FEDERAL COURT OF AUSTRALIA
Rambaldi (as Trustee of Bankrupt Estate of Volkov) v Volkov [2008] FCA 1957
GESS MICHAEL RAMBALDI (AS TRUSTEE OF THE BANKRUPT ESTATE OF STEFAN VOLKOV) v VALDA MAREE VOLKOV
VID 97 of 2007
RYAN J
19 december 2008
MELBOURNE
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY |
VID 97 of 2007 |
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BETWEEN: |
GESS MICHAEL RAMBALDI (AS TRUSTEE OF THE BANKRUPT ESTATE OF STEFAN VOLKOV) Applicant
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AND: |
VALDA MAREE VOLKOV Respondent |
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RYAN J |
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DATE OF ORDER: |
19 DECEMBER 2008 |
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WHERE MADE: |
MELBOURNE |
THE COURT ORDERS THAT:
1. IT BE DECLARED THAT:
1.1 The land contained in Certificate of Title Volume 3225 Folio 952 together with the improvements thereon (“21 The Avenue Spotswood”) vested in the applicant as trustee of the bankrupt estate of Stefan Volkov (“the bankrupt”) pursuant to s 58 of the Bankruptcy Act 1966 (Cth) (“the Act”).
1.2 21 The Avenue, Spotswood is property available for distribution to the creditors of the bankrupt.
1.3 The financial agreement dated 18 January 2001 between the bankrupt and the respondent did not transfer, and is not capable of transferring, the bankrupt’s then interest in 21 The Avenue, Spotswood to the respondent.
1.4 The respondent was, at the date of the bankruptcy, and has at all relevant times been, the sole beneficial owner of the land contained in Certificate of Title Volume 4743 Folio 477 together with the improvements thereon (“19 The Avenue Spotswood”).
1.5 The applicant holds 19 The Avenue, Spotswood on trust for the respondent absolutely and 19 The Avenue, Spotswood is not property available for distribution to the creditors of the bankrupt.
2. There be a stay of paragraph 1 of this Order until13th February 2009 or further order.
3. Each party file and serve, by 13 February 2009, written submissions as to any further orders, including any order as to costs, which that party contends should be made in light of the reasons published this day.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY |
VID 97 of 2007 |
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BETWEEN: |
GESS MICHAEL RAMBALDI (AS TRUSTEE OF THE BANKRUPT ESTATE OF STEFAN VOLKOV) Applicant
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AND: |
VALDA MAREE VOLKOV Respondent
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JUDGE: |
RYAN J |
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DATE: |
19 DECEMBER 2008 |
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PLACE: |
MELBOURNE |
REASONS FOR JUDGMENT
1 By application filed in this Court on 9 February 2007 the applicant seeks orders in relation to two properties, 19 and 21 The Avenue, Spotswood. The applicant is the trustee of the bankrupt estate of Stefan Volkov. The application was filed with a supporting affidavit of the applicant, Gess Michael Rambaldi, sworn 8 February 2007.
2 By way of background, the respondent and Stefan Volkov were married on 16 March 1973. In December 1995 they separated and have lived apart since then. On 19 February 2001 Stefan Volkov (“the bankrupt”) became bankrupt upon the acceptance by the Official Receiver of a debtor’s petition presented by the bankrupt pursuant to s 55 of the Bankruptcy Act 1966 (Cth) (“the Act”). The applicant became the bankrupt’s trustee pursuant to s 156 of the Act. On 19 February 2004 the bankrupt was discharged from bankruptcy.
3 On 19 February 2001 the bankrupt was the registered proprietor of the two properties, the first identified as the land described in Certificate of Title Volume 4743 Folio 477 together with improvements thereon being the property known and situate as 19 The Avenue, Spotswood (“19 The Avenue”). The second is identified as the land described in Certificate of Title Volume 3225 Folio 952 together with the improvements thereon being the property known and situate as 21 The Avenue, Spotswood (“21 The Avenue”). By virtue of s 58(1)(a) of the Act, on 19 February 2001, the legal title to each of 19 and 21 The Avenue, vested in the applicant in his capacity as trustee of the bankrupt’s estate.
19 The Avenue
4 On 24 April 1978 the bankrupt became the registered proprietor of 19 The Avenue, with a mortgage in favour of the Bendigo Mutual Permanent Land and Building Society registered on 24 March 1980. A second mortgage in favour of the Australia and New Zealand Banking Group Ltd was secured on the same property and registered on 8 August 1980.
5 On or about 11 August 1986 the two mortgages were discharged from 19 The Avenue, and a transfer of land dated 24 June 1986 from the bankrupt to the respondent was registered. The consideration set out in the transfer of the property is “natural love and affection.” On 27 April 1998, the respondent executed a transfer to the bankrupt of 19 The Avenue.
6 On 31 December 1997 a mortgage was registered in favour of the National Australia Bank Limited (“NAB”) over 19 The Avenue. On or about 21 April 1998, the bankrupt gave a mortgage in favour of the NAB, secured over 19 The Avenue, for an advance of $205,000. That mortgage was registered on 16 September 1998, as was the transfer of land dated 27 April 1998, transferring the property from the respondent to the bankrupt.
‘Pursuant to a financial agreement dated 18 January 2001 between Stefan Volkov and Valda Maree Volkov, and in the alternative, pursuant to a constructive trust in which the registered proprietor is trustee for and on behalf of the caveatrix.’
That was apparently a reference to a “Financial Agreement Pursuant to Section 90C of the Family Law Act” which was executed under seal by each of the bankrupt and the respondent on 18 January 2001 and is hereafter called “the financial agreement”. The recitals to the financial agreement recorded that there were six children of the marriage between the bankrupt and the respondent and under the heading “The Husband – Assets” noted the following facts in respect of 19 and 21 The Avenue;
‘(i) Real property at 19 The Avenue, Spotswood (Certificate of Title Volume 4743 Folio 477) (“19 The Avenue”)
This property is subject to a mortgage in favour of the National Australia Bank that is about to be discharged and has an estimated value of $160,000.00.
The wife was the registered proprietor of this property from 11 August 1986 until 15 September 1998, at which time she transferred it to the husband pursuant to an agreement whereby the husband promised that she would receive a transfer of a real property at 17 Forrest Street, Spotswood and other real assets including 19 The Avenue and 21 The Avenue, alternatively, a transfer of 17 Forrest Street, Spotswood and a capital payment of $450,000.00 in return.
Prior to the transfer of the property at 19 The Avenue Spotswood from the wife to the husband, the parties had previously agreed in 1993 that the wife would transfer to the husband her title to 19 The Avenue Spotswood in consideration of the husband transferring to the wife his interest in 17 Forrest Street, Spotswood together with a capital payment of $450,000.
(ii) 21 The Avenue, Spotswood (Certificate of Title Volume 3225 Folio 952) (“21 The Avenue”)
This property is subject to a mortgage in favour of the National Australia Bank that is about to be discharged and has an estimated value of $160,000.00.
Estimated value $160,000.00’
8 Under the heading “The Wife – Assets” the financial agreement recited, amongst other things:
‘(i) Equitable rights in respect of properties at 19 The Avenue Spotswood and 21 The Avenue Spotswood referred to above.’
9 The recitals to the financial agreement also listed some nine other pieces of real estate as “owned by the Volkov Family Trust and/or … registered in the name of Volkov Nominees Pty Ltd (ACN 005 182 070) as trustee for the Volkov Family Trust of which both the husband and wife are beneficiaries.” Those properties included 17 Forrest Street Spotswood (Certificate of Title Volume 4043 Folio 502) which was described as subject to a mortgage to the NAB lodged 22 September 1999 and as having an estimated value of $270,000.
10 Paragraphs J to M of the recitals to the financial agreement were in these terms;
‘J. The parties desire to enter into a financial agreement as defined in section 90C(2)(a) of the Family Law Amendment Act 2000 making provision to recognise existing equitable interests in the real properties at 19 and 21 The Avenue, Spotswood, which are to be transferred to the wife pursuant to the provisions of this agreement.
K. No other agreement is in force under Section 90B, 90C or 90D of the Family Law Amendment Act 2000.
L. This agreement has been entered into by the parties for the purposes of declaring for all times their respective interests in 19 and 21 The Avenue Spotswood. The parties have each been given advice by their respective legal advisers and have each agreed to accept the provisions hereinafter set forth in lieu of all rights of each of them respectively to seek orders in respect of periodic and/or lump sum maintenance.
M. Both parties acknowledge and agree that this agreement is without prejudice to, and does not preclude either of them from pursuing their respective rights to seek maintenance, property alterations or declarations of other property interests or property settlement pursuant to the provisions of Part VIII of the Act, or otherwise and is without prejudice to the rights of both parties to pursue their respective interests as beneficiaries of the Volkov Family Trust.’
11 The operative clauses of the financial agreement provided;
‘The parties agree as follows:
1. That when called on to do so (“the date”) the husband shall do all such acts and things and execute all such documents to transfer to the wife at the expense of the husband, all of his right, title and interest in the following real properties:
(a) 19 The Avenue;
(b) 21 The Avenue.
2. That upon registration of the transfers the wife shall indemnify the husband against all payments and liabilities in respect of all rates, taxes and outgoings incurred in respect of 19 The Avenue and 21 The Avenue.
3. That the parties shall execute all documents, contracts, transfers, records, minutes, authorities and correspondence so required of them and otherwise do all such acts and things and give all necessary and proper instructions to give full effect to the provisions of this agreement.
4. That save as otherwise provided, the provisions of this agreement shall continue to be of full force and effect notwithstanding the death of the husband or of the wife and this agreement shall be for the benefit of and binding upon the heirs, executors, administrators, successors and assigns of each of the husband and the wife.
5. That save as provided in this agreement the husband and the wife accept the abovementioned in full settlement of their respective claims in relation to 19 and 21 The Avenue Spotswood, and this agreement may be pleaded in bar to any application made by the parties or either of them or on their behalf in relation to any proceedings between them in relation to such property, PROVIDED THAT should this agreement subsequently be set aside by either the Family Court of Australia, the Federal Court of Australia or any other Court exercising jurisdiction enabling it to do so then each of the parties understands that they are at liberty to seek orders in relation to the said properties as if they had not executed this agreement.’
12 On 25 February 2002, the NAB advised the applicant by letter that the amount secured by both of the mortgages in favour of the NAB had been cleared on 24 January 2001. However, no discharge of either of the NAB mortgages has been lodged or registered.
21 The Avenue
13 On 16 September 1985, the bankrupt became the registered proprietor of 21 The Avenue. On 29 April 1998, the bankrupt mortgaged 21 The Avenue in favour of the NAB to secure, in conjunction with the mortgage over 19 The Avenue dated 21 April 1998, the advance of $205,000. On 25 February 2002, the NAB advised the applicant by letter that the amount secured by both of the mortgages in favour of the NAB had been cleared on 24 January 2001. As already noted, no discharge of either of the NAB mortgages has been lodged or registered. As well, as mentioned above, on or about 19 January 2001 a caveat on behalf of the respondent was lodged over 19 and 21 The Avenue, Spotswood.
Later events in relation to 19 and 21 The Avenue
14 On 16 March 2001, the applicant received a market appraisal of 19 and 21 The Avenue, Spotswood from Ross Mitchell Real Estate Agents, in the amount of $320,000 - $350,000. On 23 May 2002, the applicant received a collective market value assessment from Jas. H. Stephens, in the range of $500,000 - $550,000, based on an external inspection of the properties.
15 In May 2002, the applicant instructed his solicitors to lodge caveats over both properties to protect his interest as trustee in bankruptcy. Due to an error in title particulars, a caveat was not initially recorded against the title to 19 The Avenue, but this was subsequently rectified.
16 On 17 December 2002, the applicant reported to the creditors of the bankrupt. The applicant has not realised any assets of the bankrupt’s estate, and has not been in a position to declare any dividend to the creditors.
The applicant’s submissions
17 The applicant, in his application filed 9 February 2007, seeks the following final orders;
‘1. A declaration that, subject to any interest of the respondent:
(a) the land contained in Certificate of Title Volume 4743 Folio 477 together with the improvements thereon (“19 The Avenue, Spotswood”);
(b) the land contained in Certificate of Title Volume 3225 Folio 952 together with the improvements thereon (“21 The Avenue, Spotswood”);
vested in the applicant as trustee of the bankrupt estate of Stefan Volkov (“the bankrupt”) pursuant to the provisions of section 58 of the Bankruptcy Act (Cth) 1966 (“the Act”).
2. All necessary orders, directions and accounts to give effect to the declaration sought in order 1 hereof.
3. A declaration pursuant to section 116 of the Act that subject to any interest of the respondent, each of 19 and 21 The Avenue, Spotswood is property available for distribution to the creditors of the bankrupt.
4. Pursuant to section 30 of the Act a declaration that what purports to be a Financial Agreement dated 18 January 2001 between the bankrupt and the respondent, did not, and is not capable of, transferring the bankrupt’s interest in each of 19 and 21 The Avenue, Spotswood to the respondent.
5. Save to the extent that the Court determines that the respondent has any interest in either or both 19 or 21 The Avenue Spotswood, pursuant to section 30 of the Act a declaration that neither the bankrupt nor the applicant hold each of 19 and 21 The Avenue, Spotswood on trust for the respondent.
6. Such other and further orders as the Court determines appropriate.
7. Costs.’
18 In his affidavit sworn 8 February 2007, the applicant deposes to the contents of the bankrupt’s statement of affairs, made out and verified by the bankrupt on 16 February 2001, which states that the property given away or sold in the previous five years was 19-21 The Avenue. The statement of affairs says that the property was transferred to his former wife, the date of disposal being “18/01/01”, and the consideration being “Family Court Settlement.”
19 The applicant submits that the respondent’s solicitors’ file notes of conferences and telephone conversations with the bankrupt’s solicitor, sometimes attended by the respondent and bankrupt, between 27 November 2000 and 17 January 2001, demonstrate that the sole purpose for making the financial agreement dated 18 January 2001 was to put 19 and 21 The Avenue out of the reach of the bankrupt’s creditors. The applicant further contends that this intention is evident by the urgency with which the financial agreement was concluded by the bankrupt and the respondent.
20 The applicant acknowledges that the respondent may have some interest in 19 and 21 The Avenue, Spotswood by virtue of her having been the wife of the bankrupt and the mother of his children.
Additional facts disclosed by the respondent
‘(a) The said Stefan Volkov and the lawfully wedded wife or widow of the said Stefan Volkov for the time being;’
“The Guardian” is defined in the deed as;
‘The said Stefan Volkov during his lifetime and after his death the said Valda Marie [sic] Volkov.’
“The Appointer” is defined as;
‘The said Stefan Volkov during his lifetime and after his death the said Valda Marie Volkov during her lifetime and after her death the legal personal representatives of the said Stefan Volkov for the time being.’
In her affidavit, sworn 27 August 2007, the respondent has deposed at paragraph 10 that the bankrupt had;
‘changed the name of Volkov Fresh Foods to Volkov Milk Delivery Pty Ltd on 23 March 1987 and then to CP & FW Pty Ltd on 13 January 1993. Stefan also incorporated a company called Volkov Nominees Pty Ltd.’
22 Exhibit VMv3 of the respondent’s affidavit is an ASIC Company Extract of Volkov Nominees Pty Ltd (ACN 005 182 070) dated 21 August 2007, which recites that the company was registered on 27 April 1976, the registered office is at 108 Watton Street, Werribee VIC 3030, and the principal place of business is 19 The Avenue. It is not clear whether Volkov Nominees Pty Ltd became trustee of the S & V Volkov Family Trust in substitution for C.P. & F.W. Pty Ltd (formerly Volkov Fresh Food House Pty Ltd) or, if not, what functions Volkov Nominees Pty Ltd performed. At all events, the only trust deed in evidence is that described at [21] above as governing the S & V Volkov Family Trust.
23 The respondent also deposed in paragraph 10 of the same affidavit that;
‘I severed all my ties as director, shareholder and beneficiary of these entities on 8 June 1995.’
24 On 8 June 1995 the respondent resigned as director of C.P. & F.W. Pty Ltd (ACN 005 519 657), and Rosalia Volkov was appointed director. The respondent transferred one share in that company to Rosalia Volkov as trustee for the bankrupt. On 8 June 1995 the respondent also resigned as director of Volkov Nominees Pty Ltd, and Rosalia Volkov was appointed director. The respondent also transferred one share in Volkov Nominees Pty Ltd to Rosalia Volkov as trustee for the bankrupt.
25 The deed of settlement of the S & V Volkov Family Trust provides by paragraph 23 that;
‘Any Trustee Guardian or Appointer and any person who may by succession become a Trustee Guardian or Appointer may resign or renounce such position by notice in writing to the Trustees and forthwith upon the giving of such notice the person giving the same shall for all purposes hereunder cease to be a Trustee Guardian or Appointor or to be a person who may ye succession become a Trustee Guardian or Appointor (as the case may be) and if by virtue of holding that position he was a member of the excluded class he shall cease to be a member of that class provided that if at any time there is no Appointor or other person entitled to exercise the power of appointment provided in clause 21 hereof a sole surviving Trustee shall not resign except upon appointing a new Trustee or new Trustees in his place.’
However, there is no evidence before the Court that any notice in writing has been given by the respondent to the trustee of the S & V Volkov Family Trust, in accordance with paragraph 23 of the deed of settlement.
26 In relation to 19 The Avenue, the respondent deposed at paragraph 7 of her affidavit that;
‘In or about June 1975, Stefan and I purchased a property that was situated at 19 The Avenue, Spotswood in the state of Victoria for $18,000 on vendor’s terms … Stefan was registered on title on 24 April 1978 and it was transferred to me on 11 August 1986 purportedly because of our mutual love and affection but it was to recognise my contribution to the acquisition of the assets of the marriage and in particular my contributions to the said property. I allowed the property to be used as security for a loan to the Commonwealth Bank of Australia on 3 April 1987 that was repaid on 27 November 1989 and a subsequent mortgage thereto on 10 February 1989 that was repaid on 6 February 1996. On 31 December 1997 and on 16 September 1998, a mortgage to the National Australia Bank was registered on the said property that I believe was recently repaid by Volkov Nominees in consideration for my entering into a settlement of my matrimonial dispute with Stefan and thereby foregoing my rights to seek a property settlement out of its assets.’
27 Exhibit VMV 1 to the respondent’s affidavit is a title search of 19 The Avenue, dated 20 August 2007, which shows the registered proprietor as the bankrupt, with two registered mortgages in favour of the NAB respectively dated 31 December 1997 and 16 September 1998. The search also discloses a caveat lodged by the respondent on 19 January 2001 and one by the applicant lodged on 20 June 2006.
28 In relation to 21 The Avenue, the respondent deposed at paragraph 11 of her affidavit that;
‘On 16 September 1985, Stefan and I purchased the property at 21 The Avenue, Spotswood, in the state of Victoria … On 16 September 1998, Stefan entered into a mortgage of the land for the National Australia Bank that I believe was recently repaid by Volkov Nominees Pty Ltd in consideration for my entering into a settlement of my matrimonial dispute with Stefan and thereby foregoing my rights to seek a property settlement out of its assets.’
29 Exhibit VMV6 to the respondent’s affidavit is a title search of 21 The Avenue, dated 20 August 2007, which shows the registered proprietor as the bankrupt, with a mortgage in favour of the NAB dated 16 September 1998. The search also discloses a caveat lodged by the respondent on 19 January 2001 and one by the applicant lodged on 18 May 2002.
30 At paragraph 18 of her affidavit, the respondent deposed to the breakdown of her marriage to the bankrupt having occurred between 1993 and 1994. As a result, she deposed at paragraph 18;
‘… In or about 30 June 1993, Stefan and I came to an agreement that I would have 17 Forrest Street, Spotswood plus the sum of $450,000 in satisfaction of my rights to the assets of the marriage and in consideration thereof, on 16 September 1998, I transferred 19 The Avenue to Stefan. I transferred 19 The Avenue to Stefan, at that time, in accordance with our agreement, that we reaffirmed on numerous occasions, because I trusted him and because he needed a property to use as security for further loans and I was not willing to guarantee the said loans and it seemed preferable to transfer the said property to him. He, however, never fulfilled his obligation pursuant to our agreement to transfer 17 Forrest Street, Spotswood to me, because there was owed a debt to Volkov Nominees Pty. Ltd. Nor did he pay me the sum of $450,000 or any other amount. He had wanted to alter our agreement and transfer 27 Hope Street, Spotswood to me, but I refused to agree and he confirmed that he would transfer 17 Forrest Street, Spotswood and to pay me the sum of $450,000. I was only interested in obtaining a residence to live in and a fund to finance my retirement.’
31 At paragraph 23 of the same affidavit, the respondent deposed that she and the bankrupt had separated on 18 December 1995 and continued, at paragraph 25;
‘On 18 January 2001, Stefan and I entered into a financial agreement pursuant to s 90C of the Family Law Act … I intended that agreement to finally determine any rights I had against Stefan, Volkov Nominees Pty. Ltd., the Volkov Family Trust and CP & FW Pty. Ltd. I believe that there have been changes to the said entities that would preclude me from obtaining any redress from those entities and I was not advised by my previous solicitors to take any action against them.’
The respondent and the bankrupt were divorced on 26 April 2001, and she presently resides at 19 The Avenue.
32 The respondent also deposed at paragraph 9 of her affidavit that;
‘On 27 April 1976, Stefan incorporated a company called Volkov Nominees Pty Ltd. Now shown and produced to me and marked Exhibit “VMV 2” is a copy of the company search of CP & FW Pty Ltd (formerly called Volkov Nominees Pty. Ltd.).’
33 However, Exhibit VMV2, which is an ASIC Company Extract related to C.P. & F.W. Pty Ltd (ACN 055 519 657) reveals that the company was registered on 6 March 1979 as Volkov Fresh Food House Pty Ltd, and changed its name to Volkov Milk Delivery Pty Ltd on 23 March 1987, and then to C.P. & F.W. Pty Ltd on 13 January 1993. The respondent is listed as a former director of this company. Exhibit VMV3 to the respondent’s affidavit is an ASIC Company Extract related to Volkov Nominees Pty Ltd (ACN 005 182 070) dated 21 August 2007, showing that company to have been registered on 27 April 1976. The principal place of business of both C.P. & F.W. Pty Ltd and Volkov Nominees Pty Ltd is 19 The Avenue.
Consideration
(i) 19 The Avenue
34 I am satisfied of the existence of circumstances attending the dealing by the bankrupt and the respondent with 19 The Avenue which warrants the conclusion that, from 27 April 1998, the bankrupt held that property on a constructive trust for the sole benefit of the respondent. Before that date, 19 The Avenue had, on 24 June 1986, been transferred from the bankrupt to the respondent as sole registered proprietor. Whether that transfer was in recognition of the respondent’s contribution as homemaker or to the joint business activities of herself and the bankrupt or was by way of a perfected gift does not matter. I accept that in 1998 the respondent transferred 19 The Avenue back to the bankrupt to enable him to use it as part mortgage security for loans from the NAB for which the respondent, having been separated from the bankrupt for over two years, was unwilling to incur personal liability. I infer that, when the bankrupt accepted the transfer of 19 The Avenue and executed the mortgages over it in favour of the NAB, the common intention of the parties was that the bankrupt should procure the transfer to the respondent by the trustee of the relevant family trust of the former matrimonial home at 17 Forrest Street Spotswood and should cause the sum of $450,000 to be paid to the respondent. Those benefits to the respondent were to be in return for her relinquishing any claim to 19 The Avenue and any entitlement arising out of the breakdown of her marriage to the respondent. However, I do not infer any common intention, or any acceptance by the respondent, that if, for any reason, the transfer to her of 17 Forrest Street Spotswood and the payment to her of $450,000 should not occur, she should relinquish her equitable interest in 19 The Avenue, which I find had arisen in 1998 when she voluntarily transferred that property to the bankrupt. It would have been unconscionable for the bankrupt to have refused to give effect to that common intention which I have imputed to the parties. That was that, until the bankrupt should procure the transfer to the respondent of 17 Forrest Street Spotswood and the payment to her of $450,000, he should hold the legal title to 19 The Avenue upon trust for the respondent absolutely.
35 In Muschinski v Dodds (1985) 160 CLR 583, Brennan J observed, at 608;
‘It would not be sufficient for Mrs. Muschinski to show that it is unfair for Mr. Dodds to retain the interest once the purpose is no longer pursued; she must show that it is unconscionable for him to retain it. A constructive trust does not arise and cannot be imposed on the ground of mere fairness. It may be fair -- I do not say it is -- that Mr. Dodds should give back what he was given while he was cohabiting with Mrs. Muschinski, but no trust can be impressed on Mr. Dodds' interest in favour of Mrs. Muschinski on that ground. There is no jurisdiction in an Australian court of equity to declare an owner of property to be a trustee of that property for another merely on the ground that, having regard to all the circumstances, it would be fair so to declare: Wirth v. Wirth [(1956) 98 CLR 228, at p 232]; Hepworth v. Hepworth [(1963) 110 CLR 309, at p 318]; Bloch v. Bloch [(1981) 55 ALJR 701, at p 705; 37 ALR 55, at p 63]. The flexible remedy of the constructive trust is not so formless as to place proprietary rights in the discretionary disposition of a court acting according to vague notions of what is fair. When property is freely given, I know of no equitable principle which might restrict the donee's proprietary interest in the gift beyond any restriction imposed expressly or impliedly by the donor. To say that Mr. Dodds holds his interest now in trust for Mrs. Muschinski because the parties have ceased to pursue the common purpose which they had in mind when Mrs. Muschinski gave Mr. Dodds his absolute beneficial interest is tantamount to saying that the interest he took was subject to a condition subsequent which, in the events that have happened, has operated to divest him of his beneficial interest. For reasons earlier stated, I would reject that view (emphasis added).
36 In my view, the application of the principles there outlined gives rise to the constructive trust of 19 The Avenue in favour of the respondent to which I have referred. That is because it would be unconscionable for the bankrupt, or the trustee claiming through him, to retain beneficial ownership of 19 The Avenue without providing the respondent with the assets which it had been agreed she should receive in substitution for that property.
37 Evidence of conduct after the transaction in question, in this case the transfer of 19 The Avenue from the respondent to the bankrupt, can be relevant in ascertaining the common intention of the parties at the time of the transaction; see Draper v Official Trustee in Bankruptcy (2006) 156 FCR 53, at 63 [30] and the cases there cited. The agreement between the bankrupt and respondent that the respondent should relinquish her interest in 19 The Avenue and 21 The Avenue and any further entitlement which she might have had as a result of the breakdown of the marriage was recited in the extract of note (i) from the financial agreement reproduced at [7] of these reasons.
38 As well, as noted at [8] above, the financial agreement recognised as assets of the respondent “equitable rights in respect of properties at 19 The Avenue … and 21 The Avenue”. In the context, those equitable rights must have antedated the financial agreement and could not have been conferred by it. In addition, the respondent has, since 2005, lived at 19 The Avenue and had possession of it to the exclusion of the bankrupt apparently without any claim by him that she should account for occupation rent.
(ii) 21 The Avenue
(a) Circumstances before 18 January 2001
(b) The effect of the financial agreement on 21 The Avenue
40 Paragraph J of the recitals to the financial agreement which is reproduced at [10] above, acknowledged the desire of the parties to make provision to “recognise existing equitable interests in the real properties at 19 and 21 The Avenue.” For the reasons already explained, the respondent had such an equitable interest in 19 The Avenue. However, as also explained at [39] above, the evidence does not permit a finding that, before 18 January 2001, the respondent had any equitable interest in 21 The Avenue, let alone a finding that her equitable interest extended to the whole fee simple estate in that property.
41 This conclusion entails that any purported creation, and transfer to the respondent, of an equitable interest in 21 The Avenue, was effected by the financial agreement of 18 January 2001. That, in turn, raises the application of s 123(6) of the Act.
(c) The application of the Act to the financial agreement
42 Sub-section 123(6) of the Act, as in force before 15 April 2005, provided;
‘Subject to sections 121, nothing in this Act invalidates, in any case where a debtor becomes a bankrupt, a conveyance, transfer, charge, disposition, assignment, payment or obligation executed, made or incurred by the debtor, before the day on which the debtor became a bankrupt, under or in pursuance of a maintenance agreement or maintenance order.’
43 “Maintenance agreement” was defined in s 5 of the Act, as in force before 15 April 2005, to mean;
‘(a) a maintenance agreement (within the meaning of the Family Law Act 1975) that has been registered in, or approved by, a court in Australia or an external Territory; or
(b) a financial agreement within the meaning of that Act; or
(c) any other agreement with respect to the maintenance of a person that has been registered in, or approved by, a court in Australia or an external Territory.’
44 There is nothing in the evidence to suggest that the financial agreement has ever been registered in, or approved by, a court. Moreover, it was clearly a “financial agreement” within the meaning of the Family Law Act, s 5 of which defined “financial agreement” to mean;
‘an agreement that is a financial agreement under section 90B, 90C or 90D but does not include an ante-nuptial or post-nuptial agreement to which section 85A applies.’
45 Sections 90B, 90C and 90D of the Family Law Act deal respectively with financial agreements made before marriage, financial agreements during marriage and financial agreements made after a divorce order has been made. The financial agreement in the present case, as its title indicates, was, accordingly, a financial agreement “pursuant to s 90C of the Family Law Act” which provides, so far as is relevant;
‘(1) If:
(a) the parties to a marriage make a written agreement with respect to any of the matters mentioned in subsection (2); and
(aa) at the time of the making of the agreement, no other agreement (whether made under this section or section 90B or 90D) is in force between the parties with respect to any of those matters; and
(b) the agreement is expressed to be made under this section:
the agreement is a financial agreement.
(2) The matters referred to in paragraph (1)(a) are the following:
(a) how, in the event of the breakdown of the marriage, all or any of the property or financial resources of either or both of them at the time when the agreement is made, or at a later time and during the marriage, is to be dealt with;
(b) the maintenance of either of them:
(i) during the marriage; or
(ii) after divorce; or
(iii) both during the marriage and after divorce.’
46 By force of the chain of definitions outlined above, the financial agreement was prima facie entitled to the protection against invalidity afforded to it by s 123(6) of the Act. However, that protection was “subject to section 121” of the Act. That section, as in force on 18 January 2001, provided;
‘121 Transfers to defeat creditors
Transfers that are void
(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a) the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and
(b) the transferor’s main purpose in making the transfer was:
(i) to prevent the transferred property from becoming divisible among the transferor’s creditors; or
(ii) to hinder or delay the process of making property available for division among the transferor’s creditors.
Showing the transferor’s main purpose in making a transfer
(2) The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
Other ways of showing the transferor’s main purpose in making a transfer
(3) Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.
Transfer not void if transferee acted in good faith
(4) Despite subsection (1), a transfer of property is not void against the trustee if:
(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b) the transferee did not know that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.
Refund of consideration
(5) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
What is not consideration
(6) For the purposes of subsections (4) and (5), the following have no value as consideration:
(a) the fact that the transferee is related to the transferor;
(b) if the transferee is the spouse or de facto spouse of the transferor—the transferee making a deed in favour of the transferor;
(c) the transferee’s promise to marry, or to become the de facto spouse of, the transferor;
(d) the transferee’s love or affection for the transferor;
Exemption of transfers of property under debt agreements
(7) This section does not apply to a transfer of property under a debt agreement.
Protection of successors in title
(8) This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property.
Meaning of transfer of property and market value
(9) For the purposes of this section:
(a) transfer of property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer.’
47 The financial agreement clearly effected a transfer, by a person who later became a bankrupt, of 21 The Avenue to the respondent as transferee. Because, as I have found, the respondent had no equitable interest in 21 The Avenue before the execution of the financial agreement, that property would probably have been available to creditors of the bankrupt if it had not been transferred to the respondent. I am also satisfied that the bankrupt’s main purpose in entering into the financial agreement was to prevent 21 The Avenue from becoming divisible among his creditors or to delay the process of making it available for division among his creditors. I have attained the requisite satisfaction partly because I consider that it can reasonably be inferred that, as at 18 January 2001, the bankrupt was, or was about to become, insolvent.
48 The circumstances from which I draw that inference include the following;
(i) As recited in the financial agreement, the liabilities of the bankrupt were close to $800,000 and his only assets were identified as 19 and 21 The Avenue, each of which was said to have an estimated value of $160,000 and a 1976 “Toyota” truck having an estimated value of $1,000.
(ii) It was also recited in the financial agreement under the heading “Contingent Liabilities”;
‘(i) In addition, the husband is a defendant in proceedings commenced against him in the Supreme Court of Victoria by National Foods wherein National Foods seeks payment of a debt of $383,610.37 pursuant to a personal guarantee, together with interest and costs executed by the husband to secure indebtedness incurred by WYNUUM DAIRY PRODUCTS PTY LTD to National Foods. The husband is presently defending those proceedings.
(ii) Group tax for WYNUUM DAIRY PRODUCTS PTY LTD.’
(iii) On 28 November 2000, Mr Theofilakis of Frenkel Partners, the solicitors for the bankrupt, advised Lander & Rogers, the solicitors who had been retained to act for the respondent that a summons for final judgment issued in the Supreme Court of Victoria on behalf of National Foods had been served on the bankrupt and was returnable on 21 December 2000.
(iv) On Tuesday 19 December 2000, Mr Harriss of Lander & Rogers caused the following file note to be made of his attendance on that day on Mr Theofilakis;
‘Telephone attendance upon Nick Theofilakis of Frenkel Partners at approximately 6pm today. I told him that our client is going to have to lodge Caveats now as we can’t afford to wait any longer, particularly given that the husband has got his SFJ application listed in the Supreme Court this Thursday. Nick seemed to think that that would be acceptable to his client as he is in the middle of negotiations with the NAB looking to have a couple of the properties released as security anyway, given properties that he is hoping will go to our client. He is also trying to sell off some other properties to placate the NAB as he has run into problems servicing the loans since his business closed. In relation to the SFJ application they have a technical argument open to them but it remains to be seen whether that will impress the Court. The argument concerns the witnessing of the execution of the guarantee given by Mr Volkov. Nick thinks that even if the Plaintiff is successful in the SFJ application, the debt will still need to be assessed by the Court which could take some months to do which would give our client a little bit more breathing space and an opportunity to resolve things with the Family Court.’
(v) On 20 December 2000 in the course of a conference with Mr Theofilakis, Mr Harriss, on behalf of the respondent, suggested that the bankrupt should seek an adjournment of National Foods’ summons for final judgment returnable on 21 December 2000 “to give us time to sort things out” between the bankrupt and the respondent and thereby improve the respondent’s position vis à vis National Foods. In the same context, Mr Harriss suggested that a delay of “a month or so” might serve that purpose.
(vi) On 5 January 2001 in the course of a conference between the respondent and her solicitor and the bankrupt and his solicitor, the bankrupt expressed concern about his ability to find the money to pay the legal fees (given that he was funding the respondent’s legal costs). Mr Harriss then pointed out that the bankrupt and the respondent needed to understand “that any investment in legal fees may pay significant dividends for them if it assists in protecting the assets from the trustee in bankruptcy and/or a liquidator of Volkov Nominees Pty Ltd”. The bankrupt acknowledged that he understood.
(vii) In the course of the same conference on 5 January 2001 it was noted to be “essential that the matter be resolved by late January 2001 (last week at the latest) so that arrangements can then be put in place for some negotiations to take place with the solicitors for National Foods”. Mr Harriss also observed that “irrespective of these negotiations” the bankrupt had “a certain fatalistic attitude to his predicament and is quite certain that he will end up bankrupt even if he can pull off a settlement with National Foods.”
(viii) On 17 January 2001, Mr Harriss of Lander & Rogers advised Ms Koelmeyer, a solicitor of Carew Counsel, who later signed a certificate of having provided independent legal advice to the respondent before she executed the financial agreement, that “it is the husband’s wish to transfer to the wife the two properties held in his personal name rather than let them fall into the hands of the trustee in bankruptcy.” Mr Harriss also noted that, in the same conversation, he had explained to Ms Koelmeyer “the financial difficulties the husband currently finds himself in, and the fact that we believe that the agreement may quarantine the assets from the trustee.”
(ix) Also on 17 January 2001, Mr Harriss of Lander & Rogers spoke to Ms Wendy Sylva of Hall & Wilcox who later signed a certificate corresponding to that described in (viii) above that she had provided independent legal advice to the bankrupt before he executed the financial agreement. Mr Harriss recorded that he “explained to Wendy the husband’s financial predicament … .”
51 It is true that, by cl 5 of the financial agreement reproduced at [11] above, the respondent accepted the terms of the financial agreement in full settlement of her claims in relation to 19 and 21 The Avenue and acknowledged that the financial agreement might be pleaded in bar to any application in any proceedings in relation to such property. However, from the analysis which I have undertaken, it will be seen that the respondent was already the sole beneficial owner of 19 The Avenue and had no equitable interest in 21 The Avenue. Moreover, the acceptance of the terms of the financial agreement in full settlement recorded by cl 5 was qualified by the introductory words “save as otherwise provided” which preserved the reservation of rights in recital M discussed at [50] of these reasons. As well, the concluding proviso in cl 5 expressly contemplated that the financial agreement might be set aside which, by implication, might occur on the application of the respondent herself.
52 For all these reasons, there was no forbearance or relinquishment of any rights by the respondent which could amount to consideration within the meaning of s 121(4) of the Act for the transfer to her of 21 The Avenue.
53 Even if the conclusion just reached were wrong, it is to be borne in mind that the requirements in paragraphs (a), (b) and (c) of s 121(4) of the Act are cumulative. As a result, the respondent bore the onus, first, of showing that she did not know that the bankrupt’s main purpose in making the financial agreement was to prevent, hinder, or delay 21 The Avenue from becoming divisible among the bankrupt’s creditors. The facts recounted at [48] above and the knowledge of Mr Harriss there demonstrated which can be imputed to the respondent as that of her agent, make it impossible for her to discharge that onus. The same knowledge of Mr Harriss as imputed to the respondent and some of the other facts indicated at [49] above, similarly prevent her from showing that she could not reasonably have inferred, on 18 January 2001, that the bankrupt was, or was about to become, insolvent.
54 The circumstances which militate against the respondent’s discharging the onus imposed by s 121(4) operate even more strongly to prevent her from relying, as a bona fide purchaser for market value of 21 The Avenue, on s 121(8) of the Act.
Conclusion
55 For the reasons which I have endeavoured to explain, I am satisfied that, at the date of the bankruptcy, the bankrupt held 19 The Avenue on a constructive trust for the respondent as sole proprietor and the legal title to that property vested in the applicant subject to that equitable interest. However, the reasoning outlined above compels the conclusion that, at the same date, the respondent had no equitable interest at all in 21 The Avenue. The legal and equitable title to that property therefore vested in the applicant absolutely pursuant to s 58 of the Act. The following declarations should accordingly be made to resolve the controversy between the applicant and the respondent;
‘1. That the land contained in Certificate of Title Volume 3225 Folio 952 together with the improvements thereon (“21 The Avenue, Spotswood”) vested in the applicant as trustee of the bankrupt estate of Stefan Volkov (“the bankrupt”) pursuant to s 58 of the Bankruptcy Act 1966 (Cth) (“the Act”).
2. That 21 The Avenue, Spotswood is property available for distribution to the creditors of the bankrupt.
3. That the financial agreement dated 18 January 2001 between the bankrupt and the respondent did not transfer, and is not capable of transferring, the bankrupt’s then interest in 21 The Avenue, Spotswood to the respondent.
4. That the respondent was, at the date of the bankruptcy, and has at all relevant times been, the sole beneficial owner of the land contained in Certificate of Title Volume 4743 Folio 477 together with the improvements thereon (“19 The Avenue, Spotswood”).
5. That the applicant holds 19 The Avenue, Spotswood on trust for the respondent absolutely and 19 The Avenue, Spotswood is not property available for distribution to the creditors of the bankrupt.’
I shall direct that each party file and serve, by 13 February 2009, written submissions as to any further orders, including any order as to costs, which that party contends should be made in light of the reasons published today. If I consider it necessary, I shall list the application for further hearing on a date to be fixed to allow oral argument in support of those written submissions.
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I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan . |
Associate:
Dated: 19 December 2008
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Counsel for the Applicant: |
Mr R SRandall |
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Solicitor for the Applicant: |
White Cleland Pty |
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Counsel for the Respondent: |
Mr J G Levine |
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Solicitor for the Respondent: |
Issac Brott & Co |
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Date of Hearing: |
11, 12, 13 and 14 September 2007 |
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Date of Judgment: |
19 December 2008 |
