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[2018] FCA 201
Federal Court of Australia
2018-03-02
Moshinsky J
Original judgment source is linked above.
Introduction 1 The respondent (Mr Carrafa), who was the applicant below, is the trustee in bankruptcy of the estate of Kalaiselvi Gomez (Mrs Gomez), who is also known as Selvi Gomez. The first appellant, Irwin Gomez (Mr Gomez), is her husband. The second appellant, JNGO Pty Ltd (JNGO), is a company associated with their son, Nathan Gomez. 2 The proceeding below was an application by Mr Carrafa for declarations under ss 120 and 121 of the Bankruptcy Act 1966 (Cth) and consequential orders. Although the application was brought under both ss 120 and 121, it is sufficient for present purposes to refer to s 120. This provides, in summary, that a transfer of property by a person who later becomes bankrupt to another person is void against the trustee in bankruptcy of the transferor if: (a) the transfer took place in the period beginning five years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and (b) the transferee gave no consideration for the transfer or gave consideration of less than the market value of the property. The expression "transfer of property" is defined to include a payment of money. 3 On 21 August 2014, a sequestration order was made against the estate of Mrs Gomez. The date of commencement of the bankruptcy was 2 July 2014, when she failed to comply with a bankruptcy notice. The proceeding below concerned the following transfers of property: (a) Transfers of two properties from the joint names of Mr and Mrs Gomez to Mr Gomez alone on 25 June 2014. The properties are situated at 2 Hatherley Grove, Altona North (the Altona Property) and in Hinrichsen Drive, Hallam (the Hallam Property). The total consideration for both transfers was $60,000. (b) A transfer of $171,480 from Mrs Gomez to JNGO on 27 February 2014. In relation to the transfer of money, JNGO no longer has all of the amount transferred. Mr Carrafa was only able to locate an amount of $123,139.01. Hence, he sought an order for payment of that amount. 4 Mr Gomez did not appear at the hearing before the primary judge. An application by him for an adjournment of the trial was refused. Nathan Gomez appeared, with leave, on behalf of JNGO. 5 In brief summary, JNGO submitted at trial that Mr Gomez was entitled to an equity of exoneration. This was said to arise in the following way. Mr and Mrs Gomez had been the joint registered proprietors of certain properties, including the Altona and Hallam Properties. The properties in their joint names had been mortgaged to secure loans to J Renee Nominees Pty Ltd (J Renee), a property and investment company owned and controlled by Mrs Gomez. It was contended that, in these circumstances, Mr Gomez had acted as surety for a debt incurred for the benefit of Mrs Gomez and was entitled to an equity of exoneration. 6 In relation to the transfer of $171,480, JNGO contended that this was in fact a loan by Mr Gomez to JNGO. On this basis, the equity of exoneration contention was also relied upon in connection with the transfer of money. 7 The primary judge held that, putting to one side the equity of exoneration contention, the requirements of s 120 of the Bankruptcy Act were satisfied. In relation to the equity of exoneration, the primary judge examined in some detail financial transactions involving Mrs Gomez, Mr Gomez, J Renee and another company, Nathans Solutions Pty Ltd (Nathans Solutions). The primary judge found that: the history of the transactions indicated that the purposes of Mrs Gomez were not distinct from those of Mr Gomez; and the answer to the question, "who got the money?" was that they both did. In support of this conclusion, the primary judge found that: J Renee and Nathans Solutions were incorporated for the mutual benefit of Mrs Gomez and Mr Gomez, to further their joint property investment and property development goals; and consequently, things done ostensibly for the benefit of J Renee could not be regarded as solely for the benefit of Mrs Gomez. In the circumstances, the primary judge did not accept that the claim for an equity of exoneration could be maintained. In relation to the transfer of $171,480, the primary judge did not accept the claims of the Gomez family that the payment was in reality a loan from Mr Gomez to JNGO. Accordingly, the primary judge made declarations to the effect that the transfers of property were void pursuant to s 120 of the Bankruptcy Act. The primary judge also ordered that the amount of $123,139.01 held in a Rabobank account in the name of JNGO be paid to Mr Carrafa. 8 Mr Gomez and JNGO appeal to this Court from the orders of the primary judge. They challenge a number of the factual findings made by the primary judge and the conclusion that the equity of exoneration was not established. Mr Gomez also challenges (with leave) the primary judge's refusal of his adjournment application. 9 For the reasons set out below, the appellants have not established that the primary judge erred in relation to the factual findings or the overall conclusion. Further, no error is shown in the refusal of the adjournment. It follows that the appeal is to be dismissed.
Background facts 10 The primary judge relevantly gave two sets of reasons: ex tempore reasons for refusing Mr Gomez's application for an adjournment: Carrafa v Gomez & Anor (No 2) [2016] FCCA 1511 (the Adjournment Reasons); and reasons for judgment following the trial of the proceeding, handed down on 7 December 2016: Carrafa v Gomez & Anor (No 3) [2016] FCCA 3139 (the Reasons). 11 The following statement of the background facts is drawn largely from the Reasons. 12 Mr and Mrs Gomez are computer analysts. They were employed by Nathans Solutions before that company was deregistered on 27 January 2013. 13 Mr Gomez was a director and the company secretary of Nathans Solutions. He held 50 per cent of the shares in that company. It was unclear who held the remaining shares. 14 On an unknown date, the Hallam Property was registered in the names of Mr and Mrs Gomez. The Hallam Property was and is the home of Mr and Mrs Gomez, Nathan Gomez and his sister. The property was the subject of a mortgage to the Australia and New Zealand Banking Group Ltd (ANZ). 15 On 2 September 1999, Mr and Mrs Gomez became the registered proprietors of an investment property at 20 Coles Terrace, Richmond (the Richmond Property). The property was subject to a mortgage to the NRMA Building Society (NRMA) of $294,600. 16 On 18 December 2000, another investment property, Lot 55 The Waterways, Braeside (the Waterways Property), was transferred to Mr and Mrs Gomez for $163,000. This property was subject to a mortgage of $130,400 to ANZ. 17 In about May 2001, Mr and Mrs Gomez refinanced the Hallam and Richmond Properties, with ANZ, to enable them to buy further investment properties at Units 1, 2 and 3 at 460 Kemp Street, Lavington (the Lavington Property), and Units 1, 2, 3 and 4 at 190 Kiewa Street, Albury (the Albury Property). The mortgage over the Richmond Property to NRMA was discharged and was replaced with a mortgage to ANZ. Mr and Mrs Gomez were joint mortgagors and joint proprietors of the Hallam, Richmond, Lavington and Albury Properties. As a result of the refinancing, on about 8 May 2001, they borrowed $280,000 secured against the Richmond Property, $120,000 secured against the Hallam Property, $86,800 secured against the Lavington Property and $58,975 secured against the Albury Property. 18 On about 12 July 2001, Mr and Mrs Gomez borrowed a further $112,000 from ANZ to purchase the Altona Property, which was another investment property. 19 An ANZ file note dated November 2001 stated that: (a) Mr and Mrs Gomez were existing ANZ customers with five properties financed by ANZ; (b) the Hallam Property had a valuation of $150,000, a mortgage of $120,000 and was occupied by the owners; (c) the Waterways Property had a valuation of $180,000, a mortgage of $112,000 and was to be the site of a future owner-occupied home; (d) the Richmond Property had a valuation of $410,000, a mortgage of $280,000, was an investment property and was to be refinanced with a loan of $328,000; (e) the Albury Property had a valuation of $84,250 and a mortgage of $58,975; (f) the Lavington Property had a valuation of $124,000 and a mortgage of $86,800; and (g) the Altona Property had a valuation of $140,000 and a mortgage of $112,000. 20 On about 11 December 2001, Mr and Mrs Gomez refinanced the Richmond Property and borrowed $328,000 from ANZ on the security of that property. 21 ANZ account statements show that, on 24 December 2001, investment loan number 3431-88906 in the names of Mr and Mrs Gomez was paid off with a payment of $277,283.49, and a new investment loan number 3443-92722 in the same names was drawn down in the sum of $328,000. 22 An ANZ account statement shows that, on 17 May 2002, investment loan number 3423-23213 in the names of Mr and Mrs Gomez was paid off with a payment of $123,492.60. 23 An ANZ account statement shows that, on 21 May 2002, investment loan number 3435-83658 in the names of Mr and Mrs Gomez was paid off with a payment of $110,075.98. 24 An ANZ account statement shows that, also on 21 May 2002, investment loan number 3452-17854 in the names of Mr and Mrs Gomez was drawn down in the sum of $160,000. 25 On 5 August 2002, the Altona Property was registered in the names of Mr and Mrs Gomez. 26 An ANZ account statement shows that, on 6 September 2002, home loan number 3457-60988 in the names of Mr and Mrs Gomez was drawn down in the sum of $160,000. 27 A Strategic Alliance Mortgages statement for an account in the name of Nathans Solutions shows that, on 23 January 2004, a loan balance of $228,458.03 was paid out in full. 28 On 15 March 2004, J Renee was registered. Mrs Gomez was the sole director, secretary and shareholder of J Renee from its incorporation until it was deregistered on 17 August 2014. J Renee conducted property development. 29 A Colonial Bank (Colonial) bank statement for the period 1 July to 31 December 2004 for account number 352430303 shows that Mr and Mrs Gomez had borrowings from Colonial of between about $106,000 and $100,000 secured over the Waterways Property. 30 An ANZ bank account statement shows that, on 19 August 2004, investment loan number 3432-95306 in the names of Mr and Mrs Gomez was paid off with a payment of $81,255.03. 31 An ANZ bank account statement shows that, on 21 January 2005, investment loan number 3443-92722 in the names of Mr and Mrs Gomez was paid off with a payment of $333,014.32. 32 A National Australia Bank (NAB) letter dated 24 January 2004, which should have read 2005, shows that, on or about 24 January 2005, Mr and Mrs Gomez borrowed $780,000 from NAB on account number 57-978-9388. Of that sum, $204,477.73 was used to discharge an existing mortgage over the Waterways Property and $333,164.32 was used to discharge an existing mortgage over the Richmond Property. 33 On 3 May 2005, Mr and Mrs Gomez applied to the Bank of Melbourne (Westpac) for a loan of $448,000 to refinance a home loan. In the loan application, Mr and Mrs Gomez both described themselves as Systems - programmer / analyst / designer / engineer and said that they were self-employed and worked full-time at Nathans Solutions. 34 On 3 May 2005, Mr and Mrs Gomez accepted a loan offer from Westpac of $448,000, consisting of two loans, one for $232,000 and the other for $216,000. The Westpac loans remained in place until at least 9 May 2014, when they had a debit balance of $315,756.69. It was some of the drawdowns from these loans that JNGO claimed at trial gave rise to an equity of exoneration. Those drawdowns occurred over a period of years, were numerous, and in varied amounts. 35 On 6 May 2005, Mr and Mrs Gomez paid out in full their ANZ investment loan number 3452-17854 with a payment of $162,510.51 and ANZ home loan number 3457-60988 with a payment of $157,741.55. 36 On 21 September 2006, J Renee borrowed $480,000 from NAB and discharged another mortgage. The loan was secured by a mortgage over a property situated at 182 The Esplanade, Surf Beach (the Surf Beach Property), which was owned by J Renee, and a guarantee and indemnity for $480,000 given by Mr and Mrs Gomez. The guarantee and indemnity were secured by mortgages over the Richmond and Waterways Properties, both of which were owned jointly by Mr and Mrs Gomez. 37 On about 6 November 2006, Mr and Mrs Gomez borrowed $780,000 from NAB on loan account number 86-445-5619. Of that sum, $763,361.31 was used to discharge the NAB loan numbered 57-978-9388, which they had borrowed on 24 January 2005. 38 A NAB credit memorandum finalised on 7 June 2007 (CB 1128-1130) (the NAB Memorandum) stated as follows: Customer details Does the customer have an Aggregation Group Number? Yes Aggregation Group Name Gomez Group Aggregation Group Number 836802043 … Number of Customers part of Current Submission 3 Customer Name Income/Employment Status J Renee Nominees Pty Ltd … Business/Company Irwin Gomez … Full/Part-time Kalaiselvi Gomez … Full/Part-time
Borrowing Entity: J Renee Nominees Pty Ltd, Irwin Gomez & Kalaiselvi Gomez This submission seeks approval to increase current $780k National Portfolio Facility to $1,430,000. Facility is currently in the name of Kalaiselvi & Irwin Gomez and this increased facility will add J Renee Nominees Pty Ltd as a borrowing entity. Increase of $650k will be used to refinance debt from Owen Law solicitors. Clients currently have a $1m debt with Owen Law Solicitors which was used to fund a 3 unit development at Dorgan Street, Mount Waverley. Debt is coming due for renewal/expiry next week which co-incides with sale settlement of one of the units and a second going to Auction on 9th June. Clients require $650k to payout Owen Law and would like to refinance this with Nab. Unit 2 has been sold for $410k and is likely to settle by 15/06/07 and Unit 1 goes to auction on 09/06/07 with OEMV being $530k. Irwin & Kalaiselvi would like to retain Unit 3 as a rental property. OEMV is $510k. Expected Rental would be $430 to $450 per week. Based on $430 per week provides $22,360 pa. Funding Table Owen Law debt $1,000,000 less Sales Proceeds of Unit 2 $412,000 less Selling costs & other debts due incl NAB pers loan $ 62,000 $ 350,000 Residual Debt $ 650,000
As mentioned above, Unit 1 goes to Auction on 9th June and customer expects to receive $530k plus. Customers intention is to then reduce our debt by $500k. We have requested valuation and MV has been confirmed at $525k. Client also has vacant land in Glen Waverley which we hold as security. Client has advised that land is currently on the market and Auction is due 23rd June. The proceeds of this sale will be used to clear the current $480k debt with NAB against this property along with funds being used to help with development of Phillip Island property. Customer wishes us to look at assisting with funding this development, but due to time constraints with this application and all information not being available, we need to assess this in the near future. No commitment has been given to customer regarding development. … Background / History: Customers were introduced via Paul Birss of Savings Dollar Pty Ltd in late 2004. Customers, Irwin Gomez and Kalaiselvi Gomez operate two companies, which make up the Gomez group: J Renee Nominees Pty Ltd This entity was formed in March 2004 and is the property investment arm of this group. Director is Kalaiselvi Gomez. Company currently ownes two properties. Nathans Solutions Pty Ltd This entity had been the building company of the group. It currently has one property in its name. Directors of this company are both Irwin & Kalaiselvi Gomez. Company is now a computer consultancy business that pays directors fees to Selvi & Irwin. Customers have a number of properties within the group. Overall position can be summarised as follows: Assets Worth estimate Amount Owing Equity Owned by Description Lender 1 … 350,000 232,000 118,000 K & I Gomez Home Westpac Hinrichsen Drv Hallam 2 20 Coles Tce Richmond 650,000 520,000 130,000 K & I Gomez Townhouse NAB 3 6 Waterside Drv Braeside 325,000 260,000 65,000 K & I Gomez Land NAB 4 2 Hatherly Grv Altona Nth 270,000 216,000 74,000 K & I Gomez House Westpac 5 460 Kemp St Lavington 320,000 192,000 128,000 K & I Gomez 3 units Interstar 6 Car park 30,000 0 30,000 K & I Gomez Own title 7 Unit 1-3/2 Dorgan St, Mt Waverley 1,500,000 1,000,000 410,000 J Renee Nominees P/L 3 units Owen Law 8 6 Henderson Crt, Glen Wav 600,000 480,000 120,000 Nathans solutions P/L Land NAB 9 182 The Esplanade, Philip I 600,000 480,000 170,000 J Renee Nominees P/L Land NAB Total 4,645,000 3,380,000 1,245,000
Customer currently has the following plans for the above properties: Property number 1: is the customer residential address Property No 2: is currently rented out and there is no current plans to change this. Property No 3: is vacant land and there are no immediate plans to develop. It is a waterfront property in relatively new development. Properties No 4-6: are currently rented out and customers currently do not intend to change this. Property No 7: Unit 2 has been sold and Unit 1 is being auctioned. Retaining Unit 3 to be retained as a rental. Property No 8: is currently vacant land. Customer was going to develop this site but has now decided to place property on the market. These proceeds will be used to clear $480k debt with NAB and assist with development of Phillip Island property. OMEV is $780k+. Property No 9: is currently vacant land and customer will be looking to build 2 units. Costings etc are currently being obtained. … Although Debt Servicing is not evident below for Kalaiselvi & Irwin Gomez, we need to take note that customer currently in process of reducing their debt through sale of properties. Calculation below takes into account the new debt at $650k. This will reduce by $500k minimum when Unit 1 is sold. This will result in $37,700 reduction in interest commitment. As mentioned earlier, Glen Waverley property is also on the Market. This will reduce debt by a minimum of $480k. This will also reduce commitments by a further $36k. Overall this improves serviceability by $73.3k. Shortfall after these two reductions is $34k. Customer cannot currently prove serviceability as they have several properties which are vacant land and do not generate income. Customers are going through process of either selling land or developing sites to sell units or provide rental income. Through this reduction of debt and/or introduction of new rental income, customers debt servicing will improve. Personal Income Summary … Salary Irwin Gomez 79,439 … Salary Kalaiselvi Gomez 79,439 … New rental Kalaiselvi Gomez 22,360 … … Net Self Employed / Business/Company Income J Renee Nominees Pty Ltd 0 (Errors in original.)
39 The NAB Memorandum indicates that J Renee owned a Mount Waverley property and the Surf Beach Property, Nathans Solutions owned a Glen Waverley property, and Mr and Mrs Gomez jointly owned the Hallam, Richmond, Waterways, Altona and Lavington Properties and a car park. The NAB Memorandum, and the evidence of Mrs Gomez at trial in relation to the memorandum, were the subject of submissions on the appeal, discussed below. 40 On about 14 June 2007, Mr and Mrs Gomez and J Renee borrowed $1,430,000 from NAB loan account number 86-445-5619. The loan was secured with mortgages over the Richmond Property (owned by Mr and Mrs Gomez), the Waterways Property (owned by Mr and Mrs Gomez) and units 1 and 3 of 2 Dorgan Street, Mount Waverley (owned by J Renee). 41 On 9 August 2007, "Settlement Funds" of $229,135.73 were used to reduce the debit balance on J Renee's NAB loan account number 79-954-3259. On 16 August 2007, a further $26,000 was used to reduce the debit balance on that account. 42 On 28 September 2007, J Renee's NAB loan account number 86-306-3429 was closed with a payment of $479,905.00. I note the appellants' submission that the loan was rolled over into another account. 43 On 29 October 2007, the NAB loan account numbered 79-948-4623 of Mr and Mrs Gomez, with the title, "Kalaiselvi and Irwin Gomez - Richmond & Waterways - NAB Portfolio Sub Account" was reduced by $260,000 with "Funds From Settlement". 44 On 14 December 2007, $502,220.88 was paid into J Renee's NAB loan account number 79-954-3259, from "Mt Waverley settlement", and $20,000 was paid to account number 79-948-4623. That left J Renee's account in credit to the extent of $102,272.87. 45 On 18 December 2007, $101,118.31 was transferred from J Renee's account number 79-954-3259 to account number 85-600-4404, and account number 79-954-3259 was closed. 46 On 28 May 2009, NAB opened a home loan account in the name of J Renee, being account number 89-354-0193. On 29 May 2009, that account was drawn down to the extent of $595,000. On 2 November 2009, that loan was drawn down by a further $111,837.50, leaving an outstanding balance of $706,837.50. 47 On 17 June 2009, J Renee became the registered proprietor of 27 Portsmouth Street, Mount Waverley (the Portsmouth Property). 48 On 9 December 2009, J Renee opened NAB account number 16-536-3221. On 10 December 2009, J Renee drew down about $16,000 from that account and transferred it to account number 85-600-4404, and drew down about $708,000 from that account and transferred it to account number 89-354-0193. 49 Prior to 2 February 2010, J Renee sold 28 Surf Crescent, Surf Beach, a subdivision of the Surf Beach Property. On 2 February 2010, that property was registered to other owners. 50 On 5 February 2010, J Renee drew down a further $80,000 on NAB loan account number 16-536-3221 and transferred it to account number 89-474-2643. Account number 89-474-2643 was a NAB account in the name of J Renee subtitled "PORTSMOUTH INTEREST ACCOUNT". 51 On 8 September 2010, J Renee deposited $50,000 into NAB account number 89-435-0957 and on the same day drew down $20,000 and then a further $50,000. 52 On 7 October 2010, J Renee drew down a further $50,000 from NAB account number 89-435-0957 and transferred it to account number 89-474-2643, being J Renee's NAB Portsmouth interest account. 53 On 2 February 2011, J Renee reduced NAB loan number 89-435-0957 by $450,000, which was described as "Settlement Funds Lot 2 27 Portsmouth". On 24 February 2011, J Renee reduced that loan further with a deposit of $57,260.53, described as "Funds From Term Deposit". 54 From account number 89-435-0957, J Renee drew down $8,230 on 15 March 2011, $16,809.44 on 23 May 2011, $9,183.25 on 28 June 2011, $17,011.05 on 9 August 2011, and $6,026.79 on 30 September 2011. All of those drawdowns were paid to account number 89-474-2643, being J Renee's NAB Portsmouth interest account. 55 On 1 July 2011, Mr and Mrs Gomez borrowed about $220,000 from Winsec Savings & Loans. 56 On 25 November 2011, Mr and Mrs Gomez discharged in full their joint loan from Winsec Savings & Loans in the sum of $220,713. 57 On 2 April 2012, $78,000 was paid into J Renee's account number 16-536-3221, which was subtitled "NAB CHOICE H/LOAN INTEREST ONLY IN ARREARS PORTSMOUTH". Prior to that deposit, the outstanding balance on account number 16-536-3221 was $995,000. The $78,000 came from J Renee's account number 89-474-2643. 58 On 3 April 2012, J Renee paid down in full its NAB account number 89-435-0957 with a payment of $520,282.51 and the account was closed. The payment appears to have been from J Renee's sale of the Portsmouth Property. 59 Also on 3 April 2012, $48,020.65 was paid into the Westpac joint account number 24-2596 in the names of Mr and Mrs Gomez. The description for that deposit was "DEPOSIT MPL 1 27 Portsmouth", suggesting that the funds were derived from J Renee's sale of the Portsmouth Property. 60 On 1 June 2012, J Renee drew down a further sum of $73,250 from account number 16-536-3221 and paid it to J Renee's account number 89-474-2643. 61 On 5 June 2012, $54,000 was deposited into the Westpac joint account of Mr and Mrs Gomez number 24-2596. The description for that deposit was "DEPOSIT ALTONA NORTH". 62 On 26 August 2013, $48,497.50 was deposited into the joint Westpac account number 24-2596 of Mr and Mrs Gomez. The description for that deposit on the bank statement was "Deposit Richmond South VIC". 63 On 16 September 2013, the transfer of the Richmond Property from Mr and Mrs Gomez to a purchaser, was registered at the Titles Office. The sale price was $685,000. A settlement statement dated 13 September 2013 indicated that the balance of the purchase monies was $612,787.37. 64 On 17 September 2013, the sum of $612,000, described in the bank statement as "Settlement Funds", and on 18 September 2013, the sum of $174.39, described in the bank statement as "Settlement Funds Surplus", were paid into J Renee's NAB account number 16-536-3221, titled, "NAB CHOICE H/LOAN INTEREST ONLY IN ARREARS PORTSMOUTH". 65 On 15 January 2014, J Renee transferred the Surf Beach Property for a consideration of $650,000. On the date of settlement, a sum of approximately $584,000 was paid to J Renee's Portsmouth interest account number 89-474-2643. These funds were deposited into J Renee's bank account with NAB. The following transfers of funds subsequently took place: (a) On 20 January 2014, the sum of $144,039.33 was transferred from J Renee to a bank account in the name of Mr and Mrs Gomez with the reference "Richmond & Waterways" (see Reasons, [36]). (Although the Reasons refer in some places to an amount of $149,039.35, the correct amount appears to be $144,039.35.) (b) On 23 January 2014, the sum of $144,039.35 was debited from that account and the same amount was deposited into a Westpac account in the name of Mrs Gomez. (c) On 28 January 2014, a further $30,000 was deposited into Mrs Gomez's Westpac account. (d) On 30 January 2014, $171,100 was withdrawn from Mrs Gomez's Westpac account. (e) On 6 February 2014, the same amount ($171,100) was deposited into a Commonwealth Bank of Australia (CBA) account in the name of Mrs Gomez. (f) On 27 February 2014, the sum of $171,484.90 was withdrawn from Mrs Gomez's CBA account. On the same day, an amount of $171,480 was deposited into a CBA account in the name of JNGO. (g) On 11 April 2014, $100,000 was withdrawn from the JNGO account referred to in (f) above and transferred to another CBA account in the name of JNGO. (h) On 16 April 2014, $60,000 was withdrawn from the JNGO account referred to in (f) above and transferred to another CBA account in the name of JNGO. (i) On 11 April 2014 and 17 April 2014, the sums of $100,000 and $60,000 were transferred by direct debit to a JNGO account with ING (Australia) Ltd (ING Direct). (j) On 5 November 2014, the sum of $153,522.24 was withdrawn from JNGO's ING Direct account. On the same day, that sum was credited to one of JNGO's CBA accounts. (k) On 6 November 2014, the sum of $153,500 was withdrawn from JNGO's CBA account referred to in (j) above and transferred to an account with Rabobank in the name of JNGO. (l) On 7 January 2015, an amount of $149,507.58 was transferred to another JNGO account with Rabobank. (m) On 16 September 2015, an amount of $123,000 was transferred to another JNGO account with Rabobank. 66 On 25 June 2014, the Altona Property was transferred from Mr and Mrs Gomez to Mr Gomez. On the same day, the Hallam Property was transferred from Mr and Mrs Gomez to Mr Gomez. The total consideration for both transfers was $60,000. 67 At trial, an affidavit of a valuer, Samuel Tamblyn, was tendered by Mr Carrafa and admitted into evidence. This gave the following valuations of the properties as at 25 June 2014. The Hallam Property was valued at $370,000 and the Altona Property was valued at $470,000. There was no challenge to the valuation of the Hallam Property, but JNGO challenged the valuation of the Altona Property as at the date of the transfer. It was contended that it was $370,000 rather than $470,000. Mr Carrafa accepted the lower valuation and the primary judge proceeded on this basis (Reasons, [34]). 68 The Hallam Property had a mortgage of $252,000 and the Altona Property had a mortgage of $316,000. Thus the equity in the Hallam Property at the time of transfer was $118,000 and the equity in the Altona Property was $54,000. The primary judge proceeded on the basis that the total equity in the two properties at the time of the transfer was $174,000 (Reasons, [35]). (It is unclear why the figure was $174,000 rather than $172,000, but nothing turns on this.) Mrs Gomez's half share of the equity of the two properties was therefore $87,000. The consideration of $60,000 was substantially less than the market value of her share of the equity in the two properties as at the date of transfer (Reasons, [35]). 69 On 30 October 2015, the Federal Circuit Court made an ex parte order restraining JNGO from dealing in any way with the funds in JNGO's Rabobank account.
The proceeding in the Federal Circuit Court 70 Mr Gomez and JNGO were initially represented by separate solicitors in the Federal Circuit Court proceeding. However, both sets of solicitors withdrew from the record. Mr Gomez later obtained legal representation. 71 The proceeding was set down for a final hearing on 14 June 2016, on an estimate of three days. 72 At an interlocutory hearing, Nathan Gomez was given leave to appear for JNGO.
The adjournment application 73 On the afternoon of Friday 10 June 2016, the last business day before the hearing was due to commence (Monday 13 June being a public holiday), Mr Gomez filed an application in a case, seeking an adjournment of the hearing scheduled to commence on 14 June 2016. The application for an adjournment was filed by Mr Gomez on his own behalf, in circumstances where his solicitors were in the process of seeking leave to cease acting for him. The application was supported by an affidavit of Mr Gomez dated 9 June 2016. The affidavit relevantly stated as follows: 2. As of Monday the 13th of June 2016, I will be self-represented. My current solicitors have given notice of withdrawal. I am currently of ill-health due to a long suffering heart and kidney conditions. I am in need of emergency procedures and will be going in and out of hospital for the next two to three months. 3. As soon as I recover from this current heart procedures I have to attend hospital for further procedures to deal with my kidney problems which have not been booked yet. 4. The freezing orders made by court on my assets have adversely affected my ability to obtain funds to retain proper legal representation for the trial forcing me to represent myself. Several applications to court to vary this freezing order to allow for reasonable legal expenses have been denied. If the freezing orders are varied, I will be in a better position to retain legal counsel and therefore be able to conclude the matter earlier with ease. 5. In any case I believe all necessary paperwork have been filed to date in order to defend my claim against the applicant. I also believe the documents filed do demonstrate that I have a strong claim of defence. However due to my ill health I am not able prepare and to attend court to deal with this at this point in time. 6. Therefore I am respectfully requesting that the court approves my request for adjournment till I am well enough to prepare and attend trial (approximately 3 months from now). 7. I have attached hospital procedure admissions documents with this application. I will not be able to attend the hearing scheduled for the 14th-16th July 2016. (Errors in original.) Attached to the affidavit were letters from Western Health to Mr Gomez setting out details of a pre-admission assessment at 3.00 pm on 14 June 2016 and a procedure on 27 June 2016. 74 On 14 June 2016, the solicitors who had been acting for Mr Gomez were given leave to withdraw. Mr Gomez did not appear. Nor did anyone appear on behalf of JNGO. 75 The primary judge dismissed the adjournment application and gave ex tempore reasons, which were later revised. These are referred to as the "Adjournment Reasons" in these reasons. Her Honour set out the background to the application at [1]-[6] of the Adjournment Reasons. It was noted, at [7], that the Court had attempted to telephone Mr Gomez during the hearing on 14 June 2016, on the mobile number set out as his contact number on his application in a case. The telephone was answered by a woman who said that Mr Gomez was not available. When pressed, she said that he was in hospital. The primary judge then stated (at [8]): That is perhaps an exaggeration. The affidavit in support of the application in a case said that the first respondent had an appointment at 3pm this afternoon at Western Health Cardiology. The letter from Western Health states that it is a health check appointment only, and the first respondent is able to eat and drink before the appointment. The affidavit also said that the first respondent is booked for a coronary angiogram on 27 June 2016. There is nothing in the documents provided by the first respondent in support of his application which suggests that his heart problems are urgent, or that he is currently in hospital. 76 The primary judge then provided the following reasons for dismissing the adjournment application: 9. In the normal course, one would expect that the first respondent would have been able to make an appointment that would fit in with his other commitments. The affidavit sworn by the first respondent, in support of the application in a case, alleges that he has "longsuffering" heart and kidney conditions, that he is in need of emergency procedures, and that he will be going in and out of hospital for the next two to three months. However, there is no evidence from a doctor to say that the first respondent has any such conditions. The only material of an objective, third party nature are two confirmations of appointments from Western Health, one saying there is a review check this afternoon, and the other saying there is to be an angiogram on 27 June 2016. 10. It does not seem to me that it is possible to conclude, on that information, that the first respondent's description of his health problems is accurate. It appears that all that is proposed are investigative procedures, which are not being undertaken with any particular urgency. 11. All in all, I am not persuaded that the reasons that the first respondent has provided are adequate to adjourn the hearing of this matter yet again. As I have mentioned, his appointment today is at 3pm. There has been no evidence given in a proper manner explaining why the first respondent could not attend court this morning to press his application for an adjournment. 12. Clearly the application in a case could also have been dismissed for non-appearance. I accept that the first respondent did not have much notice that the application in a case would be listed at 10am this morning. However, rationally there was no other time when it could have been listed. The first respondent appears to have had some experience in the legal system, and could be expected to know that if he wanted to press his application, he needed to appear to do so. 13. In the circumstances, it seems to me that the only proper order on the application in a case is that it be dismissed. That is for two reasons. Firstly, that the applicant has not appeared to prosecute his application in a case. Secondly, on the material he has provided, there does not appear to be an adequate reason for an adjournment.
The trial before the primary judge 77 Following the dismissal of the adjournment application, the matter proceeded on an undefended basis, finishing on 14 June 2016. Judgment was reserved. 78 On 15 June 2016, Nathan Gomez emailed the Federal Circuit Court seeking, in effect, to have the matter re-opened. 79 On 16 June 2016, the matter was listed for the hearing of the application to re-open. That application was granted, and orders were made for the further hearing of the matter on 11 and 12 July 2016. The hearing proceeded on those days and also on 20 July 2016. Mr Gomez did not appear in person or by a legal representative on 11, 12 or 20 July 2016. Nathan Gomez appeared on behalf of JNGO. 80 Mr Carrafa relied at trial on: two affidavits he had sworn; two affidavits sworn by Ravak Ahmad; and an affidavit of Mr Tamblyn. The affidavits relied on by Mr Carrafa had exhibited to them various source documents including title searches, transfers of land and bank records. 81 JNGO relied at trial on evidence of Mr Gomez, Mrs Gomez and Nathan Gomez. Mr Gomez had sworn three affidavits in the proceeding, at times when he was represented by solicitors. Although he was not available to be cross-examined, the primary judge permitted JNGO to rely on the affidavits, subject to submissions as to weight. Mrs Gomez prepared an affidavit and was cross-examined. 82 Mr Gomez's affidavit evidence, as summarised in the Reasons, was to the effect that: (a) Mrs Gomez was the sole director and shareholder of J Renee; (b) Mr Gomez had no interest in J Renee and was not involved with the management of it; (c) J Renee conducted property development; (d) Mr Gomez and Mrs Gomez owned several properties, namely: (i) the Richmond Property; (ii) the Waterways Property; (iii) the Lavington Property; (iv) the Hallam Property; and (v) the Altona Property; (e) those properties were used as security for advances made to J Renee; (f) Mr and Mrs Gomez provided personal guarantees and mortgages over the jointly owned properties as security for advances made by NAB in favour of J Renee; (g) about $600,000 equity in the Richmond, Lavington and Waterways Properties was lost by reason of the failure of J Renee; (h) J Renee relied on the financial support of Mr and Mrs Gomez to develop properties owned by J Renee and to service the NAB loans; and (i) that financial support was provided by drawdowns on Westpac loan account number 24-2596, which was in the joint names of Mr and Mrs Gomez and was secured against the Hallam and Altona Properties owned by them. 83 Mrs Gomez's affidavit evidence, as summarised in the Reasons, was to the effect that: (a) she and Mr Gomez owned several properties jointly which were used as security for borrowings by J Renee from NAB; (b) she and Mr Gomez also provided personal guarantees for the borrowings of J Renee; (c) because of the failure of J Renee, about $600,000 of the equity in properties jointly owned by Mr and Mrs Gomez was lost; (d) half of that lost equity ($300,000) was attributable to Mr Gomez's interest in the jointly owned properties; (e) about $400,000 was withdrawn from Westpac loan account number 24-2596, which was in the joint names of Mr and Mrs Gomez, for the benefit of J Renee; and (f) Mr Gomez had an equity of exoneration to the extent of about $600,000 in the Hallam and Altona Properties that had been jointly owned by Mr and Mrs Gomez, but which had been transferred to Mr Gomez alone. 84 During the trial, Nathan Gomez initially nominated a Westpac mortgage in the names of Mr and Mrs Gomez (being loan account number 24-2596) as the mortgage relied upon for the purposes of the equity of exoneration contention. However, towards the end of the hearing Nathan Gomez said that all of the mortgages taken out by his parents gave rise to an equity of exoneration.
The Reasons 85 I now outline the Reasons, handed down on 7 December 2016. 86 The primary judge first considered the application of s 120 of the Bankruptcy Act leaving aside JNGO's arguments about the equity of exoneration. Her Honour noted that the date of bankruptcy was 21 August 2014, when the sequestration order was made, and that the date of the commencement of the bankruptcy was 2 July 2014, when Mrs Gomez failed to comply with a bankruptcy notice. The relevant period under s 120 began five years before the commencement of the bankruptcy, that is, on 2 July 2009, and ended on the date of bankruptcy, that is, on 21 August 2014. The transfer of the Hallam and Altona Properties occurred on 25 June 2014, which was within that time period (Reasons, [40]). 87 After noting that there are various statutory exemptions and exceptions under s 120, and that there was no suggestion that any of these applied in the present case, the primary judge held that (subject to JNGO's arguments regarding an equity of exoneration) the transfers of property were void against the trustee in bankruptcy under s 120. In particular, the primary judge held that Mrs Gomez transferred to Mr Gomez her half interests in the Hallam and Altona Properties for less than the market value of those half interests (Reasons, [42]). 88 In relation to the transfer of $171,480 from Mrs Gomez to JNGO on 27 February 2014, the primary judge held that: there was nothing in the material to suggest that there was any consideration for the transfer; and it fell within the time period contemplated by s 120 (Reasons, [43]). The primary judge also said that the fact that the proceeds of sale of the Surf Beach Property were briefly held in an account in the names of Mr and Mrs Gomez did "not alter the fact that $171,480 eventually arrived in an account of the bankrupt and was transferred from there to JNGO" (Reasons, [44]). The primary judge held that, in the circumstances, and subject to JNGO's arguments regarding the equity of exoneration, the transfer of $171,480 was void as against Mr Carrafa (Reasons, [45]). As it happened, Mr Carrafa had only been able to locate $123,139.01, and sought orders in respect of that sum. 89 The primary judge set out extracts from cases on the equity of exoneration at [47]-[50] of the Reasons. These cases included Parsons v McBain (2001) 109 FCR 120; Ierino v Gutta (2012) 43 WAR 372; and Farrugia v Official Receiver in Bankruptcy (1982) 58 FLR 474; 43 ALR 700. 90 At [54]-[109] of the Reasons, the primary judge set out facts relating to the relevant mortgages. This part of the Reasons has been substantially reproduced in the "Background facts" section of these reasons, above. 91 The primary judge considered JNGO's factual contentions, which were said to support the existence of an equity of exoneration (Reasons, [110]-[200]). It is not necessary, for present purposes, to set out the detail of these paragraphs. It suffices to note the primary judge's conclusion at the end of this analysis. Her Honour concluded that "amounts totalling $262,629 were drawn down from the Westpac joint account held by the bankrupt and Irwin Gomez for expenses incurred by J Renee or the bankrupt alone" (Reasons, [200]). 92 The primary judge next considered an argument on behalf of Mr Carrafa that, while some money may have been drawn down from the Westpac account in the name of Mr and Mrs Gomez and used ostensibly for J Renee's or Mrs Gomez's purposes, other funds went from J Renee or Mrs Gomez back to the joint accounts of Mr and Mrs Gomez. In other words, the argument went, "much of the money drawn down from the Westpac joint account ostensibly for J Renee's or the bankrupt's purposes was repaid" (Reasons, [202]). The primary judge found that the payments that had been credited to joint accounts of Mr and Mrs Gomez totalled about $110,000. On this basis, the primary judge concluded that there could not be an equity of exoneration for more than approximately $150,000 (Reasons, [210]). 93 The primary judge considered, and rejected, certain arguments raised by Mr Carrafa at [211]-[217] of the Reasons. These can be put to one side. 94 The primary judge accepted the "fifth reason" put forward by Mr Carrafa against the existence of an equity of exoneration. This reason was that J Renee was part of a group of borrowers that consisted of J Renee, Mrs Gomez and Mr Gomez, "so J Renee's purposes were not separate and distinct from those of the bankrupt and Irwin Gomez" (Reasons, [218]). The primary judge said that the argument relied on the NAB Memorandum, which referred to J Renee, Mrs Gomez and Mr Gomez as "the Gomez Group". The primary judge observed: "However, that situation, in principle, is no different from a husband and wife together borrowing money for the husband's purposes, and an equity of exoneration thereby arising." The primary judge's core reasoning then followed, at [219]-[227]: 219. Nevertheless, although the fact of J Renee, the bankrupt and Irwin Gomez functioning as a group in relation to the NAB borrowings is not in itself fatal to the equity of exoneration claim, the history of the transactions set out above indicates that the purposes of the bankrupt were not distinct from those of her husband, Irwin Gomez. That is, the answer to the question, who got the money, is that they both did. The reasons in support of that conclusion are as follows. 220. The bankrupt and Irwin Gomez bought numerous investment properties together before J Renee was incorporated. That is, they were in the business of property investment together. There is nothing to show that the borrowings by the bankrupt and Irwin Gomez for the purposes of their investments in Richmond, Waterways, Lavington, Albury and Altona North, which all occurred before J Renee was incorporated, were for anything other than their joint benefit. In all of the circumstances of this case, including for the reasons that follow, I infer that the further investments and property development after J Renee was incorporated were also for their joint benefit. 221. The NAB memorandum set out at [80] explains that the NAB mortgage the subject of that memorandum was to discharge an existing liability of the bankrupt and Irwin Gomez, and add J Renee as a mortgagor. Therefore, at least part of the benefit of that mortgage was for Irwin Gomez, as his existing liability was discharged. 222. The balance of the NAB mortgage the subject of the memorandum could, in theory, have given rise to an equity of exoneration. However, the respondents did not show the court how or when that mortgage was drawn down, or for what precise purpose. In the absence of such evidence, it is not possible to accept that the balance of the NAB mortgage the subject of that memorandum was for the sole benefit of J Renee or the bankrupt. 223. Indeed, the respondents did not demonstrate to the court how or when any of the NAB mortgages were drawn down and exactly where the money the subject of those mortgages went. I do not accept the respondents' unsubstantiated assertions that the NAB money was used for the purposes of J Renee, when the court was not shown a document trail, when the bankrupt made the implausible claims to the court described above which cannot be accepted and which reflect poorly on her credibility, when Irwin Gomez was not available for cross-examination and when the many of the respondents' claims about the drawdowns from the Westpac mortgage did not survive close examination. Moreover, the bulk of the respondents' case was not that the NAB mortgages gave rise to an equity of exoneration, but that the Westpac mortgage did. It was only in relation to the Westpac mortgage that the respondents attempted to show that the drawdowns were for the benefit of J Renee or the bankrupt. 224. The bankrupt and Irwin Gomez presented to the NAB as a group, consisting of themselves, J Renee and Nathans Solutions, of which Irwin Gomez was a director and 50 per cent shareholder. J Renee was described as the property investment arm of the group and Nathans Solutions was described as the building company of the group. I infer from those facts that J Renee and Nathans Solutions were incorporated for the mutual benefit of the bankrupt and Irwin Gomez, to better achieve their joint property investment and property development goals. Consequently, things done ostensibly for the benefit of J Renee cannot be regarded as not for the benefit of Irwin Gomez also. 225. It is clear that the bankrupt, Irwin Gomez, J Renee and Nathans Solutions were not treated by each other as separate and distinct entities. For example, Nathan Gomez said in relation to item 2 in the drawdowns discussed above that the name Nathans Solutions was "just put" on some invoices for no particular reason: Tr.11.7.16, p.161, l.9. There were numerous examples of drawdowns that the respondents claimed were for the benefit of J Renee that, on closer examination, were clearly for the bankrupt and Irwin Gomez jointly, or that were for Nathans Solutions. There were also numerous examples of a simple intermingling of finances. 226. In these circumstances, I do not accept that the claim for an equity of exoneration can be maintained. It simply has not been established that things done ostensibly for the purposes of J Renee or the bankrupt were not also done for the benefit of Irwin Gomez directly, or indirectly via Nathans Solutions. 227. The respondents, in fact, have only shown snippets of the whole story. To establish an equity of exoneration, they would have needed to produce complete financial records and trace the various payments right through to the ultimate beneficiary, and provide sufficient information to show whether any money was repaid. That has not been done. (Emphasis added.) 95 Insofar as JNGO sought to rely on the guarantees, this was rejected at [228]-[229]: 228. The respondents also argued that Irwin Gomez had a right to recover against the bankrupt because he was a guarantor of various loans. However, there is no evidence that there was any call on Irwin Gomez as a guarantor. Consequently, this claim must fail. 229. It may be that the NAB recovered against certain properties that had been owned and mortgaged by Irwin Gomez and in respect of which he also provided a personal guarantee. However, in the absence of any evidence of a call on the guarantees, I can only conclude that the NAB acted pursuant to its rights as a mortgagee, not its rights under the guarantees. 96 The primary judge provided additional reasons for rejecting JNGO's contentions in relation to the funds transferred to JNGO, at [230]-[233]: 230. Nathan Gomez swore an affidavit on 1 December 2015, when he was represented by solicitors. He said that: a) he was the sole director and secretary of JNGO; b) JNGO was a trustee company c) the beneficiaries of the trust were himself, his sister and JNGO; d) JNGO was established to undertake foreign exchange ("FOREX") trading; e) his mother, the bankrupt, was a signatory on JNGO's accounts for convenience and she does not have authority to undertake transactions on the accounts without his consent; f) the payment of $171,480 to JNGO on 27 February 2014 was a loan from his father, Irwin Gomez, to JNGO to enable JNGO to undertake FOREX trading; g) the loan was repayable on demand on 30 days' notice; and h) Irwin Gomez gave JNGO $14,559.95 on 15 August 2014. 231. It was alleged that the funds transferred by the bankrupt to JNGO were actually funds owned by Irwin Gomez that he lent to JNGO. It was alleged that the bankrupt owed Irwin Gomez money, pursuant to the equity of exoneration, and he directed the bankrupt to pay that money to JNGO as a loan from Irwin Gomez to JNGO. 232. The bank records described above show clearly that the proceeds of sale of J Renee's property at Surf Beach went to J Renee's account, then to a joint account of the bankrupt and Irwin Gomez, then to the bankrupt's own account, then to another of her own accounts and then to JNGO. There is no document linking this money to Irwin Gomez, except that the proceeds of sale of a property owned by J Renee were held briefly in an account of which Irwin Gomez was a joint account holder. That is not a material circumstance. There was no written agreement regarding a debt owed by the bankrupt to Irwin Gomez or a loan between Irwin Gomez and JNGO. There was no equity of exoneration that led to the bankrupt owing money to Irwin Gomez. 233. I do not accept the claims of the Gomez family that the transfer from the bankrupt to JNGO was in reality a loan from Irwin Gomez to JNGO. Having observed them in the witness box, I did not find the bankrupt and Nathan Gomez to be credible witnesses in this regard. It has not been demonstrated that the transfer to JNGO was anything other than a transfer of the bankrupt's money to JNGO. As such, it is voidable under s.120 of the Act. (Emphasis added.) 97 For these reasons, the primary judge rejected the equity of exoneration contention.
The declarations and orders 98 On 7 December 2016, the primary judge made declarations and orders. The declarations were as follows: 1. The transfer of the bankrupt's interest in the property situated at … Hinrichsen Drive, Hallam in the State of Victoria (certificate of title volume 09970 folio 306), to the first respondent registered on or about 23 May 2014, is void pursuant to s.120 of the Bankruptcy Act 1966. 2. The transfer of the bankrupt's interest in the property situated at 2 Hatherley Grove, Altona North in the State of Victoria (certificate of title volume 05218 folio 573), to the first respondent registered on or about 23 May 2014, is void pursuant to s.120 of the Bankruptcy Act 1966. 3. The transfer of $171,100 from the bankrupt's Commonwealth Bank of Australia (ACN 123 123 124) bank account no. 10821202 on 27 February 2014 to JNGO Pty Ltd ("JNGO") is void against the applicant, pursuant to s.120 the Bankruptcy Act 1966. 4. The funds held in Rabobank (ACN 001 621 129) ("Rabobank") bank account no. 142-201-3587482-21 in the name of JNGO with a current balance of $123,139.01 are the property of the bankrupt. 99 The primary judge made an order to the effect that Rabobank pay the sum of $123,139.01, held in JNGO's account, to Mr Carrafa.
The appeal 100 The appellants (who are not legally represented) initially filed an application for leave to appeal from the orders of the primary judge. However, at a case management hearing in relation to the appeal, I raised with the parties whether leave to appeal was required. Counsel for Mr Carrafa expressed the view that the decision below was final and, accordingly, leave to appeal was not required. In these circumstances, I made an order granting the appellants an extension of time in which to file a notice of appeal. They subsequently filed a notice of appeal in accordance with that leave. One of the grounds of appeal related to the refusal of Mr Gomez's application for an adjournment. I gave Mr Gomez leave to appeal from that decision. 101 The appellants appeal from the orders made by the primary judge on 7 December 2016. The grounds of appeal also challenge the refusal of Mr Gomez's adjournment application on 14 June 2016. The appellants contend that the primary judge erred on the following grounds: 1. Erred in Law by denial of procedural fairness and a fair trial a. Assets Frozen The trial judge had refused to allow for funds for the defence although several repeated requests have been made before and during the trial. The appellant's defence during the trial has been compromised substantially due to these actions. b. The trial judge erred in law by compelling the first appellant to go unrepresented before and during the trial. c. The trial judge erred in law and fact by not allowing funds to have the accounts prepared for court using an expert but instead had chosen to state paragraph 51. d. Instilling and imparting false confidence and not adhering to assurances made. i. The trial judge had erred in law by instilling false confidence and not adhering to assurances made to the appellants before and during the trial. ii. The trial judge had erred in law by misleading the appellants that the court had the ability and the capacity to follow large volumes of complex company and personal accounts. e. Erred in law by allowing stereotypical questions to be asked by during cross-examination and relying on these for the judgment. f. Erred in law and fact by dismissing the application made by the first appellant to adjourn the hearing for 3 months due to his serious illness. The trial judge erred in law by assuming that she had medical expertise to make determinations. g. The trial judge erred in law by making unethical decisions giving more weightage to court timetable rather than a person's health. h. Erred in law by forcing the appellants to do and present complex accounts and related paperwork to court which they are not capable of or do not possess adequate skills for. i. Erred in law by exercising bias: i. By allowing a hearsay document that were objected to during the trial and into the judgement - the so called "NAB Memorandum". ii. Allowing the respondent's counsel's objections to pass without proper reasoning, and aiding counsel with his objections. iii. But dismissing the appellant's objections to the hearsay document without giving proper reasoning. 2. Erred in law and fact by making a multitude of erroneous assumptions a. Trying to discredit witness testimony relying on erroneous assumptions with no evidence. b. Deriving erroneous assumptions from third-party representations that no-one testified for, or which were testified by witness to be untrue. c. The use of something "may have happened' but no evidence showing that it 'did happen". d. In Paragraph 219, the trial judge had relied on the respondent's allegation "who got the money, is that they both did". No evidence of any money or "how much it was?", that the first appellant received, was ever shown by the respondent. e. Neglecting to understand the facts of matters correctly. f. Multiple payments refuted as unaccountable using erroneous assumptions. 3. Erred in law and fact by not considering or understanding key evidential information a. Neglecting to consider or understand key evidential information provided by the appellant. b. Neglecting to address the fact that no evidence has been provided by the respondent to refute the evidence provided by the appellants. c. In paragraph 51, the trial judge states that there are gaps in the evidence, but fails to state what the gaps are. d. Erred in law by contradicting her own judgement/judicial opinion. e. Erred in fact by not doing the calculations accurately. f. Erred in law and fact by not addressing the calculations, figures and detail of flow of funds in the appellant's submissions particularly after requesting for it. g. Erred in law and fact by giving very little consideration to the respondent's submission. 4. Erred in law by not giving due consideration to the lack of legal incapacity of the appellant during the trial: a. Not allowing for cross-examination of the respondent. b. Not allowing for proper questioning of the witness due to constant interruptions and objections by respondent's counsel and by the court. Aiding the respondent's counsel with his objections but dismissing my objections without proper reasoning. c. Not allowing for legal representation when requested, to assist being able to understand the legal arguments and implications that were transpiring during the trial. d. Erred in law by allowing legal contentions during the trial without warning or explanation. 5. Erred in law and fact by throwing in a whole lot of past cases with no or very little reference made in support of the judgement. 6. Erred in law and fact by not clearly distinguishing or understanding the difference in functions of the different entities involved in the proceeding. 7. Erred in law and fact by allowing inadmissible third-party hearsay documents as evidence in the case. 8. Erred in law and fact by relying on incorrect statements, tendering incorrect and statements the witness testified against. 9. Erred in law and fact by not correctly applying the equitable doctrine of exoneration: a. No tangible benefit received was ever shown by the respondent. b. Merging of company and personal finances into one. Not a single bank statement was shown to support this. c. The case used in paragraph 23 in support of the judgement depicts a dissimilar scenario to the present one. Careful consideration was not given to the significant differences. 10. Erred in law and fact by not correctly applying the equitable doctrine of subrogation. a. The trial judge does not seem to understand the law nor how guarantees operate in financial institutions. (Errors in original.) 102 These grounds of appeal were supplemented by particulars, set out in a separate document. 103 At the hearing of the appeal, I gave leave for Nathan Gomez (who is not a lawyer) to appear for the appellants. 104 The parties filed written outlines of submissions in advance of the hearing of the appeal (including an outline of reply submissions by the appellants). During the hearing of the appeal, the appellants also handed up a copy of the "submissions of the respondents" filed 27 July 2016 in the Federal Circuit Court proceeding and a one-page submission headed "Paragraphs of disputed transactions". Following the hearing, the appellants filed (with leave) a further submission on certain cases that had been relied on by Mr Carrafa during the hearing of the appeal.
Applicable principles 105 The principal legal issue raised by the appeal concerns the equity of exoneration. 106 In Farrugia v Official Receiver in Bankruptcy (1982) 58 FLR 474; 43 ALR 700, Deane J described the equity of exoneration in the following terms (at 476). Although the following passage is expressed in terms of a married woman, it is now accepted that the principle is not so confined: Where the property of a married woman is mortgaged or charged in order to raise money for the benefit of her husband, it is presumed, in the absence of evidence showing an intention to the contrary, that, as between her husband and herself, she meant to charge her property merely as a surety. In such a case, she is, as between her husband and herself, in the position of surety and entitled both to be indemnified by the husband and to throw the debt primarily on his estate to the exoneration of her own. … 107 A particular issue that arose in that case concerned apportionment. The issue arose in the following way (as explained by Deane J at 476). An amount of $12,500 of the total amount borrowed had been applied for the joint benefit of Mr and Mrs Farrugia upon the discharge of the previous mortgage under which they were jointly liable. It was only the balance of $10,500 that was applied for the benefit of Mr Farrugia alone. In these circumstances, a question that arose was whether the one borrowing could, for the purposes of the application of the relevant equitable principles, be "in effect subdivided into what was borrowed and applied for the joint benefit of Mr and Mrs Farrugia and what was borrowed and applied for Mr Farrugia's benefit alone". Deane J concluded that such an approach was available (at 477): It seems to me that where the joint property is charged partially for the benefit of the husband alone and partly for the benefit of both husband and wife and it is possible to apportion the principal between the two, there is room for the application of the equitable doctrine of exoneration and the wife is, in the absence of agreement to the contrary, entitled to exoneration to the extent of what was borrowed and applied for the benefit of the husband alone … 108 The equity of exoneration was discussed by the Full Court of this Court (Black CJ, Kiefel and Finkelstein JJ) in Parsons v McBain (2001) 109 FCR 120. The Full Court stated, at [18], that the equity of exoneration is summarised in the following passage in Fisher & Lightwood's Law of Mortgage (Aust ed, Butterworths, 1995) at [30.7]: It is a well established principle that a person who has mortgaged his property to secure the debt of another stands only in the position of a surety and is entitled to be exonerated by the principal debtor. In this position is a wife who has mortgaged her property to secure money raised for the benefit of her husband. There is a similar equity in favour of a husband. Where the property of the wife, or property over which she has a power of appointment, is mortgaged, and the money is paid to her and her husband, or to him alone, it is considered prima facie that it was borrowed for his benefit, and his property is first applied, as for payment of his own debt, unless the presumption is rebutted by proof on the part of the husband, that the whole or some part of the money did not come to his hands. If the debt was not originally incurred for the benefit of the husband, this equity of exoneration does not arise by reason of his giving a covenant as additional security. The result will be the same, where the husband has paid off the mortgage, and has taken an assignment of it in trust for himself. 109 The Full Court stated (at [19]) that it was once thought that this doctrine was limited to husband and wife, but the authorities show that the doctrine is not so limited, and will apply in other cases. The Full Court continued (at [20]-[21]): 20 The equity of exoneration is an incident of the relationship between surety and principal debtor. It usually arises where a person has mortgaged his property to secure the debt of another, whether or not that other has covenanted to pay the debt. However, it will also arise in a case where, although not an actual suretyship, the relationship is treated as one of suretyship. This is Lord Selbourne's third class of suretyship mentioned in Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1 at 10. For the doctrine to apply in this class, the following facts will usually exist. First, a person must charge his property. Where the person is the beneficial owner of the property it will be sufficient if the charge is by his trustee. Secondly, the charge must be for the purpose of raising money to pay the debts of another person or to otherwise benefit that other person. Thirdly, the money so borrowed must be applied for that purpose. See generally Re Berry (a Bankrupt) [1978] 2 NZLR 373. 21 An equity of exoneration operates in the nature of "a charge upon the estate of the principal debtor by way of indemnity for the purpose of enforcing against that estate the right which [the beneficiary] has, as between [the beneficiary] and the principal debtor, to have that estate resorted to first for the payment of the debt": Gee v Liddell at 72. Thus, where co-owners mortgage their property so that money can be borrowed for the benefit of one mortgagor, the other has an interest in the property of the co-mortgagor whose property is to be regarded as primarily liable to pay the debt. 110 The Full Court noted (at [23]) that, if a surety receives a benefit from the loan, the equity of exoneration may be defeated: So, if the borrowed funds are applied to discharge the surety's debts, the surety could not claim exoneration, at least in respect of the benefit received. But the benefit must be from the loan itself. The question suggested by the Lord Chancellor of Ireland is: "Who got the money?": see Re Kiely (1857) Ir Ch Rep 394 at 405. In Paget v Paget [1898] 1 Ch 470 both the husband and the wife "got the money" and this prevented the wife claiming exoneration. 111 On the facts of Parsons v McBain, it was held (at [24]) that the benefit or expected benefit was too remote to defeat the equity of exoneration. The benefit or expected benefit was that, by putting money into the partnership business, the business might survive and that would bring "home money to put food on the table and clothe the children" (see [22]). In any event, the Full Court said at [24], any such benefit was incapable of valuation and therefore could not defeat the equity of exoneration. 112 The equity of exoneration was discussed by the Court of Appeal of the Supreme Court of Western Australia in Ierino v Gutta (2012) 43 WAR 372, in which the principal reasons were delivered by Edelman J, with whom Pullin and Newnes JJA agreed. After referring to the judgment of Deane J in Farrugia, Edelman J said (at [31]) that it was common ground on the appeal that the modern expression of the equity of exoneration is not confined to the relationship of husband and wife. Edelman J added: "This assumption is correct." Edelman J noted (at [32]) that in one of the cases to which reference was made on the appeal (Offıcial Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116 at 129-130) some doubt had been expressed about the continued operation of a principle "established in an earlier age when a wife's property existed only in equity, and equity, in a number of special rules including this one, protected property interests of wives against the legal and social dominance of their husbands". However, as explained by Edelman J at [32]-[37], the doctrine now exists on a much wider, and more principled, basis. As stated at [37]: "This principled basis for the equity of exoneration is the simple notion that effect should be given to the intention of the parties that, as between them, it is intended that the burden of a debt should be borne by one, and the other should be exonerated." His Honour stated (at [38]): The intention with which the equity of exoneration is concerned is a manifest, or objective, intention. Although the equity of exoneration gives rise to an indemnity secured against the principal debtor's estate, rather than a resulting trust of that estate, it shares the feature with a resulting trust that it is not concerned with unexpressed, subjective intentions of the parties but with objective manifest intentions: see, in relation to resulting trusts, Calverley v Green (1984) 155 CLR 242 at 261 per Mason and Brennan JJ, at 270 per Deane J; Byrnes v Kendle (2011) 243 CLR 253 at [105]-[106] per Heydon and Crennan JJ. 113 Edelman J discussed the time at which the equity of exoneration is to be assessed. His Honour said (at [46]) that, in cases where the relevant debt is an apportionable part of a line of credit, the relevant time for assessing the intention of the parties is the time when that part of the debt is drawn down and incurred. Edelman J discussed whether the language of "presumption" or "inference" is preferable and expressed the view, at [56], that, although it is a semantic matter, "the preferable approach today may be simply to consider whether in the circumstances of the case the relevant intention of the parties is manifest". 114 The equity of exoneration can apply where jointly owned property is mortgaged to secure the indebtedness of one co-owner: Fisher & Lightwood's Law of Mortgage (3rd Aust ed, LexisNexis Butterworths, 2014) at [30.7], citing In re Pittortou (A Bankrupt) [1985] 1 WLR 58 and Farrugia. 115 In relation to the equity of exoneration generally, see also Armstrong v Onyearu [2017] 3 WLR 1304; [2017] EWCA Civ 268 at [24]-[84] per Richards LJ (with whom Sir Geoffrey Vos C and Sir Patrick Elias agreed). Richards LJ discussed Parsons v McBain at [70]-[73], [76] and [82]-[83]. 116 It has been accepted that an equity of exoneration can arise in circumstances where the primary debtor is a company owned by the relevant individual and not only where the primary debtor is the relevant individual himself or herself: see Day v Shaw [2014] EWHC 36 (Ch) at [34]-[36]. For example, if a property that is jointly owned by a husband and wife is mortgaged to secure a loan to the husband's company, an equity of exoneration is capable of arising. Thus, in the present case, it was contended that properties jointly owned by Mr and Mrs Gomez were mortgaged to secure loans to J Renee and that Mrs Gomez thereby obtained a benefit. Subject to establishing the elements of the equity, it is capable of arising in such a situation. 117 I note that, in the present case, the relevant Westpac loan account was in the joint names of Mr and Mrs Gomez rather than, for example, J Renee. It was contended by Mr Carrafa before the primary judge that an equity of exoneration could not arise in circumstances where there was a joint account of the husband and wife (see In re Berry [1978] 2 NZLR 373). However, the primary judge rejected this submission at [217] of the Reasons. Her Honour held that the fact that the loan account was in the joint names of Mr and Mrs Gomez did not preclude an equity of exoneration arising. In the course of submissions on the appeal, counsel for Mr Carrafa accepted that the fact that the loan account was in the names of Mr and Mrs Gomez is not a bar to an equity of exoneration arising, but submitted that it is a relevant factor (T160-161). I therefore proceed on the basis that the fact that the loan account was in the names of Mr and Mrs Gomez does not preclude an equity of exoneration arising. 118 While the trustee in bankruptcy, as the moving party in an application under s 120 of the Bankruptcy Act, has the onus of proving the elements of s 120(1), if the respondent seeks to rely on an equity of exoneration by way of defence, the onus lies on the respondent to establish the equity. This is an application of the general principle that the burden of proof lies on a plaintiff "if the fact alleged … is an essential element in his cause of action" and the onus is on the defendant "if the allegation is not a denial of an essential ingredient in the cause of action, but is one which, if established, will constitute a good defence, that is, an 'avoidance' of the claims which, prima facie, the plaintiff has": Currie v Dempsey (1967) 69 SR (NSW) 116 at 125 per Walsh JA; see also Heydon JD, Cross on Evidence (11th Aust ed, LexisNexis Butterworths, 2017) at [7060]-[7075].
Consideration 119 There is some overlap and repetition between the grounds of appeal. In these circumstances, it will be convenient to address the grounds by reference to the issues that they raise, rather than by addressing the grounds in sequential order. This is consistent with the approach taken by the parties in their oral submissions. Accordingly, I will address the grounds of appeal under the following headings: (a) Adjournment. (b) Procedural fairness. (c) Hearsay. (d) Equity of exoneration. (e) Factual matters. (f) Other.
Adjournment 120 The appellants contend that the primary judge erred in refusing Mr Gomez's application dated 10 June 2016 for an adjournment of the final hearing of the proceeding, which was listed for hearing on 14 June 2016. Details of the application and affidavit in support have been set out above. The primary judge's reasons for dismissing the application have also been set out above. 121 The appellants submit that the primary judge's reasons for judgment dated 14 June 2016 were "unethical, insensitive and immoral". Further, they submit that those reasons were "wrong and ill-conceived". It is also submitted that the primary judge erred "by assuming that she had medical expertise to make determinations" and that the primary judge made "unethical decisions" by "giving more weightage to court timetable rather than a person's health". 122 Having reviewed the material filed in support of the adjournment application, and taking into account the facts and circumstances, I do not consider that any error is shown in the primary judge's refusal of the adjournment. The material filed in support of the application was inadequate. It did not specifically address whether Mr Gomez was able to appear in Court at the hearing of the proceeding. It was not supported by evidence of a medical practitioner. 123 Mr Gomez did not appear at 10.00 am on 14 June 2016 at the hearing of this adjournment application. As the primary judge said in the Adjournment Reasons, while Mr Gomez did not have much notice that the adjournment application would be listed then, "rationally there was no other time when it could have been listed". 124 Further, I note that, as described above, on 15 June 2016, Nathan Gomez emailed the Federal Circuit Court seeking, in effect, to have the matter re-opened. The primary judge granted the application to re-open on 16 June 2016. The matter was then listed for further hearing on 11 and 12 July 2016. It proceeded on those days, and also on 20 July 2016. Thus, although the adjournment was not granted, the hearing took place about a month after the original hearing date. This gave Mr Gomez a considerable amount of additional time. 125 For these reasons, I reject the grounds of appeal relating to the refusal of Mr Gomez's application for an adjournment. It is appropriate that I add that the contention that the primary judge acted unethically or improperly has no proper basis.
Procedural fairness 126 A number of the appellants' grounds of appeal raise matters concerning the conduct of the trial. In various ways, it is alleged that the primary judge denied the appellants (or, more accurately, JNGO, as Mr Gomez did not appear at trial) procedural fairness. 127 One of the main complaints is that the primary judge refused to allow assets that were the subject of a restraining order to be applied towards legal fees and other defence costs. As noted above, on 30 October 2015, the primary judge made an ex parte restraining order. Subsequently, Mr Gomez and JNGO applied to the primary judge for a variation of the order so that funds could be applied towards legal fees and other defence costs (for example, to engage a forensic accountant). These applications were refused. In effect, these applications were renewed during the course of the trial. The appellants contend that, in these circumstances, they were denied procedural fairness. 128 In my view, the appellants have not established that these circumstances amounted to a denial of procedural fairness. It was open to the primary judge to refuse to vary the restraining order during the course of the trial in the circumstances. The fact that neither Mr Gomez nor JNGO had legal representation at the trial did not constitute a denial of procedural fairness. JNGO was represented, with leave, by Nathan Gomez. I note also that, as JNGO relied on Mr Gomez's equity of exoneration defence, evidence was advanced and submissions were made in relation to the defence even though Mr Gomez did not appear (see the Reasons at [9]). 129 A related submission made by the appellants is that the primary judge erred by making the statements in [51] of the Reasons in circumstances where she had denied Mr Gomez and JNGO access to the assets that were the subject of the restraining order for the purposes of engaging an expert to prepare accounts. In [51] of the Reasons, the primary judge said: Unlike the cases mentioned above, the potentially relevant mortgages and other relevant transactions in the present case were numerous. This is not a case in which there was a single mortgage that secured a single borrowing that was all drawn down on one occasion. On the contrary, the borrowing history of the bankrupt, the first respondent and their associated companies was very extensive. It included various borrowings and refinancings for the purposes of property development. The evidence was extensive but piecemeal, and not presented in a coherent manner. There are clearly many gaps in the evidence. 130 The above paragraph needs to be read in the context of the Reasons as a whole. The primary judge undertook a detailed and careful examination of the financial material that had been presented to her by Nathan Gomez on behalf of JNGO at [110]-[200] of the Reasons. In undertaking this analysis, the primary judge implicitly made due allowance for the fact that JNGO was not legally represented and did not have access to funds to engage, for example, a forensic accountant. It was nevertheless open to her Honour to make the statements in [51] of the Reasons, and these statements do not demonstrate or suggest procedural unfairness. 131 The appellants contend that the primary judge denied them procedural fairness by "[i]nstilling and imparting false confidence and not adhering to assurances made". In particular, the appellants contend that the primary judge misled the appellants by indicating that "the court had the ability and the capacity to follow large volumes of complex company and personal accounts". In my view, the appellants' submissions to the effect that the primary judge did not have the ability to review the financial material presented to her are contradicted by the detailed and careful analysis of this material in the Reasons. Further, based on the parts of the transcript to which I was taken or referred during the appeal hearing, I do not consider that the primary judge gave any assurances or imparted false confidence in the appellants in relation to the conduct of the trial. 132 It is also contended that the primary judge erred "by forcing the appellants to do and present complex accounts and related paperwork to court which they are not capable of or do not possess adequate skills for". This contention would appear to overlap with the contention regarding the refusal to vary the restraining order to permit funds to be applied towards defence costs. For the reasons given above, I do not accept that this amounted to a denial of procedural fairness. 133 The appellants allege that the primary judge displayed bias by allowing Mr Carrafa's counsel's objections "without proper reasoning" and by "aiding" Mr Carrafa's counsel with his objections. I have reviewed the passages of the transcript to which I was taken or referred in the course of the appeal hearing. I do not think there is any substance to this complaint. 134 The appellants contend that the primary judge erred by "compelling [Mr Gomez] to go unrepresented before and during the trial". This contention would appear to overlap with the contentions concerning the restraining order and, possibly, the contentions relating to the adjournment application. For the reasons given above in relation to those contentions, I reject this contention. 135 The appellants contend that the primary judge erred "by allowing stereotypical questions to be asked … during cross-examination and relying on these for the judgment". There is no substance to this ground. 136 The appellants contend that the primary judge erred by not allowing Nathan Gomez to cross-examine Mr Carrafa. It appears that the proposed cross-examination related to documents such as bank statements annexed to the affidavits filed in support of his case. Mr Carrafa did not have personal knowledge of the documents about which it was proposed to question him and would not have been able to give relevant evidence about the documents. In these circumstances, no error is shown in the primary judge's ruling. 137 The appellants contend that the primary judge erred by "[n]ot allowing for proper questioning of the witness due to constant interruptions and objections by [Mr Carrafa's] counsel and by the court". I have reviewed the parts of the transcript to which I was taken or referred in the course of the appeal hearing and do not consider there to be any substance to this contention. 138 The appellants contend that the primary judge erred by "[n]ot allowing for legal representation when requested, to assist being able to understand the legal arguments and implications that were transpiring during the trial". This contention appears to overlap with the contentions regarding the restraining order. I refer to my reasons, above, for rejecting those contentions. 139 The appellants contend that the primary judge erred by "allowing legal contentions during the trial without warning or explanation". The appellants have not demonstrated that they were given insufficient opportunity to respond to legal contentions raised by Mr Carrafa at trial. 140 The appellants contend that the primary judge erred "by giving very little consideration to [JNGO's] submission". This contention appears to relate to the primary judge's consideration of the factual material, as it forms part of ground 3. I do not accept that the primary judge erred in this regard. To the contrary, her Honour carefully considered the factual material put forward by JNGO. 141 The appellants refer in their outline of submissions to [18] of the Reasons. This paragraph includes a finding based on Mrs Gomez's statement of affairs to the effect that she continued to be liable for both mortgages after the transfers of the Hallam Property and the Altona Property. The appellants submit that this finding was not part of Mr Carrafa's submissions and that the primary judge was "insistent in pursuing this point". They submit that this demonstrates "bias and a shift of focus onto spending time on immaterial matters". I do not accept this submission. The findings in [18] were relevant to the issues. They do not provide a proper basis for alleging bias. Further, I do not consider there to be any merit in the other bias contentions of the appellants. 142 The appellants in their outline of submissions make a number of other procedural fairness allegations concerning the manner in which the trial was conducted. These were not developed in oral submissions and I was not taken to material (eg, in the trial transcript) to substantiate such allegations.
Hearsay 143 The appellants contend that the primary judge erred in admitting the NAB Memorandum into evidence. They contend that it was inadmissible on the ground of hearsay. Further, the appellants contend that the primary judge dismissed the objections to the document without giving proper reasoning. 144 I do not accept these contentions. The NAB Memorandum fell within the 'business records' exception to the hearsay rule in s 69 of the Evidence Act 1995 (Cth). Before setting out s 69, I refer to s 59(1) of the Evidence Act, which provides as follows: Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation. 145 Section 69 provides an exception to the hearsay rule for business records. It relevantly provides: (1) This section applies to a document that: (a) either: (i) is or forms part of the records belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business; or (ii) at any time was or formed part of such a record; and (b) contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business. (2) The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made: (a) by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact; or (b) on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact. 146 Section 48 deals with the proof of the content of documents. It provides that a party may adduce evidence of the contents of a document in question by (among other things) "tendering a document that … forms part of the records of or kept by a business (whether or not the business is still in existence)" and "is or purports to be a copy of … the document in question" (s 48(1)(e)). Further, s 58 deals with inferences as to relevance. It provides that, if a question arises as to the relevance of a document, the court may examine it and may draw any reasonable inference from it "including an inference as to its authenticity or identity". 147 In the present case, the NAB Memorandum was produced by NAB in response to a subpoena. It contains information relating to an assessment of a loan application made by, among others, Mr and Mrs Gomez. Each of the elements of the business records exception set out in s 69 was satisfied. The document formed part of the records belonging to or kept by a person or organisation (NAB) in the course of, or for the purposes of, a business. The document contained previous representations made or recorded in the course of, or for the purposes of, the business. Further, the relevant representations in the document were made on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted facts. In these circumstances, the hearsay rule did not apply to the document insofar as it contained the relevant representations. For these reasons, no error is shown in relation to the primary judge's decision to admit the NAB Memorandum into evidence. For completeness, I note that I do not consider that the primary judge erred by not excluding the document on the ground that it was unfairly prejudicial to a party (see Evidence Act, s 135). Mrs Gomez was able to give evidence about the matters set out in the document and, indeed, did so when asked questions about it during cross-examination.
Equity of exoneration 148 The appellants contend that the primary judge erred by not correctly applying the equity of exoneration. They contend that "[n]o tangible benefit received was ever shown". As I understand this contention, the appellants submit that it was not shown that Mr Gomez received any tangible benefit from the amounts lent to J Renee. The appellants contend that the primary judge erred by "[m]erging of company and personal finances into one", and that "[n]ot a single bank statement was shown to support this". As I understand this contention, the appellants submit that the primary judge erred by treating J Renee's finances and Mr and Mrs Gomez's finances as one. 149 I do not accept these submissions. The primary judge set out the correct principles at [47]-[50] of the Reasons. The primary judge applied these principles correctly in the balance of the Reasons. The key issue was whether it was shown that properties owned jointly by Mr and Mrs Gomez were used as security for a loan or loans for the benefit of Mrs Gomez alone. JNGO's contention principally relied on amounts advanced by Westpac by way of drawdowns on account 24-2596 (a joint account in the names of Mr and Mrs Gomez). The equity of exoneration contention relied on amounts advanced to J Renee rather than to Mrs Gomez herself. This raised the question whether amounts advanced to J Renee should be treated as for the benefit of Mrs Gomez alone. It was in this context that the primary judge undertook an analysis of whether J Renee was a company conducting business activities for the benefit of both Mr and Mrs Gomez, notwithstanding that Mrs Gomez was the sole director and shareholder of that company. It was open to the primary judge to approach the issue in this way. This was consistent with the applicable principles. 150 Some of the submissions in the appellants' outline of submissions relate to the onus of proof to be applied in considering the equity of exoneration. They submit that the primary judge "placed an unfair evidential burden on the appellants" and that the primary judge did not allow "for this burden to shift" to Mr Carrafa. 151 I do not accept these submissions. In my view, as indicated at [118] above, where a respondent to an application under s 120 of the Bankruptcy Act seeks to rely on an equity of exoneration by way of defence, the onus lies on the respondent to establish the equity. In the present case, therefore, the onus was on Mr Gomez and JNGO to establish the equity of exoneration defence. It was therefore incumbent upon them to establish that properties owned jointly by Mr and Mrs Gomez were used as security for a loan or loans for the benefit of Mrs Gomez alone. This is unsurprising as Mr and Mrs Gomez had personal knowledge of all the relevant facts and matters. 152 The appellants also submit that the primary judge erred "by attempting to reverse the burden of compiling the accounts onto [JNGO] towards the end of the trial" in circumstances where the primary judge "had taken on that responsibility herself before and during the trial". There is no substance to this submission. For the reasons given above, Mr Gomez and JNGO had the onus of establishing the equity of exoneration defence. Based on my review of the parts of the transcript to which I was taken or referred during the appeal hearing, the primary judge did not say or do anything to give the impression that the onus did not lie with Mr Gomez and JNGO.
Factual matters 153 The appellants contend that the primary judge erred in relation to certain factual findings. 154 The appellants make a series of submissions in relation to ground 3 of the notice of appeal. These include submissions, in summary, that the primary judge erred by: (a) "[t]rying to discredit witnesses' testimony relying on erroneous assumptions with no substantiated evidence or incorrect statements"; (b) "[d]eriving erroneous assumptions from third-party representations that no-one testified for, or which were testified by witness to be untrue"; (c) relying on what "may have happened" rather than evidence of what "did happen"; (d) finding that the answer to the question, who got the money, was that they both did, in circumstances where there was no evidence that Mr Gomez received any money and Mr Carrafa did not show how much it was; and (e) neglecting to understand factual matters correctly. 155 In relation to ground 4 of the notice of appeal, the appellants submit, in summary, that the primary judge erred by: (a) "[n]eglecting to consider or understand key evidential information provided by the appellants"; (b) "[n]eglecting to address the fact that no evidence [had] been provided by [Mr Carrafa] to refute the evidence provided by the appellants"; (c) stating, in [51] of the Reasons, that there were gaps in the evidence, but failing to state what the gaps were; (d) contradicting her own judgment; (e) not carrying out the calculations correctly; and (f) not addressing the calculations, figures and details of the flow of funds in the appellants' submissions. 156 In my view, the appellants have not demonstrated that the primary judge erred in the process of fact finding in any material respect. The factual sections of the Reasons, in particular at [54]-[109] and [110]-[200] of the Reasons, are supported by evidence as described in those paragraphs. The appellants pointed to a number of paragraphs that they said were in error (such as [103] and [104]), but these do not have a material effect on the overall conclusions. During the appeal hearing, the appellants submitted, in relation to [117]-[199] of the Reasons, that the primary judge had erred by not accepting some of the cheque butts as evidence of payments to which they referred, and by not taking interest into account in her calculations. However, these submissions, even if correct, would not affect the outcome of the appeal unless the appellants are able to overcome the primary judge's findings and essential reasoning at [218]-[227] of the Reasons. For the reasons set out below, in my view the appellants are unable to overcome those paragraphs of the Reasons. It is therefore unnecessary to examine each of the factual submissions relating to [117]-[199] of the Reasons. 157 The appellants, in their outline of submissions, submit that the primary judge accepted in [210] of the Reasons that an equity of exoneration of approximately $150,000 existed. On this basis, they contend that the first two declarations should not have been made. However, this submission involves a misunderstanding of the primary judge's statement at [210] of the Reasons. Having undertaken the analysis set out in the preceding paragraphs, her Honour stated in [210] that she did "not accept that there could be an equity of exoneration for more than approximately $150,000". In other words, this was the maximum amount of any equity of exoneration if such an equity could be established. 158 The appellants submit that the primary judge erred in finding, at [219] of the Reasons, that the "purposes of the bankrupt were not distinct from those of her husband" and that the answer to the question, "who got the money?" is that they both did. Further, the appellants submit that the primary judge erred in finding, at [220] of the Reasons, that "the further investments and property development after J Renee was incorporated were also for their joint benefit", that is, the joint benefit of Mr and Mrs Gomez. The appellants submit that: the primary judge failed to distinguish between the functions of the entities; the personal joint properties were purchased as established dwellings and were long-term investments, rather than property developments; the properties of J Renee were all new subdivisions, constructions and developments that were on-sold in a short period of time after development and carried with them higher monetary risk; Mr Gomez never received any benefit from J Renee at any stage; and Mr Carrafa and the primary judge "both failed to show any benefit to date". The appellants also submit that any indirect benefit obtained by Mr Gomez was too remote, relying in particular on Parsons v McBain (2001) 109 FCR 120 and Day v Shaw [2014] EWHC 36 (Ch). I do not accept these submissions. In my view, the findings of the primary judge at [219] and [220] of the Reasons were open on the evidence and no error is shown in the making of these findings. This is not a case where it is easy to separate out a loan to one person secured by a mortgage provided by another person. In the present case, there were many properties, some owned by Mr and Mrs Gomez, some owned by J Renee, and one owned by Nathans Solutions. There were many different mortgages and facilities. And there were numerous transfers of money between accounts with no clearly discernible pattern or purpose. For example, substantial amounts were paid by J Renee into Westpac account number 24-2596. This was a joint loan account in the names of Mr and Mrs Gomez. At least some of these payments may be taken to indicate that J Renee's business was being conducted for the benefit of both Mr and Mrs Gomez. Further, again by way of example, the NAB facility was expanded to add J Renee as a borrower in addition to Mr and Mrs Gomez. Thus, a joint facility was provided to Mr and Mrs Gomez and J Renee secured by a number of properties, some owned by Mr and Mrs Gomez and some owned by J Renee. 159 The appellants submit that the primary judge erred by relying on the NAB Memorandum at [221] of the Reasons. In that paragraph, the primary judge stated that the NAB mortgage the subject of the memorandum "was to discharge an existing liability of the bankrupt and Irwin Gomez, and add J Renee as a mortgagor". The primary judge stated: "Therefore, at least part of the benefit of that mortgage was for Irwin Gomez, as his existing liability was discharged." This may not be accurate. As set out above, the memorandum sought approval to increase an existing $780,000 facility with NAB to a $1.43 million facility. The existing facility was in the names of Mr and Mrs Gomez. It was proposed to add J Renee as a borrowing entity. The increase in the facility was to be used to refinance debt from Owen Law solicitors. It was stated that "the clients" currently had a $1 million debt with Owen Law solicitors that was used to fund a three unit development at Dorgan Street, Mount Waverley. The table set out in the memorandum indicates that that property was owned by J Renee (rather than Mr and Mrs Gomez). Thus, to the extent that the memorandum discussed a proposal to increase the facility with NAB, this would appear to be to refinance debt owed by J Renee (see also SCB 268). I note that the memorandum also discussed a proposal to sell vacant land in Glen Waverley that had been mortgaged to NAB. This property was owned by Nathans Solutions, a company associated with Mr Gomez. To this extent, the memorandum discussed release of a security held by NAB. However, the submission was not directed to this transaction. 160 However, even if, as indicated above, the statement in the last sentence of [221] of the Reasons was not supported by the NAB Memorandum, the error was not material to the primary judge's decision. This was just one matter relied on by the primary judge in relation to the NAB mortgages. Essentially, in relation to the NAB mortgages, her Honour reasoned that JNGO "did not demonstrate to the court how or when any of the NAB mortgages were drawn down and exactly where the money the subject of the mortgages went". It was open to her Honour to reason in this way. No error has been shown in this approach. 161 The appellants submit that the primary judge erred by stating that JNGO "did not show the court how or when the [NAB] mortgage was drawn down, or for what precise purpose" (Reasons, [222]). A similar contention is made in relation to [223] and [227] of the Reasons. In [227] of the Reasons, the primary judge said that JNGO had "only shown snippets of the whole story" and that, to establish an equity of exoneration, Mr Gomez and JNGO "would have needed to produce complete financial records and trace the various payments right through to the ultimate beneficiary, and provide sufficient information to show whether any money was repaid". In my view, this approach was open given the facts and circumstances of the case and the state of the evidence. The approach discussed by Deane J in Farrugia is available where apportionment is possible. In the present case, it was open to the primary judge to conclude that, given the multitude of financial transactions between accounts, and the state of the evidence in relation to those transactions, apportionment was not possible. 162 The appellants submit that the primary judge erred in relying on the NAB Memorandum at [224] of the Reasons. In that paragraph, the primary judge stated that Mr and Mrs Gomez "presented to the NAB as a group, consisting of themselves, J Renee and Nathans Solutions, of which Irwin Gomez was a director and 50 per cent shareholder". Her Honour then noted that J Renee was described as the property investment arm of the group and Nathans Solutions was described as the building company of the group. The appellants challenge these findings on the basis that no one testified that the representations to this effect in the NAB Memorandum were correct. However, this submission overlooks the evidence of Mrs Gomez during cross-examination, when taken to the NAB Memorandum. The trial transcript includes the following passage (pp 327-328): And if you read on, you will see I put to you what it says there: Irwin Gomez and Kalaiselvi Gomez operate two companies which make up the Gomez Group. And you will see the first is J Renee Nominees Proprietary Limited. And the notation says this: This entity was formed in March 2004 and is the property investment arm of this group. Director is [Kalaiselvi] Gomez. Company owns two properties. ? - Yes. First of all, to your knowledge is that a correct statement as at the time? - Yes. Yes? - The company J Renee was always operated by me. Nathan Solutions, have you got that? That's the second company in the Gomez Group? - Yes. Continuing: This entity had been the building company of the group. Now, I will stop there. Is that a true statement? - That's a very vague statement, I would say. That's - sorry? - That's a very vague statement. Well, is it true? - Well, it depends on how you see it. Well, did it ever act as a builder? - Yes, it did. Okay: Currently has one property in its name. Now, would you agree with that? - Yes. This is at 2007? - Yes. And you would agree. If you have a look at that table below, that property is 6 Henderson Court, Glen Waverly? - That's right. Yes: Directors of this company are both Irwin and Kalaiselvi Gomez - correct? - That's right. Continuing: Company is now a computer consultancy business that pays directors fees to [Selvi] and Irwin. Is that correct? - That's right. 163 In the above passage, Mrs Gomez accepted that Nathans Solutions had acted as a builder. Although Nathan Gomez in oral submissions on the appeal was adamant that the company had not acted as a builder, Mrs Gomez gave evidence that it had. The primary judge was entitled to rely on that evidence. Further, Mrs Gomez acceded to the proposition that J Renee was the property investment arm of the group. It is true that she then qualified this statement by stating that J Renee was always operated by her. Nevertheless, the proposition in the appellants' submissions that the primary judge relied only on the NAB Memorandum and there was no witness evidence is incorrect.
Other 164 The grounds of appeal also refer to the doctrine of subrogation and include a contention that the primary judge did "not seem to understand the law nor how guarantees operate in financial institutions". Insofar as JNGO sought to rely on guarantees given by Mr Gomez, the primary judge dealt with this at [228]-[229] of the Reasons. Her Honour's key reason for rejecting this aspect of the defence was that there was no evidence that there was any call on Mr Gomez as guarantor. The appellants have not demonstrated that this finding was in error. In any event, it is not clear how the appellants seek to rely on the guarantees and how it is said that this assists their case beyond the equity of exoneration contention. Further, it is difficult to see how the doctrine of subrogation (which would potentially give Mr Gomez rights against J Renee) assists the appellants. Accordingly, I reject this ground of appeal.
Conclusion 165 For the reasons set out above, the appeal is to be dismissed. There is no apparent reason why costs should not follow the event. Accordingly, I will also order that the appellants pay Mr Carrafa's costs of the appeal. However, as there were no submissions on costs, I will give each party a short period of time in which to seek a variation of this costs order. I certify that the preceding one hundred and sixty-five (165) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.
Gomez
Carrafa
(1982) 58 FLR 474
(2012) 43 WAR 372
(1995) 38 NSWLR 116
(2001) 109 FCR 120
(1984) 155 CLR 242
(2011) 243 CLR 253