ARGUMENTS ON THE APPEAL AND ANALYSIS
25 The oral arguments on the appeal were not made by specific reference to the newly amended grounds seriatim. Rather, a list of general complaints was made about the reasoning of the decision under appeal. The complaints are considered below.
26 Some general matters may be disposed of first. The first is that it is significant that the son was not called to give evidence at the hearing and whilst the apparent distance between the parties might partly explain that fact, there was no evidence that the son could not be compelled to attend by way of subpoena to give evidence on the topics advanced only by the parents. Given the complete lack of documentary support for the topics advanced by the parents, the absence of the son to corroborate the parents' account was not without significance. The absence of the corroboration was a reasonable basis on which his Honour was entitled to infer that the parents' account could not be accepted. Given that the parents had the burden of proof to show that the funds received by them were in repayment of a loan rather than by an advance from the parents to the son, the conclusion reached by his Honour was entirely open to him.
27 Complaint has been raised as to the delay in the commencement of the bankruptcy proceedings. Although the Trustee did not commence proceedings against Mrs Charan before 10 November 2010, there was documentary evidence reasonably explaining this delay. From that it is apparent that:
From 2007, Mrs Charan refused, despite repeated requests, to provide any information to assist the Trustee in determining the basis upon which the parents were paid the entire proceeds of sale from the Woongarrah property;
By letter of 5 February 2008, the former solicitors for the trustee advised Mrs Charan's then solicitors the basis on which a claim existed against the parents pursuant to s 120 and s 121 BA;
In November 2009, rather than deal with the request for information advanced by the Trustee, Mrs Charan chose to lodge a complaint against the Trustee to ITSA. The Trustee was required to respond to this complaint before it was dismissed; and
Throughout 2010, the Trustee successfully defended proceedings in the Federal Magistrates Court brought against him by Mrs Charan in which she unsuccessfully sought an order for the removal of a caveat lodged by the Trustee against the Casula property as well as damages for his alleged breach of statutory duties.
28 In relation to the complaint that there was no evidence before his Honour on which it could be inferred or concluded that the son was insolvent, the Trustee argues, correctly in my view, that it was open for that inference to be drawn by virtue of the fact that Mrs Charan herself informed the Trustee (by letter dated 23 February 2009) that:
my son … could not afford to meet the house and land repayments of $2400 per month. He was on casual employment and earning only $100 per month and sometimes he was out of employment for two to three months at a time.
29 She reinforced this by a letter dated 7 March 2009 to the Trustee informing him that 'the reason for the sale was that he could not meet the repayments of the loan and the house'. There was no contrary evidence which might rebut the inference that in light of those circumstances the son was unable to meet his debts as and when they became due and payable.
30 The purchase of the Casula property has assumed significance in the arguments advanced by the parents on appeal. In particular, they argue that it would be highly improbable that the son would have acquired his interest in the Casula property if he was trying to avoid creditors. This argument was duly advanced before his Honour but, once again, his Honour did not have the benefit of hearing any evidence from the son to support that suggestion in any direct manner. Other explanations are equally open including the possibility that the issue simply did not occur to the son one way or the other. His Honour clearly placed little weight on the argument. In the absence of any evidence from the son, it was open to his Honour to treat the acquisition of the interest in the Casula property by the son as a neutral factor. Equally, his Honour was entitled to disregard arguments as to how the son obtained home loans from other entities in order to acquire the Woongarrah property. There is no tested evidence that accurate details of his financial position were disclosed in such loan applications.
31 I accept the Trustee's submission that it was open to his Honour to infer from all the circumstances at or about the time of the transfer in January 2003 that the son was or was about to become insolvent. Indeed, the evidence given by Mrs Charan as well as the son in the statement of affairs submitted to the Trustee supported such a finding. The son himself confirmed in the statement of affairs that as at 6 January 2003 he was indebted to the ANZ Bank in the sum of $12,000.
32 From this finding, taken with his Honour's rejection of the evidence of the parents that the advances made by them were by way of loan only, taken with the absence of the son to call evidence on the topic, it was a small step for his Honour to conclude for the purposes of s 121(1)(b) BA that the main purpose of the son in making the transfer to his parents was to prevent the sale proceeds from being divisible amongst his creditors. At the time of giving those proceeds to his parents, the son was aware that he could not afford to meet the house and land repayments of $2400 per month. He knew he was indebted to the ANZ Bank in the sum of $12,000 and was at least as a fact, indebted to the Commissioner of State Revenue in the sum of $14,000. While it is conceivable that other conclusions might have been drawn, the conclusion reached by his Honour was one that was open to him. That is and was sufficient to satisfy s 121(1) BA.
33 However, that conclusion could be set aside pursuant to s 121(4) BA so that the transfer of the funds would not be void if the parents were able to satisfy his Honour that they acted in good faith. Specifically, the onus was upon them to establish that:
(a) The consideration they gave for receipt of those funds was at least as valuable as the market value of the property, the property being the funds payment;
(b) They did not know and could not reasonably have inferred that the son's main purpose in making the transfer was to defeat creditors; and
(c) Could not reasonably have inferred that at the time of the transfer the son was or was about to become insolvent. (emphasis added)
34 These are the topics on which the parents bore the burden of proof and yet failed to satisfy his Honour. There appears to be no express finding to the effect that his Honour did not believe the evidence advanced for the parents (through Mrs Charan) that she was unaware that the son was insolvent or about to become insolvent at the time of the transfer of the sale proceeds to the parents. It seems clear, however, from the conclusions his Honour reached that he was not satisfied that the parents had discharged the onus they held pursuant to s 121(4)(c) BA. There was certainly evidence on which I have already touched on which his Honour might have reached that conclusion, albeit it that there is some uncertainty as to whether the parents, or particularly Mrs Charan, were aware at the actual time of the transfer of all aspects on which Mrs Charan later relied, namely, that:
Her son was in casual employment only, earning only about $1,600 per month;
Sometimes her son was out of employment for two to three months at a time;
The Woongarrah property was sold as her son could not afford to meet the house and land repayments of $2,400 per month; and
The reason for the sale was that the son could not meet the repayments of the land and the house.
35 In relation to the conclusion attacked at appeal ground 1(d), in my view it was open to his Honour to conclude that the parents and, in particular, Mrs Charan, failed to rebut the presumption of advancement as it was her evidence that any money paid to her son in respect of the Woongarrah property was done 'to provide him with a start in life'. While that expression is perhaps ambiguous, there is no corroborative evidence that the 'start in life' was by way of a repayable loan only rather than a gift. Certainly, there were no terms of any loan articulated in the course of evidence or identified and accepted by his Honour.
36 As to the challenge on appeal ground 1(e), the conclusion reached at [113] of his Honour's reasons was open. Based on the history of the matter as explained by the parents and on the basis that there was no other explanatory or contrary evidence lead by the son, there is no reason to think that the conclusion at [113] of his Honour's reasons was incorrect when he said 'I am satisfied that any claim based on exoneration cannot be sustained'.
37 It is also complained (by appeal ground 2) that his Honour failed to properly differentiate between the requirements of s 120 and s 121 BA but, rather, 'rolled up' the different considerations into one. A specific reference was made to [114] and [115], where his Honour said (and I repeat [115]) for convenience of reading):
114 The purpose of s 121 is to recover transfers of property by a person who later becomes a bankrupt, where the main purpose of the transfer was to defeat creditors and the property would probably have become part of the estate or would have been available to creditors if the property had not been transferred. This section enables the property to be recovered for the benefit of creditors generally and to enable a rateable distribution amongst creditors. An action under s 121 with respect to a property may be commenced by a Trustee at any time: s 127(4).
115 There are a number of elements that arise in an application under s 121 that I find to have been established here:
a) That there was a transfer of property, by a person who later became a bankrupt: s 121(9) contains the definition of transfer of property.
b) That the property would probably become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred: s 121(1)(a).
c) It can reasonably be inferred from all of the circumstances at the time of the transfer, the transferor was, or was about to become insolvent. The transferor's main purpose in making a transfer for the purposes of s 121(1)(b) can then be reasonably inferred.
d) The Respondents (transferee) could reasonably have inferred that at the time of the transfer, the transferor was, or was about to become, insolvent: s 121(4)(c).
38 This ground was not developed in argument but that may be because while there is some force in the observation that, taken alone, these paragraphs might tend to mislead, the more complete analysis of the evidence by reference to the two sections was, nevertheless, sufficient to address the requirements of the BA. His Honour, first, clearly examined whether or not the transfer was void against the Trustee for the purpose of s 120 BA and then separately considered a defence or exception that may be available under s 121(4) BA. In that regard, it was necessary for the parents to establish that they had satisfied all of the elements of subs (1) BA including good faith, valuable consideration, no basis for reasonable inference that the main purpose of the transfer was to defeat creditors and, finally, no knowledge or reasonable basis for belief that the son was or was about to become insolvent. On the basis of the findings that his Honour reached separately on all of these topics, that onus was not discharged.
39 The conclusion in the previous paragraph also disposes of appeal ground 3 which is not made out.
40 I have addressed and rejected appeal ground 4 concerning the failure to call the Trustee (at [9]-[10]) above.
41 In relation to appeal ground 5, it is unclear what findings concerning the Wizard home loans are sought to be attacked. This was not an argument developed orally or in written submissions. The general contention in relation to these loans appears to be that the son could not have obtained home loans had he been insolvent. There is no evidence that the son truthfully disclosed his financial circumstances in making applications for finance. This ground is not made out.
42 Finally, appeal ground 6 is to the effect that there was no evidence before his Honour that the son, initially, and then the parents, benefitted in any way from the $14,000 Office of State Revenue Grant. I am unable to accept this submission for the following reasons.
43 The evidence from Mrs Charan, which was accepted, was that in October 2002 her son applied for and obtained a $14,000 first home owner's grant in respect of his purchase of the Woongarrah property. On the sale of the Woongarrah property in January 2003, the son became liable by operation of law to repay to the Office of State Revenue the first home buyer's grant because he failed to occupy the premises for the requisite period. Mrs Charan accepted that the entire proceeds of the sale of the property were paid to her and her husband on settlement in January 2003.
44 In argument, counsel for the parents suggested that 'for all we know the son may have taken the $14,000 to the casino and gambled it away'. I reject this submission. There was a powerful uncontradicted inference that the funds were received for the purpose for which they were supplied and were invested in the property. The entire proceeds after payment out of secured creditors was then passed to the parents. There was no hint of evidence before his Honour that the funds were misused for some other theoretical purpose.