Pascoe v Boensch

The separate question 5 In this case a separate question was formulated under Part 17 of the Federal Magistrates Court Rules 2001 in relation to the validity of a declaration of trust by the first respondent to the present application, Mr Boensch, who was made bankrupt on 23 August 2005, which declared a trust over a property at 255 Victoria Road Rydalmere for the benefit of his children, Dominic and Stefanie. Raphael FM held that the declaration of trust was not a sham and that the trust had been duly constituted (see Pascoe v Boensch (No. 3) [2007] FMCA 2038 ('Pascoe v Boensch (No. 3)'). This decision was upheld on appeal by a Full Court comprising Finn, Dowsett and Edmonds JJ in the separate question appeal on 18 August 2008. An application for special leave to appeal from the judgment of the Full Court was dismissed by the High Court on 12 March 2009. 6 The preliminary question ordered on 6 September 2007 was expressed as follows: 'Does the Memorandum of Trust constitute a valid declaration of trust or otherwise create or recognize the creation of a valid interest in the property identified as the land and buildings at 255 Victoria Road Rydalmere?' 7 Raphael FM answered the preliminary question in the affirmative on 6 December 2007. 8 The declaration of trust was in the following terms: 'This is a memorandum of trust created for the benefit of Boensch family with the most important purpose to provide secure means of support to the children of the marriage Dominic Boensch and Stefanie Boensch, after the divorce of their parents. The trust property is the land and buildings at 255 Victoria Rd, Rydalmere, NSW. Sabine Boensch will cause her share of ownership of that land to be transferred to Franz Boensch for him to hold the whole of land in trust as described above. In due course Franz Boensch will arrange with a solicitor or accountant to prepare a detailed trust document, professionally drafted to give best protection to the children and to ensure favourable tax treatment of income earned by the trust. Dated: 23 August 1999 signature signature Franz Boensch Sabine Boensch Witnessed by: Justice of the Peace 23/8/99 Leon Michael PARSONS' 9 The Application filed 19 July 2006 apparently specified 15 August 2006 as the return date. On that date counsel then appearing for the applicant said: 'Your Honour, this is the first return date of an application by Mr Pascoe who is the trustee of the property of Mr Boensch, the first respondent, seeking declarations relating to the validity of a transaction entered into on 23 August 1999 and in the alternative relief under sections 121 and 120 of the Bankruptcy Act. The evidence in chief has been filed on the part of the Trustee. We would be asking for a hearing date with an estimate of one day …' Relief under s 120 of the Bankruptcy Act 1966 (Cth) ('the Bankruptcy Act') is no longer sought. Counsel for the applicant then said: 'It is really a factual matter.' Counsel for the first respondent then said: 'My learned friend says it's a factual case. It would assist us if the material facts upon which he relies were pleaded …' 10 Counsel for the applicant resisted the making of orders about pleadings. 11 Raphael FM stood the matter over for further mention on 17 October 2006 with the intention of fixing hearing dates in November 2006. His Honour gave the following directions: (a) Applicant to file points of claim on or before 25 August 2006. (b) The respondents to file points of defence on or before 8 September 2006. (c) Respondents to file and serve affidavits of evidence upon which they intend to rely on or before 22 September 2006. (d) Applicant to file any affidavit evidence in reply on or before 29 September 2006. (e) Subpoenas and notices to produce returnable before the Registrar on 4 October 2006. (f) Any application in relation to the admissibility of Exhibit SPP6 of Affidavit of Scott Pascoe sworn 17 July 2006 or other application be filed on or before 5 September 2006. (g) Liberty to apply on 2 days notice. 12 The Rydalmere property had been purchased by Mr and Mrs Boensch as joint tenants in August 1991. In October 1997 Mr and Mrs Boensch separated. In proceedings in the Family Court of Australia orders were made on 18 May 1999, by consent, which provided for the transfer by Mrs Boensch to Mr Boensch of her interest in the Rydalmere property upon payment by Mr Boensch to Mrs Boensch of $50,000. At the time the Rydalmere property was subject to a mortgage for $95,000. Mr Boensch was required to indemnify and keep Mrs Boensch indemnified in relation to the joint liability under the mortgage. A memorandum of transfer was apparently executed by Mrs Boensch in favour of Mr Boensch on 9 June 1999 but this transfer was not registered at the time. 13 On 14 July 1999 a decree nisi was made for the divorce of Mr and Mrs Boensch and on 15 August 1999 a decree absolute was made. 14 As previously stated a sequestration order was made in respect of the estate of Mr Boensch on 23 August 2005. 15 By the time that the learned Federal Magistrate heard the separate question which had been formulated, the applicant's Points of Claim had been on the file for some 15 months. In paragraph 15 of the Points of Claim the applicant contended that the declaration of trust did not constitute a valid trust in respect of the Rydalmere property. He further contended that the memorandum of trust was 'a sham'. 16 In the alternative the applicant contended that the transfer of the equitable estate in the Rydalmere property effected by the declaration of trust constituted a transfer of property by Mr Boensch which was void against the trustee of his bankrupt estate by virtue of s 121 of the Bankruptcy Act. 17 Section 121 relevantly provided: '121(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if: (a) the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and (b) the transferor's main purpose in making the transfer was: (i) to prevent the transferred property from becoming divisible among the transferor's creditors; or (ii) to hinder or delay the process of making property available for division among the transferor's creditors. (2) The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent. (3) Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer.' 18 It may be observed that a finding in respect of the transferor's 'main purpose in making the transfer' will be critical in determining whether a transfer is void against the trustee of the transferor's bankrupt estate. The applicant contends that Mr Boensch's main purpose in making the transfer of the equitable estate in the Rydalmere property upon the constitution of the trust on 23 August 1999 was to hinder or delay the process of making property available for division among his creditors within the meaning of s 121(1)(b)(ii) of the Bankruptcy Act. 19 It will be apparent that s 121(2) of the Bankruptcy Act does not introduce any additional preconditions to the operation of s 121(1). Rather it is a subsection directed at facilitating proof of the relevant matter required by s 121(1)(b). 20 Critically for present purposes, the issue as to Mr Boensch's 'main purpose in making the transfer' of the equitable estate in the Rydalmere property by the constitution of the trust on 23 August 1999 has already been determined. 21 In Pascoe v Boensch (No. 3), Raphael FM recited Mr Boensch's evidence on the hearing of the separate question, inter alia, as follows: '5. At around the time Mr Boensch received the transfer from his wife [9 June 1999] he heard a program on the radio about the rights of de facto partners. He says that he became concerned that if he took up with a partner she might have a claim upon the property which would deprive his children of their inheritance. He determined to protect the property for the benefit of his children. … [A]n acquaintance, … Mr Reeves introduced Mr Boensch to a friend of his who, he said, knew something about trusts and Mr Boensch had a meeting with the friend and told him of his concerns. The friend agreed to prepare a document that would protect Mr Boensch. He did so [see the memorandum of trust of 23 August 1999]. … He suggested to Mr Boensch that his wife also sign the document, possibly because Mr Boensch had told him that Mrs Boensch had provided a transfer but that it was not registered.' 22 The learned Federal Magistrate observed at [8] that there was no suggestion put to Mr Boensch that the memorandum of trust might have been prepared as a defensive gesture not to be utilised unless the events which he spoke of fearing came to pass. 23 Raphael FM rejected the submission of the applicant's then counsel that the memorandum of trust was a sham. He held that the very reason for the creation of the memorandum of trust was to ensure that any potential de facto partner was not deceived as to the purpose of the memorandum of trust. 24 At [19] the learned Federal Magistrate rejected the applicant's submission that Mr Boensch did not really intend to create a trust for the benefit of his children. Raphael FM accepted the evidence of Mr Boensch that his purpose in executing the memorandum of trust was to benefit his children. 25 On the separate question appeal, the Full Court comprising Finn, Dowsett and Edmonds JJ, referred at [4] to Mr Boensch's evidence that he had had conversations with Mrs Boensch to the effect that they needed to be in a position to each be able to support the children independently and to give them something for a start in life. Their Honours referred to Mr Boensch's evidence that 'for his part he intended his contribution to the children's start was to be able to give them either the Rydalmere property or the proceeds of any sale of it'. 26 Both Raphael FM at [8] and the Full Court at [8] observed that there was no evidence to suggest that Mr Boensch was in any financial difficulty at the time of the execution of the memorandum of trust. At [8] the Full Court said: 'No explanation for entering into the memorandum was advanced other than that given by Mr Boensch.' 27 Matters of intention in this case are important. One question is whether Mr Boensch intended to constitute a trust for the benefit of his children in respect of the Rydalmere property? Another question is, what was his main purpose in so doing? Was it to benefit his children or was it to defeat his creditors, relevantly to hinder or delay the process of making his property available for division amongst his creditors following the making of a sequestration order in respect of his estate, some six years after the execution of the memorandum of trust? 28 At [15] the Full Court observed that Raphael FM considered that by the memorandum of trust he constituted himself trustee of the entire beneficial interest in the property for his children. Their Honours proceeded to observe at [16] that Raphael FM 'accepted Mr Boensch's evidence when it was challenged in cross-examination'. 29 At [28] the Full Court observed that: '… while Mr Boensch's intention, if any, to constitute a trust and the terms of it, are to be divined from the language used in the memorandum, the court may in construing it have regard to the surrounding circumstances known to Mr Boensch and to the purpose and object of the transaction: see Trident General Insurance Co Limited v McNiece Bros Pty Limited (1988) 165 CLR 107 at 121; Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 277; see also Dal Pont and Chalmers, at 459, on the convergence of principles of construction in relation to resort to "context" or "surrounding circumstances"; see Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 223 ALR 560 at [78]-[79]. As we will indicate below, context is of no little importance in this matter. Importantly, Mr Boensch's actual intention and the terms actually intended may properly be inferred from all the circumstances if they can properly be said to be nonetheless manifest on the proper construction of the memorandum itself: see Trident General Insurance Co above. We would note in passing that, in the setting of the Conveyancing Act, at least, intention cannot be presumed or imputed …' 30 Their Honours proceeded to make findings at [29]-[32] as follows: '29 To appreciate what is conveyed by the Memorandum of Trust it is important to understand the context and the circumstances of its making. We would note the following: (i) Mr and Ms Boensch were at the time of the creation of the document only recently divorced. They had two infant children, aged 9 and 7. (ii) On separation Mr and Ms Boensch entered into an agreement for shared custody of the children, child support and the division of property. Prior to the making of the property settlement consent orders, Mr Boensch had a number of conversations with Ms Boensch in which he spoke of the need to make provision for the support of their children and to give them a start for life. (iii) The Federal Magistrate accepted Mr Boensch's evidence of his concern on learning that a new partner in a future relationship with him may be able to make a claim on the Rydalmere property. If such a claim was made he would not then be in a position to make his intended gift to his children to give them a start in life nor would he be able to finance his 50 per cent child support contribution. (iv) In talking to others at the time about his concern, he was made aware of the trust concept. This led to his being led to a person who, as his Honour found, was not a solicitor but who prepared the memorandum. Mr Boensch located a Justice of the Peace who witnessed their signing of a copy of the memorandum. 30 Considered in this context and bearing in mind that the memorandum was not a professionally prepared one, its burden in our view is tolerably clear. Putting to one side the third paragraph (which deals with Ms Boensch), the remaining three paragraphs considered together disclose an intention on Mr Boensch's part - and his is the only relevant intention - to create a fixed trust for his children of the Rydalmere property and we would infer, an actual intention that at some time in the future the property could be resettled by him as trustee on the children on terms more advantageous to them than those of the minimalist trust manifest in the memorandum. 31 Our reasons for arriving at this view can be stated shortly. The matrimonial environment leading to the signing of the memorandum and the age of the children at the time occasioned, on the evidence, an immediate concern in Mr Boensch for the future of the children. Further, he became aware that if he retained his interest in the property, it could, in the context of his entering into a new relationship, become vulnerable to a claim by a new partner. That vulnerability, we would comment, would remain for as long as he retained an interest in the property but would not if he divested himself of it in favour of his children. 32 Mr Boensch clearly attributed an immediate and solemn significance to the memorandum. Otherwise his having it witnessed by a Justice of the Peace seems inexplicable. The document speaks of something thereby being "created for the benefit of the Boensch family". Considered in context, this observation is properly to be interpreted as referring to a beneficial effect for all of the family, ie himself, Ms Boensch and the children from the creation of the trust for the children. The benefit to the parents was that flowing from provision being made for their infant children and, in Mr Boensch's case, the elimination of his "concern" as to a possible consequence that might ensue from any new relationship into which he might enter. In light of that concern we consider it unlikely in the circumstances that he intended to retain any interest in the property. The circumstances make it wholly improbable that he intended to confer some proprietary benefit on his wife. The benefit to the children was self evident.' (emphasis added) 31 It is evident from the findings of the Full Court that not only was there an intention on Mr Boensch's behalf to constitute a trust for the benefit of his children but also that the purpose and object of the transaction was to benefit his children and at the same time quarantine the property he wished to provide for them from future claims by a potential future de facto spouse in the event of any quasi matrimonial dispute between them. No other explanation for his declaring the trust was advanced. 32 Such findings as to Mr Boensch's purpose in constituting the trust and thereby transferring the equitable estate in the Rydalmere property are quite inconsistent with any suggestion that the main purpose for doing so was to hinder or delay the process of making property available for division amongst his creditors, in the event of a future bankruptcy. 33 Not only was there no suggestion advanced that Mr Boensch was in any financial difficulty prior to his dispute with a Mr Michael Costin, who obtained a judgment against him in the sum of $31,113.31 on 27 July 2003, but also, counsel then appearing for the applicant made it clear that Mr Boensch's solvency at the time of the execution of the memorandum of trust was not seen as being an issue. 34 The appeal from Raphael FM on the separate question came before the Full Court following a grant of leave to appeal by Branson J. In opening the application for leave to appeal counsel then briefed for the applicant said: 'The balance of the proceedings involve the remaining applications of a sham, 120, 121 [in relation to the Rydalmere property]. … The problem that we have with this judgment [Pascoe v Boensch (No. 3)] … is that it[,] to put it in the vernacular, nails much of our claim. There is no evidence available as to Mr Boensch being insolvent at the time of this document being entered into. … from our viewpoint there is evidence at the time of the deed of confirmation being entered into. If this document [the memorandum of trust of 23 August 1999] remains upheld it's going to be virtually impossible for practical purposes - I say this for the purposes of argument before your Honour[,] not to estop any submissions that might be made. It would be virtually impossible for us to attack the deed of confirmation because the underlying transaction would be valid as a result of this. …'' 35 In light of the Full Court's decision on the separate question which resolved the question as to the validity of the declaration of trust and also the question of 'sham', the remaining issue in the case became whether the transfer of the equitable estate in the property at Rydalmere to the trustee of the trust was void under s 121 of Bankruptcy Act 1966 (Cth).

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