Plaintiff v Defendants

1 This is a claim by the Deputy Commissioner of Taxation for, amongst other relief, a declaration that a transfer of land by Mr Graham Palmer, who is a bankrupt, of Mr Palmer's interest in the land described in Certificate of Title Volume 10296 Folios 988 and 989, was made with intent to defraud the Deputy Commissioner within the meaning of s.172 of the Property Law Act 1958. Mr Palmer's trustee in bankruptcy (Mr Andrew Reginald Yeo) is now, in his capacity as trustee, the first defendant to this proceeding. Mr Palmer's wife, Mrs Diane Palmer, is the second defendant.

2 So far as is presently relevant, that section provides that every alienation of property made with intent to defraud creditors shall be voidable at the instance of any person thereby prejudiced. The section further provides that it shall not extend to any estate or interest in property alienated for valuable consideration and in good faith, or upon good consideration and in good faith, to any person not having, at the time of the alienation, notice of the intent to defraud.

3 It follows that, in ascertaining whether or not s.172 applies to any given set of circumstances, the court must as an initial step seek to ascertain the intent of the person effecting the alienation.

4 It has been submitted on behalf of the Deputy Commissioner that, in seeking to ascertain whether or not the relevant intent existed, the court can rely upon both direct and circumstantial evidence. That is true, although direct evidence is very seldom available. Given that intent is a state of mind, it cannot be seen or otherwise perceived. In practice, therefore, the available evidence is almost invariably circumstantial. One ascertains someone else's intention by looking at what that person has done or said as circumstantial evidence from which an inference can be drawn concerning the intention in question. Here, the Deputy Commissioner relies upon circumstantial evidence of that kind.

5 On 17 June 1996 Mr Palmer and his wife, Diane Palmer, entered into a contract for the purchase of the property in question: that is, the property to which I have already referred, which is situated at Bet Bet Creek Road Betley, Victoria, in the Maryborough region of this state. The purchase price was $145,000. I should by way of completeness add that, at the time of the sale, the land was subject to the general law; but it subsequently came under the regime put in place by the Transfer of Land Act 1958. Following that change, the property was registered in the names of Graham Palmer and Diane Palmer as joint proprietors in fee simple.

6 The land continued to be registered in the name of Graham Palmer and Diane Palmer until May 1998 - that is, just under two years following its purchase. The circumstances of the alteration in the position of the registered proprietorship of the land were the principle subject of evidence in this case.

7 At some time in 1997 - the plaintiff says in January of that year - the Australian Taxation Office received information from Victoria Police which caused it to be interested in Graham Palmer's financial affairs. Some months later, by letter dated 9 October 1997, the Office informed Mr Palmer that, according to its records, he had lodged no income tax return for the year ended 30 June 1992, or indeed for any of the following financial years to 30 June 1997. Mr Palmer does not dispute this allegation. By the letter of 9 October 1997, the Office also asked Mr Palmer to complete the questionnaire which was included with the letter.

8 Mr Palmer responded. He completed and returned the questionnaire to the Australian Taxation Office. In doing so, he informed the Office that he had - amongst other transactions - purchased the Betley property in August 1996 for $145,000. The answers to the questionnaire further disclosed that he had also purchased another property in the relevant period. This was situated at 35 Campbell Street Birchip. It was bought in January 1995 for the purchase price of $35,000. That property too was subsequently registered in the joint names of Graham Palmer and Diane Palmer as proprietors in fee simple.

9 Mr Palmer's evidence is that the relationship between himself and Diane Palmer deteriorated when he discovered what he alleges was a lesbian relationship between his wife and the then housekeeper to the couple, a woman named Debra Griesdale. She, as it happens, was also known as Debra Palmer.

10 In evidence given at the trial of this proceeding, Graham Palmer swore that the revelation of Diane Palmer's relationship with Debra Griesdale caused him to wish to separate from his wife. It was that, and not a wish to preserve his property against his present or prospective creditors, which motivated him in transferring his interest in both the Birchip and the Betley property to her. In each case, the relevant transfer was dated 22 May 1998; and in each case the consideration was said to be for natural love and affection.

11 It is, as I understand it, common ground that at the time of transfer no monetary consideration was paid in either case, although there is evidence from Mr Palmer that some ten months later (in March 1999) he received $50,000 in cash from his wife, representing some payment for the acquisition by her of his former interest in the Betley property. There is evidence of the withdrawal of this amount from an account controlled by Diane Palmer; but as it was drawn in cash we have only Mr Palmer's word that he received it.

12 The picture put before me by the Deputy Commissioner is a very different one from that upon which Ms Palmer relies. The Deputy Commissioner asked me to infer that the transfer of the Birchip property and the transfer of the Betley property were in each case effected for the purpose of defrauding the Australian Taxation Office. And each transfer amounted to an alienation initially caught by s.172. The Birchip property is now, however, beyond the reach of that provision because the Deputy Commissioner does not wish to challenge the proposition that Mrs Palmer subsequently alienated it for good consideration to persons who bought it in good faith, not having at the time of alienation notice of the intention to defraud. Accordingly the Birchip property does not form part of the present proceeding.

13 This may be contrasted with the Betley property. It remains in Mrs Palmer's name as the sole proprietor. The Deputy Commissioner contends that it was transferred neither for valuable consideration nor in good faith, and that Ms Palmer was aware of her husband's intention to defraud his creditors or prospective creditors. And, accordingly, the Deputy Commissioner submits that the transaction does fall squarely within the provisions of s.172. It is, she contends, therefore voidable at the her instance, she being (in the words of the section) "a person thereby prejudiced" and accordingly one who can call the section in aid.

14 I accept the submissions put by Ms Mavroudis in this respect. I therefore proceed upon the basis that the relevant prejudice in the Deputy Commissioner has been shown. She was in May 1998, at the time of the transfer by Mr Palmer of his interest in the Betley property, undertaking investigations into his financial affairs with a view to ascertaining whether he was liable to her for unpaid income tax. And I find that, as from some time before October 1997, he was aware of her concern. I also accept that, from the time he received the questionnaire to which I have already referred, Mr Palmer knew not only of the Deputy Commissioner's interest but also that a claim for arrears of tax might be made against him.

15 The Deputy Commissioner's position was further made known by communications between her officers and either Mr Palmer himself or Mr Palmer's accountant, Mr John Stewart. Correspondence was frequent between December 1997 and the time of the transfer in May 1998. Contact was also often made by telephone.

16 I need not refer to these communications in detail. I should however mention several instances which seem to me to be of particular significance. I turn first to an audit interview. This was held at the offices of Stewart & Trevorah, Mr Palmer's accountants, on 15 April 1998. It was attended not only by Mr Palmer and Mr Stewart as taxpayer and taxpayer's representative, but also by a Mr Bob Morris, whose role is not the subject of evidence but who was in Mr Palmer's camp. Present for the Deputy Commissioner were Mr Steve Kassing and Mr Angelo Caruso.

17 During the course of the audit interview Mr Palmer, as I find, acknowledged that he had for some time been aware of the Taxation Office's interest in his affairs. He was also informed that settlement of any dispute about the amount of tax outstanding might be possible, but that any compromise would involve payment of a monetary sum from Mr Palmer to the Deputy Commissioner. Evidence is before me of particular sums being the subject of discussion, or at least proposition, at this meeting; but I make no findings about the detail of what was said. It is sufficient, it seems to me, that Mr Palmer was, as I find, made aware on 15 April 1998 that the Taxation Office was looking to the possibility of payment by Mr Palmer to the Office, such payment representing amounts owing to the office by way of unpaid tax and perhaps penalties pursuant to the Income Tax Assessment Act.

18 Ms Palmer seeks to neutralise the evidence of the meeting of 15 April 1998 by reference to a telephone call put by Mr Kassing on behalf of the Deputy Commissioner to Mr Stewart on 20 April 1998. A note of the conversation is in evidence as Exhibit D1 in this proceeding. It is, I think, appropriate to record in the transcript so much of that note as is relevant. It reads as follows:

"Steve Kassing rang (returning my call from 16 April 1998) discussed [Graham Palmer's] call and concern (as noted above). SK advised he would make a decision this week concerning this matter but at present he could not determine a reason for GP earning any income therefore believes this case would be dropped/finalised in GP's favour.

...

"Also SK discussed [a particular] ... statement. He advised he mentioned this because SK believes he received income from this source although admitted, GP says he would give any money from this source to [a particular charitable cause]... ".

19 Mr Palmer, in his evidence, said that he believed - following his being informed by Mr Stewart of the subject of the conversation to which I have referred - that the Taxation Office was no longer interested in seeking recovery from him. Other evidence, however, points overwhelmingly to the conclusion that, following 20 April, the Office continued to make known its interest in Mr Palmer's taxation position, and that Mr Palmer must have been aware of that continuing interest.

20 I refer in this context particularly to a letter dated 13 May 1998 from the Australian Taxation Office to Mr Palmer. There is evidence that that letter was forwarded to him, and Mr Palmer does not deny that he received it. By that letter, which is in evidence at pages 115 to 116 of the court book, the Taxation Office informed Mr Palmer that it sought information to support his contentions regarding certain sources of funds received by him during the period 1 July 1990 to 30 June 1997.

21 Mr Palmer must have realised that the issue here was whether the receipts in question were taxable. They were (as Mr Palmer asserted) for the most part forwarded to him by his mother. According to him, as recounted to the Deputy Commissioner's representatives, they consisted of payments in cash of considerable sums in pounds sterling. Given these circumstances, it is not surprising that the Taxation Office sought further information about those payments. It is also, it seems to me, clear from the letter of 13 May that the Taxation Office had taken the position that, if satisfactory responses were not given to its queries about Mr Palmer's source or sources of funds, then its investigation into his affairs would continue - with the necessary consequence that the Office might seek the recovery of tax and perhaps penalties from Mr Palmer.

22 For these reasons it seems to me that only one conclusion is reasonably open. That is that, as at the date of the relevant transfer of an interest in the Betley property (22 May 1998) Mr Palmer was aware that the Taxation Office had a continuing interest in his financial affairs and that that interest was necessarily directed towards the possibility of a claim being made against him by that Office.

23 In those circumstances the plaintiff, it seems to me, has made out a prima facie case for the proposition that the transfers of Mr Palmer's interest in the Betley property and in the Birchip property were made with intent to defraud the Taxation Office. The opportunity was given to Ms Palmer to meet this prima facie case by calling evidence. She declined to herself give evidence, but she did call Mr Palmer; and he gave evidence on her behalf.

24 In my opinion, his evidence did not meet and answer the prima facie case which the Taxation Office has put forward in the evidence to which I have referred. Mr Palmer swore that his only purpose in transferring his interest in the two properties to his wife was as the relevant transfers state: that is, natural love and affection. Given Mr Palmer's evidence about his reaction to her affair with another woman (Debra Griesdale) there is - at the least - some irony in that expression..

25 That consideration, however, is not conclusive. The expression, "natural love and affection" is one which is almost a term of art in relation to transfers of property for no monetary consideration, and accordingly it is of limited weight in this case. Nevertheless, the real reasons for the transfer as put forward by Mr Palmer are difficult to accept. He asked the court to believe that he was prepared on the breakdown of his relationship with his wife to transfer both the Birchip and the Betley properties to her, receiving nothing in return, in circumstances where he had no alternative place of residence. If he is to be believed, he had everything to lose and nothing to gain from the transactions in question. They did not even assist him to realise his stated objective, which was separation from his wife. Indeed, they left him with nowhere to go.

26 Consistently with this, his address remained, after 22 May, as that of the Betley property. He says in his evidence that he did nevertheless physically separate from his wife. But this evidence, too, is difficult if not impossible to accept. He spoke of taking his fishing rod and obtaining whatever work he could, such as work picking fruit. He does not suggest, however, that he ever adopted any other location as his place of residence following what he calls his separation. As he said, his address remained at the Betley property - to which, on his own evidence, he returned on multiple occasions to live, albeit in a caravan on the property.

27 The lack of credibility of this evidence is, it seems to me, obvious. In the absence of any other explanation, evidence of a transfer from one person to another without any monetary compensation, with the result that the transferor is deprived of a place of residence in circumstances where one would expect some provision to be made for such a place of residence is, it seems to me, impossible to accept. In those circumstances, I must conclude that the plaintiff has discharged the burden of proof upon her to establish an intent to defraud; and, for the reasons I have given, the prima facie case put forward has not been superseded by any contrary evidence on the part of the second defendant.

28 I turn now to sub-s.(3) of s.172. As I have indicated, that provides that the section shall not extend to any estate or interest alienated for valuable consideration and in good faith. I have already said that, at the time of transfer, there was no valuable consideration for it. The only consideration in respect of which there is any evidence is that of a sum of $50,000. This, it will be remembered, was given by Ms Palmer to Mr Palmer some ten months after the transfer of the property; that is, in March 1999.

29 Accepting for present purposes that that payment did amount to some consideration for Mr Palmer's interest, nevertheless the burden remains upon Ms Palmer to introduce evidence that she did not have notice at the time of the alienation in May 1998 of any intent to defraud Mr Palmer's creditors. Since she has not given any evidence, the burden upon her has not been discharged. Accordingly it seems to me that s.172(3) does not apply so as to negative the findings I have made in relation to sub-s.(1) of s.172. For these reasons it seems to me that the plaintiff is entitled to the declaration she seeks, and I will make that declaration.

30 Before turning to the other relief sought by the plaintiff I should mention that Mr Palmer put to me, this morning, submissions in relation to the effect which the payment of $50,000 should have on the plaintiff and its position in relation to him. It seems to me that the answer to Mr Palmer's submissions in that regard was accurately put by Ms Mavroudis when she submitted that it was a matter for the first defendant, Mr Palmer's trustee in bankruptcy, to take into account to the extent that he thought appropriate.