The nineteen grounds of appeal
77 Ground 1 claims that the primary judge erred in:
(a) finding the Share Arrangement gave rise to a trust relationship as between Faina and the Trustee; and/or
(b) failing to find that the only remedy which could have arisen by reason of the Share Arrangement was a claim in contract by the Canchel Partnership against Fanchel for proceeds of the sale by Fanchel of shares the subject of the Share Arrangement.
We have held above that it is not open to the appellants to run this point on appeal, having failed to raise it at the trial.
78 Ground 2 claims that the primary judge erred in finding that Fanchel's sale of 494,733 shares in eBet gave rise to a breach of trust in circumstances where the eBet shares were subject to the Share Arrangement. This appears to be the same point as Ground 1 and was not developed in any different way in argument before us.
79 Ground 3 claims that the primary judge erred in finding that Faina knowingly received the sum of $3,537,340 on the basis that this sum was the proceeds of sale of the eBet shares by Fanchel in breach of trust. Putting to one side the appellants' arguments that the Share Arrangement did not give rise to a trust at all, and that if it did give rise to a trust then it was in favour of the Canchel Partnership rather than Ian, this ground raises the issue whether Faina received the proceeds of sale of the eBet shares as a volunteer and as a knowing recipient of funds in breach of trust under the first limb in Barnes v Addy (1874) LR 9 Ch App 244 at 251-252. The appellants argue that there was no finding that Faina was more than a "passive" recipient of the interest or that Ian's conduct was within the scope of his authority as agent for Faina.
80 The appellants do not challenge the primary judge's finding at [353] that Ian has at all times been responsible for managing Faina's financial affairs and Faina has relied on Ian to assist her in that regard and to undertake activities on her behalf in relation to her financial affairs. The primary judge also referred to Ian's cross-examination in which he confirmed that he had acted on behalf of Faina in the purchase and sale of shares since about 1983, that Faina had never met or spoken directly with a stockbroker about her portfolio, that he acted as the conduit between Faina and the broker and that the understanding he had with Faina was that he was authorised to deal on Faina's behalf with stockbrokers: [354]. The primary judge also referred to Faina's evidence that since Anchel passed away in 2001 she had relied on Ian to assist her with her financial affairs, she has permitted Ian to undertake share transactions on her behalf and to give instructions to stockbrokers in relation to shares held in her name, she has never personally met with an accountant in relation to the preparation of the accounts or tax returns for Fanchel which Ian has done and brought any documents to her to sign, and she left it entirely to Ian to ensure that there was no mixing between Fanchel's shares and the shares transferred to Fanchel under the Share Arrangement: [355]. The primary judge also found that Ian was clearly aware that the eBet shares were subject to the Share Arrangement, and described his evidence of an alternate agreement relating to those shares as a fabrication: [357].
81 After referring to Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425 and Sino Iron Pty Ltd v Worldwide Wagering Pty Ltd (2017) 52 VR 664; [2017] VSC 101 at [389]-[390] for the propositions that the title of a registered proprietor of Torrens title land may be invalidated on the ground of fraud brought home to the registered proprietor or to his or her agents and that in order to bring fraud home to the registered proprietor, it is necessary to show that the agent's fraud was within the scope of the agent's authority given by the registered proprietor, her Honour held that here the fraud was brought home to Faina. That was because:
(a) Ian knew that the eBet shares were subject to the Share Arrangement;
(b) Ian acted as Faina's agent in relation to the sale and purchase of shares in Faina's and Fanchel's names and more generally in relation to Faina's financial affairs; and
(c) Faina received the proceeds of sale of the eBet shares knowing that she was in fact receiving trust property, with Ian's knowledge being attributed to her as her agent: [362].
82 That reasoning is wholly unexceptional. The fact that Cassegrain v Cassegrain was a case concerning Torrens title land is not a basis for disregarding it as authority for the orthodox proposition that a principal is imputed with the knowledge of his or her agent acting as agent within authority. Her Honour made findings as to Ian's authority to act on behalf of Faina in relation to her financial affairs generally, and specifically in relation to share transactions, and no submission appears to have been put by the appellants at first instance that Ian's actions were not within his actual authority as granted by Faina.
83 Ground 4 claims that the primary judge erred in finding that the transfer of 1.4 million shares in WCL to Fanchel was without consideration in circumstances where the transfer was undertaken in accordance with the Share Arrangement. This ground was not developed in argument on appeal. Rather, the argument put on appeal was that any trust would have been in favour of the Canchel Partnership rather than in favour of Ian. As we have discussed above, this argument was not open to the appellants on the appeal, not having taken the point in the Court below.
84 In any event, the ground of appeal proceeds on a misreading of her Honour's finding at [394]. In that paragraph, the learned primary judge said that the transfer of the proceeds of sale of Ian's WCL shares which were part of the shares transferred under the Share Arrangement to Faina occurred in the five years prior to the commencement of Ian's bankruptcy and was a transfer for which Faina gave no consideration, and therefore the transfer was void against the Trustee pursuant to s 120 of the Bankruptcy Act 1966 (Cth). That is a finding in relation to the proceeds of sale of shares being transferred to Faina for no consideration, not a finding as to the original transfer of shares themselves to Fanchel under the Share Arrangement. There is no evidence of any consideration having been given by Faina for the transfer of the proceeds of sale.
85 Ground 5 claims that the primary judge erred in finding that the transfer of the sale proceeds from the sale of the WCL shares from Fanchel to Faina was void against the Trustee pursuant to s 120 of the Bankruptcy Act, by reason that Faina gave no consideration for the transfer. That ground does more accurately reflect the primary judge's reasoning at [394], but we were not taken to any evidence of any consideration having been given by Faina for the transfer of the proceeds of shares. Further, the ground was not developed in argument before us, apart from the submissions already considered concerning the Share Arrangement not giving rise to any trust, or that any trust was in favour of the Canchel Partnership rather than Ian.
86 Ground 6 claims that the primary judge erred in finding that Fanchel is liable to account to the Trustee for the proceeds of sale of 9,083,648 shares in GUL in circumstances where the GUL shares were subject to the Share Arrangement. This ground does not appear to raise any argument beyond the propositions that the Share Arrangement did not give rise to a trust, or that the trust was in favour of the Canchel Partnership rather than Ian.
87 Ground 7 claims that the primary judge erred in finding that Ian contributed the whole of the purchase price for the Ocean Street Property in circumstances where:
(a) the primary judge found that the payment of $700,000 was a repayment of a loan owed by Ian and Beth to Faina;
(b) further and in any event, the Canchel Partnership not Ian held and caused the sale of 1.1 million shares in AGM from the proceeds of which the sum of $824,681.70 was paid towards the purchase price for the Ocean Street Property;
(c) Bethian, not Ian, transferred 1 million shares in UXA to Faina who then caused 500,000 UXA shares to be sold from which the sum of $180,452.52 was paid towards the purchase price for the Ocean Street Property; and
(d) there was no evidence that Ian contributed $8,016.30 towards the purchase price.
88 As for sub-paragraph (a), the primary judge made no such finding. Her Honour referred at [177] to Ian's evidence in the Royal Guardian proceedings as to a $700,000 payment by Ian and Beth to Faina which they claimed was a repayment of a loan to them from Faina, in pointing out that Ian's evidence at the trial about the source of the funds to purchase the Ocean Street Property was contrary to evidence which he had given in his affidavits in the Royal Guardian proceedings. But at [160], her Honour rejected the contention that there was any such loan owed by Ian and Beth to Faina. The appellants drew attention to the primary judge's finding at [180] rejecting Ian's attempt in cross-examination to resile from his evidence in the Royal Guardian proceedings referred to at [177], but [180] must be read in the context of [179], in which her Honour found that Ian and Beth paid Faina $700,000 (or a sum proximate to that amount) in about August 2007 to purchase the Ocean Street Property. Her Honour made no finding at [179]-[180] that the payment by Ian and Beth of $700,000 to Faina was a repayment of a loan owed by Ian and Beth to Faina, and indeed her Honour found to the contrary at [160]. The point is made abundantly clear at [184] of the primary judge's reasons, in which her Honour stated that Ian and Beth paid $700,000 to Faina for the purchase of a property (namely, the Ocean Street Property), and those funds were not paid to discharge a debt owed by Ian and Beth to DFS (the company through which Faina held the shares on trust for Ian and Beth). The amount of $700,000 appears to have been an approximation for the amount of $824,681.70 contributed by Ian to the purchase of the Ocean Street Property.
89 As to (b), we have already held that it is not open to the appellants to contend that any resulting trust should be in favour of the Canchel Partnership rather than Ian. As to (c), the appellants did not engage with the detailed reasoning of the primary judge at [186] to [196] as to the provenance of the UXA shares, the sale of which produced the amount of $180,452.52 which was applied to the purchase of the property. No error in any aspect of that reasoning has been identified in the appellants' submissions. As to (d), we see no error in the primary judge's inference that, given that Ian (or Ian and Beth) had funded over 99% of the purchase price for the Ocean Street Property, the small balance of $8,016.30 should also be found to have come from Ian.
90 Ground 8 claims that the primary judge erred in finding that Ian and/or Beth contributed, or held a beneficial interest in, $3.1 million by way of a Westpac bank cheque towards the purchase price of the Campbell Parade Property in circumstances where:
(a) in about January 2008, Vietruss transferred 3 million shares in AGM to Fanchel;
(b) on or about 3 April 2008, Fanchel sold its 3 million shares in AGM, realising the sum of $3.3 million; and
(c) Fanchel paid or made available $3.1 million of the sum referred to in paragraph (b) above for the purposes of the acquisition of the Campbell Parade Property.
91 The argument put on appeal was that the primary judge had held that the source of the $3.1 million was Fanchel's sale of 3 million shares in AGM which had been transferred by Vietruss to Fanchel in January 2008: [248], [257]. Accordingly, the argument was put that the beneficiary of any resulting trust would be Fanchel or, perhaps, Vietruss; not Ian and Beth. As we have said above, it was not open to the appellants to run that argument, in the absence of it having been run at first instance.
92 Ground 9 claims that the primary judge erred in finding that either or both of Ian or Beth contributed $1,071,580 by way of a CBA bank cheque towards the purchase price of the Campbell Parade Property. The argument put to us on appeal was that the primary judge found that the cheque was drawn from the Redraw Sum which was an amount credited to the Canchel Partnership's account: [266], [472]. The appellants contended that it follows that any resulting trust would be for the Canchel Partnership. As we have said, it was not open to the appellants to run that argument on appeal.
93 Ground 10 claims that the primary judge erred in finding that Ian and Beth held a beneficial interest in the Rose Bay Property in the proportion of their contribution of $3.6 million towards the purchase price, in circumstances where the Rose Bay Contribution of $3.6 million was made by way of a loan. We have referred above to her Honour's detailed findings leading to the conclusion that the funds drawn from the Campbell Parade Mortgage Account were redraws of Ian and Beth's money and did not give rise to any relevant indebtedness to Faina, and thus the second registered mortgage granted by Ian and Beth over the Point Piper Property to Faina did not secure any indebtedness. Those findings included findings adverse to the credit of Ian. The trial judge had the advantage of seeing and hearing the witnesses in making those credit findings, and no attempt was made on appeal to argue that those credit findings were flawed by reference to incontrovertible facts, glaring improbability or compelling inferences to the contrary: see Fox v Percy (2003) 214 CLR 118 at [26]-[29]. The argument put for the appellants was that the funds were paid into the Campbell Parade Mortgage Offset Account, which was an account owned by Faina, and accordingly, those funds were Faina's funds. The argument was that when Faina drew down on that account by causing funds to be deployed for the acquisition of the Point Piper Property, taking as security a second mortgage, Faina was making a loan to Ian and Beth. The appellants contended that if Ian and Beth's monetary contribution gave rise to a resulting trust, then they would not have conducted themselves in that way; rather the objective circumstances pointed towards a secured loan by Faina to Ian and Beth for that financial contribution to the Point Piper Property.
94 The critical question on which the appellants' argument turns is to identify what was the intention of the parties when the $3.6 million was paid to Faina from the surplus proceeds of the sale of the Point Piper Property. The learned primary judge had found that the $3.6 million was comprised of redraws of Ian and Beth's money, and was not a loan by Faina to Ian and Beth. It was never contended by Ian and Beth at the trial that they had made a gift to Faina of $3.6 million. Rather, the case put at the trial was that Ian and Beth had not contributed any of the $3.6 million, which was said by them to be entirely Faina's money. In light of her Honour's findings that Faina was already indebted to Ian and Beth, and in the absence of any suggestion that the $3.6 million constituted a gift by Ian and Beth to Faina, it followed that the second mortgage granted by Ian and Beth to Faina did not secure any indebtedness at all, as her Honour found at [499]. The Trustee argued on appeal that an obvious available inference was that the second mortgage to Faina was for the purpose of generating a paper trail explaining the movement of wealth out of Ian and Beth's names and into Faina's name, so as to protect that money from claims by creditors if the Royal Guardian proceedings ended adversely for Ian and Beth. It is not necessary for us, just as it was not necessary for the primary judge, to make a finding as to that submission. It is sufficient to conclude on the basis of the primary judge's detailed findings of fact and credibility, that the $3.6 million drawn from the Campbell Parade Mortgage Account were redraws of Ian and Beth's money and did not give rise to any relevant indebtedness to Faina. There has not been any effective challenge to that conclusion.
95 Ground 11 claims that the primary judge erred in finding that a resulting trust arose in favour of Ian and Beth in respect of the Rose Bay Property by reason that they contributed an amount of $760,002.97 (the May Deposits) towards the purchase price of the Rose Bay Property, in circumstances where the May Deposits were provided by Beth's family to Faina (through Beth) as a loan for the purposes of Faina purchasing the Rose Bay Property.
96 The fundamental flaw in this ground is that the primary judge held, in credit-based findings, that the loans by members of Beth's family were loans to Beth, rather than loans to Faina. The primary judge reviewed the evidence in great detail at [504]-[565], rejecting the testimony given by Ian, Beth and Faina, and preferring the contemporaneous and near-contemporaneous documentary evidence. The appellants made no attempt to grapple with the force of that detailed reasoning. The appellants submitted that the members of Beth's family who lent the money clearly intended that the money be repaid, and those loans did not give rise to any form of trust. That submission misses the point of the primary judge's analysis, which was that the money was indeed lent by members of Beth's family to Beth with an obligation of repayment, but that money in Beth's hands was her money which she then contributed towards the purchase price of the Rose Bay Property. The appellants also contended that the loans from Beth's family members were repaid, a matter on which there was in fact no finding by the trial judge and a matter which was not relevant to the primary judge's analysis.
97 Grounds 12, 13 and 14 related to the purchase of a different property in Ocean Street, Bondi, namely 11/2 Ocean Street, Bondi, New South Wales. Those grounds were abandoned in written submissions on the appeal.
98 Ground 15 was expressed as an additional general ground, claiming that the primary judge erred in drawing inferences of, or presuming, resulting trusts in favour of Ian or Beth or both as against Faina or Fanchel without having regard to the whole of the evidence including the contemporaneous records, which manifested intentions to the contrary. As argued on appeal, this ground went no further than the first of the appellants' primary submissions to the effect that in light of all the objective evidence, any presumption of a resulting trust either did not arise or was rebutted. As we have indicated above, this argument was not open to the appellants on appeal given the way that the trial was conducted.
99 Ground 16 claims that the primary judge misapplied the principles of laches to the facts of the case because the relevant question was not whether the Trustee delayed in bringing proceedings after his appointment, but whether the defence of laches was available to the appellants as against either or both of Ian and Beth, given that the Trustee stands in the shoes of Ian and Beth and any claims the Trustee might have against the appellants could not rise above theirs. The appellants submitted that the three elements of the defence of laches are knowledge of the wrong, delay and unconscionable prejudice to the opponent by the delay, referring to Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [415]. The appellants submitted that delay is assessed from the time the plaintiff had sufficient knowledge of the facts giving rise to the claim, referring to Orr v Ford (1989) 167 CLR 316 at 343 (Deane J); Twigg v Twigg [2022] NSWCA 68 at [86]. The appellants criticised the primary judge's finding that there was "no evidence of any relevant delay on the part of the Trustee": [580]. The appellants do not contend that there was any relevant delay on the part of the Trustee. Rather, their submission was the Trustee stands in the shoes of Ian and Beth, and the relevant question is therefore the conduct of Ian and Beth. The submission was that, given the central role played by Ian in the impugned transactions and the knowledge which he had at all relevant times of those transactions, he not only acquiesced in the transactions but instigated them. Similarly, Beth was said to be relevantly involved with knowledge.
100 The fundamental flaw in those submissions is that there was never any suggestion that Faina acted inconsistently with any of the trusts to which she was subject until after Ian and Beth were made bankrupt. As the Trustee submitted, there was no wrong until the Trustee's appointment, and the primary judge was entirely correct to focus the analysis of laches on the Trustee's conduct. There was simply no reason for any action to be brought before the Trustee was appointed. In any event, there does not appear to be any relevant prejudice suffered by Faina. The only prejudice asserted by the appellants in support of their defence of laches is that the effect of the primary judge's orders will be to deprive Faina of various assets and to leave her homeless. That is not prejudice arising out of delay, and there is no evidence of future homelessness in any event.
101 The primary judge noted that the defence of laches was pleaded, but was not the subject of any written or oral submissions at the trial, and it would have been open to have inferred that the defence was abandoned. However, the trial judge did deal with the defence on its merits, and for completeness we have taken the same approach.
102 Ground 17 claims that the primary judge erred in making findings and orders which directly affected the rights or liabilities of third parties including the Canchel Partnership, Vietruss and Bethian, when none of those entities was a party to the proceedings such that the proceedings were and are improperly constituted. We have dealt above with this contention, being the second of the appellants' primary submissions on appeal. As we have indicated above, this argument was not open to the appellants on appeal, given that they had not taken the point below.
103 Ground 18 claimed that the primary judge erred in finding that Faina had no, or only limited, assets at relevant times. This was a credit-based finding, or set of findings, which depended in part on her Honour's findings as to Faina's disclosures to Centrelink up until 2007 as the recipient of a widow's pension: [132] and [170]. The appellants contend that irrespective of what Faina may have disclosed to Centrelink, the primary judge's finding as to Faina's asset position failed to take into account the following evidence:
(a) upon Anchel's death in 2001, Faina became the sole owner of their matrimonial home;
(b) Anchel had received $102,000 together with $500 per month from 1992, in compensation from the German government;
(c) since 1983, Ian had invested money on behalf of Faina in shares, and there was no evidence that those investments had been dissipated, and Fanchel was incorporated in December 2007 for the purposes of share trading and was an investment company; and
(d) it was therefore evident from at least the 1990s and at the time of each of the impugned transactions, that Faina had considerable assets.
104 This ground was raised in argument on appeal in relation to the purchase of the Ocean Street Property. However, as the Trustee submitted, nothing turns upon this asserted error in circumstances where the appellants do not challenge any of the primary judge's findings as to how the Ocean Street Property was paid for, other than the specific matters raised in Ground 7 which do not turn on anything to do with Faina's overall financial position. Further, as the Trustee again submitted, pointing to evidence that Faina had received or had available money or assets at earlier times, even with some presumption or inference of continuance, this is no substitute for the primary judge's detailed analysis of the evidence, including Faina's representations to the welfare authorities.
105 Ground 19 claims that the primary judge erred in concluding that the Trustee is entitled to an order that the appellants pay his costs of the proceedings on the indemnity basis after 1 April 2021, in circumstances where:
(a) the settlement offer was made on 1 April 2021 and open for acceptance until 12 April 2021, the Trustee had filed an amended statement of claim on 23 March 2021 and then filed a further amended originating application on 20 April 2021;
(b) the settlement offer far exceeded the balance of the proofs of debt in the bankrupt estates of Ian and Beth;
(c) the proceedings, including the nature of the relief sought, were complex and in the circumstances, it was not unreasonable for the appellants not to accept the settlement offer;
(d) the settlement offer was calculated by reference to the unverified values of two different properties (the Ocean Street Property and the Campbell Parade Property); and/or;
(e) the settlement offer was not capable of being accepted, alternatively, it was not unreasonable for the settlement offer not to be accepted, because:
(i) it was not practicable for the parties, within the settlement period, to reach agreement on the value of the real property to be transferred pursuant to the settlement offer and then to effect the transfers, given that the transfers required the involvement of third parties, including mortgagees; and
(ii) the appellants did not have cash to pay the settlement sum.
106 The submissions of the appellants in relation to this ground were perfunctory, saying merely that the reasons for disturbing the indemnity costs orders are set out in paragraph 19 of the amended notice of appeal. The Trustee submitted (in our view correctly) that the appellants had not identified any way in which the primary judge's costs discretion is said to have miscarried in the sense discussed in House v The King (1936) 55 CLR 499. In reply, the appellants merely said the primary judge's costs discretion erred for the reasons set out in paragraph 19 of the amended notice of appeal. Nothing was put in oral submissions by the appellants in support of this ground of appeal.
107 In a separate costs judgment, Scott (Trustee), in the matter of Stolyar (Bankrupt) v Stolyar (No 2) [2022] FCA 1118, the learned primary judge was satisfied that it was unreasonable for Faina and Fanchel to reject an offer to settle the proceedings dated 1 April 2021 pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333. That letter offered to settle the proceedings by payment by Faina and Fanchel of $11.5 million, either by way of a transfer of real property (provided the parties reach agreement regarding its value), or a cash payment in cleared funds, or a combination of real property and cash. Her Honour found that it was unreasonable for Faina and Fanchel to reject that offer because:
(a) the offer was made approximately three weeks before the commencement of the hearing by which time the preparation of the proceedings was at an advanced stage;
(b) the period of twelve days given to Faina and Fanchel to consider the offer was sufficient in the circumstances, particularly where the proceedings were at an advanced stage of preparation;
(c) the offer contained a real compromise of the Trustee's claim, particularly where the total judgment pursuant to her Honour's final orders would far exceed the compromise which was the subject of the offer;
(d) the offer was expressed in clear terms and foreshadowed an application for indemnity costs in the event of its rejection; and
(e) given the stage of the proceedings at which the offer was made, Faina and Fanchel must have understood the nature of the claims against them, the available evidence and their relevant strengths.
108 In addition, her Honour noted that the proposition that there may have only been one creditor who had lodged a proof of debt for a sum far less than the amount of the offer did not assist Faina and Fanchel, nor did it provide a basis to say that the rejection of the offer was reasonable. The liability of Faina and Fanchel did not turn on the value of creditors who had lodged proofs of debt in Ian's and Beth's bankrupt estates.
109 There is no error in any of that reasoning, and certainly no error which would come close to providing a reason to set aside the primary judge's exercise of discretion in ordering indemnity costs from 1 April 2021.