Marchesi v Apostolou

REASONS FOR JUDGMENT 1 The applicant is the trustee of the bankrupt estate of the second respondent, Andrew Vasiliou. The proceeding concerns the nature of Mr Vasiliou's interest in three real properties in suburban Melbourne. Mr Vasiliou is the registered proprietor in each case, but he claims that the beneficial interest is owned by the Vasiliou Family Trust, of which his wife, Vasiliki Apostolou, the first respondent, is trustee. Mr Vasiliou claims that he made a gift of the properties to his family trust in 1987 and that, although the transfer was not registered, the gift was complete in equity, and that the trust has thereafter been the beneficial owner of the properties. 2 When this proceeding was commenced in March 2005, the applicant claimed that the beneficial title to each of the properties vested in him pursuant to s 58 of the Bankruptcy Act 1966 (Cth) ('the Act'). It was in response to that claim that Mr Vasiliou asserted that he had made an equitable gift of the properties in 1987. Alternatively, the applicant claims that, if Mr Vasiliou held the bare legal interest, he (Vasiliou) was entitled to an indemnity out of the trust property for certain debts which he had incurred in relation to the subject properties, that his right to indemnity vested in the applicant pursuant to s 58 of the Act and that the properties were charged in favour of the applicant with payment of certain remuneration, liabilities, expenses etc. By an Amended Application for which Weinberg J gave leave on 18 April 2006, the applicant specified 13 separate liabilities of the Vasiliou Family Trust, said to arise in connection with the subject properties, for which Mr Vasiliou would be entitled to an indemnity, the right to which had vested in the applicant pursuant to s 58. At this stage, therefore, the issues in contention in the proceeding, broadly stated, were whether Mr Vasiliou or the family trust held the beneficial interest in the properties, and, if the latter, whether Mr Vasiliou was entitled to some, and if so what, indemnity by the trust for debts which he incurred qua trustee. 3 The trial of the proceeding was conducted before Weinberg J in April 2006. His Honour held that Mr Vasiliou's attempted gift of the properties in 1987 was not complete in equity, and that he retained the beneficial interest in the properties. As a result, he made the orders which the applicant sought: Marchesi v Apostolou [2006] FCA 1122. 4 The respondents appealed from the judgment of Weinberg J. On 21 December 2006, their appeal was upheld, and it was ordered that there be a new trial of the proceeding: Vasiliou v Marchesi [2006] FCAFC 197. 5 On 7 February 2007, the proceeding came before me for directions. Mr Galvin, who appeared for the applicant, foreshadowed an application for leave further to amend the Application. He said that the applicant desired also to allege that the alleged gift in 1987, if effective in equity, was done to defraud Mr Vasiliou's creditors, as Mr Galvin put it, in which respect the applicant would rely upon s 121 of the Act. Recognising that this amendment, if made, would introduce a new legal and factual basis to support the applicant's claims, I asked Mr Vasiliou whether he would be able to deal with the matter, considering that the proceeding was listed for trial on 6 March 2007 (subsequently set back to 7 March 2007). Mr Vasiliou made it quite clear that he would be able to deal with the new ground. He said "Yes, I can deal with it. There is no problem. I can deal with anything." Ms Apostolou's position was the same as Mr Vasiliou's on this as on other matters. 6 I ordered that, if the applicant desired to amend his Application, he file and serve a proposed Amended Application by 8 February 2007 (ie the following day). The applicant did so proceed, proposing a new claim in the affidavit for a declaration that, if there were an effective transfer of the beneficial interest in the properties to the Vasiliou Family Trust, such transfers were void as against the applicant pursuant to s 121 of the Act. On 26 February 2007, Mr Vasiliou contacted my chambers and stated that he proposed to resist the applicant's application for leave to amend. In the circumstances, I thought it appropriate that the matter be resolved prior to trial, and I heard argument about it on 28 February 2007. 7 I was informed by Mr Galvin that the applicant's proposed case under s 121 of the Act would rely upon subs (2) thereof in particular, under which a transfer of property is taken to have been for the purpose of defrauding creditors if "it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent". In this respect the applicant proposes to rely upon a dispute which Mr Vasiliou had with the Deputy Commissioner of Taxation in 1988, and which related to claims for unpaid tax extending back over a number of years. The applicant will contend that, at the time of the purported gift of the subject properties in 1987, it would reasonably have been inferred that Mr Vasiliou was unable to pay his debts as and when they fell due. For the purposes of justifying his application for leave to amend, the applicant pointed to certain aspects of Mr Vasiliou's dispute with the Deputy Commissioner as giving rise to that inference. 8 In dealing with the applicant's application to amend, I propose to consider three questions: first, whether the new point is so manifestly devoid of merit that the application should be refused on that ground alone; secondly, whether the applicant has any legitimate explanation for leaving it until this late in the piece before applying to amend; and thirdly, whether, in the exercise of the court's discretion, leave to amend should be granted. 9 As to the first issue, the applicant relies upon two documents. He relies first upon a statement of the respondents' contentions filed in court on 18 April 2006 for the purposes of the trial before Weinberg J. With reference to the time at which Mr Vasiliou purportedly executed gifts of the properties to the family trust, paragraphs 6, 7 and 8 of those contentions stated as follows: Soon after that time a major investigation was made by Australian Taxation Office (ATO) against Andrew Vasiliou (AV) personal income on the last seven years and an amended tax assessment where being served against AV for an amount of $556,000.00 by ATO. AV lodged an objection to that tax amendments/assessments and in January 1989 the ATO made an Offer to AV to settle with the ATO for a full and final payment including penalties and interests for a total amount of $113,000.00 if made without further appeals or objections to ATO. At the same time ATO placed caveats and advised AV that he must not deal with any property registered in his name including leasing or otherwise. Early in February 1989 a meeting was being held at the accountants Office by AV and his wife Vasiliki Apostolou representing Optquest Pty Ltd in dealing with above mention ATO demands and caveats. At the meeting was decided that the Trustee Optquest Pty Ltd has to pay Av the equity gifted to the Family Trust on the 8th October 1987 and an amount was calculate and fixed to be a total of $182,000.00 because properties where heavily mortgaged and equity was rather minimal in comparison with values those years. For example I purchase Alfriston St in 1984 for $49,000.00 and I borrowed $29,000.00 so the equity I had was about $20,000.00 or no more then say $25,000.00 three years later and offcourse after I gifted or sold the equity to the Family Trust I was allowed to live on the premises without paying rent for the next ten years afterworlds. If I would have sold the property to a stranger I would had to vacate the unit and I had to find somewhere to rent. Because of ATO treats against the properties on March 1989 Optquest Pty Ltd has applied to Citibank for a loan facility for that amount and a first payment was made to ATO directly from Optquest Pty Ltd account in that month for (AV33) $74,000.00 and subsequent 3 monthly payments of $13,000.00 made to ATO in April, May and June with a balance of the $182,000.00 was made by Optquest Pty Ltd to AV that year finalizing the contract of sale of equity (AV4) with AV and as a result ATO lifted all restrictions on properties that year. 10 The applicant next relied upon an order made by the Supreme Court of Victoria on 26 July 1988, exhibited to an affidavit sworn by Mr Vasiliou on 26 September 2006. That affidavit was sworn subsequent to Weinberg J's judgment, and for the purpose of certain consequential motions which were controversial at that time. The Supreme Court order was made in a proceeding commenced by the Deputy Commissioner of Taxation against Mr Vasiliou. The court made the following orders: The Registrar of Titles be joined as a Defendant to these proceedings. Until further order the Registrar of Titles, by himself, his servants or agents or howsoever otherwise be restrained from registering any transfer or otherwise undertake any dealing with any transfer with respect to the property described in the Schedule hereto without the prior consent of the Plaintiff or its solicitor. The Plaintiff serve a copy of this Order and the affidavit of KAREN ELIZABETH STILLWELL sworn 26 July 1988 on the Register of Titles at 283 Queen Street, Melbourne and on the Defendant's Solicitors Messrs. Fernan and Ludescher at their offices situated at 394-396 Lonsdale Street, Melbourne Victoria. Liberty to apply be reserved to the parties herein. The costs of this application be reserved. The schedule referred to in the order was not part of the exhibit. Mr Galvin submitted that it might fairly be inferred that a party in relation to whose property such orders had been made might not be able to pay his debts as and when they fell due and, more to the point, might not have been able to do so even 12 months previously. 11 I accept that the fact that a person contests the claim of a creditor, even in the face of court proceedings, does not mean that the person is unable to pay his or her debts. There may be (and, in the absence of evidence to the contrary I think I should assume that there probably were) legitimate bases upon which Mr Vasiliou resisted the demands of the Deputy Commissioner in 1988 which had nothing to do with his ability to pay those or any other debts. However, the fact that the Deputy Commissioner would have sought and obtained orders from the Supreme Court restraining Mr Vasiliou from alienating certain (unidentified) property might, at least on one view of things, sustain the inference that the Deputy Commissioner took the view that Mr Vasiliou could not pay his debts, or at least would be unable to do so if the property were to be alienated. That may, of course, be only a small part of the applicant's inferential case, but I am not presently concerned with the strength of that case or with whether the applicant might be able to place his hands upon other evidence in support of the inference. In all the circumstances, I consider that the applicant's proposed inferential case is not so obviously lacking in merit that he should be shut out from including it as a claim in the Application on that ground alone. 12 As to the second issue, Mr Vasiliou submits that the proposed new point could and should have been brought forward in the original trial before Weinberg J, or promptly after the delivery of judgment by the Full Court at the latest. He regards the claim as an annoying distraction, and as a source of vexation for him with so few days left before the trial. These submissions raise questions of fact as to when the applicant was fairly on notice of the dispute between Mr Vasiliou and the Deputy Commissioner in 1988, and of the orders made by the Supreme Court. 13 Although the dispute with the Deputy Commissioner was referred to in Mr Vasiliou's contentions filed on the first day of the trial before Weinberg J (18 April 2006), the matter had been referred to in an affidavit sworn by Mr Vasiliou on 24 March 2006. Paragraphs 19 - 21 of that affidavit read as follows: Soon after the Taxation Office had lodged an investigation against me for amended taxes and in January of 1989 I was offered to settled those amended claims for a payment of $113,000.00. At the same time the Tax Office placed Caveats on all properties that were gifted to the Trust and it has prevented any attempts for registration to take place unless the tax liability it was paid in full to them first. These people mean business despite the fact that the tax amendments where in fact unfair I had to deal with them pay them or the Tax Office will have attacked the gift being less than two years old and they could go back and undo all the deeds of gift and subsequently sell the properties pay the mortgagees out and keep the equity left over. Mr Galvin accepted that his client must then have been on notice of the dispute between Mr Vasiliou and the Deputy Commissioner, but submitted, in effect, that the rather general indications of the progress of that dispute which had been given by Mr Vasiliou would not reasonably have alerted the applicant to the prospect that Mr Vasiliou might have been unable to pay his debts as and when they fell due. It seems that the document which was critical in this regard was the Supreme Court order of 26 July 1988. Mr Galvin submitted that the applicant had never seen that document before receipt of Mr Vasiliou's affidavit sworn on 26 September 2006. 14 Mr Vasiliou's response was to refer to the applicant's Notice to Produce of 7 April 2006 directed to the respondents. Under that notice, the applicant required the respondents to the produce at the trial on 18 April 2006 documents which included the following: Various Any documentation in your possession, custody or power in relation to an investigation lodged by the "Taxation Office" in relation to Andrew Vasiliou and an offer of settlement received in January 1989 for payment of $113,000.00 as referred to in paragraph 19 of the 24 March 2006 Affidavit. That notice was called on in court on 19 April 2006, and Mr Vasiliou provided a number of documents to the applicant's legal representatives. According to Kimberleigh Rachael Dewhurst, a senior associate in the firm of solicitors representing the applicant, the documents produced by Mr Vasiliou in response to the notice were photocopied overnight, and she made a list briefly identifying each of the 24 documents so produced. In that affidavit, Ms Dewhurst said that she had reviewed the list of documents, and was unable to identify any which related to the debt claimed against Mr Vasiliou by the Deputy Commissioner. From my perusal of the items on Ms Dewhurst's list, none appears to be the Supreme Court order of 26 July 1988. 15 For the purposes of the application for leave, I am satisfied on the evidence before me that the applicant did not become aware of the Supreme Court order of 26 July 1988 during the course of the trial before Weinberg J. Since the only other occasion upon which it is proposed by Mr Vasiliou that the applicant might have become aware of that order was when he perused the exhibits to Mr Vasiliou's affidavit of 26 September 2006, I am likewise satisfied that it was not until that occasion that the applicant became aware of that order. 16 Having become aware of that order in September 2006, there was nothing which the applicant could do at that stage, save wait for the disposition of the appeal in the Full Court. That occurred on 21 December 2006 after which the matter came before me for directions on 7 February 2007. It was then that the applicant made clear his proposal to rely upon s 121 of the Act. 17 In the circumstances, I am satisfied that the applicant has a legitimate explanation for not proposing the amendment which he seeks until the directions hearing on 7 February 2007. 18 As to the third issue, I am directed by O 13 r 2(2) of the Federal Court Rules to allow all necessary amendments for the purposes, amongst others, of determining the real questions raised by or otherwise depending on the proceeding and of avoiding a multiplicity of proceedings. A significant question in the proceeding is whether Mr Vasiliou divested himself of the beneficial interest in the subject properties in 1987. As against the applicant, the transaction upon which Mr Vasiliou relies in this regard would be void if the conditions referred to in s 121(1) of the Act were satisfied. It seems reasonable to assume that, had the applicant known at the outset that Mr Vasiliou was, a year later in 1988, in dispute with the Deputy Commissioner, and that the Deputy Commissioner had obtained a court order restraining the Registrar of Titles from registering the transfer of property which may be assumed to have been registered in the name of Mr Vasiliou, the applicant would have included the point arising under s 121 in his Application as originally filed. That is to say, from the standpoint of the applicant, assuming him to be possessed of knowledge of all relevant facts, the s 121 point should be regarded as a natural and fairly obvious part of his overall case. 19 Should I not allow the amendment, and should the applicant later institute separate proceedings claiming substantially the same relief but relying also upon s 121, I consider that the respondents would have a legitimate basis for a protest, which undoubtedly they would make, to the effect that the point should have been raised in the present proceedings. Indeed, as Mr Galvin submitted, it is probable that the applicant would later be estopped or precluded from relying upon the s 121 point, upon the basis that it was a natural and obvious part of the applicant's title to relief in the present proceedings. Conformably with these considerations, O 13 r 2(7) of the Rules of Court addresses a situation such as the present, in that the applicant's new foundation in law for his claim arises out of substantially the same facts as those relied upon to resist the respondents' case that the subject properties were beneficially alienated in 1987. 20 Considerations to which I have referred in the two previous paragraphs would incline me to grant the applicant leave to amend as proposed. However, the respondents have advanced arguments to the contrary which are of some force, and which need to be placed on the scales. 21 The respondents strongly resist any suggestion that the trial date should be vacated. Ms Apostolou has sworn an affidavit in which she refers to substantial loan repayments that are required to be made by the family trust on the first day of each month. The inability of the trust to utilise the capital which is tied up in the subject properties - the result, I was told, of caveats placed by the applicant on the basis of the interest which he asserts in the present proceeding - has caused the trust to experience what Ms Apostolou describes as "extreme financial problems". For these reasons, it is critical to the respondents that there be an early resolution of the question of the beneficial ownership of the subject properties. For his part, the applicant does not seek the vacation of the trial date, but he recognises that, faced with an application to amend of the kind which he has made, the respondents might seek an adjournment, and he would not resist such an application. However, for reasons I have explained, an adjournment is the last thing that the respondents want. 22 This raises the question whether the respondents have had sufficient notice of the proposed amendment to make it fair to require them to deal with the new point at a trial commencing on 7 March 2007. The amendment was first foreshadowed on 7 February 2007, and was filed in draft on 8 February 2007. Assuming, as I do, that the respondents likewise received the draft amendment on or about the latter date, I consider that they have had sufficient time to prepare themselves for a trial which includes the proposed new claim. Indeed, on 7 February 2007, Mr Vasiliou told the court that he would have no problem dealing with the amendment. On 28 February 2007, he told me, in effect, that he did not then appreciate the full ramifications of what the applicant proposed. However that may be, in all the circumstances, I do not think that the period of about a month during which, by the time of the commencement of the trial, the respondents will have been aware of the applicant's proposal is too short a period for the purposes of the respondents preparing for, and dealing with, the new point. 23 I would, of course, have been sympathetic to any application by the respondents for an adjournment of the trial, but, for their own reasons, they have chosen not to make such an application. The only alternative which they propose is that the amendment be disallowed, with the inevitable result, it seems to me, that the applicant would be forever cut out from relying upon a point which may be important and which falls naturally within the existing area of controversy in the proceeding. I accept the submission made on behalf of the applicant that such an outcome would be neither appropriate nor just. 24 I recognise also the obvious circumstance that respondents are self-represented. As Mr Galvin pointed out, that circumstance gives a rather different operation to the usual principle that amendments ought normally to be made where any detriment or disadvantage occasioned to the other party may be compensated for by a costs order. I accept that this proceeding is a major source of personal and business distraction for the respondents, and is stressful to a significant degree. Clearly they seek what has been described as "closure". Their own time and inconvenience are not such as the court would be inclined to reflect in a costs order made against the applicant. I take these considerations into account for what they are worth, and I recognise that, together with the difficult financial circumstances in which the family trust finds itself, they provide a legitimate basis for the respondents' refusal to contemplate an adjournment. On balance, however, considerations of this kind are not, in my judgment, sufficient to outweigh the importance of having all issues potentially in controversy between the parties brought forward, heard and determined at the one time. 25 For the above reasons I propose to grant the applicant leave to amend his application in the terms filed on 8 February 2007. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup J.