FEDERAL COURT OF AUSTRALIA

Mathai v Nelson [2012] FCA 1448

THE COURT ORDERS THAT:

1.     The appeal be dismissed.

2.    If any party wishes to contend that the normal order for costs should not be made, that party file and serve short written submissions setting out the alternative order sought and the reasons therefor within seven days of the making of this order.

3.    If any party files and serves such a submission any other party may file and serve answering submissions within 14 days of the date of this order.

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

REASONS FOR JUDGMENT

1    This is an appeal from the decision of a Federal Magistrate: see Nelson v Mathai (2011) 253 FLR 139. It raises questions relating to the construction and application of various provisions of the Bankruptcy Act 1966 (Cth) (“the Act”).

2    The applicant in the proceeding before the Federal Magistrates Court (the respondent on this appeal) was Mr Simon Nelson who is trustee of the property of a bankrupt, Mr Mathew Mathai.

3    The respondents to the proceeding (who are also the present appellants) were Mr Mathew Mathai (“Mr Mathai”), Mr Wee Eng Poh (Mr Mathai’s brother in law), Mr Mathai’s wife Margaret and their children Michael, Gerald and Deidre Mathai. The other respondent was Alberni Limited.

4    The trustee sought orders under s 121 of the Act in relation to certain residential properties in Kew, Victoria. The trustee alleged that Mr Mathai had registered the properties in the names of other persons at times when he was or was about to become insolvent and did so either to prevent the property from becoming divisible amongst his creditors or to hinder or delay the process of making the property available to his creditors.

5    The Federal Magistrate found that Mr Mathai had purchased the two properties using the names of members of his family. The first had been transferred to Mr Poh and his wife. The second had been purchased in the name of Mr Michael Mathai.

6    The Federal Magistrate made declarations that the trustee was entitled to the beneficial ownership of each property and ordered that the respondents, to whom title had been transferred, execute an instrument of transfer to the trustee.

7    The respondent family members appeal from these declarations and orders.

THE BACKGROUND FACTS

8    Between 1973 and 1976 Mr Mathai owned all of the shares in a Malaysian company know as Quality Tractors Sdn Bhd (“QT”). He was also a director of QT.

9    During this time QT was in financial difficulty. In order to obtain funds or forestall demands from creditors Mr Mathai executed a series of guarantees for the purpose of securing QT’s debts. Those guarantees were given to International Merchant Bankers (“IMB”), United Asian Bank (“UAB”), Overseas Chinese Banking Company (“OCBC”) and the Overseas Chinese Finance Corporation (“OCFC”).

10    In 1976 or 1977 QT defaulted on its facilities. The guarantees proved insufficient to satisfy the creditors. A number of the creditors commenced proceedings or made demands under the guarantees against Mr Mathai.

11    During 1977, IMB commenced proceedings against Mr Mathai claiming $337,234.43.

12    On 4 February 1978 UAB demanded payment from Mr Mathai of the monies owing under each of the two guarantees which he had given to that company. Mr Mathai failed to make these payments.

13    On 6 November 1978 OCBC demanded payment of the debt owed to it by QT. No payment was made.

14    On 22 November 1978 OCFC made a similar demand. That demand was not satisfied.

15    On 17 December 1979 IMB obtained summary judgment against Mr Mathai.

16    On 7 October 1980 UAB commenced proceedings against Mr Mathai in respect of the unpaid guarantees. Judgment was subsequently entered against him.

17    Early in 1978 Mr Mathai arranged for the purchase of a property at 68A Wellington Street, Kew. The property was purchased for $122,500. The purchase was financed by one sum of $40,000 which was drawn down from Mr Mathai’s ANZ bank account. This transaction was referred to “the first transfer”. A second amount of $100,000 was obtained by Mr Mathai by way of an overdraft facility provided by the Mercantile Bank in Hong Kong. The sum loaned was transferred to the trust account of the solicitors who acted in relation to the purchase of the property. This was referred to “the second transfer”. The $100,000 was later repaid by Mr Mathai.

18    Both the first and second transfers occurred in February or March 1978.

19    The property was purchased in the names of Mr Poh, Mrs Margaret Mathai and Mr Brian Gill (a solicitor). It was contended that Mr Poh and Mrs Mathai held the property as trustees for the Mathai Family Trust. There was some conflicting evidence about whether or not Mr Gill was a trustee of that trust, at the time of the transfers.

20    In August 1983 a second property, 69 Wellington Street, Kew was on the market. Mr Mathai provided $210,000 for its purchase. That money was obtained from a Mr Lee, a friend of Mr Mathai’s who lived in Singapore. It was transferred from one of Mr Lee’s companies to the trust account of the solicitors acting for the purchasers. This was “the third transfer”. It was an informal loan and was later repaid, using the proceeds of sale of a home which, the Federal Magistrate found, had been owned by Mr Mathai in Kuala Lumpur.

21    The property was purchased in the name Mr Michael Mathai, a son of Mr Mathai.

22    Mr Michael Mathai had no knowledge of the arrangements between Mr Mathai and Mr Lee which led to the loan.

23    Mr Mathai became bankrupt in 1995 after a judgment debt which he had incurred in England was enforced in Australia. None of Mr Mathai’s creditors at the time of the transfers proved in the bankruptcy.

THE TRIAL

24    For the most part both sides at trial relied on the evidence given by a number of persons (including Mr and Mrs Mathai) in the course of examinations conducted under ss 77C and 81 of the Act. This material was admissible and was admitted under s 67 of the Evidence Act 1995 (Cth). Despite being on notice that the evidence given during the examinations was to be relied on by the trustee, neither Mr nor Mrs Mathai chose to give evidence before the Federal Magistrate.

25    The only oral evidence was given by Mr Phillip Leong who was, at relevant times, the managing director of QT. Mr Leong impressed the Federal Magistrate as a truthful witness. His evidence was accepted. That evidence confirmed that, from the mid 1970’s, QT was experiencing difficulty in paying its debts as and when they fell due. He also confirmed that Mr Mathai, during this period, was in control of QT.

THE FEDERAL MAGISTRATE’S FINDINGS

26    The Federal Magistrate found that each of the first, second and third transfers, had been arranged by the bankrupt for the purpose of purchasing the two Kew properties. The transferred money was applied for these purposes.

27    The Federal Magistrate further held that the bankrupt’s main purpose in effecting each of the three transfers was to place assets beyond the reach of creditors or at least hinder or delay the process of making property available for division among those creditors. The Federal Magistrate was also satisfied that Mr Mathai was about the become insolvent at the time at which the first and second transfers took place and that thereafter, at relevant times, he remained insolvent.

28    The Federal Magistrate rejected a submission, made on behalf of Mr Mathai, that only creditors who were able to prove in the bankruptcy could avail themselves of the provisions of s 121 of the Act.

THE GROUNDS OF APPEAL

29    The appellants’ grounds of appeal raised the following issues:

    Whether s 121 of the Act requires that a creditor (actual or foreseen) at the time of the impugned transfer be one of the creditors proving (or capable of proving) in the bankruptcy.

    Whether s 121 of the Act had what the appellants referred to as “extra-territorial operation.”

    Whether the two properties had been purchased by the bankrupt.

    Whether the funds transferred to effect the purchases would probably have become part of the bankrupt’s estate and been available to creditors.

“CREDITORS”

30    Relevantly s 121 of the Act provides:

“(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.

(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.”

31    The term “creditors” is not defined in the Act (save for a narrow purpose which is not of present relevance). A series of cases has accorded a broad meaning to the term: see, for example, Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370 at 374; Cannane v Cannane Pty Ltd (1998) 192 CLR 557 at 565-6, 567; The trustees of the property of Cummins v Cummins (2006) 227 CLR 278 at 281, 291. Senior Counsel for the appellants, nonetheless, sought to place two qualifications on the reach of the word in the context of s 121.

32    The first was that a creditor must be a person who is ultimately able to prove or capable of proving in the bankruptcy where the indebtness to the creditor was established or foreseeable at the time of the impugned transfer. At the time of the transfers, it was argued, Mr Mathai’s creditors were in Malaysia and elsewhere in Southeast Asia. His indebtedness to them arose from commercial dealings which had taken place outside Australia. These creditors were not moving parties in Mr Mathai’s 1995 bankruptcy.

33    This limitation was said to be founded on the decision of the Court of Exchequer in Wood v De Mattos (1865) LR Ex 91. Wood was concerned with the construction of a composition deed between a debtor, his inspectors, and persons who were “creditors of the [debtor], or who would be entitled to prove under an adjudication of bankruptcy against the [debtor] on a petition filed on the day of the date of these presents, hereinafter called the creditors” (emphasis in original). The deed was entered into pursuant to s 192 of the Bankruptcy Act 1861 (UK). Section 192 provided that a composition deed was, subject to certain conditions, binding on all the creditors of a debtor even if they were not parties to the deed. An issue in the proceeding was whether the deed was binding on the plaintiff who had not assented to it. One objection to the efficacy of the deed which was considered by the Court of Exchequer was that the definition of “creditors” in the deed extended to persons who were not creditors within the meaning of s 192. This, it was argued, was the case because only debts, stricto sensu, could be proved in a bankruptcy and the definition appearing in the deed extended to persons to whom contingent liabilities were owed. It was in this context that the Court expressed the opinion (at 100-1) that “the word ‘creditor’ is used in the sense of a person having a claim which can be proved under the bankruptcy, whether it is strictly a debt or not; and we think that in [s 192] it must be understood to mean all persons who had at the time of the execution of the deed a claim against the debtor, provable against his estate if he then became bankrupt.”

34    It is clear from their Lordships’ reasons that they were not attempting an exhaustive definition of the word “creditors” in s 192 of the Bankruptcy Act 1861 (UK). Their concern was to explain why they considered that the definition of “creditor”, appearing in the deed, did not overreach the limits of s 192. Wood does not, therefore, stand as an authority which defines the outer limits of the word “creditor”.

35    So much is evident from more recent authorities. In Ebner v Official Trustee in Bankruptcy (1999) 91 FCR 353 a Full Court of this Court (Sackville, Finn and Kenny JJ) rejected a challenge to the primary judge’s finding that the intention comprehended by s 121 of the Act covered “existing, future or anticipated creditors.” Counsel for the appellant in that case sought to draw a distinction between “anticipated” creditors and “future” creditors. They submitted that an “anticipated” creditor was not a “creditor” under s 121. This was, it was argued, because an anticipated creditor was one “whom the disponor thought might become a creditor but who never obtains that status.”

36    The Full Court rejected this argument. It said (at 371) that:

“The short answer to this contention is that, as Cannane demonstrates, s 121 is concerned with an intention to defraud any present or future creditors. It is not concerned with the realisation of that intention. If the requisite intent exists at the time of the disposition in relation to a person or persons not already creditors, it is immaterial whether or not they in fact later become creditors. Given the clear wording of s 121, there is no justification for reading such a limiting requirement into the section. Neither do doctrines and rules that turn, not upon an intent to defraud, but upon the effectuation in whole or in part of the fraud itself, assist in the proper construction of s 121.”

37    Section 121 places no temporal limitation on the status of “creditor”. If the prescribed intention is present when the relevant transfer occurs, the transfer will be void against the trustee. The intention may relate to persons who were, at that time, yet to become creditors. Such persons may or may not choose or be able to prove in the subsequent bankruptcy. It is, therefore, possible for a person to be a creditor for the purposes of s 121 even if that person never seeks to prove in the bankruptcy and was not foreseen as a future creditor at the time of the transfer.

38    The second limitation was said to be territorial in nature. It was that s 121 could not operate in respect of creditors who were resident outside Australia and whose rights vis-À-vis the bankrupt were incurred wholly outside Australia.

39    The appellants sought to support this contention by reference to some observations of Isaacs J in Morgan v White (1912) 15 CLR 1. At that time there existed separate State Bankruptcy Acts. The central issue in the appeal was whether a reference, in the New South Wales Act, to a prior adjudication of bankruptcy, was apt to comprehend a prior adjudication under equivalent Western Australian legislation. The High Court held that it did not. In this context Isaacs J considered the extra territorial operation of State statutes. He said (at 13) that:

“Another relevant consideration, having an important bearing on the situation is the well-known doctrine that legislation is primarily territorial … The meaning of the doctrine is that unless the language of a Statute by express words or necessary implication indicates the contrary, the persons, property, and events in respect of which Parliament has legislated are presumed to be limited to those in the territory over which it has jurisdiction and for the welfare of which it exercises that jurisdiction.”

This statement of orthodox doctrine does not, however, avail the appellants. It directs attention to the need for there to be a recognised territorial interest in the subject matter of legislation. If, for example, the legislation fastens on property which is within the jurisdiction, it matters not where the legal arrangements which led to the property being there were entered into or where the persons who were party to the arrangements were resident or domiciled at relevant times. So much was emphasised by Isaacs J when he continued (at 13) that “the jurisdiction of the State Parliament does not extend to any person whatever his nationality outside the State territory – though of course it may affect any property within it wherever the owner may be.”

40    Most of the money which was used to purchase the Kew properties was transferred to Australia and utilised in Australia for the purpose for which the transfers occurred. That is sufficient for jurisdictional purposes notwithstanding the facts that the funds came from outside Australia pursuant to arrangements entered into elsewhere.

THE PURCHASEs of the RESIDENTIAL PROPERTIES

41    The Federal Magistrate found that Mr Mathai had purchased the property at 68A Wellington Street using the funds made available by the first and second transfers. The property was then placed in the Mathai Family Trust.

42    The appellants complain that the Federal Magistrate erred in making these findings. They contended that the monies which constituted these transfers were paid by Mr Mathai to Mr Poh and Mrs Mathai and the solicitor, Mr Gill, as trustees of the Mathai Family Trust and that the property was, at all material times, held pursuant to the provisions of that trust.

43    The appellants contended that the Federal Magistrate had erred in reaching his conclusions for a number of reasons. He had, it was submitted, placed insufficient weight on certain matters. They were that the trust had been established in the year before the property was purchased, that the trust was established for the purpose of purchasing properties to be occupied by family members and that Mr Mathai’s $100,000 contribution was held by solicitors for the trustees before settlement of the purchase. The appellants objected that the Federal Magistrate had appeared to place weight upon the absence of any reference to the trust on the title to the property. They also submitted that the Federal Magistrate had erred by placing weight upon the manner in which Mr Mathai had referred to the payments in the course of giving evidence to the Court in his examination under s 77C of the Act. They further sought to challenge the Federal Magistrate’s finding that Mr Gill was not a trustee of the Mathai Family Trust at relevant times.

44    The appellants also appeal against the finding of the Federal Magistrate that the property at 69 Wellington Street was purchased by Mr Mathai using the funds which constituted the third transfer.

45    They complained that the Federal Magistrate had, without giving reasons, rejected the evidence of Mr Mathai that Mrs Mathai was the sole borrower of the $210,000 which was the subject of the third transfer and for finding, rather, that Mr and Mrs Mathai had borrowed the money and applied it for the purchase of the property. They submitted that the Federal Magistrate ought to have found that the money had come from one of Mr Lee’s companies to or for Mr Michael Mathai or Mr Michael Mathai, Mr Gerald Mathai and Ms Deirdre Mathai. They also contended that the Federal Magistrate should have found that the property was at all times owned by Mr Michael Mathai upon trust for himself and his two siblings. There was a further complaint that the Federal Magistrate had failed to deal with some of the documentary evidence relating to the payment of the money by Mr Lee’s company.

The Magistrate’s Task

46    The task of the Magistrate was to examine the facts which had been proved to his satisfaction and then to determine whether the combined weight of those facts and circumstances supported the inference, on the balance of probabilities, that Mr Mathai had used transferred funds to purchase either or both of the two properties. His task was by no means easy. A considerable amount of time had elapsed since the transfers occurred. Most of the evidence relied on by the trustee to establish his case was drawn from statements made by Mr and Mrs Mathai in the course of earlier examinations which had been conducted under the Act. That evidence was in important respects, contradictory and lacking in clarity. The persons who were best placed to resolve the apparent contradictions and supply the necessary clarity chose not to give evidence before him.

47    It was necessary for the Federal Magistrate, having made findings of fact, which were based on the earlier testimony of Mr and Mrs Mathai and, to a limited extent on the oral evidence given by Mr Leong and some contemporaneous documents, to stand back and form an impression, based on the effect of the whole of that evidence, as to whether or not the respondent’s case had been made out.

48    The required approach was explained by Tadgell JA (with whom Winneke P and Phillips JA agreed) in Transport Industries Insurance Company Limited v Longmuir [1997] 1 VR 125 at 141. His Honour there said:

“As will be seen, I respectfully differ from the learned [primary] judge upon several of the individual conclusions of fact which he drew from the evidence and which he considered to preclude a finding that the respondent was responsible for the fire. That aside, it should be said that, to assess the evidence in a case like this by reference to various individually-pleaded particulars, as though running through items on a check list, is apt to mislead. The evidence is to be evaluated as a whole in order fairly to consider whether the party bearing the onus of proof has established what is ultimately sought to be proved. The object of the exercise of evaluation is to discover whether the evidence paints a picture reflecting real life, rather than to place a tick or a cross against paragraph after paragraph of torpid pleading. A true picture is to be derived from an accumulation of detail. The overall effect of the detailed picture can sometimes be best appreciated by standing back and viewing it from a distance, making an informed, considered, qualitative appreciation of the whole. The overall effect of the detail is not necessarily the same as the sum total of the individual details …

In a civil case like this, where there is no direct evidence of a fact that a party bearing the onus of proof seeks to prove, ‘it is not possible to attain entire satisfaction as to the true state of affairs’ … In such a case, however, the law does not require proof to the ‘entire’ satisfaction of the tribunal of fact.”

See also Robertson v Smith [1998] 4 VR 165 at 179-180.

49    The failure of Mr Mathai to give evidence about matters which were peculiarly within his knowledge was a matter to which the Federal Magistrate was entitled to have regard in drawing the inferences which he did. As Winneke P observed in Longmuir (at 131):

“The failure by a party to deny or explain facts which it is in that party’s power to explain or deny ‘gives a colour to the other evidence against him’: per Baron Alderson, Boyle v Wiseman (1855) 10 Exch. 647 at 651; 156 ER 598 at 600. As Rich J said in Insurance Commissioner v Joyce (1948) 77 CLR 39 at 49:

‘[W]hen circumstances are proved indicating a conclusion and the only party who can give direct evidence of the matter prefers the well of the court to the witness box a court is entitled to be bold.’”

A similar observation was made by Lord Diplock in British Railways Board v Herrington [1972] AC 877 at 930 where His Lordship said of a decision of a defendant not to call evidence:

“This is a legitimate tactical move under our adversarial system of litigation. But a defendant who adopts it cannot complain if a court draws from the facts which have been disclosed all reasonable inferences as to what are the facts which the defendant has chosen to withhold.”

The purchase of 68A Wellington Street

50    The respondent relied, in part, on evidence which Mr and Mrs Mathai had given during public examinations. That evidence was, as has already been noted, often contradictory and confusing.

51    Mrs Mathai initially asserted that the money for the purchase of the property came from the Mathai Family Trust. The trust funds had come from deposits which she had made. Those deposits had been, in turn, funded by the sale of British shares which she had owned. There was no documentary evidence tendered which supported any of these assertions.

52    When he was examined, Mr Mathai said that he had borrowed to fund the purchase of 68A Wellington Street. One hundred thousand Australian dollars had been borrowed by him from the Mercantile Bank in Hong Kong and, on his instructions, this amount had been transferred to the trust account of the solicitors acting for the purchaser of the property. This evidence was supported by a letter from Mr Mathai to the Mercantile Bank, dated 16 January 1978, in which he applied for an overdraft facility and nominated the purpose of the loan as being for “[t]he purchase of a house, expected to cost approximately AU$100,000, for occupation by my family in Melbourne, Australia.” An additional $40,000 was drawn from an Australian and New Zealand Bank account held in Mr Mathai’s name. The purchase price for the property was $122,500. There would, in addition, have been stamp duty and legal fees and disbursements to be paid.

53    There was also evidence before the Federal Magistrate that Mr Mathai was the settler of the Mathai Family Trust, a purpose of which was to buy a family property. There was no evidence that Mrs Mathai, in whose name (amongst others) the property was purchased and registered, had contributed any funds towards the property’s acquisition. The loan from the Mercantile Bank was ultimately repaid by Mr Mathai.

54    In these circumstances the Federal Magistrate was entitled (as he did) to infer that Mr Mathai, and not the Trust, had purchased the property and had done so using the $100,000 borrowed from the Mercantile Bank and the $40,000 drawn from his own account.

55    Mr Mathai had arranged a personal loan, in his own name, to cover most of the purchase price and associated expenses. He advised the bank that he was doing so for the purpose of purchasing a family home. He did not advise the bank that he was proposing to on-loan the funds to the trust or anyone else. The rest of the money was drawn directly from his own bank account. He did not purport to lend or make a gift of the $140,000 to the trust to enable it to purchase the property. It was Mr Mathai not the trust which repaid the loan to the Mercantile Bank.

56    Mrs Mathai made no attempt to support her earlier claims that she had placed money in the trust which was then used for the purchase of the property. This is hardly surprising. Had the trust held funds which would have enabled it to make the purchase, it would not have been necessary for Mr Mathai to borrow money and draw on his own account to buy the property.

57    There was no evidence to suggest that any of the funds used in the purchase of 68A Wellington Street came from any account held by the trust.

58    The evidence before him was sufficient to justify the Federal Magistrate’s ultimate finding relating to the purchase of 68A Wellington Street on the balance of probabilities.

59    Nothing turns on the question of whether or not Mr Gill was a trustee of the Mathai Family Trust at the time that the first and second transfers occurred. The Federal Magistrate said, at one point in his reasons, that Mr Gill was not a trustee under the trust deed. That statement needs to be understood in the light of his earlier finding that the property had been purchased in the names of Mr Poh, Mrs Mathai and Mr Gill but that Mr Mathai had “intended to add [Mr Gill] as a trustee, although this had not occurred at the time of the transfer.” This finding suggests that Mr Gill may have been added as a trustee by a later amendment to the deed.

60    Nor is any significance to be attached to the fact that $100,000 was transferred to the trust account of the solicitors who had, on Mr Mathai’s instructions, established the Mathai Family Trust. Mr Mathai chose to engage the same firm to act for him in purchasing the property. There was no evidence that the solicitors had been instructed to hold the money on behalf of the trust.

The purchase of 69 Wellington Street

61    Mr and Mrs Mathai also gave ambiguous and contradictory evidence during examinations in relation to the third transfer. They confirmed that the relevant loan had come from Mr Lee. Mrs Mathai appeared to accept that it was Mr Mathai who had made the request to Mr Lee. She also appeared to assert that the loan was jointly made to her and her husband when she said:

“Yes he lent to me too, to me. Because I bought the house. I alone, me. Margaret Lee Mathai bought the house.”

62    Shortly afterwards she insisted that it was she who “took the loan”. She accepted that there was no documentation relating to the loan and that no security had been given for it.

63    Mr Mathai at one stage denied borrowing money from Mr Lee. He said that he had “arranged for monies to be advanced by him (Mr Lee) to [Mrs Mathai] for the purchase of 69 Wellington Street.”

64    At another point Mr Mathai said that he had talked to his friend, Mr Lee, and he (Mr Lee) “sent the money to the lawyers in Melbourne.”

65    During a later examination Mr Mathai agreed that he had seen the property on the market at what he considered to be a good price and that he took advantage of the opportunity to purchase it, albeit through “another entity”. He accepted that, subject to Mr Lee’s rights under the loan, the property was his investment.

66    No documentation was produced in relation to the loan from Mr Lee. The Federal Magistrate was satisfied that there was an informal arrangement under which Mr Lee had provided the funds so that Mr and Mrs Mathai could purchase the property.

67    The property was purchased in the name of Mr Michael Mathai. When Mr Michael Mathai was examined he said that he had no detailed knowledge of the arrangements relating to the funding of the purchase. So far as he was aware, his parents had provided the funds for the purchase in order to give the house to him.

68    Mr Mathai’s son Gerald, when he was examined, said that, following the purchase, Mr Mathai paid the upkeep, rates and levies for the property. This was done by him transferring funds to Gerald.

69    It was agreed by both Mr and Mrs Mathai that the loan from Mr Lee was eventually repaid in about 1990. The repayment was made using part of the proceeds of a sale of a residential property in Kuala Lumpur. There was, however, confusion and inconsistency about who owned the property, who obtained the proceeds and who repaid the loan to Mr Lee.

70    Mrs Mathai during one examination, when asked who repaid the loan responded:

“I did. Because we sold our house in Kuala Lumpur and with that money it was repaid. It took some time you know but it was repaid. We paid the money back.”

71    She said that it was “our house in Malaysia before we migrated here.” When asked to be more specific about who owned the house she responded:

“Well it was in my husband’s name. TACS Snd Bhd owned it so in actual fact I owned it. It says I own the shares in TACS Snd Bhd.”

72    During one of his examinations Mr Mathai said that the Malaysian house was owned by TACS Snd Bhd and that the company received the sale price. Mrs Mathai then drew down funds from the company to repay Mr Lee.

73    It was upon this evidence that the Federal Magistrate, drew the inference that “the whole of the money came to Australia for [Mr Mathai] to effect the purchase of the …. property.”

74    It was, in my opinion, open to the Federal Magistrate to draw this inference. An informal loan had been obtained from Mr Lee either by Mr Mathai alone or jointly with his wife. Mr Lee advanced the money so that Mr and Mrs Mathai could purchase a home. That money was transferred to Australia at the request of Mr Mathai and was used to purchase 69 Wellington Street. Mr Mathai had, on at least one occasion, acknowledged that the property was an investment made by him. Once the property had been purchased it was Mr Mathai who paid for its maintenance. He also paid the rates and other imposts that fell to be paid on the property.

75    I reject the submissions that the Federal Magistrate should have found that Mr Lee had provided the funds to Mr Michael Mathai or any of his siblings. Mr Michael Mathai himself denied having any knowledge of the arrangements under which the loan was secured from Mr Lee. No evidence was called from Mr Lee to support this claim. Both Mr and Mrs Mathai had earlier given evidence to the contrary.

76    The overall effect of the evidence which was placed before the Federal Magistrate supported his findings at the appropriate standard. The failure by Mr Mathai to call evidence from the persons who had direct knowledge of the relevant transactions was, again, a consideration which made the drawing of the inference all the more supportable.

AVAILABILITY OF TRANSFERRED FUNDS TO CREDITORS

77    This ground challenges the following findings made by the Federal Magistrate:

“To the extent that the property transferred was real property, I am satisfied that the property would probably have become part of the transferor’s estate if it had not been transferred. To the extent that the transfers were arguably transfers of money used by the transferees, I am satisfied that the property would probably have been available to creditors if it had not been transferred at it would nonetheless have probably been used to purchase the real properties at Kew.”

78    The appellant submitted that neither of the residential properties was the subject of any transfer and that there was no evidence about what might otherwise have become of the transferred funds in the period between the respective transfers and Mr Mathai’s bankruptcy. They submitted that it was “more likely than not that the sums would have been applied in respect of untraceable expenditure.”

79    The relevant “property” was the money which was transferred on each of the three occasions: Barton v Official Receiver (1986) 161 CLR 75 at 78. That money was subsequently applied for the purchase of the two residential premises. The premises were registered in names other than Mr Mathai’s. Nonetheless, having regard to the Federal Magistrate’s findings (which I have upheld) relating to the ownership of the transferred funds, Mr Mathai must be regarded as the beneficial owner of each of these properties. A distinction must be drawn between cases in which a bankrupt has acquired real property but arranges for the title in that property to be vested in a volunteer on the one hand and a situation in which the bankrupt lends or gifts funds to a friend of relative who then purchases the real property: Trautwein v Richardson [1946] ALR 129 at 133 (per Starke J). As Wilcox and Cooper JJ said in Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372 at 387:

“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 … 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.”

80    If, as in the present case, there has been a transfer of money which has been applied to purchase real property, the court may grant relief under s 121 against the real property “in order to give the trustee in bankruptcy an effective remedy upon the avoidance of the original disposition of property”: Alvaro at 427.

81    In such circumstances it was open to the Court to declare that the transfers were void and that the trustee was entitled to the beneficial ownership of each property: see Alvaro at 426-7. It was also empowered to make orders under s 121 of the Act requiring that the title to each property be transferred to the trustee.

82    The Federal Magistrate was not unmindful of the difficulty of forming a judgment about whether the transferred funds could be said to have formed part of Mr Mathai’s estate and therefore, but for the transfers, available to his creditors given the long periods between the transfers and Mr Mathai’s bankruptcy. His Honour reasoned that:

“74.    The transfers were clearly for the purpose of purchasing real properties to provide homes for the bankrupt, his wife and children. Those homes were purchased at the time of the transfers. The homes have never been sold, but occupied by family members since their purchase.

75.    The course of events demonstrates that it was never intended that the homes would not be retained – they have been retained. It is also clear that there was an intent to purchase property in Australia, and therefore even if the transfers were not made to family members or trusts then the bankrupt would have probably retained the property, just as he held property in Asia prior to the transfers.”

83    The Federal Magistrate also took into account the fact that Mr Mathai had not transferred property to family members prior to him experiencing solvency difficulties towards the end of the 1970’s.

84    To the extent that the Federal Magistrate’s impugned finding relates to the transfer of money to Mr Mathai and the use of that money, by him, to purchase the two properties, those findings are supported by the evidence and involve no legal error.

DISPOSITION

85    The appellants have failed to establish any of their grounds. No appellable error has been demonstrated. The appeal must be dismissed.

86    The parties asked for the opportunity to make submissions in relation to costs after my reasons for making other orders had been published. My orders will therefore provide for the making of written submissions should any party wish to contend that the normal order for costs should not be made.

Associate:

Dated:    21 December 2012