecution. As to facts, subject to clause 6 hereof, the DPP is not restricted by the agreed statements of facts or these heads of agreement but is not entitled to make allegations of facts inconsistent with the statements of fact or these heads of agreement.
10 The DPP will not oppose bail being granted by Mr Harris SM subject to surrender of passports, appropriate sureties if any, and reporting conditions.
11 The pleas, statements of facts, submissions and all other matters associated with the pleas are without prejudice to the rights of the DPP and any person named herein in any existing or future civil/tax proceedings and on the part of defendants and each of them are made for the purpose of this matter being dealt with by Mr Harris or the Court on sentence but not otherwise.
12 In the cases of Rosina Alvaro and Francesca Alvaro the DPP will not oppose the imposition of a bond as an appropriate penalty for each of them pursuant to Section 20(1)(a) and if necessary will agree that the judge should order immediate release pursuant to Section 20(1)(b)."
On 5 November 1990 Paul, Rosina and Giuseppe Alvaro pleaded guilty to ex officio indictments laid by the DPP in the Supreme Court of South Australia. On 14 November Millhouse J sentenced Paul and Giuseppe Alvaro to three years imprisonment, with an order that they be released on recognisance after serving eighteen months. Rosina Alvaro was sentenced to two years imprisonment subject to immediate release upon entering into a bond to be of good behaviour.
(ii) The Judgment of Heerey J
In Official Trustee v Paul Alvaro, having found that the dealings in respect of Lombard Street and Seaview Road did not involve dispositions of property within s 121 of the Act, Heerey J considered that :-
"The application, insofar as it is based on s121, therefore fails at the outset in respect of these properties."
However, his Honour thought that there had been a disposition of property in relation to Tynte Street and proceeded to consider the question of intention to defraud creditors in relation to each of the properties and the share transaction. His Honour cited the well known authorities on the topic, including authorities on "retained benefit" and the application of s 6 of the Act. His Honour said (at pp 30 - 31) :-
"Consistently with this approach, the well established concept of retained benefit may still be a relevant criterion in determining the existence of an intent to defraud. While s6 has the application stated by the Full Court in
Garuda in a context where the impugned disposition prefers one creditor over another - as was the case in Garuda itself - there will also be cases where no question of competition between creditors arises. The present case is such a one. Relevantly there was only one actual or potential creditor - the ATO. In Marchiori also there were several creditors but the impugned disposition did not prefer one or more over others. In such a context, arranging for a retained benefit is obviously one way a debtor could defraud creditors."
After quoting from the reasons for judgment of Fisher J in Re Marchiori (1983) FLR 290 at 296, Heerey J went on (at pp 31 - 32) :-
"In the circumstances of the present case, where the impugned dispositions (other than the issue of shares) were made many years ago and well before there was any apparent need to stave off creditors, any intent to defraud creditors seems to necessarily involve some provision for retained benefit. The presentation of the applicant's case accepted this need by urging that Mr and Mrs Alvaro treated the properties in question `as their own'. On this issue there was a substantial degree of overlap between the case under s121 and the case of sham."
Heerey J then stated that the form that the retained benefit might take was dependent on the circumstances and that as s 121 of the Act posits legal and beneficial title on the disponee :-
"... the concept of retained benefit must require at the time of the disposition some promise by the disponee, or some arrangement or understanding between disponee and debtor, that the latter will receive the benefit and that the disponee will make the benefit available - notwithstanding the disponee's legal and beneficial title - and, if need be, inconsistently with the disponee's own rights and interests."
His Honour concluded the discussion of retained benefit thus (at pp 32 - 33) :-
"The promise, express or implied, of the disponee to make the benefit available to the debtor, being a promise known to the debtor, is an element of the intent to defraud creditors and also something which negatives good faith on the part of the disponee: Clegg [1912] 3 KB at 492 per Parker J."
Under a heading "Concealment", Heerey J said that the dates at which the Official Trustee had to establish the relevant intent were the dates, which his Honour
listed, at which the various properties had been registered in the company's name. His Honour continued (at pp 34 - 38) :-
"Thus the court is asked to set aside transactions which occurred up to thirteen years ago, nine years before sequestration and three years before the emergence of the ATO as a creditor posing a serious threat to Mr and Mrs Alvaro, a marked contrast to the proximity in time of insolvency and pressing creditors' claims that existed in Noakes, Marchiori and Garuda.
In opening the applicant's case counsel said that
`(b)etween 1978 and 1987 (Mr and Mrs Alvaro) conspired to defraud the (ATO) by concealing assessable income. This was done, amongst other ways, by the purchase and transfer of property into the names of a company purportedly as trustee, it having been established in order to conceal the accumulation of wealth from the concealed income'.
In final submissions counsel expanded this notion by asserting that there was intent to defraud if there were
`... dispositions designed to defeat creditors by evasion. Evasion does take place if the disposition is designed to prevent the creditor gaining knowledge of the existence of the interest in the property ... it was sufficient to establish that the properties were acquired in the name of the Trust to prevent, hinder or delay the assessment of tax by concealing the true assessable income of the bankrupts. Concealment is enhanced if assets are in the name of others for that frustrates the effective use of the betterment statement to assess the amount concealed'.
The problem with this analysis is that the applicant's case assumes a knowledge in 1981 by Mr and Mrs Alvaro of the betterment assessment system and a conscious plan to defeat that system or make its application as difficult as possible. There is no evidence to suggest that Mr and Mrs Alvaro had such knowledge and the circumstances point to the conclusion that they did not. If there was an intent to defraud creditors or, more specifically, the ATO, in the circumstances of this case it could only be an intent, in the words of the applicant's opening submissions, `to conceal the accumulation of wealth from the concealed income'. (That submission may from another point of view be said to beg the question whether the `wealth' was accumulated by Mr and Mrs Alvaro or by the Company as trustee of the Trust.)
On the issue of intent to conceal, the evidence is as follows. In 1981 M and Mrs Alvaro were carrying on a hairdressing business in North Adelaide. They banked at the North Adelaide branch of the Commonwealth
Bank. They caused the Company to be incorporated with the stated purpose of acquiring their business. They made themselves the only directors and shareholders of the Company and named it after themselves, all of which information would be available for public search at the appropriate registry. They retained their accountant Mr Rugari for the purposes of incorporating the Company and establishing the Trust, which also bore their names. Mr Rugari kept files for themselves and the Company and Trust under their respective names in his office in Adelaide. In the bookkeeping and records of the Trust there was no concealment of wealth or assets.
In the same year Mr and Mrs Alvaro caused the Company to acquire a property, the title to which was registered in the name of the Company in the Titles Office. Mr Alvaro signed a tax return which told the ATO that the Company had `property' and that he, Mr Alvaro, was indebted to the Trust.
When the other two properties were acquired subsequently they too were registered in the name of the Company as registered proprietor and their existence indicated in the balance sheets lodged with the tax returns.
Mr Alvaro collected the rent. Since he was not an estate agent the tenants would doubtless conclude that he had some kind of personal connection with the properties.
From 1981 onwards the ATO, or anyone else curious about assets Mr and Mrs Alvaro might own or control or have some involvement with, needed only to search the index at the Titles Office to find holdings in the name of a company bearing their own name. What Mr and Mrs Alvaro did in relation to their connection with or involvement in the three properties seems quite inconsistent with the existence of any intent to defraud by concealment.
The ATO was for present purposes Mr and Mrs Alvaro's only creditor (Only two proofs of debt were lodged against their estates, one by the ATO and the other by the DPP in respect of the reparation orders.) Section 6 makes an intent to defraud one creditor sufficient for the purposes of s121. But the evidence shows not merely an absence of concealment of Mr and Mrs Alvaro's connection with the three properties, but a positive communication of the fact of that connection to the ATO itself by means of the Trust tax returns. It was not something kept secret, to be sprung upon the creditor only in case of some unexpected claim (Mercer at 294).
I do not doubt that some of the money which was not included in Mr and Mrs Alvaro's tax returns went towards the improvement of at least some of the properties concerned. In particular, I find that this happened with the renovations of Tynte Street. However, that does not of itself establish that the relevant dispositions at the time the properties were acquired were
made with intent to defraud creditors. The conclusion to be drawn is that Mr and Mrs Alvaro, although undoubtedly dishonest, were also naive. The circumstances strongly suggest that they thought they would never be caught, that once they had concealed income by false betting wins, false name bank accounts and the like, they could do what they liked with it.
Likewise, I do not regard the admissions made in the course of the criminal proceedings as concluding this issue. Clause 11 of the heads of agreement acknowledges that the admissions etc were made `for the purpose of this matter being dealt with by Mr Harris or the Court on sentence but not otherwise'. In the course of the trial I ruled that this provision could not prevent the applicant tendering the admissions. However, when evaluating the admissions for the purpose of the present case, cl.11 is a reminder that they have to be considered in context. The question whether the three properties were `disposed of', with the intention of defrauding creditors, was simply never an issue in the criminal proceedings. What was then raised was the concealment of assessable income and what was done with that income towards the acquisition of assets."
Heerey J then dealt with an argument put on behalf of the Official Trustee which, he thought, bore on the issue of retention of benefit by the bankrupts as well as on the issue of sham, namely that Paul and Rosina Alvaro treated the properties "as their own" by collecting the rents from the properties and paying personal expenses therefrom. His Honour concluded (at pp 38 - 39) :-
"... But their transactions were consistent with, in the words of Mr Harmer, a `reasonably normal' degree of usage with a family discretionary trust of this kind. The regular practice of Mr Rugari was to make the appropriate adjustments to the loan account when the accounts of the Trust were compiled each year. The evidence did not establish that any significant amount of rent escaped accounting in this way. Counsel for the applicant urged the fact that such accounting `only' took place some months later when the tax returns were prepared as something showing that Mr and Mrs Alvaro treated the assets as their own. But the accounting was not `rectifying' an irregular transaction. The Company traded as trustee of the Trust but did not have salaried employees or retain an estate agent. Somebody had to collect the rent of properties owned by the Trust, and I see nothing sinister in the fact that Mr Alvaro assumed that task. As long as he accounted to the Trust on a regular and consistent basis for the rents there was nothing inherently improper in his dealing with the money for his own purposes in the meantime. The evidence indicates that such delay as occurred was not abnormal with business entities of this kind."
Heerey J thought that the Official Trustee's case on intent to defraud creditors failed for another reason (at pp 39 - 41) :-
"... If a disposition by a debtor is attacked as being made with the intent of putting the debtor's assets beyond the reach of creditors, such a purpose would be pointless if the debtor retained assets in his own name which would be sufficient to meet claims of creditors. There would not be a dealing which `subtracts from the property which is the proper fund for the payment of those debts, an amount without which the debts cannot be paid': Freeman v Pope (1870) 5 Ch App 538 at 541 per Lord Hatherley LC, Noakes at 303.
Counsel for the beneficiaries of the Trust argued that the evidence showed that at the time of relevant dispositions there were assets in the name of Mr and Mrs Alvaro themselves which were sufficient to meet their liabilities to the ATO, and not just their liabilities based on their disclosed incomes at the time but their true liabilities as established by the subsequent betterment statement.
The evidence supports her contention. Taking the asset position of Mr and Mrs Alvaro in 1983 immediately before the acquisition of Tynte Street their position can be deduced from information provided to their bank at the time and also the betterment statement:
Assets
22 Prinse Street $120,000
Furniture 30,000
Cash 15,000
Romano account 55,475
588 Seaview road 100,000
Loan accounts (Trust) 31,912
Loan Sorgini 18,000
370,000
Liabilities
Mr Alvaro overdraft 494
Surplus 370,163
The prices for which 22 Prinse Street and 588 Seaview Road were subsequently sold shows that the figures given for those properties were quite conservative. On the basis of the betterment statement the true tax liability of Mr and Mrs Alvaro which had accumulated by 1983 was $156,125. Even applying penalties which were subsequently assessed, including an interest factor up to 1989, the total tax liability amounted to
$367,146.
Moreover, the fact that, well after the conspiracy to conceal was allegedly established, substantial properties (the shops at 588 Seaview Road and later the new family home at 11 North East Road, Collinswood) were acquired in Mr and Mrs Alvaro's own names suggests that arranging for the acquisition of other properties by the Company as trustee of the Trust was for reasons other than concealment.
An intention to defeat future creditors may be sufficient in the particular circumstances (Garuda at 526). But here the circumstances did not, as I find, include a belief on the part of Mr and Mrs Alvaro that the ATO would be a creditor for tax and penalties on undisclosed income."
Finally, his Honour noted that there was a "positive side" as well and drew on W S Gilbert in observing that Paul and Rosina Alvaro's criminal behaviour in evading tax did not mean that their every act and deed was motivated by similar criminal and dishonest designs. His Honour said (at pp 42 - 43) :-
"The discretionary family trust with children (and parents) as beneficiaries has been a familiar business entity in this country for twenty years or more. For small and medium sized businesses the impression one gets is that a discretionary trust is generally preferred as a legal vehicle as against a partnership or a company as beneficial owner. The taxation benefits such trusts confer are recognised by the tax laws - subject of course to detailed prescription, but accepted nonetheless. Such tax benefits are allowed because discretionary trusts can fulfil a socially desirable purpose of making provision for dependants. There was a legitimate reason for the use by Mr and Mrs Alvaro of the Company and the Trust.
At the time the Trust was established Mr and Mrs Alvaro had two small children and were presumably contemplating more. Their circumstances were in this respect no different from thousands of Australians who have established discretionary family trusts. The first transaction of the Company was to acquire, for the purposes of the Trust, Mr and Mrs Alvaro's hairdressing business. It is not suggested, nor could it be, that this transaction had any tax evading or concealment objectives. It was a typical and unremarkable transaction for a family discretionary trust. Thus the genesis of the Company and the Trust was not stamped with any kind of fraud or illegality, whether by concealment or otherwise, directed towards the ATO or anyone else. The subsequent acquisitions by the Company of the three properties, viewed through the prism of the Company's unexceptionable foundation, become all the more understandable as
everyday transactions explicable by ordinary domestic and commercial considerations.
The intent proscribed by s121 need not be the only operative intent: Barton v Federal Commissioner of Taxation (1974) 131 CLR 370 at 375. However I am not persuaded that there was not a `single innocent intent' (Barton loc cit) at the time of the impugned transactions. Put more exactly, I am satisfied that there was in fact the innocent intent of providing for the beneficiaries of the Trust in the same way as family discretionary trusts usually make provision and I am not satisfied that this intent was accompanied by an intent to defraud creditors by concealment."
As to the share transaction, Heerey J could find no basis for a finding of intent to defraud creditors (p 44) :-
"What was done was consistent with the substance of Mr Mansfield's advice. Once Mr and Mrs Alvaro relinquished control by appointing three more directors, it was logical to have the Company issue more shares so that Mr and Mrs Alvaro's control as shareholders would also cease. Mr and Mrs Alvaro had ten shares between them. If the three new directors were to receive shares sufficient to outvote Mr and Mrs Alvaro, the obvious number was something more than ten which was divisible by three. Hence the issue of twelve shares, with four going to each of the new directors."
In Official Trustee v Giuseppe Alvaro, Heerey J did not repeat the discussion of the legal principles to be applied to a consideration of whether the requisite intent was established. The discussion in Official Trustee v Paul Alvaro was incorporated into his Honour's reasons by reference.
Speaking of Itala Avenue, Heerey J said (at pp 11 - 13) :-
"... However, I am not satisfied there was an intent to defraud creditors at the time of the disposition in February 1981. This was some four years before the amended assessments. The evidence does not reveal any need that might have been then apparent to Giuseppe to place assets out of the reach of creditors. A year later he was taking title to the Coronado Court property in the names of his wife and himself.
Despite the reference to `nil' consideration in the transfer, the documentation at the time, and in particular the trust tax returns submitted by the GAF Trust, leads to the conclusion that the purchase price was left owing on loan. Between 1981 and 1986 Giuseppe took rent from the property and each year the amount of that rent was applied in reduction of his loan account. The applicant claimed that Giuseppe `appropriated' the rent on the property at least up until 1985. It was further said that he signed the rent book. An examination of the rent book however indicates that the signatures are likely to be those of Carmine and Girolama. In any event, collection of the rent by Giuseppe would not be inconsistent with a valid transfer to the GAF Trust, as long as he accounted to the Trust for that rent, as he in fact did.
The GAF Trust was a very simple operation. Its only asset was the shop at 18 Itala Avenue. It kept little in the way of accounting records; in effect, as Mr Harmer said, its annual tax return and financial statements were its accounts. It had no bank account. But given the uncomplicated nature of its business, these circumstances do not point to an intent to defraud. The use of an individual rather than a company as trustee would save the registration and annual costs of maintaining a company.
Reliance was placed on a form which Giuseppe and Girolama signed on 22 September 1982 in support of an application to the Commonwealth Bank for a loan for the erection of a house at Coronado Court. The application form was signed by Giuseppe and Girolama. The form includes the following (typed additions in italics [bold]):
`The loan is required to assist:-
(i) To erect a dwelling on the property offered as security at a contract price of $317,129.'
The printed form further states:
`The property offered as security will be occupied by me/us as a home.'
The printed form provided for details of liabilities and assets. Under the latter heading there is included
`Property offered as security (if title not in applicant(s) name, deposit paid Land $54,000.'
Under the heading `Assets' the form provides for various other items such as bank accounts and life insurance. There then appears:
`Other Assets Shop at Itala Avenue, Croydon Park $60,000'.
I do not regard this document as constituting an admission by Giuseppe that 18 Itala Avenue was `really' his or that he was treating it `as his own' and that the transfer of the property to the GAF Trust was a sham. Both Giuseppe and Girolama were `Specified Beneficiaries' of the GAF Trust. The trustee had express power to borrow moneys (cl.7(c)) and to give guarantees for repayment of loans and to give mortgages over trust property to secure the same (cl.7(d)). The statement in the bank application form says no more than that. The property at 18 Itala Avenue was never in fact used as a security for the bank loan in respect of Coronado Court, or for any other borrowing or acquisition by Giuseppe.
There is no evidence otherwise of retained benefit for Giuseppe. The GAF Trust lodged tax returns with the ATO including annual financial statements.
.....
I am unable to find that there was any promise, arrangement or understanding at the time of the transfer for a benefit to be retained by Giuseppe."
His Honour then dealt with an argument put on behalf of the Official Trustee in relation to all the properties, similar to that put in Official Trustee v Paul Alvaro, namely that :-
"... the lands were treated as [Giuseppe's] own and ... his intention was always that the land be his free of the trusts."
Heerey J said (at pp 14 - 15) :-
"In support of this contention it was further said:
`In the execution of the conspiracy to defraud the Commissioner of Taxation, the bankrupt employed the contrivance of placing assets in false names so as to disguise their true ownership [presumably a reference to, amongst other things, false bank accounts]. The placement of the lands in the names of trustees and asserting it was held pursuant to the trusts, is similar in form to this dishonesty, occurred at the same time, and permits an inference that it was little different in truth.'
For the reasons given in Official Trustee v Paul Alvaro I do not accept this reasoning as valid. It seems particularly inappropriate when applied
to 18 Itala Avenue. Giuseppe's first wife had died leaving five children who were, at the date of the transfer, aged between 19 and 8. Eight months after the establishment of the GAF Trust Giuseppe married a young wife. Such a period does not suggest to my mind, as the applicant submitted, that `... the establishment of the Trust had nothing to do with remarriage'. I find the circumstances are very consistent with an intention on the part of Giuseppe to make provision for the children of his first marriage.
It was also said by the applicant in support of the contention mentioned that
`In his admissions the bankrupt frankly admitted he purchased the lands and transferred them later to the trustees, albeit he asserts they were then subject to the trusts.'
I do not see how this advances the applicant's case. The construction put on the admissions is consistent with what the respondents now say was the true position."
Heerey J was not satisfied that there was an intent to defraud creditors in relation to Sierra Avenue. His Honour said (at pp 18 - 19) :-
"... The contract was executed almost four years before Giuseppe received the amended assessments. Nor was there any retention of benefit by Giuseppe. It is hard to see how there could be any such retention without Rita being made aware of it prior to or at the time of the marriage. There is no suggestion that this occurred. The circumstances of the marriage strikingly negative any such suggestion. Rita and Carmine had courted for some five years prior to the marriage. However she was Maltese. Carmine's family disapproved of her because she was not Calabrese. As a result of their disapproval, she did not meet Giuseppe until after the marriage. The only members of Carmine's family to attend the wedding ceremony were his sister Maria Concetta and his stepmother Girolama. It was not that they took the side of their brother and stepson against Giuseppe. Rita deposed:
`They both tried to talk Carmine out of proceeding with the marriage at the church in my presence.'
If 10 Seaview Avenue was `really' Giuseppe's and subject to some promise, arrangement or understanding on the part of Carmine to that effect, it is odd indeed that Giuseppe did not take advantage of his `rights' to withdraw his benevolence when the son had thwarted the family's wishes - and the more so since Giuseppe had by this time received the amended assessments
and no doubt needed money for legal costs and possible tax liabilities.
Also, three years after the amended assessments Carmine and Rita spent some $9,000 of their own money on improvements to the property. It must have been apparent to them then that Giuseppe was facing serious financial problems. If Carmine regarded the property as something which could be taken back at any time by Giuseppe, such expenditure is inexplicable."
Similarly in relation to Coronado Court, Heerey J was unable to find that there was an intent to defraud creditors within the meaning of s 121 of the Act (pp 21 - 22) :-
"... The date title was taken was three years before the amended assessments. As is more fully discussed in Official Trustee v Paul Alvaro, it is one thing to disguise a source of income by false bank accounts and the like, it is another to conceal assets. Here of course the property was revealed on a public register as being one in which Giuseppe himself held a half interest.
Nor is there the element of retained benefit in relation to Girolama's half interest. When one asks what could be the benefit retained by Giuseppe, the answer cannot be occupation of the property, because the occupation he has enjoyed is referable to his own (disclosed) interest as joint proprietor. Nor can it be access to rents or profits since the property was used and, I find, always intended to be used, as a home to be occupied by the owners. The only retained benefit possible therefore would be access to the capital represented by Girolama's half interest. If there is one form of property which law, equity and community experience would treat as `really' belonging to a wife, it is her joint interest as registered proprietor in the matrimonial home. It would require clear evidence to reach the conclusion that at the time this interest was acquired Girolama was a party to a promise, arrangement or understanding with her husband that her interest was available to Giuseppe at any time, notwithstanding her undoubted legal and equitable rights. There is no such evidence in the present case."
Nor could Heerey J find that there was an intent to defraud creditors in respect of George Street (pp 24 - 25) :-
"... Its acquisition was financed entirely from commercial borrowing. The registration of the title in the name of Combran with the public disclosure of directors and shareholders together with the lodging of annual financial
statements with the ATO is inconsistent with an intent to conceal.
There is no retained benefit by Giuseppe and no basis for finding any promise, arrangement or understanding at the time of acquisition for such a benefit. The subsequent history of the AF Trust is consistent with it being controlled by the directors of Combran in accordance with the terms of the Trust. Giuseppe was never a director of Combran and only became a shareholder by succession on the death of his son Pasquale. As far as the evidence discloses, Giuseppe's only connection with the construction of units on the George Street property was that he dealt with a Mr Brian Wilson for the supply of curtains."
Finally, in relation to Crown Terrace, Heerey J considered that the provision of the funds by commercial borrowing and the absence of concealment precluded a finding of intent to defraud.
(iii) Submissions on the Appeals
On the appeals, the Official Trustee relied heavily upon the admissions made by the bankrupts in the criminal proceedings to support the contention that the various dispositions were made with the requisite intent. In written submissions the Official Trustee said :-
"For a disposition to be fraudulent, it must be shown it was done with intent to defraud creditors. There are other attributes, such as the bankrupts retaining a benefit. These issues depend for their resolution on evidence relating to the intent of the bankrupts at the time of the dispositions and upon arrangements between them and the disponees (in this case a corporate trustee under the exclusive control of the bankrupts) which are likely to be covert. In this case, the proof relied upon to establish these matters comprised pleas of guilt and admissions made by the bankrupts. Much turned on how these admissions should be interpreted."
The Official Trustee contended that Heerey J erred by interpreting the admissions beneficially to the respondents in circumstances where the content of the admissions did not unequivocally support such beneficial interpretation and having regard to the respondents' failure to give evidence. In particular, the Official Trustee took issue with Heerey J's statement in Official Trustee v Paul Alvaro that, "The question whether the three properties were `disposed of', with the intention of defrauding creditors, was simply never an issue in the criminal proceedings." It was submitted that the issues raised in the criminal proceedings and these proceedings were essentially the same :-
"The criminal case was a charge of conspiring to defraud the Commissioner of Taxation by failing to declare and disguising assessable income. The gravamen of the case (as indicated) was not merely failing to declare, but also engaging in disguise. To make out the case, the prosecution was obliged to establish a fraudulent intent on the part of the bankrupts to deceive the Commissioner of Taxation, who was a potential creditor (if the deception failed). The fraudulent intent was to avoid the debt arising. The indictment pleaded that the scheme was to avoid this by not declaring, but hiding (disguising) income. That scheme was effected, as indicated and later admitted, by the concealment of the income through the purchase of the real estate included the properties the subject of this application. The purchase of real estate concealed the income only to the extent that it was done in names other than the accused, though in fact for them, with the source of purchase monies (being accused) concealed. The Learned Judge's finding that the question of whether the three properties were `disposed of' with the intention of defrauding creditors, was simply never an issue in the criminal proceedings cannot be sustained where that very issue was addressed by the indictment, pleas of guilt and the admissions."
(Original emphasis)
For their parts, counsel for the respondents submitted that the admissions made in the criminal proceedings could be used as evidence in these proceedings only against the maker of the admission and against any person on whose behalf the maker was acting at the time.
(iv) Conclusion
The submissions referred to above raise two questions for consideration: first, against whom may the admissions be used and second, what effect do the admissions have in respect of those respondents against whom they may be used?
In relation to the first matter, it is relevant to note the trial judge's view. In his reasons for judgment, Heerey J said (at p 19) :-
"In a ruling during the course of the trial I held that the admissions, the statement of agreed facts and the heads of agreement were admissible in the present proceedings."
None of the respondents took steps to challenge this ruling. No notice of contention was filed. However, during the course of argument, it became clear that the respondents' counsel did dispute the correctness of this ruling, at least insofar as it made the material admissible against all respondents. They said the material concerning the criminal proceedings was relevant only to the extent that it contained admissions and that the admissions were evidence only against the maker of the admissions and any person on whose behalf the speaker was acting at the time.
The Official Trustee disputed the respondents' entitlement to take this point and contended that, in any event, the material was admissible against all respondents. In support of the latter submission the Official Trustee referred to Re Edelstein; Ex parte Donnelly (unreported, Federal Court of Australia, 9 June 1992, Northrop J). That case concerned the ownership of five medical clinics. The clinics had been vested in companies not controlled by Dr Edelstein. They were subsequently acquired by
Australian Medical Developments Limited, the fourteenth respondent to an application by Dr Edelstein's trustee for an order that the clinics were an asset of Dr Edelstein's estate. The trustee's case was that, despite outward appearances, Dr Edelstein had been the true owner of the clinics. In support of that case, he tendered evidence concerning the conduct of people involved with the management of the clinics, including Dr Edelstein. The evidence about Dr Edelstein's conduct included evidence of statements made by him about his role. Counsel for the fourteenth respondent argued that this evidence was not admissible against that respondent. Reference was made to Cross on Evidence, 4th Australian edition (at paragraph [33520]) :-
"The out-of-court admission of a co-defendant, co-plaintiff or co-accused is not admissible evidence against his fellow party to the litigation by virtue of the mere fact that they are joint parties or said to be jointly involved in a particular transaction. This principle applies in all cases, but is most vividly illustrated by its application to divorce proceedings where ... there may be a finding, on account of A's extra-judicial admission, that A committed adultery with B although there is no finding that B committed adultery with A, because the admission comes within the rule against hearsay and outside any exception to it so far as B is concerned.
`That decision does not mean that what was in effect the same act was committed by one person, but not committed by another; it means it is proved against one, but it is not proved against the other.'
Wigmore characterised the conclusion as `perfectly logical ... [but] also perfectly and absurdly artificial' but it seems to be justified by the injustice and inconvenience that might follow upon the reception of A's admission of adultery with B as evidence against the latter. At the very least B should have every opportunity of cross-examining A, and he would not have this if the admission were received as such. If A is called as a witness, his or her testimony concerning adultery with B may be received against the latter. Any party's testimony is admissible evidence against his fellow party in the same proceedings, and his extra-judicial admission may be received on some ground other than that it is an admission."
The internal quotation comes from Merriman P in Morton v Morton [1937] P 151 at 154
- 155, a case in which the Court used admissions by a co-respondent as a basis for finding adultery by him with the respondent's wife, but held there was no evidence against the wife of that adultery.
Northrop J held that the evidence tendered in Edelstein was admissible, not as proof of the truth of the statements made by Dr Edelstein, but as conduct bearing on the matter of ownership of the clinics. The ownership of the clinics at that time was relevant to the title claimed by the fourteenth respondent.
The circumstances of Edelstein are very different to those of the present cases. We have no difficulty with the proposition that the conduct of a person in relation to an item of property may constitute evidence, admissible against all parties to a subsequent proceeding, from which an inference may be drawn as to the ownership and/or control of that property. It makes no difference if the conduct happens to take the form of oral or written statements. Evidence of the making of the statements is admissible, not as proof of any facts they assert, but as evidence of the contemporaneous attitude to the property of the maker of the statements and those who hear or receive them. That is not the present situation. The statements made by the three bankrupts were made years after the relevant transactions. They were not statements made in the course of dealing with the properties. They were made, by way of formal admissions, in the course of criminal proceedings and for the purposes of those proceedings. Edelstein does not advance the appellant's argument.
In written submissions provided after the oral hearing, the Official Trustee put an alternative argument in support of the contention that the material concerning the criminal proceedings is admissible against all the respondents. He said it was proper to join as parties the alleged disponees of the properties the subject of the application, a proposition we accept. He also said the critical question under s 121 of the Act in relation to intention to defraud is the state of mind of the relevant debtor at the time of disposition, not that of the disponee; the disponee might be innocent of fraud, perhaps a child below an age of understanding. Once again, we agree. The Official Trustee then took a step that we cannot accept. He said that it follows that a case under s 121 may be proved, as against all parties, by the debtor's admission of fraudulent purpose; although the purpose of the evidence is to prove the truth of the statements made in the admissions, the tender of the evidence does not offend the hearsay rule because it relates to a person's state of mind. In support of this contention he cited Walton v The Queen (1989) 166 CLR 283, Dobson v Morris (1986) 4 NSWLR 681, Concrete Constructions Pty Ltd v Plumbers and Gasfitters Employees' Union (1987) 15 FCR 64, Shoshana Pty Ltd v 10th Cantanae Pty Ltd (1987) 18 FCR 285 and Italiano v Barbaro (1993) 40 FCR 303.
We do not think there is any similarity between the present situation and that discussed in those cases. Walton was a criminal case. A question arose as to the admissibility of a statement by the deceased to her young son "daddy's on the phone". The son called the accused "daddy". There being an issue as to whether the deceased met the accused by appointment on the following day, the day of her death, the trial judge admitted the evidence, not as evidence that the accused telephoned the deceased, but as affording some evidence of her state of mind when she left the house the following day. The High Court upheld this direction. Mason CJ said (at 288) :-
"The hearsay rule applies only to out-of-court statements tendered for the purpose of directly proving that the facts are as asserted in the statement. Generally speaking, evidence of out-of-court statements relied on for another purpose is not excluded by the rule. Thus, evidence of a relevant out-of-court statement is admissible evidence of the maker's knowledge or state of mind when he made the statement in a case where such knowledge or state of mind is a fact in issue or a fact relevant to a fact in issue."
Wilson, Dawson and Toohey JJ made the same point (at 300 - 301) :-
"When a person's state of mind is relevant, evidence tending to prove that fact is admissible. That evidence may, of course, take the form of conduct on the part of the person whose state of mind is in question from which the state of mind might be inferred. But it might also take the form of statements made by the person or by another from which a similar inference might be made. An example of statements made by another being admissible in evidence upon this basis is to be found in Subramaniam v Public Prosecutor [1956] 1 WLR 965, a case in which the appellant was convicted in Malaya of being illegally in possession of ammunition. His defence was that he had been captured by terrorists and was at all times acting under duress. It was held by the Privy Council that the trial judge was in error in ruling out, as hearsay, evidence of a conversation between the terrorists and the appellant. The evidence as admissible, not to prove the truth of any statements mae by the terrorists, but as bearing upon the state of mind of the appellant."
Although he dissented as to the result, Deane J expressed a similar view (at 307).
Dobson was a worker's compensation case, the applicant's claim being that she was injured in a motor accident on a journey to work. She suffered retrograde amnesia. Consequently, she could not give evidence as to her intentions at the time of the accident. However, the trial judge admitted evidence of statements to two witnesses, one that morning and one two days earlier, that she intended to take her baby to her child-minder and then go to work. On appeal, the New South Wales Court of Appeal upheld the admissibility of the evidence. Reynolds JA said (at 681) :-
"evidence of an extra curial statement of existing intention is admissible to prove its existence ... evidence of this nature is not hearsay but is better regarded as direct evidence of one aspect of conduct which throws light upon the underlying state of mind."
Glass JA said (at 683) :-
"Where it is relevant to prove the intentions of a person, declarations by him as to his state of mind are admissible in evidence ... The rule applies whether the statement of intention is made by a party or by someone who is not a party. It is immaterial whether or not the statement is against the interest of the declarant, although this will no doubt affect its weight. It is likewise immaterial whether or not the declaration was contemporaneous with some conduct for which it provides an explanation. Whether the intention proved by the declaration to subsist at one point of time has been shown to continue or relate back to a later or earlier time is governed by ordinary rules of evidence: Re Fletcher [1917] 1 Ch 339."
It is not necessary to discuss the other cases cited by the Official Trustee. They were all contemporaneous "statement of mind" cases.
The present cases are also "state of mind" cases, the central issue being whether the bankrupts engaged in the relevant transactions for the purpose of defrauding creditors. But the present cases differ from the cited cases in a critical respect. The statements in issue were not made at or about the time of relevant events; they were made years afterwards. The relevant principle was expressed in Phipson on Evidence (13th edition, paragraph 7-34) in this way :-
"Whenever the physical condition, emotions, opinions and state of mind of a person are material to be proved, his statements indicative thereof made at or about the time in question may be given in evidence".
(Emphasis added)
Although, in Dobson, Glass JA said it is "immaterial whether or not the
declaration was contemporaneous" with the conduct, he insisted on the need for evidence that the intention continued to a later point of time or related back to an earlier one. In the present cases, there is neither contemporaneity nor evidence relating the claimed state of mind back to that possessed by the bankrupts at the time of the relevant transactions. It follows that the statements made by the bankrupts during the course of the criminal proceedings cannot be regarded as original evidence, admissible against all other parties, as to their states of mind when they engaged in the transactions years before. They are pure hearsay and admissible only as admissions, a recognised exception to the hearsay rule. The statements made, or assented to, by each bankrupt are admissible against that bankrupt but not against another individual respondent.
As indicated, all three bankrupts assented to an "Agreed Statement of Facts" the contents of which are set out earlier in these reasons.
The critical element in the appellant's case is, and must be, whether the bankrupts disposed of property with intent to defraud their creditors, not whether they were guilty of tax evasion or obstructed the Commissioner's enquiries. Bearing this in mind, the only relevant admission in the "Agreed Statement of Facts" is that pertaining to the purchase of real estate as a method of concealing assessable income. Its significance must be evaluated in the light of other evidence.
As it seems to us, the admissions made by the three bankrupts during the course of the criminal proceedings fall short of establishing the appellant's case, even as against them. The admissions confirm that the three bankrupts indulged in extensive understatement of income during the period 1978 to 1984, and beyond. This fact is anyway established, at least on a prima facie basis, by the asset betterment analyses. The admissions also confirm what commonsense would anyway suggest, that the undisclosed income was the primary source of the funds used in the purchase and/or improvement of the properties. But the admissions do not do what the appellant needs them to do. They do not establish that the relevant transactions were undertaken with intent to defraud the Commissioner. If that conclusion is to be reached, it must come from an analysis of the transactions, noting their background and timing and the way they were carried out. If it is reached, because it comes from the whole factual matrix and not from an admission, it will be a conclusion binding each respondent to the relevant appeal.
The question of intent to defraud creditors must be addressed in relation to each of the dispositions of property by the bankrupts. Before so doing, it is helpful to briefly set out the applicable legal principles and some matters of fact and inference which are applicable to both appeals and to all the properties.
The words "intent to defraud creditors" appearing in s 121(1) of the Act bear an extended meaning by operation of s 6 of the Act, which provides :-
"A reference in this Act to an intent to defraud the creditors of a person or to defeat or delay the creditors of a person shall be read as including an intent to defraud, or to defeat or delay, any one or more of those creditors."
Fraudulent intent need not be expressly proved but may be inferred from all the circumstances surrounding the relevant disposition (PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 523 - 526; Official Trustee v Marchiori (1983) 69 FLR 290 at 296).
In Noakes v J Harvy Holmes & Son (1979) 37 FLR 5, the present Chief Justice of the High Court, with whom Deane and Fisher JJ agreed, said (at 10 - 11) :-
"We were pressed with some observations in Williams v Lloyd; Re Williams where the court affirmed that the burden of proof that a transfer was made with a real intent to defeat or delay creditors is upon the party who so alleges. But that was a case where, at the time of the challenged disposition of property by a husband to his wife, he was in a sound financial position, and it was held that subsequent conduct and events were insufficient to show that the husband had at that time an intent to defraud creditors: see the judgment of Dixon J (at 372). In the present case, the inevitable result of the transfer of shares on 13 December 1976 was to defeat or delay any attempt to execute the judgment in Norfolk Island. The case falls squarely within the line of authorities of which Freeman v Pope is the leading example, where Lord Hatherley LC said (at 541) :
`But it is established by the authorities that in the absence of any such direct proof of intention, if a person owing debts makes a settlement which subtracts from the property which is the proper fund for the payment of those debts, an amount without which the debts cannot be paid, then, since it is the necessary consequence of the settlement (supposing it effectual) that some creditors must remain unpaid, it would be the duty of the judge to direct the jury that they must infer the intent of the settlor to have been to defeat or delay his creditors, and that the case is within the Statute.'
That proposition does not trespass upon the rule as to onus of proof; it is a particular illustration of the discharge of the onus by inference from the known facts cf Re Holland; Gregg v Holland [1902] 2 Ch 360 at 381. In this case, the inference is strengthened by the proximity in time of the failure to have the judgment set aside and the execution of the transfer of the shares. The challenge to his Honour's finding that the transfer fell within the Statute of Elizabeth therefore fails."
That passage was cited with approval in both Grellman and Marchiori.
The Full Court in Grellman (Wilcox, Gummow and von Doussa JJ) also referred to a passage from Lewis' Australian Bankruptcy Law (4th ed, 1955), pp 45 - 46
discussing s 52(b) of the Bankruptcy Act 1924 (Cth) which classified as an act of bankruptcy the making in Australia or elsewhere of a fraudulent conveyance, gift, delivery or transfer of the property of the debtor or any part thereof :-
"The general principle may be stated that any dealing with property (other than by sale for a reasonable price) made with the object of putting it beyond the reach of present or future creditors comes within the definition of a fraudulent conveyance if the person concerned cannot immediately pay his debts or anticipates some event which may render him unable to pay his debts in future; such a dealing will be treated as fraudulent irrespective of the presence or absence of a conscious fraudulent intent on the part of the debtor if the necessary result of the dealing is to put the property beyond the reach of his creditors. Typical examples are transfers of property to the debtor's wife, transfers to a trustee to hold for the debtor, and transfers to one or a group of creditors to stave off threatened action. The word `fraudulent' indeed has received an interpretation in bankruptcy matters somewhat wider than its ordinary use, and it may be defined as equivalent to `with an intention to deprive creditors of recourse against all or any of his assets'."
Their Honours (at 526) went on to conclude that on the proper construction of s 121 of the Act :-
"... an intention to defraud or defeat or delay some one or more of the creditors of the disponor may be inferred where this is the necessary consequence of a disposition to stave off action by another creditor or creditors ..."
Insofar as it was suggested by the respondents that no intention to defraud existed because the Commissioner was not a creditor at the time of the relevant dispositions, there is high authority to the contrary. In Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370, Stephen J, with whom Menzies and Gibbs JJ agreed, said (at 374) :-
"This awareness of an impending liability is sufficient for the purposes of s40(1)(c). That paragraph employs language very similar to the reference,
in the Statute 13 Eliz c5, to conveyances made `with intent to defraud, defeat or delay creditors' and it is well established that conveyances may fall within that Statute, although there existed no creditors at the date of conveyance, so long as the intent to defeat future creditors be made out - Mackay v Douglas (1872) LR 14 Eq 106; Re Mackay (1951) 16 ABC 18, at p28. In Ex parte Russell (1882) 19 Ch D 588, in which Sir Richard Malins' decision in Mackay v Douglas (1872) LR 14 EQ 106 was applied, the members of the Court of Appeal again referred to the Statute of Elizabeth as concerned with the protection of future creditors. In Williams v Lloyd (1934) 50 CLR 341, although the majority allowed the appeal, all the members of the Court treated the `intent to defraud creditors' to which s37A of the Conveyancing Act 1919 (NSW) referred as capable of being established despite undoubted solvency at the time of the challenged alienation of the property (1934) 50 CLR at pp360 - 361, 372, 377. So too in the case of s40(1)(c) there may, I think, be the requisite intent despite the absence of existing indebtedness. A fortiori, the intent may exist if the debtor, unaware of his existing indebtedness, nevertheless believes in some impending debtedness. Moreover an intent formed in relation to only one such existing or anticipated creditor will suffice, the combined effect of s23(b) of the Acts Interpretation Act (Cth) and of s6 of the Bankruptcy Act producing the result."
The Full Court in Grellman was of a similar view (see 35 FCR at 526).
Heerey J was of the view that the establishment of the trusts and the provision of money to them was a common family arrangement for taxation and family provision purposes and was not for the purpose of defrauding creditors. That the establishment of the trusts and the provision of funds to them may have had that purpose does not preclude a finding that the arrangements had another purpose or intention, namely to defraud, defeat or delay creditors. It is not necessary that an intention to defraud a creditor or creditors be the sole purpose of the relevant disposition or dispositions. A disposition may have both legitimate and illegitimate objectives. In Barton v Deputy Commissioner of Taxation, Stephen J said (at 375) :-
"Again, I am of the view that the requisite intent to which s40(1)(c) refers need not be a debtor's sole intent in leaving or remaining out of the country. The language of s40(1)(c) does not appear to require such a
construction, an act may be done with a number of intents in mind. The authorities have proceeded upon this view - Ramsbottom v Lewis (1808) 1 Camp 279 [170 ER 957]; Holroyd v Whitehead (1814) 3 Camp 530 [170 ER 1471]; Ex parte Goater; Re Finney, best reported in (1874) 22 WR 935; Re Cohen, per Evershed MR [1950] 2 All ER 36, at pp39 - 40. The case of Re a Debtor, reported only in a note [1952] 1 All ER 591 n, contains dicta to the opposite effect but is not, I think, properly to be regarded as authority to the contrary. In that case the evidence was not regarded as in fact presenting a choice between a number of intents to be inferred from the evidence; Jenkins LJ found only a single innocent intent and no intent to defeat or delay creditors, there being `cogent evidence of an intention on the debtor's part to pay his creditors as and when he could' [1952] 1 All ER, at p521. Where the evidence discloses such an intent, there is no room for any second, and inconsistent, dishonest intent. However two or more intents may not be mutually exclusive, for instance an intent to defeat creditors and an intent to avoid the sanctions of the criminal law. In such a case I see no reason why the existence of the second such intent should prevent a creditor from relying upon s40(1)(c)."
(See also Grellman at 526 - 527).
Nor is it necessary that the disponor be insolvent at the time of the disposition (Williams v Lloyd at 360 - 361). The fact that a disponor is hopelessly insolvent at the time of the disposition and that the disposition will deplete his or her estate to the disadvantage of creditors is a circumstance from which the relevant intention to defraud may be readily inferred (Marchiori at 296). Heerey J's finding that the bankrupts had at the time of the dispositions sufficient funds to meet all existing and future debts must be viewed in this light.
Heerey J considered that the fact that most of the dispositions occurred well before the bankrupts knew of any impending liability for tax and penalties was a significant circumstance against making a finding that the dispositions were made with an intent to defraud the Commissioner. The authorities establish that where a person intends
to embark upon some commercially or financially hazardous undertaking and moves to secure assets against claims by future creditors in the event of an adverse outcome to the hazardous venture, a disposition of property, if made for that purpose, is one falling within 13 Eliz, c5 and s 121 of the Act.
In Mackay v Douglas (1872) LR 14 Eq 106, the Vice-Chancellor Sir Richard Malins said (at 118 - 120) :-
"Now this question seems to me to raise a most important point. Can a man who contemplates trade, or who, in point of fact, whether he contemplates it at the time or very shortly afterwards, enters into trade, and thereby incurs liabilities which end in a disastrous state of affairs, make a voluntary settlement which shall be good against the creditors who become so in the course of his trade? I am not aware of any case upon the exact point, and none was cited, although almost all the cases which have occurred upon the subject were mentioned. But is the State of Elizabeth so very short in its effect that it will not cover a case where a man on the very eve of entering into trade takes the bulk of his property and puts it into a voluntary settlement and becomes insolvent a few months afterwards? Is it to be said that such a settlement cannot be reached by any principle of law? I think not. Lord Langdale considered the question very fully in Townsend v Westacott 2 Beav 340; 4 Beav 58, where the insolvency did not arise until three years after the voluntary settlement was executed; and he there laid down the rule that the burden of proving the position of the parties, and that they were in a position to make a voluntary settlement, was shifted and thrown upon the man who executed the voluntary settlement; and last year I also considered the same subject very fully in Crossley v Elworthy Law Rep 12 Eq 158 where Mr Elworthy, who possessed a very considerable amount of property, considered himself solvent, made a settlement of a large amount, and was in difficulties nine months afterwards. I thought, following the previous decisions, that in that case the whole burden was thrown upon him of shewing that he was not only solvent but in a situation to justify his making a voluntary settlement; I say, in the same way, that Mr Douglas, having become bankrupt or insolvent within seven months after the execution of the settlement, has the burden cast upon him of shewing, not merely that he was solvent, but that he was in a situation which justified him in making a voluntary settlement of the great bulk of his property. I carried the principle somewhat further perhaps in Crossley v Elworthy than the previous decisions, because I did not treat it as turning on the mere question of solvency or insolvency, but I said (Law Rep 12 Eq 168), `If a man does under such circumstances' - that
is, when it is doubtful whether he is in a solvent condition, and, if so, uncertain whether he is likely to remain so - `make a settlement, it seems to me in the highest degree reasonable that upon him should be thrown the burden of proving that he was in a condition to make it when it was executed.' [His Honour then referred shortly to the facts of the present case, and continued: -] I am satisfied from the evidence that Mr Douglas has contemplated a partnership, and that the probability of such a partnership was the inducement to him to make the settlement. He had very likely never heard of the Statute of Elizabeth; but taking a common business-like view of the matter, and considering the rather reckless nature of the business into which he was entering, he wished to make a provision out of the leasehold house which he had bought for his wife and any children he might have. I cannot hesitate to come to the conclusion that the inducement to him to make this settlement on the very eve, as I consider it, of his going into business was to protect this property from any risk."
Similarly, in Ex parte Russell; In re Butterworth (1882) 19 Ch D 588, Sir George Jessel MR said (at 598 - 599) :-
"As regards the other point it is not absolutely necessary to decide it, but I think that the County Court Judge was right. The principle of Mackay v Douglas Law Rep 14 Eq 106, and that line of cases, is this, that a man is not entitled to go into a hazardous business, and immediately before doing so settle all his property voluntarily, the object being this: `If I succeed in business, I make a fortune for myself. If I fail, I leave my creditors unpaid. They will bear the loss.' That is the very thing which the statute of Elizabeth was meant to prevent. The object of the settlor was to put his property out of the reach of his future creditors. He contemplated engaging in this new trade and he wanted to preserve his property from his future creditors. That cannot be done by a voluntary settlement. That is, to my mind, a clear and satisfactory principle.
Now, as I understand the evidence in this case, the baker did very well as a baker, and probably he may not have recollected the old proverb ne sutor ultra crepidam. When he went into business as a grocer he was going into a business which it appears he did not understand, and it is obvious that the object was - (I am taking that as a fair inference -) to save his property for his wife and children in case the new business did not succeed. Well, that actually happened. The new business did not succeed; he lost money by it, and it probably brought him to bankruptcy."
Lindley LJ said (at 601) :-
"I am of the same opinion. It appears to me that the view taken by the
County Court Judge was right, that this settlement was void under the statute of Elizabeth. I differ from the Chief Judge in the view which he took of the circumstances under which the settlement was executed. The settlement was executed by a baker, who had been a thriving and prosperous man. He had saved money. He could pay all his debts. Substantially, he had plenty of assets, but he was going to take a grocer's shop. He knew nothing of a grocer's business. He was perfectly aware that entering upon a business to which he had not been brought up was a risky thing, and, therefore, he made a settlement, setting substantially the whole of his property upon his wife and children. What was that for? Obviously, not simply to benefit his wife and children, but to screen and protect them against the unknown risks of the new adventure.
It appears to me that this is plainly within the principle of Mackay v Douglas Law Rep 14 Eq 106, one of the most valuable decisions that we have on the statute of Elizabeth. On that short ground, I think that the settlement is plainly void."
These authorities were cited with approval by Starke J in Williams v Lloyd where his Honour said (at 361) :-
"A disposition is void if its object is to screen the grantor's wife and children from the risks of the unknown, and to preserve his property from his future creditors."
(See also Lloyd v Blumenthal (1884) 5 LR (NSW) Eq 99 at 109 - 100).
These principles have an application to the facts in these appeals.
Heerey J thought that the establishment of the trusts and the purchase and development of the properties had as a purpose the provision of a family trust structure in the ordinary sense including tax planning purposes. Whether the trusts were established for tax minimisation purposes or any other usual family provision purpose, it seems to us that there was another purpose. The establishment of the trusts and the application of funds through them to purchase and improve real estate properties was akin to the bankrupts embarking upon a hazardous business venture of the kind referred to in the
authorities.
The analysis of the financial positions of Paul, Rosina and Giuseppe Alvaro undertaken by the ATO clearly establishes that they failed to disclose to the Commissioner the receipt of substantial income by them. The source of that income has not been disclosed, but on the evidence before Heerey J the income was not derived from any lawful or usual business activity engaged in by the bankrupts or any of them. In these circumstances it is open to infer that the establishment of the trusts and the application of this income to the purchase and development of the properties by and on behalf of the trusts, as well as the operation of the false bank accounts, were steps intended to conceal both the derivation of the income and the source from which it was derived and to apply it in a lawful and usual business manner. They must have known, and in the absence of evidence from them this inference is more easily drawn, that if the relevant authorities discovered the source of income, whatever that may be, such a discovery would lead to an investigation of the amount of all income earned from that source and its assessment to tax for which they would be liable. Such a disclosure would also expose them to possible penalty tax and criminal sanctions, as in fact occurred. The use of discretionary family trust structures was an attempt to place the funds surreptitiously acquired out of reach of any creditors, in particular the Commissioner, in the event that their fraud was discovered. We do not accept that the bankrupts were so naive as to believe that there was little or no chance of their fraud being uncovered or the consequences of that occurring. In his reasons for judgment in Official Trustee v Paul Alvaro, Heerey J said (at p 37) :-
"Mr and Mrs Alvaro, although undoubtedly dishonest, were also naive.
The circumstances strongly suggest that they thought they would never be caught, that once they had concealed income by false betting wins, false name bank accounts and the like, they could do what they liked with it."
His Honour did not identify any basis for those conclusions. We have not been referred to evidence suggesting naivety. We have found none. Perhaps his Honour drew this inference from the circumstance that they placed the assets in the hands of a company with which they could readily be associated. But as the Official Trustee pointed out: "the Commissioner first had to know where to look, and secondly, had to understand that the trusts were false, or capable of being impugned as fraudulent dispositions." An alternative view is that the debtors were sophisticated or well-advised. They seem to have succeeded in obstructing the Commissioner's investigations and recovery actions for a long time. Particularly in the absence of the debtors and their accountant from the witness box, we see no reason for preferring one view of their personalities and motives to another. Far from showing naivety, all the circumstances show that the bankrupts were fully cognisant of what they were trying to achieve by the application of the undisclosed income through the trusts and that they took such steps as they thought prudent to avoid that income being subject to tax and to "insure" the assets acquired and improved against the consequences of detection of the scheme by the relevant authorities.
In reaching the above conclusions, we have been influenced by the principles stated in Jones v Dunkel (1959) 101 CLR 298. The motivation of Paul and Rosina and Giuseppe Alvaro in vesting these properties in the trustee of the relevant family trust was at the heart of this case. It was something peculiarly within their knowledge. Yet they chose to give no evidence about that matter. In saying this, we do not overlook the first point made by Menzies J in Jones v Dunkel: the absence of a
witness cannot be used to make up a deficiency of evidence. Unless there is evidence from which an adverse inference might be drawn, the absence of an expected witness is not significant. We think there is such evidence, being the material that reveals the concealment of income from the Commissioner and the extent of the bankrupt's legitimate income. That evidence being in existence, it is proper, in considering whether to draw the inference urged by the appellant, to have regard to the fact that none of the people who might have explained the position chose to give evidence.
Accordingly, we infer that one of the purposes of establishing the trusts and paying monies over to them was to place that money beyond the reach of creditors or to delay or hinder creditors in any future recovery of it. As noted, for the purposes of s 121 it is immaterial that the Commissioner was not then a creditor but was a future creditor and the only creditor (Barton v Deputy Commissioner of Taxation at 374; Grellman at 526). Having said that, whether or not an intent to defraud existed falls to be determined in relation to each disposition.
Lombard Street
We find that the $35,750 disposed of to the company by Paul Alvaro was so disposed of with an intent to defraud the Commissioner. That finding is more easily made having regard to the conflicting versions given by Paul Alvaro as to the basis of the deposit of the money with the company to acquire Lombard Street. If, as he at one time claimed, the money was a loan by him to the PAF Trust, the $35,750 would have been recoverable by the Official Trustee making demands of the company for its repayment. The claim that the money was a gift prevented the Official Trustee calling for repayment
on the basis of a debt due and required the establishment of some basis to impeach the transaction and bring the money into the bankrupt estate of Paul Alvaro.
Tynte Street
We are satisfied that the joint disposition of Paul and Rosina Alvaro of $29,534 and the disposition by Paul Alvaro of $1,050 for the improvements and $2,880.30 costs of acquisition were dispositions made with an intent to defraud future creditors. We are similarly satisfied that the $7,750 deposit paid by Paul and Rosina Alvaro was a disposition of that sum with an intent to defraud creditors.
The payments alleged to have been made by Paul and Rosina Alvaro to the company's operating bank account and applied to the $70,000 term loan which funded the purchase of Tynte Street were also, in our view, made with the requisite intent. Nonetheless, these payments are attended with no small difficulty. One of the difficulties is that there is no particularity in the evidence that we have been able to find as to precisely what amounts were paid over and when. It has not been possible to determine what dispositions are alleged to have been made and the circumstances of them. The same can be said in relation to all of the properties which were the subject of the same submission. In any event, the view we have taken in relation to the form of relief to which the Official Trustee is entitled on this account makes it unnecessary to resolve these difficulties.
Seaview Road
The $9,389 deposit paid by Paul Alvaro and the $3,282 costs of acquisition
paid by him and Rosina Alvaro were dispositions made with an intent to defraud creditors. Any dispositions of money by them to the company which were applied to the repayment of the Commonwealth Bank loan and the commercial bill facility stand on the same footing as the money similarly applied in relation to Tynte Street.
The Share Transaction
Even supposing that the issue and allotment of shares in a company could be said to be a disposition of the shares by the persons controlling the company, we are not satisfied that any intent to defraud creditors attended this transaction. We agree with Heerey J's reasons on this point (see Official Trustee v Paul Alvaro at p 44).
Itala Avenue
There is nothing in the evidence which would suggest any reasonable explanation for the transfer of this property from Giuseppe Alvaro to the GAF Trust other than a desire to place the asset out of the reach of future creditors in the event that the tax fraud and/or the source of the undeclared income was discovered.
Sierra Avenue
The payments made by Giuseppe Alvaro to assist his son Carmine in the acquisition of this property must be viewed on a different basis. We cannot be satisfied, having regard to the circumstances of these payments, that they were not motivated by a single innocent intent, namely, the natural love and affection of a father towards a son. There is no suggestion of any retained benefit by Giuseppe Alvaro. The circumstances surrounding Carmine Alvaro's marriage and his subsequent estrangement from his family negate any such suggestion.
Therefore we agree with Heerey J that the dispositions in relation to Sierra Avenue were not made with the requisite intent and the Official Trustee is not entitled to any relief in respect of them.
Coronado Court
We have reached a similar conclusion in relation to this property. Coronado Court was acquired only two months after Giuseppe Alvaro's marriage to his second wife, Girolama. It was intended to be, and was, developed and used as their matrimonial home. It is reasonable to infer that Giuseppe Alvaro's desire for his wife to have a one-half interest in the property and his expenditure on the development of it, were motivated only by natural and innocent considerations. We agree with Heerey J in his conclusion that there was no intent to defraud creditors involved in the dealings with this property. The Official Trustee is entitled to no relief in respect of it.
George Street
The only relevant disposition or dispositions were the deposits, if any, by Giuseppe Alvaro into the operating bank account of Combran and which were applied to the repayment of the various bank loans. We are satisfied that any such disposition or dispositions were made with the relevant intent. There are difficulties in relation to this property similar to those which attend Tynte Street and Seaview Road. As with those properties the view we have taken in relation to the form of relief to which the Official Trustee is entitled makes it unnecessary to resolve these difficulties.
Crown Terrace
Crown Terrace stands on the same footing as Tynte Street and Seaview Road.
VALUABLE CONSIDERATION AND GOOD FAITH
This element of s 121 of the Act was but faintly argued on the appeals. However it was addressed by Heerey J. In Official Trustee v Paul Alvaro, his Honour said (at p 44) :-
"... I find that there was valuable consideration in the form of the loans. As to good faith, the relevant persons must be Mr and Mrs Alvaro in their capacity as directors of the Company. In the circumstances of this case, negating an intent to defraud creditors must lead to a finding of good faith. The question is whether the disponee is `privy to or party to the fraud of the debtor': Garuda at 528."
Heerey J did not deal with the issue of valuable consideration and good faith in Official Trustee v Giuseppe Alvaro and it was not argued on the appeal in relation to Giuseppe Alvaro.
The "loans" to which Heerey J referred are presumably the amounts credited to Paul Alvaro's loan account with the PAF Trust. It is unnecessary to determine whether these loans were real. At all relevant times Paul and Rosina Alvaro were the directors of the company and for present purposes its controlling mind. The
transactions in issue were carried into effect by them. We have found that they made dispositions of property with an intent to defraud creditors. These factors lead to the conclusion that the company was fixed with notice of that fraudulent intent. The basis for such a conclusion appears in Re Rossfield Group Operations and Morton Holdings (ACT) Pty Limited [1981] QdR 372 where Connolly J said (at 377) :-
"The next question is whether the information in question was within the knowledge of the respondent. I have already said that it is clear that the respondent was incorporated by the directors of A.M.H. for the purpose of countering the applicants' take-over by making the take-over offer which has given rise to these proceedings. The Part A statement which is here under attack describes the principal activity of the respondent as being to acquire and hold stock units in A.M.H. The plan was carried through by the directors as a body. To use the graphic phrase of Denning LJ in H L Bolton (Engineer) Co Ltd v T J Graham and Sons Ltd [1957] 1 QB 159 it was carried through by the brain and nerve centre of A.M.H., its directing mind and will. The knowledge which this directing mind had of the affairs of A.M.H. was essential to the only business for which the respondent was incorporated. Upon its incorporation they likewise became the brain and nerve centre, the directing mind and will of the respondent. There may well be situations in which it would not be right to impute to one company the knowledge which one or more of its directors happen to have by reason of his or their dealings with or position on the board of another company. That is not this case. Whether the theory to be applied be the organic theory or that of principal and agent, the result must in my judgment be the same. Both A.M.H. and the respondent have identical boards and knowledge of the affairs of A.M.H. is an essential function of board. I hold therefore that the information was within the knowledge of the respondent offeror. Cf. Universal Telecasters (Qld) Ltd v Guthrie [1978] 18 ALR 531 at p 535 per Bowen CJ; Tesco Supermarkets Ltd v Nattrass [1972] AC 153."
(See also El Ajou v Dollar Land Holdings PLC [1994] 2 All ER 685 at 695 - 696, 705 - 706).
The dispositions to the company cannot therefore be said to have occurred in good faith. It is not necessary to consider whether there was valuable consideration. To avoid the operation of s 121, the disposition must be for valuable consideration and in
favour of someone, in this case the company, who acted in good faith (Official Receiver v Barton 52 ALR at 121).
The dispositions by the bankrupts to the company are to be distinguished from the dispositions made to third parties. In particular, the solicitors to whom Paul and Rosina Alvaro paid the costs of acquisition (Tynte Street and Seaview Road) cannot be said to have taken those funds other than in good faith, it not being suggested otherwise. Those dispositions were dispositions of money to the solicitors in exchange for work of equal value. That is, they were made for valuable consideration. As such, they were not dispositions to which s 121 of the Act has any application. Dispositions of money made by Paul and Rosina Alvaro to the person or persons who undertook the improvements to Tynte Street are to be treated in like fashion.
FORM OF RELIEF
The form of relief to which the Official Trustee claimed to be entitled if successful on the appeals was a matter of much contention. The Official Trustee submitted that he was, assuming success, entitled to orders for the re-conveyance of the relevant properties to him to hold subject to any claim by any other person claiming an interest therein.
This submission is misconceived having regard to the facts in relation to each of the properties. The submission depends upon findings that the relevant dispositions were of estates or interests in the properties. Except in relation to Itala Avenue, the dispositions made with the requisite intent were all of money. Section 121
operates upon the impugned dispositions so as to set them aside as against the Official Trustee. The property to which the Official Trustee is entitled, except in relation to Itala Avenue, is the money disposed of.
Although s 121 states that a disposition to which it applies is void, the courts will treat the disposition as effective until impugned in proceedings brought by the trustee in bankruptcy. Thus, where there is a disposition of property to which s 121 of the Act applies, the title which the donee receives is a defeasible one (see Brady v Stapleton (1952) 88 CLR 332 at 332 - 335 per Dixon CJ and Fullagar J; Harrods Limited v Stanton [1923] 1 KB 516 at 520 - 521 per Bailache J; 521 per McCardie J). Until the title is defeased by the trustee in bankruptcy calling for delivery up or revesting of the property to the trustee or by instituting proceedings to establish the trustee's entitlement to the property, the donee may deal with the property as owner and is not required to account for any profit made. If the property is sold and the proceeds of sale dissipated by the donee prior to defeasance the donee is not personally liable for the value of the property (Brady v Stapleton at 332 - 335). Upon defeasance, if the property remains in its original form or in some derivative form in the hands of the donee, title to the property revests in the trustee in bankruptcy and the donee thereafter continues to hold the property as trustee for the trustee in bankruptcy and will be ordered to do all necessary acts to revest the property in the trustee in bankruptcy. Once the property has revested, the donee thereafter becomes personally liable to account for the property and any profits made by or from the use of that property since the time of revesting of the property. Thus, if the property comprises a money sum on deposit in a bank account earning interest the donee would not be liable for or be required to pay over interest
earned prior to defeasance. On defeasance the beneficial interest in the chose in action being the debt owed by the bank to the donee equivalent to the amount of the money on deposit (Croton v The Queen at 330 - 331) would vest in the trustee in bankruptcy and the donee would be required to pay over or would be liable to the trustee for any interest earned from the date of defeasance.
Where there has been a disposition of property and that property has not been retained but has been transformed into other identifiable property or mixed with the property of a third party, the court will allow a remedy against the identified specific property in order to give the trustee in bankruptcy an effective remedy upon the avoidance of the original disposition of property (In re Mouat; Kingston Cotton Mills Company v Mouat [1899] 1 Ch 831 at 834 - 835; Trautwein v Richardson at 130, 132, 133). The decision in In re Mouat demonstrates that although the avoidance of the disposition brought about by s 121 of the Act and its predecessors is a legal remedy, the courts will grant equitable relief to make good the remedy. (See May on Fraudulent and Voluntary Dispositions of Property, 3rd ed, (1908) at 306 - 307). Where the property has altered in form, but remains in the hands of the donee, equity will allow the trustee in bankruptcy to claim the property in its altered form as property to which it is entitled, the original disposition by the bankrupt being void as against the trustee. Where the property has been mixed with property of another person so as to constitute a mixed asset or a mixed fund it becomes necessary to look to equity in order to determine how the interest of the persons whose property has come into the mixed fund are to be ascertained and provided for.
We turn now to the relief to which the Official Trustee is entitled in respect of each property where we have been satisfied that the elements of s 121 have been made out.
Lombard Street
The appellant is entitled to a declaration that the disposition of $35,750 made by Paul Alvaro on 30 November 1981 is void as against the Official Trustee. Those funds are not in the hands of the company. They were used with other funds to acquire Lombard Street. The company is not obliged to account for any profit made with the use of those funds until the disposition was impeached by the filing of these proceedings on 2 December 1992. If the property had notionally been converted to a cash fund on that date the Official Trustee would have been entitled to call for payment of the sum of $35,750. The company would have been entitled to the balance. The minimum that equity requires is that Lombard Street be charged with the repayment of the sum of $35,750 and interest on that sum from the date of the institution of these proceedings (Caddy v McInnes (1995) 131 ALR 277). There will be a declaration accordingly.
Tynte Street
The money disposed of by Paul and Rosina Alvaro by payment into the operating bank account of the company was spent by the company repaying the term loan. At the time the money was spent, the company had good title to it, albeit a defeasible one, and the Official Trustee must show that it was used to acquire an asset if he seeks to obtain any relief against that asset. The appellant has not sought to follow any particular
payment into the account of the company and thence to any particular payment to the bank to retire debt. Any payment to the bank to retire debt is not a payment to acquire an asset and once the money is paid into the general funds of the bank, it is not possible to trace it any further (Re Diplock [1948] 1 Ch 465 at 521, 549; Daly v Sydney Stock Exchange (1986) 160 CLR 371 at 388; Re Goode (1974) 24 FLR 61 at 77).
As stated, until the dispositions were impugned in these proceedings, the company had good title to the monies provided to it by Paul and Rosina Alvaro and it was entitled to use the money to retire debt. Upon the avoidance of the disposition, the company does not become ex post facto liable to the Official Trustee for the use of those monies (Brady v Stapleton at 332 - 335 per Dixon CJ and Fullagar J).
The payment of $7,750 deposit out of the Romano account resulted in the acquisition by Paul Alvaro of an asset, namely, his rights under the contract of sale. Upon conveyance of the property to the company that asset ceased to exist. The Official Trustee's entitlement to secure repayment of the $7,750 against the asset acquired disappeared. Whether or not the Official Trustee could have followed the $7,750 into the property acquired upon the merger of the contract upon conveyance is unnecessary to answer. The sale of Tynte Street and the distribution of the proceeds of sale as indicated earlier in these reasons terminates the ability of the Official Trustee to charge any property with repayment of the dispositions of money. The funds were not used to acquire any new asset. They were used to discharge an existing debt or obligation. Their use to discharge the debt was with the consent of the Official Trustee. (See the affidavit of Terry Wright sworn 29 July 1994).
In these circumstances, the Official Trustee is not entitled to recover any money or property in respect of Tynte Street.
Seaview Road
For the reasons stated above, the Official Trustee is not entitled to any relief in respect of the dispositions of money, if any, by Paul and/or Rosina Alvaro to the company's operating bank account and applied by the company to the repayment of the loan and the commercial bill facility.
The deposit of $9,389 paid by Paul Alvaro is to be dealt with on the same basis as the contribution by him to the purchase of Lombard Street. That is, the Official Trustee is entitled to a declaration that the disposition of $9,389 made by Paul Alvaro on 14 December 1983 is void as against the Official Trustee. The monies were used with other monies to acquire Seaview Road. Seaview Road will be charged with the repayment of the $9,389 and interest on that sum from the date of the institution of these proceedings.
Itala Avenue
Giuseppe Alvaro disposed of the legal and equitable estate in Itala Avenue to the GAF Trust with the requisite intent. The Official Trustee is entitled to a declaration in the terms sought and an order which will allow that declared interest to be realised.
George Street
For the reasons stated in relation to Tynte Street, the Official Trustee is not entitled to relief in respect of this property.
Crown Terrace
For the reasons expressed in relation to Tynte Street, the Official Trustee is not entitled to relief in relation to Crown Terrace.
SHAM
(i) The Judgment of Heerey J
In Official Trustee v Paul Alvaro Heerey J cited authorities on sham, including Sharrment Pty Ltd v Official Trustee (1988) 18 FCR 448 (FC), before concluding (at 46) :-
"In the circumstances of the present case, once an intent to defraud creditors is negated, a conclusion of sham is impossible to draw. The acquisitions in question were, I find, intended to take effect and be governed in accordance with the rights and duties created by the establishment of the Company and the Trust. There were no underlying `real' transactions which the Company and the Trust were designed to conceal or disguise."
Similarly in Official Trustee v Giuseppe Alvaro Heerey J rejected the argument of sham in relation to those properties for which it had been put forward (Itala Avenue, George Street and Crown Terrace) on the basis that he was not satisfied that there had been an intention to defraud.
(ii) Submissions on the Appeals
In written submissions filed in Official Trustee v Paul Alvaro, the Official
Trustee said under a heading "sham" :-
"If the intent of the persons who control the trust is to use the trust as a vehicle to perpetrate their fraud, then the trust is a sham. The intent of the bankrupts at the time of each of the targeted dispositions to the trust was to conceal their income and their unexplainable and illegitimate escalation in their wealth. They admitted so. The trust was a manifestation of the bankrupts who were the sole shareholders and controlling trustees. The trust was used by the bankrupts to advance their fraudulent scheme of concealment and ignored for most other purposes. The trust was used as the apparent owner of the subject properties in order to create an illusion that someone other than the bankrupts owned the properties. The act of transfer did not intend to create the rights and obligations that goes with a transfer as the true beneficial owners of the properties were the bankrupts.
The Learned Judge did not err in his statement of legal principle, but did in the application of those principles to the evidence. He acted upon his conclusion that the intent to defraud had been negated, and so concluded that a sham was impossible to draw. He found the acquisitions were intended to take effect and be governed in accordance with the rights and duties created by the establishment of the Company and the Trust. There were no underlying `real' transactions which the Company and the Trust were designed to conceal or disguise. The findings lack evidentiary support, for none of the respondents gave evidence that this was so. To the contrary, by their admissions the bankrupts said they had purchased the properties and provided the money, and by their conduct described earlier, acted as if the properties were their own."
(Original emphasis)
In Official Trustee v Giuseppe Alvaro, the Official Trustee submitted, to similar effect, that the trusts were established only to conceal the assets of Giuseppe Alvaro and as such, were shams.
The respondents in each appeal relied upon the findings and reasons of Heerey J.
(iii) Conclusion on the Appeals
In Sharrment Lockhart J, after a review of the authorities on the meaning of "sham", concluded (at 454) :-
"A `sham' is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive."
Lockhart J, correctly in our view, treated the question of whether a transaction is a sham as a question of fact. His Honour noted that a transaction will not necessarily take on the character of a sham merely by the presence of certain elements of sham, eg artificiality. Of relevance to the present appeals are his Honour's further observations on two of the elements he discussed (at 455) :-
"Fourthly, a purported disposal of property, and by analogy a purported creation of a debt, may be a sham where donor and donee (or lender and debtor) do not intend to give effect to the transaction, it being agreed between them that there will be no change in the legal and beneficial ownership of the property. The fact that Mr Wynyard continued to act as thought The Chase was in his control may give rise to an inference that the transactions which led to its being purchased in the name of Seyta with funds apparently the funds of Seyta were a sham.
Fifthly, the fact that the transactions of 1979 may have been intended by Mr Wynyard to present a shield against creditors does not, absent the transactions being set aside under the relevant provisions of the Bankruptcy Act, characterise them as a sham. The transactions may in themselves be legally effective although intended to achieve an inacceptable purpose. In Miles v Bull (supra) Megarry J said (at 264):
`A transaction is no sham merely because it is carried out with a particular purpose or object. If what is done is genuinely done, it does not remain undone merely because there was an ulterior purpose in doing it.'
Megarry J went on to observe (at 264) that in the context of determining whether a sale of property was a sham so as to allow a defence to an action for possession that:
`mere circumstances of suspicion do not by themselves establish a transaction as a sham; it must be shown that the outward and visible form does not coincide with the inward and substantial truth'.
The characterisation of a sham adopted by Megarry J in Miles v Bull is consistent with that adopted by Windeyer J in Scott's case at 279, in the passage which I cited above. Following a thorough review of the earlier authorities, Windeyer J there defined the issue as whether the parties who entered the ostensible transaction
`... mean it to be in truth their transaction, or did they mean it to be, - all these words have been metaphorically used - concealing their real transaction ...'"
A similar approach was taken by Beaumont J (at 18 FCR 449 at 468 - 469) and by Foster J (at 473 - 474).
There is nothing in the evidence to indicate that any party to any transaction intended that no effect be given to it and that there be no change in the legal or beneficial ownership of the property the subject of the transaction. Rather, on the whole of the evidence the contrary inference is to be drawn. It was the intention of the relevant bankrupt that each of the transactions to which the bankrupt was a party be real and effective to pass the property from the bankrupt as donee and to place it in the hands of others. In certain of the transactions an intended effect of each transaction was to place the property beyond the reach of the Commissioner as a creditor in the event of the undisclosed income being discovered and the bankrupt being assessed to income tax upon it. In others, the intended effect of the transaction was to advance a family member as part of an ordinary family provision unconnected with its effect on any creditor or future creditor.
The appellant has not shown that Heerey J erred in holding that the
transactions in issue were not shams.
RESULTING TRUST
(i) The Judgment of Heerey J
In Official Trustee v Paul Alvaro, Heerey J said (at pp 46 - 47) :-
"This doctrine has no application because, first, the purchase price of the properties was provided by way of loan and in any event there was an intention on the part of Mr and Mrs Alvaro that the Company should hold the three properties subject to the express terms of the Trust: see Sharrment at 471 - 473 per Beaumont J."
Similarly, in Official Trustee v Giuseppe Alvaro Heerey J did not think that the doctrine applied to any of the transactions in relation to which it had been said to have application.
(ii) Submissions on the Appeals
In Official Trustee v Paul Alvaro, it was submitted by the Official Trustee that :-
"The application was further based on the application of the principles of resulting trust, the properties being acquired with bankrupts' monies on their own admission. The relevant principle is that where a person provides the money to purchase the property, there is a presumption (rebuttable) that it was not intended the other person take beneficially.
The Learned Judge found the principle had no application because money was borrowed from the Commonwealth Bank to finance in part the acquisition of some of the lands. That was not significant. Where the Appellant takes properties by reason of a resulting trust, he does so subject to the loans from banks and financiers employed in purchase of the properties. The banks and financiers acquire no proprietorial interest in the properties, and confer none on the lender merely by reason of advancing the monies. In any event, where the loan has been serviced and ultimately discharged out of monies supplied by the bankrupts, the use of bank facilities is immaterial.
The presumption of resulting trust is rebuttable, that being by a contrary intent of the bankrupt being proved. The `contrary intent' that must be established is that the bankrupts did not intend to retain a beneficial interest in the monies, or in the lands acquired by use of those monies. The Learned Judge found the contrary intent was established, though he heard no evidence from the bankrupts to that effect and regarded Paul Alvaro as a person who would lie to further his ends."
In Official Trustee v Giuseppe Alvaro the argument on resulting trust was pursued only in respect of Itala Avenue and Sierra Avenue. In relation to Itala Avenue, the Official Trustee said :-
"... The property was conveyed, as the transfer said, for no consideration. It was a gift, in favour of the bankrupt should he so desire (for there could be no doubt the trustee Paul Alvaro would have done whatever the bankrupt asked of him)."
Of Sierra Avenue, the Official Trustee said :-
"The Learned Judge rejected a resulting trust on the ground that it did not arise where the money was provided as a gift, and then applied in purchase. He applied the principles of advancement. The finding of gift begged the question. Every case of resulting trust may be characterised as a gift, and often is by those who seek to retain the property. The law implies a resulting trust not absolutely, but as a presumption which may be rebutted. If the money was a gift, no resulting trust arises whether the money follows a route through the beneficiary or goes directly to the vendor. The issue was whether it was a gift. The principle of advancement is no more than a presumption of gift where the money is advanced by a father to a son, daughter, or wife. It is rebuttable. The two principles work together. Their result is that in a case such as this, it is presumed the bankrupt advanced the money/land to Carmine unless the evidence rebuts it. The evidence will rebut it where it establishes a different motive for the payment, that being the intention to conceal assets belonging to the father/bankrupt under the son'[s name. Such is the case here. If established by cogent evidence, the presumption of advancement fails. There is cogent evidence where the father/bankrupt admits the property was acquired in the son's name pursuant to a scheme to defraud the Commissioner of Taxation by concealment of assets, or where other evidence establishes on the probabilities that it was done to defraud the Department of Social Security."
(ii) Conclusion on the Appeals
In Napier v Public Trustee (Western Australia) (1980) 32 ALR 153 Aickin J, in a judgment agreed in by Gibbs ACJ, Mason, Murphy and Wilson JJ, said (at 158) :-
"The law with respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the casey may be. This proposition is subject to the exception that in the case of transfers to a wife or a child (including someone with respect to whom the transferor or purchaser stands in loco parentis) there is a presumption of advancement so that the beneficial as well as the legal interest will pass."
(See also Calverley v Green at 246 - 247; Muschinski v Dodds (1985) 160 CLR 583 at 590, 598 - 599, 604, 612).
The analysis of each of the transactions set out in these reasons denies the factual basis for the operation of the presumption of the creation of a resulting trust in favour of the relevant bankrupt. This is the view to which Heerey J came in his reasons for judgment set out above. In our opinion his Honour was correct.
COSTS
The arguments presented by the appellant to Heerey J were different to those presented on the appeals. They were substantially misconceived. Except in relation to the disposition of the right, title and interest in Itala Avenue by Giuseppe Alvaro the appellant is not entitled to a transfer of any of the properties themselves. Moreover, the appellant has achieved only limited success in relation to both applications. Bearing these
matters in mind it seems to us that it would be unfair to order the respondents to pay the whole of the Official Trustee's costs. We think that, in Official Trustee v Giuseppe Alvaro the bankrupt and the trustee of the trust should be ordered to pay one-half of the Official Trustee's costs, both at first instance and on appeal. The Official Trustee should pay the costs incurred by respondents to that case who were successful in resisting the applications and were represented separately from the bankrupt; that is, Girolama Alvaro and Carmine Alvaro at first instance and Carmine Alvaro and Rita Alvaro on appeal. However, as Carmine Alvaro and Rita Alvaro are husband and wife and appeared to defend the same interest, their costs should be assessed on the basis of their being jointly represented.
In the case of Official Trustee v Paul Alvaro, the Official Trustee obtains some relief by our orders. The it is a different form of relief than that sought before Heerey J and is limited in extent. In the circumstances, we think that there should be no order for costs at firs instance, as between the Official Trustee, the bankrupts and the trustee, but that the bankrupts and the trustee should pay thirty percent of the Official Trustee's costs of the appeal. Paul Alvaro Jnr, Elena Alvaro and Maria Concetta Alvaro have succeeded in resisting any orders in connection with the share allotment. It is not apparent to us that they incurred any costs, either at first instance or on appeal, that were not incurred in any event in connection with the representation of others. If they did, they should recover those costs from the Official Trustee. We will order accordingly.
IN SG 85 OF 1994 THE COURT ORDERS THAT:
1. The appeal be allowed.
2. The orders made by Heerey J on 31 October 1994 be set aside and, in lieu thereof, it be ordered that:
(a) a declaration be made that the transfer by Giuseppe Alvaro on 5 June 1981 of his right, title and interest in the house property at 18 Itala Avenue, Croydon Park, South Australia to Paul Alvaro as trustee of the Giuseppe Alvaro Family Trust is void as against the Official Trustee in Bankruptcy;
(b) Paul Alvaro (as trustee of the Giuseppe Alvaro Family Trust) take all necessary steps and do all necessary things to enable title in the house property at 18 Itala Avenue, Croydon Park, South Australia to be transferred to the official Trustee in Bankruptcy as trustee of the bankrupt estate of Giuseppe Alvaro;
(c) Giuseppe Alvaro and Paul Alvaro (as trustee of the Giuseppe Alvaro Family Trust) pay to the Official Trustee in Bankruptcy one half of the costs incurred by him in relation to the proceeding; and
(d) the Official Trustee in Bankruptcy pay to Girolama Alvaro and Carmine Alvaro the costs incurred by each of them in relation to the proceeding.
3. Giuseppe Alvaro and Paul Alvaro (as trustee of the Giuseppe Alvaro Family Trust) pay to the Official Trustee in Bankruptcy one half of the costs incurred by him in relation to the appeal.
4. The Official Trustee in Bankruptcy pay to Carmine Alvaro and Rita Alvaro the costs incurred by them in relation to the appeal, such costs being assessed as if those two people were jointly represented on the appeal.
5. The parties have liberty to apply for any further orders or directions as may be required to give effect to these declarations and orders.
IN SG 86 OF 1994 THE COURT ORDERS THAT:
1. The appeal be allowed.
2. The orders made by Heerey J on 31 October 1994 be set aside and, in lieu thereof:
(a) a declaration be made that:
(i) the disposition of $35,750 made by Paul Alvaro on 30 November 1981 to P & R Alvaro Enterprises Pty Ltd is void as against the Official Trustee in Bankruptcy;
(ii) the house property 14-16 Lombard Street, North Adelaide, South Australia, is charged with the payment to the Official Trustee in Bankruptcy of $35,750 plus interest at ten percent per annum from 2 December 1992;
(iii) the disposition of $9,389 made by Paul Alvaro on 14 December 1983 is void as against the Official Trustee in Bankruptcy; and
(iv) the house property at 630 Seaview Road, Grant, South Australia is charged with the payment to the Official Trustee in Bankruptcy of $9,389 plus interest at ten percent per annum from 2 December 1992; and
(b) The Official Trustee in Bankruptcy pay to Paul Alvaro Jnr, Elena Alvaro and Maria Concetta Alvaro any costs incurred by them in the proceeding that are not costs that were incurred in connection with the representation of any other party.
3. Paul Alvaro, Rosina Alvaro and P & R Alvaro Enterprises Pty Ltd (as trustee of the Paul Alvaro Family Trust) pay to the Official Trustee in Bankruptcy thirty
percent of the costs incurred by him in relation to the appeal.
4. The Official Trustee in Bankruptcy pay to Paul Alvaro Jnr, Elena Alvaro and Maria Concetta Alvaro any costs incurred by them in the appeal that are not costs that were incurred in connection with the representation of any other party.
5. The parties have liberty to apply for any further orders or directions as may be required to give effect to these declarations and orders.
I certify that this and the preceding One hundred and one (101) pages are a true copy of the reasons for judgment herein of their Honours Justices Wilcox and Cooper.
Date: 22 May 1996
Associate
IN THE FEDERAL COURT OF AUSTRALIA)
)
QUEENSLAND DISTRICT REGISTRY ) No. SG 85 of 1994
)
GENERAL DIVISION )
ON APPEAL FROM A JUDGE
OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN: THE OFFICIAL TRUSTEE IN BANKRUPTCY
Appellant
AND: GIUSEPPE ALVARO, GIROLAMA ALVARO,
PAUL ALVARO, CARMINE ALVARO, COMBRAN
PTY LTD, RITA ALVARO and MARIA
CONCETTA ALVARO
Respondents
No. SG 86 of 1994
BETWEEN: THE OFFICIAL TRUSTEE IN BANKRUPTCY
Appellant
AND: PAUL ALVARO, ROSINA ALVARO,
P & R ALVARO ENTERPRISES PTY LTD,
PAUL ALVARO JNR, ELENA ALVARO and
MARIA CONCETTA ALVARO
Respondents
JUDGES MAKING ORDER: Wilcox, Cooper and Moore JJ
WHERE MADE: Sydney (Heard in Adelaide)
DATE OF ORDER: 22 May 1996
REASONS FOR JUDGMENT
MOORE J: I have read the comprehensive reasons for judgment of Wilcox and Cooper JJ and, save in relation to one matter, I agree with them. I agree with the orders they propose.
The point on which I am not in entire agreement is the use that could be made of the admissions of the bankrupts in the criminal proceedings. In issue is whether they can properly be treated as evidence against all parties or only the bankrupts. The admissions may be viewed in one of two ways. First as statements potentially probative in the proceeding generally of the intention of the bankrupts in relation to their acts though made some years after the acts themselves. The second is as admissions, in the sense of an out of court statement made by a party adduced to prove, as against that party, the truth of what was stated. As admissions in this sense the admissions in the criminal proceedings would be probative of the bankrupts' intention in relation to their earlier acts but as evidence against them only. If so, it would otherwise be inadmissible hearsay evidence in relation to other parties.
However in R v Walton (1989) 166 CLR 283, which I discuss in detail shortly, there is to be found support for the view that in appropriate circumstances, a statement by a person about their state of mind is primary evidence of the person's state of mind if that is an issue in the proceedings. It is not hearsay.
If the admissions are intended to be proof generally of the intention of the bankrupts, on one view of the present state of the authorities, the statements in the admissions evidencing intention are not admissible. That is because only statements of intention made at the time the act in question occurred, are admissible. Support for that approach is found in Phipson on Evidence, 14th Edition in para 16-02:
"Whenever the physical condition, emotions, opinions and state of mind of a person are material to be proved, his statements indicative thereof made also or about the time in question may be given in evidence."
However the compendious expression "physical condition, emotions, opinions and state of mind" comprehends a range of matters that might each warrant a different approach.
Unaided by authority, it may be accepted that a statement made by a person about his or her state of mind at the time the statement is made is more likely to provide a useful and reliable means of proving the state of mind than any statement made some time later. A clear example would be a person's statement that, at the time the statement was made, they were angry. A statement made a month later that they were, at a point a month earlier, angry might be viewed as of little, if any, probative value. However can the same be said of a statement, and especially one against interest, made some years after the event concerning the purpose for which conduct of some moment was undertaken by a person. There is no reason readily apparent why the statement of a person, made months or even years after they entered a financial arrangement, that they intended to defraud the Commissioner of Taxation by the arrangement is, in character, any different to one made at the time the arrangement was entered. While it may be accepted that facts peculiar to a particular case might indicate
otherwise, generally a person could be expected to retain a reliable recollection of the reason why they entered such a financial arrangement for some time, and probably some considerable time, after having done so. There is, of course, the possibility of concoction or fabrication if the statement is made some time after the event though that is improbable if the statement is against interest. Even if not, the possibility of concoction or fabrication might be viewed as a matter going to the weight of the evidence having regard to the subject matter of the statement and the circumstances in which it was made.
In R v Walton (supra), The High Court had to consider the issue of both the proper characterisation of evidence of an out of court statement by a person about their state of mind and intention and the purpose for which such evidence might be admitted. That case concerned events quite different from the present. It concerned, relevantly, evidence in a murder trial of a statement by the deceased that a person, the accused, was on the phone and a statement made shortly before she was killed that she intended to meet the accused. The majority consisted of Wilson, Dawson and Toohey JJ, who gave a joint judgment, and Mason CJ. Though dissenting Deane J indicated he agreed with Wilson, Dawson and Toohey JJ in relation to one proposition relevant to this appeal.
Mason CJ made plain his view at 288 and 289 that statements by a person about his or her intentions or state of mind may be admitted as original evidence to prove the intentions of the maker of the statement. The Chief Justice goes on to consider authorities concerning the probative effect of statements of immediate intention and the admissibility of express or implied assertions of fact in an out of court statement. That latter matter involved consideration of whether admissibility depended upon the statement having been made contemporaneously with the intended conduct or having been made spontaneously. Spontaneity and contemporaneity bear upon whether the hearsay element of an out of court statement might be admitted as proof of the truth of the fact asserted in the statement. These are issues somewhat removed from the issue in this appeal. It must be accepted however, that at 288.5 the Chief Justice appears to suggest that admissible is dependent upon contemporaneity even if intention is itself a fact in issue.
However Wilson, Dawson and Toohey JJ deal directly with the issue relevant to this appeal. Their Honours said at 302:
"Whilst it may be well established that statements will found an inference concerning a state of mind, there are relatively few reported cases on the subject and its limits have not been fully explored: see generally Cross on Evidence, 6th ed. (Cross and Tapper, 1985), pp. 465-475. It may be true in some cases to say that statements made by a person indicating his state of mind involve no element of hearsay. For example, in Hughes v. National Trustees, Executors and Agency Co. of Australasia Ltd. (53) evidence of statements by a testatrix about her sons misconduct was held to be admissible to prove her state of mind when making her will, but not to prove that the misconduct actually occurred because:
"Such statements are not evidence of the facts they assert: they provide evidence only of the subjective attitude or beliefs of the testator or testatrix." (per Barwick C.J. (54))"
Such is the case in this appeal. The fact in issue is the intention of the bankrupts. The admissions in the criminal proceedings are relevant to prove what motivated them to do what is otherwise proved by the evidence. That is, why they dealt in property in the way they did.
I should add that Deane J says at 307:
"In particular, I agree that evidence of a relevant out-of-court statement is admissible to prove the maker's knowledge or state of mind in a case where that knowledge or state of mind is itself a fact in issue..."
In the above extract from their judgment Wilson, Dawson and Toohey JJ referred to Hughes v National Trustees Executors and Agency Company of Australasia Ltd (1979) 143 CLR 134. That case concerned the application of the Victorian testators family maintenance legislation, the Administration and Probate Act 1958 (Vic). A testatrix did not provide for her son in her will and he sought an order from the Supreme Court of Victoria that provision be made for him out of his mother's estate. The testatrix had made her will on 14 November 1973. She had, for a period ending in September 1973, lived with her son on a farm owned by her. Evidence was led at the trial of statements made by the testatrix in October 1973, sometime after October 1974 and in February 1975 about the circumstances in which she left the farm which involved the treatment of her by her son and his de facto wife. The evidence concerning the conversation sometime after October 1974 included evidence of a statement by the testatrix of the reason why she did not want her son to benefit from her
estate. That plainly related to the reason why she had made the will in the terms she did in November 1973.
A question arose as to whether the evidence of the statements of the testatrix could constitute proof of the events preceding and resulting in her leaving the farm. Gibbs J gave the leading judgment of the majority. Mason and Aickin JJ agreed with his reasons. Gibbs J said at 149:
"To enable that question to be considered, it is necessary to decide what effect should be given to the evidence of the statements made by the testatrix as to the conduct of the appellant, and as to the reasons why she deprived him of any benefit under her will. It is clear that under the rules of the common law a statement by a testatrix that her son has been guilty of misconduct, and that for that reason she has excluded him from any benefit under her will, is not admissible to prove that the son was in fact guilty of misconduct. What the testatrix said about the son's conduct is hearsay, and no exception to the rule against hearsay which is recognised by the common law allows the statement to be given in evidence to prove the facts stated. Such a statement is admissible as original evidence to prove the knowledge, motive or other state of mind of the testatrix should that be relevant."
His Honour later said at 152:
"In my opinion consistently with principle it is impossible to treat a statement of this kind as evidence of the truth of the matters said. Unless the statement is admissible to prove that what was said was true, it cannot shift the onus of proof. It is admissible only to prove the reasons which actuated the testatrix in making her will."
The High Court was not called upon to consider directly the relevance of the time which elapsed between when the will was made and when two of the testatrix's statements were made months later. Nonetheless the reasons of Gibbs J provide support for the view that had it been relevant, the evidence of the statements by the testatrix would have provided proof of the reasons why she made the will in the terms she did even
though the statements were made up to fifteen months after the will was made. Indeed Gibbs J referred with apparent approval to the judgment of Taylor J in Pontifical Society for the Propagation of the Faith v Scales (1962) 107 CLR 9 at 24 in which Taylor J said:
"The signed statement, itself, is no evidence of the truth of its contents (Re Richard Edward Jones (1); Re G Hall (dec'd) (2); and In the Will of Jolliffe (3)) though statements made by a testator in his lifetime may provide some evidence of the reason why he has disposed of his state in a particular way." (emphasis added)
The principle that a statement by a testator of the reasons why a will was in particular terms is admissible evidence of intention, was not expressed to be dependant on the obvious fact that a testator is not in a position to give evidence of their state of mind.
There is no binding authority to which we were referred which makes plain that statements of the type made by the bankrupts about the purpose of their conduct, should not be treated as primary evidence proving or tending to prove what they intended by that conduct. There are cogent reasons why they should which, in my opinion, should prevail in proceedings of this type where the bankrupts intentions are a critical issue and they may or may not be parties in the proceedings: see Noakes v J Harvey Holmes & Son (1979) 37 FCR 5, Re Manella; Ex parte Official Trustee in Bankruptcy (1989) 21 FCR 50, Northern Credits Pty Ltd v Peterson (1970) Tas SR 261. The admissions should, in my opinion, be treated as evidence against all parties. They constitute evidence of
what the bankrupts intended when dealing with their income in the way referred to in the admissions including the purchase and improvement of the properties to which these proceedings relate. The weight to be given to that evidence is another matter.
However, as Wilcox and Cooper JJ discuss, the admissions fall short of establishing the appellant's case and it is thus ultimately not material whether they fail to do so in relation to all or only some of the parties to the proceedings.
I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Moore.
Associate: ......................
Dated: 22 May 1996
APPEARANCES
SG 85 of 1994:
Counsel for the Applicant: D Meagher QC
S Maharaj
Solicitor for the Applicant: Australian Government Solicitor
Counsel for Guisseppe Alvaro M L Abbott QC
and Girolama Alvaro: H Patsouris
Solicitor for Guisseppe Alvaro
and Girolama Alvaro: Patsouris & Associates
Counsel for Rita Alvaro L Powell QC
and Maria Concetta Licari: V Condello
Solicitor for Rita Alvaro: W A G Morris
Pearce & Associates
Solicitor for
Maria Concetta Licari: Condello & Co
Counsel for Carmine Alvaro: P N Waye
Solicitor for Carmine Alvaro: P N Waye & Associates
SG 86 of 1994:
Counsel for Applicant: D Meagher QC
S Maharaj
Solicitor for Applicant: Australian Government Solicitor
Counsel for Paul Alvaro, Rosina M L Abbott QC
Alvaro, Paul Alvaro Jnr, Elena H Patsouris
Alvaro & Maria Concetta Licari:
Solicitor for Paul Alvaro, RosinaPatsouris & Associates
Alvaro, Paul Alvaro Jnr, Elena
Alvaro & Maria Concetta Licari:
Counsel for Maria Concetta Licari: L Powell QC
V Condello
Solicitor for
Maria Concetta Licari: Condello & Co
Date of Hearing: 10 May 1995
Date of Judgment: 22 May 1996
