Vasiliou v Marchesi

Federal Court of Australia (Full Court)|2008-07-14|Before: Dixon CJ, Edmonds JJ

The application of s 121 of the Bankruptcy Act to the October 1987 gifts 44 The appellants alleged that the primary judge made various errors respecting the application of s 121 of the Bankruptcy Act, as reflected in grounds 25 - 27 and 29 and 30 of the amended notice of appeal. 45 As noted previously, Mr Marchesi submitted that if, contrary to the Court's finding, the gift of the properties was perfect, it would nonetheless be liable to be set aside under s 121 of the Bankruptcy Act. On appeal, he argued that the primary judge's findings and conclusions with respect to this matter were open to him on the evidence. 46 According to the primary judge (and it was not disputed on appeal) by 1989, Mr Vasiliou had been in dispute with the Australian Tax Office ('the ATO') for four years. On 21 September 1987, the ATO issued amended income tax assessments for the 1981 - 1986 years, thereby obliging Mr Vasiliou to pay, by 26 October 1987, a total sum in excess of $500,000. Payment was not made. On 11 March 1988, the Deputy Commissioner of Taxation commenced a debt recovery proceeding. In July 1988, the Deputy Commissioner of Taxation began a separate action to recover unpaid sales tax totaling $160,849.43 going back to October 1984. 47 According to Mr Dwyer, the VFT trust deed was most probably prepared on 22 September 1987, the day after amended income tax assessments had been issued, and backdated to 11 August 1987 on Mr Vasiliou's instructions. Bearing in mind his assessment that Mr Dwyer was a reliable witness, the primary judge was entitled to accept Mr Dwyer's evidence on this matter, and to have regard to the date ('22/9') on the face of the document. Equally, his Honour was entitled to find that the deed of gift and the statutory declaration (both of which were executed on 8 October 1987) were most probably prepared on 25 September 1987. 48 As Mr Marchesi submitted, and we accept, the appellants gave no plausible explanation for the timing of the transfers and their proximity to the ATO's investigation and amended income tax assessments (see Freeman v Pope (1870) LR 5 Ch App 538 at 541). Ms Apostolou claimed that the reason was her children's future and security. Her children were aged four and eight years at the time, and she failed to explain how the transaction would improve their future or security. When challenged, Ms Apostolou conceded that, at the time, she and Mr Vasiliou were worried about the ATO's claims. She said in evidence that the accountant had advised that it was 'not a good idea' to have the properties in Mr Vasiliou's name. Mr Vasiliou's evidence was that the accountant who accompanied him when the amended assessments were put to him recommended that he 'restructure' his affairs and, in consequence, he retained Mr Dwyer to establish the trust and prepare the related documents. Mr Vasiliou was unable to give a coherent account about the timing of the gift. 49 The primary judge found that there were "just too many objective circumstances" to avoid the inference that Mr Vasiliou's main purpose in making the transfers in October 1987 was to prevent the subject properties from becoming divisible among his creditors, principally the Deputy Commissioner of Taxation, or to hinder or delay the process of making those properties divisible. 50 The gift, if effective, had the effect of reducing the assets available to Mr Vasiliou's creditors in the event of his bankruptcy (Cannane v J Cannane Pty Lid (in liq) (1998) 192 CLR 557 at [12] and [49]). In the circumstances of the case, the finding that the gift was intended to prevent, hinder or delay creditors, especially the Commissioner, was virtually irresistible, particularly having regard to the timing of the amended assessments, the establishing of the VFT and backdating of the trust deed, and the making of the gift. 51 Plainly enough, the primary judge was justified in rejecting Mr Vasiliou's denial that the restructuring of ownership of the properties was not intended to defeat the Deputy Commissioner of Taxation, having regard to the findings in the judgment. We are unable to discern any error in the primary judge's reasons respecting the application of s 121(1) of the Bankruptcy Act. These grounds of appeal are not made out.

Section 121(2) - Cross-contention 52 In the circumstances, it is unnecessary for us to deal with Mr Marchesi's cross-contention in relation to the application of s 121(2) of the Bankruptcy Act.

The VFT's purported acquisition of the properties on payment of their market value 53 As noted above, the primary judge held that specific performance was not available to the trustee of the VFT because it was in default under the agreement of 25 March 1989, in that Optquest had not paid the sum of $182,000 in full and nor had it paid rates and other outgoings. The appellants argued that the primary judge erred "in not giving a total regard or effectiveness to the Heads of Agreement/Sale Contract executed in favour of Optquest" as trustee of the VFT: see for example grounds 8, 12, 36 and 42 of the amended notice of appeal. 54 The primary judge's finding was, however, based on documentary evidence. Mr Vasiliou claimed that the entire amount of $182,000 was paid from a Citibank loan between March and June 1989. In reopening the appellants' case, he tendered the Citibank statement. The statement showed, however, that only part of this amount had been drawn down, with the apparent result that the appellants changed their case. This led the primary judge to comment "Mr Vasiliou gave me the impression that he was moulding his own oral evidence to the new factual scenario disclosed by that document". The appellants' latest case - that they derived the balance of funds from elsewhere - was unsupported by documentary evidence. 55 As to rates andoutgoings being unpaid, that is not disputed and is evident from the proofs of debt which have been lodged with the respondent. Furthermore, the VFT has kept no records of any payment or its ownership of the property. On the appellants' own case, this would be contrary to the obligation under cl 15 of the deed of trust (and Optquest's financial record keeping obligations under the Corporations Law). Moreover, Mr Marchesi noted, it has stood by whilst Mr Vasiliou asserted the properties were his own. Further, no claim based on the agreement was raised until the commencement of the trial on 7 March 2007. It is unnecessary to consider whether, as the respondents submitted, this would support a successful claim of laches and acquiescence against the successive trustees of the VFT (Orr v Ford (1989) 167 CLR 316 at 330 and 334 - 335). 56 In the circumstances outlined above, it was undoubtedly open to the primary judge to conclude that thepurpose of the agreement was to avoid the potential application of s 120 of the BankruptcyActto the 1987 gift. We agree with his Honour that the conclusion was 'inescapable'. Mr Vasiliou's own evidence and his failure to call his accountant to give evidence about the matter virtually compelled it. His Honour was entitled to reject the explanation given by Mr Vasiliou in his oral evidence at trial that sought to link the 1989 agreement with accounting advice and tax benefits. 57 We would reject the appellants' submissions to the contrary and the grounds of appeal that were said to support them.

Conclusion 58 The appellants' appeals must be dismissed with costs. I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Finn, Kenny and Edmonds.

Associate: Dated: 14 July 2008 Counsel for the Appellants: Mr Vasiliou appeared in person

Counsel for the Respondent: Mr J Peters SC with Mr M Galvin

Bankruptcy Act 1966(Cth)ss 58, 120, 121

(Federal Court of Australia Act 1976(Cth)s 24(1A)).

Introduction 1 This proceeding involved two appeals. (1) VID 656 of 2007 is an appeal from orders made on 4 July 2007 including a declaration that the beneficial title to each of three properties has vested in the respondent, as trustee of the bankrupt estate of Andrew Vasiliou ('Mr Vasiliou') pursuant to s 58 of the Bankruptcy Act 1966 (Cth) ('the Bankruptcy Act'), as well as from orders made by the primary judge on 20 July 2007. (2) VID 755 of 2007 is an appeal from orders made by the primary judge on 13 August 2007 including orders giving effect to the judgment in (1) above and refusing Vasiliki Apostolou's ('Ms Apostolou') application for leave to bring a cross-claim. 2 In addition, by notice of motion filed 26 October 2007 the appellants made application to the Court to receive evidence on the hearing of the appeals additional to the evidence below: cf. O 52 r 36 of the Federal Court of Australia Rules. An affidavit sworn by Mr Vasiliou on 26 October 2007 and said to be in support of the motion was filed on the same date. But the affidavit did not state the grounds of the application, cf. sub-rule (4), let alone the evidence necessary to establish the grounds, cf. sub-rule (5). 3 In Council of the City of Greater Wollongong v Cowan (1955) 93 CLR 435 ("Greater Wollongong City Council"),at 444, Dixon CJ prescribed the requirements of the rule allowing further evidence on appeal in the following terms: 'It must be reasonably clear that if the evidence had been available at the first trial and had been adduced, an opposite result would have been produced or, if it is not reasonably clear that it would have been produced, it must have been so highly likely as to make it unreasonable to suppose the contrary. Again, reasonable diligence must have been exercised to procure the evidence which the defeated party failed to adduce at the first trial.' 4 Section 27 of the Federal Court of Australia Act 1976 (Cth) provides: 'In an appeal, the Court shall have regard to the evidence given in the proceedings out of which the appeal arose, and has power to draw inferences of fact and, in its discretion, to receive further evidence, which evidence may be taken: (a) on affidavit; or (b) by video link, audio link or other appropriate means in accordance with another provision of this Act or another law of the Commonwealth; or (c) by oral examination before the Court or a Judge; or (d) otherwise in accordance with section 46.' 5 The test enunciated by Dixon CJ in Greater Wollongong City Council was referred to with approval by Lockhart J in Florance v Andrew (1985) 58 ALR 377 at 381. His Honour observed (at 382) the discretion given to the Court in s 27 and O 52 r 36 may be broader than that dealt with by the High Court in Greater Wollongong City Council. An application to put on further evidence on appeal should be supported by evidence to explain why the evidence now sought to be adduced was not led at the trial, or why the case now sought to be made was not raised at the trial: Fodare Pty Ltd v Official Trustee in Bankruptcy [2000] FCA 1721. Mr Vasiliou's 'supporting affidavit' did not meet these requirements nor on any reading of it could one conclude that it met the prescription of the rule as articulated by Dixon CJ in Greater Wollongong City Council. 6 The notice of motion also sought an order that the Court lay "criminal charges … and [impose] other penalties against each party responsible for providing or being involved in false evidences on OATH". Based on Mr Vasiliou's supporting affidavit, it would appear that the motion contemplated that charges and the like be directed to persons such as Phillip Dwyer ('Mr Dwyer'), who was a witness at the trial. It is plain enough, however, that, as indicated to the appellants at the hearing of the appeal, the Court does not have jurisdiction to make an order of this kind. 7 For these reasons, the motion was dismissed at the hearing of the appeal.

The Issues and the Findings Below 8 Before turning to address the grounds and the issues that Mr Vasiliou sought to raise before us, it is convenient to set out briefly the main legal and factual issues before the learned primary judge together with his Honour's conclusions. The case came before Jessup J for a retrial following a successful appeal by Mr Vasiliou against the judgment of Weinberg J (see Vasiliou v Marchesi [2006] FCAFC 197). The central issue at the trial was whether or not the beneficial interest in three properties, which are also the subject of this appeal, vested in Brendan John Marchesi ('Mr Marchesi') by operation of s 58 of the Bankruptcy Act. In concluding that they did, his Honour dealt with this main question via a number of sub-issues, which are reflected in our discussion below of his Honour's reasons for judgment.

Whether there was a gift in equity of the properties? 9 The primary judge accepted that Optquest Pty Ltd ('Optquest') was registered on 11 August 1987 and was the intended corporate trustee for a 'family trust known as "The Vasiliou Family Trust"' ('the VFT'). In addition, the primary judge found that Optquest was likely to have been appointed the trustee of the VFT sometime in September 1987. His Honour found that on 8 October 1987 Mr Vasiliou purported to execute a deed of gift of the three properties in favour of the VFT and that at about the same time Mr Vasiliou, as transferor, and Optquest, as transferee, executed a transfer under the Transfer of Land Act 1958 (Vic) ('the TL Act') in respect of each of the subject properties. 10 The primary judge found that the executed TL Act transfers were left in the custody of Mr Dwyer, a solicitor acting for Mr Vasiliou, and that they were never delivered to Optquest. Accordingly, they remained in the custody of Mr Vasiliou, or his agent, throughout. Applying the equitable principles respecting the requirements for the perfection of a gift in land, his Honour further found that Mr Vasiliou, as donor, did not, therefore, do everything necessary on his part to vest the legal title to the subject properties in Optquest as donee. It followed, according to his Honour, that equity would not recognise the gift as complete and that Mr Vasiliou held the full beneficial title to the subject properties at all times (see Marchesi v Apostolou [2007] FCA 986 ("Marchesi v Apostolou") at [77]).

The granting of leave to the respondent to add a claim under s 121 of the Bankruptcy Act 36 On 2 March 2007, Jessup J granted leave (under O 13 r 2) to Mr Marchesi to file and serve a further amended application (see Marchesi v Apostolou [2007] FCA 254). The appellants contended that the primary judge ought not to have allowed the respondent to amend his application so as to include an alternative claim relying on s 121 of the Bankruptcy Act to the effect that the alleged gift in 1987, if effective in equity, was done to defraud Mr Vasiliou's creditors. The appellants argued that the primary judge erred in not adjourning the hearing to give them additional time to prepare their case. This argument was reflected in grounds 22 and 23 of the amended notice of appeal. 37 Mr Marchesi replied to this argument in a number of ways. First, he argued that leave was granted in an interlocutory judgment on 8 February 2007. He submitted, and we accept, that the appellants need leave to appeal from this order before they can challenge it further (Federal Court of Australia Act 1976 (Cth) s 24(1A)). No such leave has been obtained. This ground, or these grounds, of appeal are incompetent. 38 Secondly, we accept, as in substance Mr Marchesi submitted, that the appellants have not identified any proper basis for the grant of leave to appeal, supposing such leave was sought. It is apparent from his Honour's reasons that the primary judge gave due consideration to the question whether or not leave should be granted. It should be borne in mind too that his Honour expressly noted that the appellants had, for their own reasons, chosen not to make an application for the adjournment of the trial (see Marchesi v Apostolou [2007] FCA 254 at [5] and [23]).

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