Johnson (Trustee), in the matter of McCardle v McCardle

Serious issue to be tried 40 The parties' submissions focussed primarily on the potential operation of s 120 of the Act. It relevantly provides: 120 Undervalued transactions Transfers that are void against trustee (1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if: (a) the transfer took place in the period beginning 5 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 value than the market value of the property. Note: For the application of this section where consideration is given to a third party rather than the transferor, see section 121A. … (3) Despite subsection (1), a transfer is not void against the trustee if: (a) in the case of a transfer to a related entity of the transferor: (i) the transfer took place more than 4 years before the commencement of the bankruptcy; and (ii) the transferee proves that, at the time of the transfer, the transferor was solvent; or (b) in any other case: (i) the transfer took place more than 2 years before the commencement of the bankruptcy; and (ii) the transferee proves that, at the time of the transfer, the transferor was solvent. Rebuttable presumption of insolvency (3A) For the purposes of subsection (3), a rebuttable presumption arises that the transferor was insolvent at the time of the transfer if it is established that the transferor: (a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor's business transactions and financial position; or (b) having kept such books, accounts and records, has not preserved them. 41 The phrase "market value" in relation to property is defined to mean the market value of the property at the time of the transfer: s 120(7)(c). 42 For the reasons given below, and on the assumption that the respondents can make out their case that the car was transferred to the fund in 2012, I am satisfied that there is a serious question to be tried as to whether such a transfer was void as against the applicant. In the circumstances, it is not necessary that I express any view as to whether there is also a serious question to be tried in relation to the applicant's alternative claims under s 121 and 128B of the Act. 43 The first respondent relies upon her affidavit affirmed on 10 October 2016. Exhibited to the affidavit is a document dated 12 January 2012 titled "Deed of Intention between Roxanne McCardle and McCardle Motors Pty Ltd Superannuation Fund". It states: Upon receipt of Red 1963 Austin Healey BJ8 3000 Phase 1 Mark III, of 6,246 miles and with Chassis No HBJ8L/25714, Vin No 29KRUIH528 then it is noted the intention once the super fund accounts are transferred, upon Andrew Morris' attendance on financial statements, that the said vehicle be transferred at market value to the super fund for investment purposes. The market value will be between $40,000 and $55,000 and yet to be agreed 44 That document, if authentic, is evidence that the respondents did indeed intend that the car would be sold at market value by the first respondent to the second respondent upon it coming into the first respondent's possession. 45 At [21] of the affidavit, the first respondent states: As a result of the ex-husband's obstruction in transferring the superannuation fund to me, and some other issues of non-compliance, that it was not until the second half of 2012 that I actually had possession of the superannuation fund. For this reason, the monetary transfer for the vehicle did not occur until much later in 2012. Annexed and marked with the letters "RMC5" is a copy of the bank statements showing the relevant monetary transfers and also some vehicle costs which amount to around $45,000 being paid for the vehicle. 46 Exhibit RMC5 comprises two pages from two different bank statements in respect of an account held at BankSA in the name of "WISECREW INVESTMENTS PTY LTD ATF MCCARDLE MOTORS SUPERANNUATION". The statements are addressed "C/- Ms R McCardle". The bank statements are partially redacted by the concealing of content with a black marker. The debit column, insofar as it is not redacted, shows debits made by way of internet withdrawals in August and September 2012, being seven withdrawals in the amount of $5,000.00 and two withdrawals in the amount of $1,000.00. Those are the withdrawals relied upon by the respondents as evidence that the second respondent paid the first respondent for the car. The withdrawals total $37,000.00. 47 In the column titled "Transaction Description" each of those withdrawals is referred to as an "internet withdrawal". Beneath that description, there is, in each case, a black line, indicating that words from the bank statement have been redacted. The attempts to conceal the content of the documents have, however, been unsuccessful. The words describing each transaction are legible beneath the black marks. The nine withdrawals I have mentioned are described as "Wisecrew Investments", "barrister fees/ ref 12057", "Barrister fees Ref 12057", "12057 M Pyke", "RMCCardle, Pyke", "McCardle, Pyke", "shares", "part pay asset into fund" and "McCardle-Pyke". With one exception (being an entry of $1,000.00 titled "part pay asset into fund"), those descriptions fairly support an inference that the transfers affirmed by the first respondent to evidence part payments as consideration for the transfer of the car are in fact, to the knowledge of the first respondent, transfers for the purpose of paying monies owed by the first respondent to a barrister, and also a payment of money relating to shares. The descriptions raise a real dispute as to whether the car was transferred to the second respondent for any consideration. The inference is open that the first respondent has drawn down money from the superannuation fund to pay debts entirely unrelated to the fund. 48 No satisfactory explanation has been given by the first respondent for her conduct in redacting obviously relevant material from the bank statements before exhibiting them to her affidavit. Nor has any adequate explanation been given for the difference between the nature of the descriptions given on the bank statements and purpose of the withdrawals deposed to in the first respondent's affidavit evidence. When asked in these proceedings to explain her conduct in redacting the material the first respondent responded, through her Counsel, in terms that asserted that the "matters" redacted from the bank statements "related to her own personal business and had nothing to do with, you know, matters relating to her bankruptcy". 49 That is a peculiar response given that the affidavit evidence of the first respondent was to the effect that the bank statements evidenced payments made by the second respondent to the first respondent as consideration for the transfer of the car forming the very subject matter of her dispute with the applicant. Critically, the first respondent did not seek to assert that the second respondent's payments totalling $37,000.00 were made by way of the second respondent discharging debts owed by the first respondent to a third party. 50 The content of the redacted material, and the fact of the redaction, give rise to a genuine dispute concerning the first respondent's veracity in relation to all of her claims. Further issues arise as to the potential relevance and significance of other redacted material before the Court. A further example is an email from the first respondent's accountant dated 27 November 2012 in which the accountant appears to respond to a request for advice made by the first respondent concerning the transfer of the car to the superannuation fund. The email opens as follows: Hi Roxanne, Further to today's meeting I provide you with some feedback on the ability to hold the abovementioned collectible car in your personal self managed super fund (SMSF). You stated that its worth $75,000, and to date you only withdrew $37,000 of the sale proceeds from the SMSF - and that this transaction was done in October 2012. 51 To that extent the email lends prima facie support to the position advanced by the respondents on this application insofar as it evidences a prior consistent statement concerning the alleged transfer. However, the remainder of the email is redacted, this time successfully. When the Court asked the respondents' Counsel to explain why that was so, the following exchange occurred: HER HONOUR: But does the redacted portion of this email shed any light on the question that I have asked you? The email is redacted and it's unclear to me why that should be so. Why has it been redacted? MR O'BRIEN: Yes. So my instructors are, your Honour, that at the time the accountant believes that, as to whether it was a contribution to the superannuation fund, whereas Ms McCardle's view is that there wasn't any contribution, it was an actual sale of the vehicle for which the superannuation paid, you know, that amount of money, you know, the 40 … HER HONOUR: That seems to me to be a fairly critical issue, Mr O'Brien. Why - if that's the subject matter of the redacted material from this email why isn't it before the court? MR O'BRIEN: Well, my submission, your Honour, it's not dealing with the actual, you know, that concern. Not dealing with the actual sale of the vehicle. The vehicle has been sold. There was a preliminary payment for it and then there was a subsequent payment for it. And so it's not regarded as any form of contribution, it's simply the purchase by the superannuation fund at a value which is consistent with what she had in her affidavit of financial circumstances in the Family Court so … HER HONOUR: Is your client prepared to disclose the unredacted portion of this email to the court? MR O'BRIEN: Yes. Yes, she has no objection to that, your Honour. 52 Notwithstanding Counsel's intimation, the first respondent did not disclose the redacted material, nor did she disclose any other material redacted from other documents exhibited to her affidavits, although she was given 14 days to do so. In the circumstances, for the purposes of determining the present application I consider there to be a genuine issue to be tried as to the authenticity of, the meaning of, and the weight to be accorded to the documentary material that may be relied upon by the respondents at trial. The unsuccessfully redacted portions of the bank statements belie the first respondent's evidence concerning the purpose for which certain payments were allegedly made. Although the respondents may rely on prior consistent statements at trial to the effect that the second respondent was (or was at least believed or asserted to be) the owner of the car since mid to late 2012, those prior statements do not assist the respondents on the question of whether the car was acquired by the second respondent for at least its market value. I include in that assessment a statutory declaration made by the first respondent in November 2013 in which she declared that the car was held and owned by the second respondent but did not declare what, if any, consideration was paid for it. I also include in that assessment the accountant's email which, on its face, may support an inference that a car, said by the first respondent herself to be worth $75,000.00, may have been sold for only $37,000.00. 53 Furthermore, an inference fairly arises from the SoA that the transfer of the car to the second respondent was made for no consideration. The first respondent seeks to explain the entries that appear to read "NIL" by asserting that the entries in fact read "N/K". The entry "N/K" is alleged to mean "not known". There is, in my opinion, a serious question to be tried as to whether the first respondent stated (and intended to state) NIL in response to critical questions concerning the amount actually paid by the second respondent for the car in the SoA. It is not for the Court at this stage of the proceedings to finally resolve that aspect of the dispute, nor to resolve the issues of credibility and authenticity to which I have referred. 54 There are, inconsistencies in the respondents' evidence as to how much was in fact paid by the second respondent to the first respondent as consideration upon the transfer of the car in any event. The bank statements indicate transfers totalling $37,000.00. The first respondent otherwise asserts that the second respondent paid $55,000.00. There is no evidence of actual payments totalling $55,000.00 being made by the second respondent to the first respondent in consideration for the transfer of the car. I am satisfied that even if the sum of $37,000.00 was paid in consideration for the transfer of the car, there remains a serious issue to be tried as to whether that sum was less than the car's market value at the relevant time within the meaning of s 120(1)(b) of the Act. 55 In relation to s 120(3) of the Act, there is, as I have said, a serious question to be tried as to whether the first and second respondents are related entities for the purpose of s 120(3)(a) of the Act. Section 120(3)(a) of the Act could not assist the respondents in that event because on their case, the transfer did not take effect until September or October 2012, being less than four years before the date of commencement of the bankruptcy: see s 120(3)(a)(i). Even assuming that the first and second respondents are not related entities, the onus would remain on the second respondent to prove that, at the time of the transfer of the car, the first respondent was solvent: see s 120(3)(b)(ii). There is, I am satisfied, a serious question to be tried as to the first respondent's solvency in 2012 and continuing. As I have already mentioned, there is prima facie evidence that the money held in the superannuation fund may well have been drawn upon by the first respondent for purposes other than that permitted by the documents constituting and governing the fund, namely for the purpose of paying debts owed to a barrister that, it may be inferred, were the first respondent's personal debts. That of itself gives rise to an issue concerning the ability of the first respondent to pay her personal debts as and when they fell due at or around the time of the alleged transfer. The onus in any event will be on the second respondent to prove the first respondent's solvency. 56 In all of the circumstances, I am satisfied that the issues to be tried are sufficiently serious to satisfy the threshold requirement for an interlocutory injunction restraining the respondents from dealing with the car other than under the supervision of the Court, pending the resolution of the substantive dispute.

The balance of convenience 57 On the question of the balance of convenience, the first respondent's affidavit affirmed on 10 October 2016 states (at [35]): … any potential sale of the vehicle [is] also effectively compromised (especially on price) and so this entire proceeding has further fall out on myself and on my super fund, and I say it has been quite obviously deliberately prosecuted to cause detriment without any concern for the issue of costs not only for myself and the superannuation fund, but also for the bankrupt estate; 58 The applicant contends that there is a real chance that if the respondents are not restrained from selling the car or dealing with the proceeds of any sale, the car or the proceeds will be lost, at the expense of the creditors of the first respondent's bankrupt estate. 59 The applicant's submission should be accepted for two reasons. First, I am satisfied that the first respondent has conducted these proceedings in such a manner as to indicate that she is so firmly entrenched in her position that she will not consider any sensible compromise providing for the preservation of the proceeds of the sale of the car. Second, the first respondent has demonstrated by the tenor and content of her written materials that she perceives her dispute with the applicant to be inseparable from her acrimonious and long-running dispute with her former husband and her more recent dispute with her former family lawyer. For the reasons that follow, these interrelated circumstances give rise to an appreciable risk that the respondents may dissipate the asset or its sale proceeds unless restrained by the Court. 60 On 15 September 2016, the applicant's solicitor wrote to the first respondent in the following terms: We refer to previous correspondence. Putting aside the dispute regarding the true ownership of the Austin Healey motor vehicle and whether it can be successfully claimed by our client as part of your bankrupt estate, we note that you appear to be interested in selling the motor vehicle for the best possible price. Our client is prepared to consent to a sale of the motor vehicle on suitable terms and conditions, including an agreement as to the minimum price, method of sale and retention of a suitable motor vehicle dealer to assist in the marketing and sale of the motor vehicle. Any such agreement to sell the vehicle would have to be on the basis that the net proceeds of sale after the dealer's agreed commission, fees and marketing expenses are paid, are either deposited into court if such a facility is maintained by the Federal Court, or alternatively, are banked into a joint interest-bearing account in the name of yourself and our client. Both yourself and our client would have to be the joint signatories to that term deposit and the net proceeds would remain banked until the Federal Court determines the dispute or alternatively there is a further written agreement between yourself and our client. The advantage of such a process would be that you and our client would not need to expend any further resources on maintain/opposing the injunction and we could get to the core of the issues in dispute. We look forward to hearing from you on this matter. 61 The suggested compromise is an eminently sensible one. It is consistent with the overarching principles of case management and, had it been accepted, would have enabled the parties to proceed to trial on the substantive issues, rather than engage in a costly dispute as to whether an interlocutory injunction ought to be made: see s 37M of the Federal Court of Australia Act 1976 (Cth). 62 In an unexpected turn of events, the respondents' Counsel stated, late in submissions on 2 November 2016, that the applicant's proposal of the sale of the car and the preservation of the sale proceeds was acceptable to the respondents. No email or other correspondence evidencing the terms of any binding agreement was tendered by either party. In those unusual circumstances, the Court delayed the reservation of judgment on this application and the delivery of these reasons so that the terms of a binding settlement agreement (if any) on the interlocutory question could be confirmed and then communicated to the Court within a prescribed time frame. Neither party has informed the Court of the fact or terms of any such binding settlement agreement. I proceed on the basis that the proposal for settlement as stated in the correspondence of 15 September 2016 remains open, but is, for reasons that have not been explained, unacceptable to the respondents. 63 The respondents have not themselves proffered to the Court any alternative form of orders to reflect or advance what would appear to be a sensible compromise. The unusual circumstances as I have described them weigh heavily in the exercise of my discretion, particularly on the question of whether it is necessary and appropriate for the Court to make orders to safeguard the interests of the creditors of the first respondent's bankrupt estate. 64 Further as to the balance of convenience, I am satisfied that the car is not a wasting asset. It is unlikely to depreciate in value if it is not sold prior to the delivery of judgment on the applicant's claims. Orders may be fashioned so as to permit its sale with the consent of the applicant. It is for the applicant to consider his position as to whether to grant any such consent (and the conditions that might attach) having regard to the usual undertakings he has given as to damages. 65 Finally, I have taken into account all of the submissions made by the respondents concerning the conduct of the applicant in first seeking an interim injunction on an ex parte basis. I am satisfied that the applicant did not act improperly in adopting that course. The applicant properly concluded that the first respondent had caused the car to be removed from CCC at a time when she was aware that the applicant had asserted title in it and had asserted an entitlement to additional information from her concerning the alleged transfer to the second respondent which she had not, at that time, provided. I am also satisfied that the second respondent was clearly on notice of the applicant's position, by virtue of the first respondent's status as its director at all material times. The first respondent did not notify the applicant of her intentions to have the car removed from CCC. The applicant's concerns that the respondents intended to sell the car and dissipate the sale proceeds were, in all of the circumstances, genuine and reasonable given the tenor and content of the first respondent's communication with him. It was not inappropriate for the applicant to proceed ex parte, nor have the respondents persuaded me that the applicant otherwise secured the interim relief improperly. Furthermore, the order for the interim injunction was framed in terms prohibiting the sale of the car for only a few days. I am not satisfied that the respondents would have adopted any different position in these proceedings had they been notified of the applicant's intention to seek an injunction at any earlier time. They would, I am satisfied, have remained as unwilling to compromise as they remain as at the date of this judgment. 66 On the whole, I am satisfied that the applicant has satisfied the criteria for the injunctive relief he seeks, albeit with some modifications to the terms of the order to provide, among other things, for the sale of the car should the applicant grant his consent for that to be done. It is appropriate that the order permit the applicant to impose conditions upon the grant of any such consent, including in relation to the preservation or investment of any net proceeds of sale. 67 I will hear further submissions from the parties in relation to the following proposed orders:

1. Subject to the orders in paragraphs 2, 3 and 4, each of the respondents be restrained until further order from doing any of the following acts in relation to the 1963 Austin Healey 3000 BJ 8 Phase 1 Mark III motor vehicle chassis number HBJ8L/25714 forming the subject matter of this action ("the motor vehicle"): (a) transferring, selling, charging, pledging, mortgaging, assigning, hiring or lending the motor vehicle or offering to do any such act; (b) moving, altering or using the motor vehicle for any purpose other than its proper maintenance and preservation; (c) causing or permitting any person to do any of the acts mentioned in paragraph 1(a) or 1(b) herein.
2. The respondents or either of them may do an act specified in paragraph 1 of these orders with the written consent of the applicant.
3. The applicant may impose conditions upon any grant of consent made in accordance with paragraph 2.
4. The respondents must comply with the conditions of any grant of consent imposed in accordance with paragraph 3.

THE ABUSE APPLICATION 68 The respondents submit that there was a fair and reasonable basis upon which to bring the Abuse Application. They contend that they withdrew the Abuse Application upon receiving and reading the affidavit of the applicant sworn on 2 November 2016. That affidavit was served upon the respondents' solicitor only a short time before the hearing on 2 November 2016 commenced, although certain documents annexed to it were provided a few days prior. 69 The allegations made in support of the Abuse Application were wide-ranging and serious. I will refer to only a few of them. 70 It was alleged that the applicant had a real or perceived conflict of interest because he had previously indicated that he would consent to act as trustee of the first respondent's bankrupt estate in respect of the creditor's petition filed by Mr Oxenham (which was never heard and determined) and that his appointment was the result of a conspiracy between the applicant, Mr Oxenham and the first respondent's former husband. That allegation was misconceived. The applicant's affidavit of 2 November 2016 was said to have altered the first respondent's views in that regard. 71 The first respondent's explanation for withdrawing the Abuse Application on that basis is not an acceptable one. The first respondent had been promptly advised that the applicant was appointed as the substitute trustee of her bankrupt estate by the operation of s 181A of the Act. The first respondent is a legal practitioner and is legally represented in these proceedings. The ordinary operation of s 181A of the Act ought to have been appreciated by her. Insofar as she might have subscribed to a theory that her former husband or Mr Oxenham might somehow have had a hand in the applicant's appointment, her theory was ill-considered. The applicant should not be deprived of his costs by reason of his giving a more full explanation on 2 November 2016 of the facts and law concerning his appointment. 72 It was then alleged that the applicant had wrongly relied in this Court on a document that had been filed by the first respondent in the FMC proceedings. It was said that his use of the document was contrary to the law or otherwise improper. As the Abuse Application has been withdrawn, I am not called upon to finally determine whether there has been any such misuse of the document in question. I am, however, satisfied that if the document was not properly before this Court that circumstance would not, of itself, justify an order that the entire proceedings be dismissed as an abuse of process. I do not consider that the receipt of the applicant's affidavit of 2 November 2016 had any bearing on the respondents' eleventh-hour decision to withdraw their allegations concerning the FMC document. 73 It was also contended that the applicant had acted in excess of his powers by making enquiries of first respondent in relation to the financial affairs of the second respondent and the alleged transfer of the car. That submission finds no support in the Act itself. The applicant was clearly entitled to make the relevant enquiries of the first respondent, particularly having regard to her status as a director of the second respondent. 74 The complaints made on the Abuse Application went further than the examples I have given. They included serious allegations that the applicant had failed to act impartially and that he has otherwise knowingly acted contrary to the law. The allegations are all withdrawn. 75 Having regard to the content and tenor of the respondents' written materials, I am satisfied that the Abuse Application was motivated by a sense of anger and victimisation on the first respondent's part, supported by a belief that her former husband and Mr Oxenham were benefiting from the wrongful exercise of the applicant's powers and functions. In all of the circumstances, I am not satisfied that the Abuse Application would not have been brought even if the material contained in or exhibited to the applicant's affidavit of 2 November 2016 had been disclosed at any earlier time. I infer that the application was withdrawn upon a belated reconsideration of its merits. 76 The respondents should jointly and severally pay the applicant's costs of the Abuse Application. I will hear from the parties on the specific terms of a costs order that will minimise the potential for further disputes in relation to the assessment of the respondent's costs to date. I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Charlesworth.