FEDERAL COURT OF AUSTRALIA

Condon v Vanessa Two Pty Ltd [2018] FCA 947

ORDERS

THE COURT DECLARES THAT:

1.    Pursuant to s 121(1) of the Bankruptcy Act 1966 (Cth), the following transactions are void against the applicant:

(a)    The transfer of a Southwind boat with registration ADM950N from Stephen Barry Charles Gribble (Mr Gribble) to the third respondent (Mrs Leahy) in June 2011; and

(b)    The transfer of $201,135.57 (being the amount of a cheque representing Mr Gribble’s inheritance from his late mother’s estate) to a bank account operated by the first respondent (Vanessa Two) on or about 12 March 2013.

THE COURT ORDERS THAT:

1.    Vanessa Two must pay $201,135.57 to the applicant within a period to be determined by the Court in accordance with these orders.

2.    Mrs Leahy must deliver the boat up to the applicant at a time and place and in a manner to be determined by the Court in accordance with these orders.

3.    The respondents must pay the applicant’s costs as agreed or assessed, unless the parties elect to adopt a lump sum procedure in accordance with these orders.

4.    The parties are to confer on the following issues:

(a)    The period within which Vanessa Two must make the payment referred to in Order 1;

(b)    The time, place and manner by which the boat must be delivered up to the applicant; and

(c)    Whether it is appropriate that Order 3 be quantified as a lump sum order.

5.    The parties must, by 3 pm on 29 June 2018 provide to Farrell J’s chambers:

(a)    Subject to paragraph (b), draft orders to which the parties consent in relation to the matters specified in Order 4, including any ancillary orders necessary to give effect to those orders. If the parties agree that a lump sum costs order is appropriate, they should provide a timeframe for the provision of a Costs Summary and Costs Response and brief submissions as envisaged by the Court’s Costs Practice Note (GPN-Costs).

(b)    If the parties do not agree on the form of the draft orders, they must each provide draft orders for which they contend.

6.    Liberty be granted to the parties to seek such ancillary or other orders as may be required to give effect to the foregoing orders.

7.    Without limiting Order 6, if Vanessa Two does not comply with Order 1 within the timeframe ordered by the Court, the applicant has liberty to apply to the Court for the appointment of a person or persons who consent to such appointment as a receiver or other external administrator for the purpose of giving effect to Order 1.

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

REASONS FOR JUDGMENT

FARRELL J:

Introduction

1    The applicant, Mr Condon, is the trustee of the bankrupt estates of Stephen Barry Charles Gribble (Mr Gribble) and his wife, Trine Vanessa Boje Gribble (together the Gribbles). The second respondent is their daughter; I will refer to the second respondent as Amelia for ease of reference and without intending disrespect. Amelia is a director of the first respondent (Vanessa Two), which is the trustee of the Gribble Family Trust. Richard Charles Galwey is Mr Gribble’s uncle and he was the executor of the estate of Mr Gribble’s late mother, Patricia Mary Gribble (Mrs Gribble). The third respondent, Mrs Leahy, is Mr Gribble’s sister.

2    By an amended application, Mr Condon claimed declarations that three transactions were void and related relief primarily under s 121 of the Bankruptcy Act 1966 (Cth). He sought to recover the amount of a cheque (the inheritance) which Mr Galwey (as executor of Mrs Gribble’s estate) gave to Mr Gribble in February or March 2013. The respondents admit that that cheque was deposited into a bank account opened by Vanessa Two as trustee of the Gribble Family Trust with the National Australia Bank (NAB account), although the amount of the cheque was in dispute. Mr Condon claimed that it was for an amount of $230,000. Mr Condon also sought to recover $120,000 paid from the NAB account into Amelia’s account with the Commonwealth Bank of Australia in April 2013. It is common ground that that $120,000 was used to assist Vanessa Two in the purchase of a property in Helmsman Boulevard, St Huberts Island, New South Wales (Property). Mr Condon also sought to recover a Southwind boat with registration ADM950N which Mr Gribble transferred to Mrs Leahy “within 5 years of Mr Gribble becoming a bankrupt”.

DIsposition

3    For the reasons which follow I am satisfied that it is appropriate to make a declaration to the effect that the payment of an amount of $201,135.57 to the account of Vanessa Two on or about 12 March 2013, resulting from the deposit of a cheque given to Mr Gribble by the executor of his late mother’s estate to Vanessa Two’s account with the NAB was a transaction void against the trustee of his bankrupt estate under s 121(1) of the Bankruptcy Act. In this regard, I am satisfied that:

(1)    The inheritance would probably have become part of Mr Gribble’s estate or would probably have been available to creditors if it had not been transferred to Vanessa Two;

(2)    It can reasonably be inferred from all of the circumstances that Mr Gribble was, or was about to become, insolvent at the time the inheritance was paid into Vanessa Two’s account; and

(3)    The inheritance was transferred to Vanessa Two for no consideration.

4    I will not make a declaration in relation to the payment of $120,000 from Vanessa Two’s account into Amelia’s account. It is an agreed fact that that money was used for Vanessa Two’s benefit in the purchase of the Property. Mr Condon made no submissions in relation to whether that use of the funds gave rise to a resulting or constructive trust in favour of Mr Gribble and this matter was not pressed.

5    I will make a declaration to the effect that the transfer of the boat from Mr Gribble to Mrs Leahy in June 2011 was a transaction void against Mr Condon under s 121 of the Bankruptcy Act. I am satisfied that:

(1)    The boat would probably have become part of Mr Gribble’s estate or would probably have been available to creditors if it had not been transferred to Mrs Leahy;

(2)    It can reasonably be inferred from all of the circumstances that Mr Gribble was, or was about to be, insolvent at the time the boat was transferred to Mrs Leahy in June 2011. Mr Condon advised of the date of the transfer in advice provided after the hearing and that advice has not been disputed;

(3)    Its value is at least $2,000 having regard to Mr Gribble’s evidence at the hearing referred to below; and

(4)    It is admitted that the boat was transferred for no consideration.

6    I will order that Vanessa Two pay to Mr Condon an amount of $201,135.57 within a specified period. The parties will be required to consult as to what that period should be. The Court will take the time taken in consultation into account in determining the specified period in which the amount should be paid. If that order is not complied with within the specified period, I will hear from the parties as to whether it is appropriate to appoint a receiver or other external administrator to Vanessa Two for the purpose of giving effect to the order.

7    I will order Mrs Leahy to deliver the boat up to the applicant. The applicant and Mrs Leahy must confer as to a time and place at which the boat must be delivered up to the applicant (or a person or persons designated by him). If no agreement is reached within a specified period, the parties must file and serve the draft orders for which they respectively contend on this subject within a further period to be specified.

8    I will order that the respondents pay Mr Condon’s costs as agreed or taxed, while making provision for the parties to adopt a lump sum procedure in accordance with the Court’s Costs Practice Note (GPN-Costs) if they elect to do so. For reasons discussed later in these reasons, I decline to order that costs be paid on an indemnity basis.

Section 121 of the Bankruptcy Act

9    Mr Condon’s claims primarily arise under s 121 of the Bankruptcy Act. It provides as follows:

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.

Note:    For the application of this section where consideration is given to a third party rather than the transferor, see section 121A.

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, and could not reasonably have inferred, 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.

Rebuttable presumption of insolvency

(4A)    For the purposes of this section, a rebuttable presumption arises that the transferor was, or was about to become, insolvent at the time of the transfer if it is established that the transferor:

(a)    had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor’s business transactions and financial position; or

(b)    having kept such books, accounts and records, has not preserved them.

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 partner 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 partner of, the transferor;

(d)    the transferee’s love or affection for the transferor;

(e)    if the transferee is the spouse, or a former spouse, of the transferor—the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975;

(f)    if the transferee is a former de facto partner of the transferor—the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975.

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.

The Application

The case as pleaded

10    By his amended application, Mr Condon sought declarations and ancillary orders in relation to the three matters referred to at [2] above.

11    At [32]-[36] of the application, Mr Condon pleaded as follows: (as written)

32    The receipt of the $230,000.00 by Mr Gribble occurred within 5 years of him becoming a bankrupt and the depositing of the $230,000.00 to an account operated by the First Respondent and the subsequent withdrawal of $120,000.00 from the First Respondent’s bank account and causing this to be paid to the bank account of the Second Respondent are transaction that are void as against the Applicant pursuant to section 121 of the Bankruptcy Act 1966 as it is a transaction to defeat creditors.

33    Alternatively, the $230,000.00 received by the Second Respondent is held on constructive trust and/or resulting trust for the benefit of the Applicant.

34    Alternatively, the $120,000.00 received by the Second Respondent is held on constructive trust and/or resulting trust for the benefit of the Applicant.

35    The transfer of the boat from Mr Gribble to the Third Respondent without any consideration being paid, occurred within 5 years of Mr Gribble becoming a bankrupt. This is a transaction that is void as against the Applicant pursuant to section 121 of the Bankruptcy Act 1966 as it is a transaction to defeat creditors.

36    Each of the transfers of property referred to in paragraphs [33], [34], and [35] are transactions that are:

Particulars

a.    not in good faith;

b.    not in the ordinary course of business;

c.    designed to defeat the creditors of the bankrupt estate; and

d.    designed to hinder the Applicant in the administration of the bankrupt estate.

12    He also pleaded that:

24.    Immediately prior to and at the time that Mr Gribble received the bank cheque he was experiencing financial difficulties and knew or ought reasonably to have known that is [sic: it] was likely that he would become a bankrupt as he could not pay his debts when and as they fell due:

Particulars

a.    Various Default Notices and Demands for Payment issued by La Trobe Financial in 2009 and 2010 to SecureSPV001 Pty Limited and Mr Gribble as Guarantor.

b.    Judgment Order made 10 June 2009 in the Supreme Court of New South Wales in proceedings number 11430/2009 wherein Mr Gribble and Mrs Gribble were required to pay the amount of $1,319,972.38 in respect of possession proceedings and judgment for debt.

c.    Information provided by Mr Gribble in a public examination conducted pursuant to the Bankruptcy Act 1966 on 26 August 2016 that the reason for his bankruptcy was due to injecting all of his funds into a development venture in 2003 that defaulted and that as a result, Mr Gribble had “put myself into a precarious financial position”.

13    The amended application is sparsely pleaded. The references to s 121 of the Bankruptcy Act are generic. The language of the chapeau of paragraph [24] is an inaccurate reflection of the language of s 121(2) and it is entirely inadequate to make out a claim in relation to the transfer of the inheritance under s 121(1)(b) based on intent to defraud creditors. The pleading in relation to the boat is similarly unimpressive, since it does not suggest a date (even an approximate date) on which the transfer was said to occur. This reflects a lack of adequate focus in the manner in which the case was run on behalf of Mr Condon.

14    Mr O’Connor, counsel for the respondents, submitted that to claim breach of s 121(1)(b) is tantamount to a claim of fraud and it needs to be pleaded with particularity. That must be accepted: see Lo Pilato (Trustee) v Kamy Saeedi Lawyers Pty Ltd, in the matter of Adzic (Bankrupt) [2017] FCA 34; 249 FCR 69 (Lo Pilato v Kamy Saeedi Lawyers) at [155] per Katzmann J:

In order for Mr Lo Pilato to make good the proposition that the transfer was made with the intention of defeating creditors, he must show that “the circumstances appearing in the evidence [give] rise to a reasonable and definite inference, not merely to conflicting inferences of equal degree of probability” that, in transferring the Property to the Trust, his main purpose was the statutory purpose: The Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at 292. In deciding whether the inference should be drawn from the primary facts, it is necessary to take into account the seriousness of the allegation and the gravity of the consequences, even though Mr Adzic is not a party to the proceeding: Cummins at 292; Evidence Act 1995 (Cth), s 140. Here the allegation is tantamount to one of fraud, where “clear or cogent or strict proof” is necessary: Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 110 ALR 449 at 450. In such a case the reasonable satisfaction of the Court is not to be reached by “inexact proofs, indefinite testimony, or indirect inferences”: Briginshaw v Briginshaw (1938) 60 CLR 336 at 362.

15    That complaint was the subject of a strike out application which ultimately did not proceed, due to agreement by Mr Condon to amend the application by inserting the particulars to [24] and deleting an allegation of false or reckless conduct in dealings with the Commonwealth Bank at [27] and [28]. At the case management hearing at which leave to amend the application was given, Mr Eardley confirmed to the Court that Mr Condon did not seek to establish fraud, but only matters which went to credibility of witnesses.

How the case was run

16    In written submissions, Mr O’Connor submitted that, as he understood Mr Condon’s claim, it was not brought purely under s 121(1) but rather under s 121(2), albeit (as he put it at the hearing) that words used in s 121(2) have been “rejigged a bit to suit the trustee’s purposes” in [24] of the amended application. He submitted that, to resolve this matter, it would be necessary only for the Court to determine whether it could deem that Mr Gribble had been, or had been about to become, insolvent when “the transaction” took place within s 121(2) so that Mr Gribble would be deemed to have the purpose set out in s 121(1)(b). He submitted that it would not be enough to show that, at the time of the transfer, it could reasonably be inferred that the transferor “was, or would become bankrupt at some undisclosed time in the future”: respondents’ submissions at [12]-[15] (emphasis in submission). At the hearing, Mr O’Connor submitted that that is the case he had come to meet, having regard to the particulars of the amended application at [24]. Mr Eardley, counsel for Mr Condon, stated that he did not have “any problem with that proposition at all”: T 21.

17    Accordingly, despite inadequacies in the pleading of the application and despite the tenor of questions put in cross-examination and submissions which Mr Eardley made in closing (which appear to have gone to Mr Gribble’s purpose in transferring the inheritance to Vanessa Two), I accept that the primary issue for determination is whether it can reasonably be inferred from all the circumstances that, in June 2011 (in relation to the transfer of the boat) and March 2013 (in relation to the transfer of the inheritance), Mr Gribble was, or was about to become, insolvent.

18    For completeness, Mr Eardley’s written submissions made on behalf of Mr Condon did not address claims pleaded in relation to constructive and resulting trusts, and no submissions were made in relation to those claims at the hearing. In his closing submissions, Mr Eardley confirmed that the trustee did not press the issues of resulting and constructive trust: T 84.

Chronology

19    The following is a brief chronology:

Amount of the cheque

20    The cheque by which the inheritance was paid could not be located so that its amount has also been in dispute.

21    Mr Gribble is not a party to these proceedings. In their defence at [4], the respondents accept that Mr Gribble was a beneficiary of his mother’s estate. They are bound by that admission and they have not sought to resile from it. Mr Gribble also appears to now accept that he was a beneficiary under his mother’s will (T 48), although in his public examination, and at times during cross-examination in this Court, Mr Gribble has been reluctant to accept that that is the case.

22    The respondents deny that the inheritance cheque was for the amount of $230,000 claimed by Mr Condon. In their defence, they said that Mr Gribble received a cheque for $206,000. That was based on the amount described as an “inheritance” on the application which Amelia made to the Commonwealth Bank. Mr Condon’s claim that the inheritance was $230,000 was based on acceptance of propositions put to Mr Galwey and Mr Gribble at public examinations conducted in August 2016. Those witnesses had no documents before them and were relying on admittedly inexact memories. Based on the recent discovery of exhibit R1, at the hearing, the respondents said that while the cheque could not be produced its amount was $201,135.57. That is a business record, the correctness of which is supported by the following: Mr Gribble accepted that the amount of $201,135.57 was the amount of the inheritance (T 45); Mr Galwey could not remember the amount of the cheque and his records have been destroyed but he would be surprised if exhibit R1 did not correctly record the amount of the inheritance cheque (T 35-36); and Mr Condon accepted in cross-examination that he had seen no document which contradicted that the amount of the inheritance was $201,135 (T 33). I am persuaded that it is most likely that the amount of the inheritance cheque was $201,135.57 and it was deposited in the NAB account on 12 March 2013 in accordance with exhibit R1 and I make that finding.

Is the claim under s 121(2) of the Bankrtupcy Act made out?

23    Mr Condon pleads three bases for his claim:

(1)    Various Default Notices and Demands for Payment issued by La Trobe Financial in 2009 and 2010 to SecureSPV001 Pty Ltd and Mr Gribble as Guarantor.

(2)    The Supreme Court Order was made on 10 June 2009 in proceedings number 11430/2009 wherein the Gribbles were required to pay the amount of $1,319,972.38 in the possession proceedings relating to Mara Crescent.

(3)    Information provided by Mr Gribble in a public examination conducted pursuant to the Bankruptcy Act 1966 on 26 August 2016 that the reason for his bankruptcy was due to injecting all of his funds into a development venture in 2003 that defaulted and that as a result, Mr Gribble had “put myself into a precarious financial position”.

24    I accept Mr O’Connor’s submissions that the first and third of these matters are not circumstances which lead to the required inference under s 121(2). That the default notices and demands were served by La Trobe Financial in connection with the borrowing by SecureSPV001 can have no bearing on whether it can reasonably be inferred that Mr Gribble was insolvent or about to become insolvent in 2009-2010 or later in light of the fact that the default judgment obtained against him in the District Court in January 2012 was set aside and the action discontinued by order of that Court in March 2012. I also accept Mr O’Connor’s submission that Mr Gribble’s evidence that he had been put in a “precarious financial position” by his efforts to fund that project would not, of itself, be enough for the Court to draw the required inference having regard to the Full Court’s decision in Whitton v Regis Towers Real Estate Pty Ltd [2007] FCAFC 125; 161 FCR 20. Having said that, the Court is entitled to take Mr Gribble’s evidence that his financial position was precarious into account with other circumstances.

25    The second matter is the most substantive. Mr O’Connor says that the pleading in the application at [24](b) is wrong in point of fact: respondents submissions at [21]. He says that the Gribbles were not required to pay the amount of $1,319,972.38 because that amount related to the total amount of indebtedness, not the amount owed at the time of either of the impugned transactions. He says the amount set out in the Supreme Court Order was not an accurate reflection of what was owed and it was, in fact, never enforced. Rather, the amount owed was $1,319,972.38 less the sum realised by Australian Executor from the sale of the Mara Crescent property (shortfall) and nobody required that amount to be paid until years after the impugned transactions (I infer this means by the issue of the Bankruptcy Notice). He says that it does not make good the assertion that Mr Gribble was “about to become insolvent” when he executed the impugned transactions.

26    At the hearing, Mr O’Connor took the Court to cl 6.14 of the “mortgage common provisions” which provides for the manner in which notices may be given by the mortgagee to the mortgagor. Next, he drew attention to the fact that cl 4.2(a) of the mortgage common provisions provides that one of the mortgagee’s rights on default was to “demand and require immediate payment of the debt” so that the debt would only become due and payable when demand for payment was made. The debt was defined to mean all moneys owed by the mortgagor to the mortgagee on any account whatsoever. Counsel submitted that there is no evidence before the Court that any such notice of demand for the debt was ever given to the Gribbles for either the amount the Gribbles were ordered to pay in the Supreme Court Order or the amount of the shortfall following the sale of Mara Crescent so that the amount was not “due and payable”. Counsel argued that precedence must be given to contractual terms. He relied on the decision of Sulan J in Maxsted v Chicago Boot Co Pty Ltd [2011] SASC 27 at [17] as follows (bold words reflect emphasis in the submission, citations omitted):

There has been much discussion about the approach to be taken when considering the question of when a debt is due. The preferred position is that a debt is due when it is legally repayable. The conduct of a creditor in not seeking to recover a debt, or from taking other enforcement action, does not mean the debt is not due and payable. In considering whether a debt is due, the court will look to the legally binding agreement between the parties. ...

27    Mr O’Connor submitted that such provisions are designed to avoid the “ludicrous situation” put forward by Mr Condon that Mr Gribble was insolvent for something approaching five years and the unfairness to Mr Gribble of a lender, which did not pursue a debt for those five years, seeking to impugn the things that Mr Gribble has done during that period. Counsel confirmed that by his submissions he was seeking to go behind the Supreme Court Order: T 105.

28    These arguments cannot be accepted.

29    First, I understand that the reference to the Supreme Court Order in the amended application at [24](b) was not intended to suggest that the amount of $1,319,972.38 set out on the face of the order was the amount due and payable at all times: rather it was to establish that that Order had been made. While I accept that the amended application is in many respects less than ideal, I consider the respondents’ written submissions at [21] is misconceived.

30    Second, there was no suggestion in the defence or in submissions filed by the respondents that the respondents sought to go behind the Supreme Court Order. The respondents simply pleaded in their amended defence that they denied the application at [24] and said further that Mr Gribble was able to pay his debts as they fell due. The last paragraph of the defence obscurely pleaded that the “plaintiff has no chose in action” but in oral submissions Mr O’Connor indicated that this was not pressed: T 104. It was only at the end of the hearing that Mr O’Connor made it clear that he sought to go behind the Supreme Court Order on the basis that the amount of $1,319,972.38 which the Gribbles were ordered to pay could not be “due and payable” in the absence of a notice under the mortgage common provisions: T 105.

31    The process by which the Supreme Court Order came to be in June 2009 was not in issue. Mr Condon had no need to prove that, prior to that Order being made, notices under cl 16.1 of the General Terms and Conditions of the loan agreement (which deals with what the lender can do after default and applies only to notices required by law) had been issued or that Australian Executor had complied with the mortgage common provisions relied on by Mr O’Connor. In the absence of that matter having been raised in the defence, I do not accept that the Supreme Court Order can be impugned in this manner in these proceedings. Mr Gribble never sought to appeal it or have it set aside; he did not contest the Bankruptcy Notice on which it was based nor the sequestration order which was made on the basis of his failure to pay the Bankruptcy Notice.

32    I do not accept that, properly interpreted, there is a requirement under the mortgage common terms or the General Terms and Conditions for ongoing notices to be given to the Gribbles in relation to the judgment debt created by the Supreme Court Order. The contract debt had merged in the Supreme Court Order. The fact that that Order was satisfied in part upon settlement of the sale of Mara Crescent did not necessitate the issue of another demand for the shortfall. Any unpaid balance remained due and payable.

33    Third, there is no doubt that Mr Gribble knew of the Supreme Court Order, despite his evidence that he saw it for the first time when it was served with the Bankruptcy Notice, evidence which I do not accept. Mr Gribble gave the following evidence at T 65 (emphasis added):

Now, you didn’t bring any application or any motion for a stay on the execution of the judgment, did you? ---No, because I had gone down the path, in discussing at great length with them, over 13 months, how we could get out of this situation, and in the end I threw my hands up in sheer frustration because I was meeting the obligation at $20,000 a month, and as I said to them, “I’m not prepared to keep doing this; we’ve got to bring it to a resolution.”

You accept the proposition that you could not have paid the judgment amount of $1,319,972.38? ---Well, and apart from the – keep in mind they gave me that judgment back in 2009. For 13 months no one acted on it, and I was negotiating with them to try and come to a resolution without having to move out. In the end we could not achieve a resolution, they threw their hands up in the air, and I said, “Well, look, we’re going to have to argue this further down the line because I can’t continue to keep paying this $20,000 a month.” I don’t know many people that could.

34    While it is true that conduct of parties may affect when debts are “due and payable”: see Chicago Boot at [17], Australian Executor’s conduct in negotiating with Mr Gribble while accepting payments from him up to August 2010 did not mean that the Supreme Court Order was not due and payable after August 2010. Even if it can be inferred from this evidence that Australian Executor agreed to forbear from enforcing the judgment debt while Mr Gribble paid default interest, that ended in August 2010.

35    The amount of about $745,470 recovered by Australian Executor from the sale of Mara Crescent was required to be applied in paying down the debt in June 2011. It appears to be accepted by the parties that the outstanding amount of the judgment debt was then slightly less than $575,000. This shortfall was due and payable from the time Mr Gribble ceased to negotiate and make payments. Even if it is true that Australian Executor made no new demand after that time, it does not change the nature of the judgment debt created by the entry of the Supreme Court Order.

36    Mr Gribble gave evidence that no demand was made for the shortfall before the Bankruptcy Notice was issued. I do not accept that evidence. I have great difficulty accepting Mr Gribble’s evidence that he did not seek to find out what happened with Mara Crescent after he left there in October 2010 or that he genuinely thought that Australian Executor might have recovered any shortfall under an insurance policy or that either the insurance company or Australian Executor had written off the debt so that the shortfall was not payable by him. He is an experienced real estate agent and mortgage broker and I find it implausible that he would have thought that giving up Mara Crescent to Australian Executor in October 2010 would be the end of it. He was not entitled to that assumption on any of his suggested bases. However, even if I did accept it, it has no bearing on the issue addressed by s 121(2). The letter from Melissa Sparkes of Stonelink on 14 May 2013, the settlement statement received by Mr Gribble’s lawyers on that day and the enforcement of the garnishee orders in August 2013 are all relevant to the continued efforts of Australian Executor to enforce the Supreme Court Order which was due and payable and they are factors to be taken into account in determining whether the inferences as to whether Mr Gribble was, or was about to be, insolvent can be made under s 121(2).

37    In Prentice v Cummins (No 5) [2002] FCA 1503; 124 FCR 67 at [95], Sackville J noted that if reliance is placed on s 121(2), the transferor’s subjective intention is likely to be irrelevant. On that reasoning, and having regard to the terms of s 121(2), it is not relevant whether or not the transferor appreciated that he or she was, or was likely to become, insolvent. As noted by Katzmann J in Lo Pilato v Kamy Saeedi Lawyers at [162], the question is whether, in the circumstances, it is reasonable to infer that at the time of transfer [the bankrupt] was, or was about to become, insolvent. That does not mean that the trustee must prove that the bankrupt was in fact insolvent or about to become insolvent.

38    It is useful to set out Katzmann J’s summary of how Courts have interpreted the requirements of s 121(2) in Lo Pilato v Kamy Saeedi Lawyers at [162] – [166]:

162    … As the Full Court explained in Re Jury at [55]:

The statutory provision, as a matter of ordinary language, leaves open the possibility that it may also reasonably be inferred that the transferor was solvent. In other words, it is sufficient if the inference of insolvency is reasonably open. An analogy is the leaving of a case to a civil jury. If it can reasonably be inferred from all the circumstances that the defendant was negligent, or that the publication complained of was defamatory of the plaintiff, then the matter must go to a jury. Nevertheless the jury is not required to draw the relevant inference, and may not do so.

163    A person is solvent only if the person is able to pay all his or her debts when they become due and payable; if not, the person is insolvent: Bankruptcy Act, s 5(2) and (3). A person is not insolvent, however, merely for want of immediate access to cash to pay off the debts. Speaking of the position under the Bankruptcy Act 1924–1950 (Cth) (the predecessor of s 120 of the current Act) (the 1924 Act), Barwick CJ explained in Sandell v Porter (1966) 115 CLR 666 at 670:

Insolvency is expressed in s 95 as an inability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time — relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor.

The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.

164    If anything, the omission of the words “from his own money” from the definition of solvency in the current Act reinforces this position. It is also consistent with the position under the Corporations Act 2001 (Cth) where the definitions of solvency and insolvency are the same and underwent the same amendment (see s 95A). In Lewis v Doran (2004) 208 ALR 305; 50 ACSR 175; [2004] NSWSC 608 at [116], which was approved on appeal, Palmer J held that:

[Section] 95A requires the court to decide whether the company is able, as at the alleged date of insolvency, to pay all its debts as they become payable by reference to the commercial realities. If the court is satisfied that as a matter of commercial reality the company has a resource available to pay all its debts as they become payable then it will not matter that the resource is an unsecured borrowing or a voluntary extension of credit by another party.

165    On appeal (Lewis v Doran (2005) 219 ALR 555; 54 ACSR 410; [2005] NSWCA 243), Giles JA (with whom Hodgson and McColl JJA agreed) said at [109]:

Particularly when the limiting words are no longer part of the test, there is no compelling reason to exclude from consideration funds which can be gained from borrowings secured on assets of third parties, or even unsecured borrowings. If the company can borrow without security, it will have funds to pay its debts as they fall due and will be solvent, provided of course that the borrowing is on deferred payment terms or otherwise such that the lender itself is not a creditor whose debt cannot be repaid as and when it becomes due and payable. It comes down to a question of fact, in which the key concept is ability to pay the company’s debts as and when they become due and payable.

(Original emphasis.)

166    This approach has been applied to the assessment of solvency and insolvency under the Bankruptcy Act (Whitton (as trustee of the estate of Rose) v Regis Towers Real Estate Pty Ltd (in administration) (2007) 161 FCR 20; 241 ALR 617; [2007] FCAFC 125 at [35]–[38] per Buchanan J; Marshall and Tracey JJ agreeing at [1]). As the statutory definition in the Corporations Act is the same, there is no reason in principle why the approach should be any different.

39    The Court does not have before it a coherent statement of Mr Gribble’s financial circumstances in 2011 or 2013. However, I am satisfied that the inference can reasonably be drawn that at the time the boat was transferred to Mrs Leahy in June 2011 and when the inheritance was paid to Vanessa Two in March 2013, Mr Gribble was insolvent or about to become so. This is based on the existence of the Supreme Court Order which had not been fully satisfied at that time, the 14 May 2013 letter from Melissa Sparkes and the settlement advice in relation to Mara Crescent received by Mr Gribble’s solicitor that day, the fact that his wages were garnished a few months later in August 2013 and, importantly, evidence given by Mr Gribble that:

(1)    His bankruptcy was caused by the depletion of his resources over a period of three years in an effort to save the earthworks project.

(2)    He did not seek to have the Supreme Court Order stayed or set aside but instead negotiated for a resolution up to August 2010.

(3)    He could not afford to pay the $20,000 per month in default interest payments with the result that he gave up possession of the Mara Crescent home in October 2010 following receipt of an eviction notice: T 65.

(4)    He “moved out [of Mara Crescent] because [he] couldn’t see a resolution after being on the market for a good four months and we weren’t coming anywhere near what the bank was valuing the property at, and [he] decided that with the last $90,000 that we had between us that [he] was not going to continue paying the debt. It wasn’t that [he] couldn’t afford to pay it. It was [that he] couldn’t afford to keep up an endless supply of $20,000 a month in order to get the debt back on its feet. [He] would have done anything to pay that debt back”: T 61 (emphasis added).

(5)    His credit was damaged by the defaults (which I take to be in relation to both the earthworks project and the Australian Executor loan) and he could not borrow which is why he put the inheritance into Vanessa Two: T 82.

40    Mr Gribble gave evidence about his capacity to borrow from his family. Mr Gribble said that he “probably could have gone to my brother and sister and asked them [for a loan], but at that stage it never came up”, there having been no demand made for the shortfall: T 67. Mr Gribble also gave evidence that his brother advanced him $50,000 and he gave his sister the boat in June 2011 as a good faith gesture (T 81-82). However, there is no evidence that either of them or his mother would have been able or willing to advance him an amount of around $575,000 (and any other charges which might have accrued since June 2009).

41    Further, in cross-examination, Mr Gribble raised the argument that he assumed that the mortgage insurer would have paid out Australian Executor and that it would only be after “we had the argument with the mortgage insurer” that he would be liable for the shortfall: T 67. There is nothing in evidence on the basis of which Mr Gribble would have been able to resist any such claim.

42    There is no evidence that anything relevantly changed in Mr Gribble’s financial circumstances between the time the Mara Crescent property was sold and the time Mr Gribble transferred his inheritance to Vanessa Two, save for the fact that his mother had died in mid-2012. There is evidence that he was being pursued for payment in May 2013 and August 2013.

43    There is no evidence that Mr Gribble has other assets which could have been deployed to meet the shortfall between June 2011 and March 2013. During the hearing, Mr O’Connor made the point more than once that it was for Mr Condon to establish that the reasonable inference that Mr Gribble was, or was about to become, insolvent was open. That is generally true. However, in view of all of this evidence and the pleading of a defence that Mr Gribble was able to pay his debts as they fell due, in my view the respondents had to do more than they did to establish that the inference of his insolvency (current or imminent) could not reasonably be drawn at the times that the transfer of the boat and the inheritance occurred.

44    Finally, contrary to Mr O’Connor’s submissions which suggested that it was improbable that Mr Gribble was insolvent between June 2009 and the time he was made bankrupt in 2015, it is entirely feasible that he was insolvent throughout that period. If Mr Gribble is correct and no advice was given to him of the amount of the shortfall and no demands were made for the shortfall following the sale of Mara Crescent until the Bankruptcy Notice was issued, then that conduct of the lender was entirely inappropriate. Mr Gribble should not have been left in any doubt, if he was. However, the judgment debt created by the Supreme Court Order remained due and payable from June 2009 and the evidence of Mr Gribble’s financial circumstances at the times when the boat and the inheritance were transferred support the inference (which I draw) that he was or was about to be insolvent because he could not pay his debts as they fell due from his own resources or from moneys he could raise within a reasonable period.

Costs

45    As Mr Condon has succeeded, he is entitled to costs. He says that the respondents did not advance any “plausible defence” and seeks an order for costs on an indemnity basis. Apart from the fact that the generality of that submission should not be accepted, in light of the deficiencies in the pleading of the amended application I do not accept that the defence was so plainly unarguable that the award of indemnity costs would be warranted. Accordingly, I will order that the respondents pay Mr Condon’s costs as agreed or assessed, while leaving open the possibility of a lump sum order being made, should the parties seek to adopt that course.

Associate

Dated:    21 June 2018