CATCHWORDS BANKRUPTCY - income tax evasion - discretionary family trusts established by debtor - whether disposition of property to trustee of trusts - whether intent to defraud creditors - dispositions several years before creditor's claim apparent - whether retained benefit by debtor ~- contribution to son's purchase of property - gift - whether disposition of property Official Trustee v Paul Alvaro Nos SB 240 and 241 of 1991 ~4 NOV 1994 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRY Re: Giuseppe Alvaro and Girolama Alvaro ex parte: The Official Trustee in Bankruptcy (No. SB 1305 of 1990) Judge: Heerey J Date: 31 October 1994 Place: Melbourne (heard in Adelaide) IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIAN DISTRICT REGISTRY BANKRUPTCY DISTRICT OF THE STATE ) ) GENERAL DIVISION ) No. SB 1305 of 1990 ) OF SOUTH AUSTRALIA ) BETWEE N: RE: THE BANKRUPT ESTATE OF GIUSEPPE ALVARO — Ex Parte: THE OFFICIAL TRUSTEE IN BANK- RUPTCY Applicant and GIUSEPPE ALVARO, GIROLAMA ALVARO, PAUL ALVARO, CARMINE ALVARO, COMBRAN PTY LTD, RITA ALVARO and MARIA CONCETTA ALVARO Respondents JUDGE = Heerey J DATE ; 31 October 1994 PLACE: Melbourne (heard in Adelaide) MINUTE OF ORDER The Court orders the application be dismissed with costs including reserved costs. NOTE: Settlement and entry of -orders is dealt with in Order 36 of the Federal Court Rules IN _THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIAN DISTRICT REGISTRY BANKRUPTCY DISTRICT OF THE STATE ) ) GENERAL DIVISION ) No. SB 1305 of 1990 ) OF SOUTH AUSTRALIA ) BETWEE Ns: RE: THE BANKRUPT ESTATE OF GIUSEPPE ALVARO Ex Parte: THE OFFICIAL TRUSTEE IN BANK- RUPTCY Applicant and GIUSEPPE ALVARO, GIROLAMA ALVARO, PAUL ALVARO, CARMINE ALVARO, COMBRAN PTY LTD, RITA ALVARO and MARIA CONCETTA ALVARO Respondents JUDGE : Heerey J DATE : 31 October 1994 PLACE: Melbourne (heard in Adelaide) REASONS FOR JUDGMENT The applicant is the trustee of the bankrupt estate of Giuseppe Alvaro. The applicant seeks declarations that five Properties are vested in the applicant as property of the bankrupt. This proceeding was heard immediately following similar applications in Official Trustee v Paul Alvaro Nos SB 240 and 241 of 1991. Some of the evidence that was adduced in that 2. case was treated by consent as having also been given in the present case. Judgment in Official frustee v Paul Alvaro is delivered on the same day as the present judgment. Some of these reasons for judgment will incorporate by reference what I have said in Official Trustee v Paul Alvaro. The Alvaro Family The bankrupt, Giuseppe Alvaro, was born in Calabria in 1938. He married twice. His first wife Giuseppina Alvaro (nee Luppino) died in 1978. They had five children: Carmine born 1962 married Rita Agius 1986 their children are: Pasquale born 1987 Philip born 1990 Pasquale born 1964 died 1983 Cosimo Junior born 1966 Paul Junior born 1970 Maria Concetta born 1973 married Natale Licari Giuseppe's second wife, whom he married in 1981, was Girolama Condello. She was born in 1960. They have one child, Salvatore, born in 1982. Giuseppe has two brothers, Paul Senior (a respondent in the earlier case) and Cosimo Senior. Property Dealings and Family History The acquisitions of the five properties which the applicant claims need to be considered in the context of the family 3. history, including the acquisition and disposal of other properties not the subject of any claim. The more particular evidence relied on in relation to support the applicant's claim to the five properties will be examined later. The first family home of Giuseppe and Giuseppina that the evidence reveals was at 16A Itala Avenue, Croydon Park. It was bought in 1972 for $15,995. The title was registered in their joint names. On 17 January 1977 Giuseppe entered into a contract for the purchase of the adjoining property, a shop at 18 Itala Avenue, for $24,500. This property is the subject of Claim I. On 22 February 1977 the title to 18 Itala Avenue was registered in Giuseppe's name. Giuseppina died on 25 January 1978. By a Deed dated 12 February 1981 the Giuseppe Alvaro Family Trust (the GAF Trust) was established. The settlor was the accountant Mr Natale Rugari and the trustee Paul Senior. The "Specified Beneficiaries" were Giuseppe, his spouse and his children and remoter issue. On 27 February 1981 Giuseppe signed a transfer of 18 Itala Avenue to Paul Alvaro "as trustee for the Giuseppe Alvaro Family Trust". The transfer, a copy of which was in evidence, also bears the signature of Paul Senior. The words "as trustee for the Giuseppe Alvaro Family Trust" have been crossed out and initialled, apparently because of the practice of the Titles Office not to allow trusts to appear on the register. The transfer stated the value of the property to be $24,000 but stamp duty was paid on a value of $30,400. The transfer was registered on 5 June 1981. On 2 March 1981 Carmine entered into a contract for the purchase of 10 Sierra Avenue, Grange (Claim II) for $55,000. On 6 April 1981 that property was registered in the name of Carmine. ad On 25 October 1981 Giuseppe and Girolama married. On 27 December 1981 the owner of land at 8 Coronado Court, West Lakes (Claim III) entered into a contract to sell the land to a company called Condo Developments Pty Ltd (Condo Developments) or nominee. On 27 January 1982 the Coronado Court property was registered in the joint names of Giuseppe and Girolama. A large house was subsequently erected on the land. They have occupied it ever since as their matrimonial home. On 5 April 1982 16A Itala Avenue was sold for $80,076. By a Trust Deed dated 21 July 1982 the Alvaro Family Trust (the AF Trust) was established. The settlor was Mr Rugari and the trustee Combran Pty Ltd (Combran). The "Specified Beneficiaries" were Cosimo Senior, and Carmine and their spouses and children and remoter issue. The trustee Combran was a shelf company. There were two issued shares of $1 each 5. which were transferred to Cosimo Senior and Carmine on 14 July 1982. They were appointed directors on the same day. The schedule to the AF Trust Deed conferred additional power "to carry on the business of general shopkeepers, merchants and suppliers and in particular to buy, purchase or otherwise acquire, sell and distribute all food stuffs both manufactured and natural dairy produce, milk drinks and refreshments and deal in goods stores and consumable articles of all kinds both wholesale and retail and to transact every kind of agency business", Giuseppe was neither a "Specified Beneficiary" of the AF Trust nor a director or shareholder of Combran. On 31 August 1982 Combran purchased a delicatessen business known as the Arndale Deli at Westfield Shopping Town, Kilkenny for $64,000 plus stock at valuation of $2,392. On 30 September 1983 Giuseppe opened a bank account in the false name of G & M Condello with an initial deposit of $30,000. The following month a further $20,000 was deposited into that account. On 1 November 1983 Cosimo Senior resigned as director and secretary of Combran and transferred his one ordinary share to Pasquale, who was appointed a director. By a declaration under the seal of Combran on the same day it was declared that Cosimo Senior, his spouse and children and remoter issue would be excluded from the class of "Eligible Beneficiaries" of the AF Trust. A consequence of this was that Giuseppe, being a brother of Cosimo Senior, ceased to be an "Eligible Beneficiary" of the AF Trust. Cosimo Senior was paid $25,000 by the AF Trust on 10 January 1984. On 3 December 1983 Pasquale died as a result of a motor vehicle accident. On 12 December Paul Senior was appointed a director of Combran. On 6 March 1984 Giuseppe opened a false bank account in the name of Violi with a cash deposit of $500. On 9 March $24,000 was deposited in that account. On 13 March 1984 a contract was entered into for the purchase of 67 George Street, Royal Park (Claim IV) for $42,000. The contract was signed by Giuseppe and the purchaser was stated to be "Giuseppe Alvaro and/or nominee". The title to the property was registered in the name of Combran on 11 April 1984. In the meantime on 23 March 1984 Giuseppe opened a bank account in the false name of G & M Vitelone with a cash deposit of $24,000. On 28 August 1984 the Arndale Deli was sold. After deduction of selling expenses the net proceeds were $158,898.22. In February 1985 the ATO issued amended assessments against Giuseppe for 1979 and 1981 to 1983. There is no evidence to suggest that prior to this event Giuseppe suspected that his 7. taxation affairs were under investigation. The circumstances lead one to conclude that he had no such suspicion. In the following months the false bank accounts were closed with withdrawals of the following amounts: 25 March 1985 Violi 26,517.71 12 April 1985 Condello 4,687.12 15 April 1985 Vitelone 26,557.04 In May 1985 Giuseppe lodged objections to the amended assessments. Thereafter litigation ensued as detailed in the judgment in Official Trustee v Paul Alvaro. On 14 October 1986 Combran purchased another delicatessen business, the Welland Plaza Deli, for $100,000 including stock at valuation. The purchase was financed by a loan from the Commonwealth Bank. The business was sold on 31 July 1987 for the same amount. On 27 September 1988 Combran entered into a contract for the purchase of a property at 127 Crown Terrace, Royal Park (Claim VY) for $85,000. Title was registered in the name of Combran on 14 October 1988. On 27 September 1990 Giuseppe pleaded guilty to two charges of conspiracy to defraud the Commonwealth. An agreed statement of facts prepared by counsel on behalf of the prosecution and defendants, including Giuseppe, has already been referred to in the judgment in Official frustee v Paul Alvaro. Giuseppe 8. signed an admission in the following terms: "I Giuseppe Alvaro of 8 Coronado Court, West Lakes in the State of South Australia, Unemployed admit that I am guilty of Conspiracy to Defraud the Commissioner for Taxation over the period 1978 to 1984 inclusive as charged 1n the information and thereafter until 1990 and I agree with the following facts for the purpose of sentencing. 1. 2. Over the period 1978 to 1987 I declared assessable income for the Commissioner of Taxation totalling $69,359 which income was derived solely from Social Security benefits. That figure comprised the following: YEAR DECLARED ASSESSABLE INCOME 19.78 $4,587.00 1979 $6,797.00 1980 $6,178.00 1981 $5,809.00 1982 $5,171.00 1983 $8,370.0 1984 $8,336.00 1985 $7,928.00 1986 $8,274.00 1987 $7.907.00 Over the same period from 1978 to 1987 I received certain additional assessable income other than that declared in the taxation returns. The DPP on the basis of their calculations using a betterment assessment method allege a minimum omitted income to be as follows: YEAR OMITTED INCOME 1979 $ 8,741.00 1980 $ 26,219.00 1981 $ 32,460.00 1982 $134,934.00 1983 $ 58,172.00 1984 $ 93,533.00 1985 $ 33,979.00 1986 $ 34,953.00 1987 $ 17,966.00 The DPP alleges that total of $440,048.00 was omitted and a total taxation evaded was approximately half namely $220,024.00. I agree that tax at the rate of approximately 50% 1s payable upon any omitted income. In addition to the above tax liability I understand that pursuant to Section 224 of the Income Tax Assessment Act I am liable for an amount of up to 200% of the said sums at the discretion of the Commissioner for Taxation. I acknowledge that I omitted at least $250,000 assessable income. I agree that, for the purposes of sentencing, it is unnecessary for the sentencing judge to resolve the Gispute as to the total omitted income {which dispute is currently before the Federal Court) as I agree that the difference is not relevant to issues of sentence. Over the said period I purchased and/or sold the following assets. 9. (1) 16a Itala Avenue, Croydon Park purchased on 18 June 1972 for $15,995.00 which I sold on 5.4.82 for $20,076.00 (2) 18 Itala Avenue, Croydon Park purchased on 22.2.77 for $24,915.00 which I transferred to my Family Trust in the financial year 1981. (3) 8 Coronado Court, West Lakes which I purchased on 21.1.82 and on which I built my present house. The cost of the block was $55,768.00 and the cost of building the house in 1982 exceeded $213,891.00 (plans and photographs attached). (4) 10 Sierra Avenue, Grange a house which I assisted my son Carmine Alvaro to purchase for $55,775.00 in the financial year 1981 my contribution being a sum of $35,775.00 which included a sum of $8358.79 from a trustee account in the name of my daughter Concetta. (5) 1 Holthouse Road, Fulham Gardens a house which I assisted my daughter Concetta and her husband Natale Licari to purchase in September 1981 in the sum of $66,025.00 of which I contributed $36,025.00. (6) 67 George Street, Royal Park purchased in the name eof a family trust Combran Pty Ltd in November 1984 for a sum of $42,000.00. (7) 125 Crown Terrace, Royal Park purchased in the name of Combran Pty Ltd in October 1988 for the sum of $85,000. During the period 1978-1990 undeclared assessable income was utilised either directly or indirectly in either purchasing and/or improving the properties number (3) to (7) inclusive. I falsely informed the Commissioner for Taxation that the purchase and building of 8 Coronado Court aforesaid in which my wife and myself presently live, as having been acquired through loans and gifts totalling $179,000.00 from friends and/or family including trustee accounts of my children. One of the false gifts included in that said sum is §30,150.00 which my son Carmine Alvaro obtained by arranging to record false bets of $30,150.00 of my money through a bookmaker on my behalf. I was responsible for a number of false statutory declarations and/or acknowledgment of debt being forwarded to the Commissioner in support of such loans. I have also travelled overseas to Italy on three occasions between 1979 and 1987 and in relation to that travel in 1979, I falsely declared to the Commissioner for Taxation that such travel was paid for as a consequence of a gift from a relative in the sum of $6,000.00. I falsely informed the Commissioner for Taxation that a Bluebird Datsun valued at $7,000.00 and registered in my wife's name, was a gift from a relative. I also purchased a Volvo for the sum of $13,000.00 and registered it first in the name of a friend and falsely 10. denied ownership of that vehicle to the Commissioner for Taxation. 7. I used and operated false name bank accounts in the names ef CONDELLO, VIOLI and VITELONE for the purpose of disguising certain income. The total of deposits in those accounts was $98,000 plus interest $7,782.77 (total $105.,782.77). Particulars of those accounts are as follows: CONDELLO - 30.9.83 opened with $3,000 cash (closed 12.4.85) Non Disclosed deposits $50,000.00 Non Disclosed interest 2,697.80 * TOTAL $52,697.80 VIOLI - 6.3.84 opened with $500 cash withdrawn from CONDELLO account (closed 25.3.85) Non Disclosed deposits $24,000.00 Non Disclosed interest 2,697.80 TOTAL $26,697.80 VITALONE — 23.3.84 opened with $24,000 cash withdrawn from CONDELLO account (closed 15.4.85) Non Disclosed deposits $24,000.00 Non Disclosed interest 2,557.44 TOTAL $26,557.44" On 14 November 1990 in the Supreme Court of South Australia Giuseppe was sentenced to three years imprisonment, with an order that he be released on recognisance after serving 18 months, and ordered to pay reparation to the Commonwealth of $333,334. A sequestration order was made against Giuseppe's estate on 3 December 1990. Claim I - 18 Itala Avenue The applicant's claim is based on s.121, sham and resulting trust. As Giuseppe was the registered proprietor, there was clearly 11. enough a disposition by him. However, I am not satisfied there was an intent to defraud creditors at the time of the disposition in February 1981. This was some four years before the amended assessments. The evidence does not reveal any need that might have been then apparent to Giuseppe to place assets out of the reach of creditors. A year later he was taking title to the Coronado Court property in the names of his wife and himSeif. Despite the reference to "nil" consideration in the transfer, the documentation at the time, and in particular the trust tax returns submitted by the GAF Trust, leads to the conclusion that the purchase price was left owing on loan. Between 1981 and 1986 Giuseppe took rent from the property and each year the amount of that rent was applied in reduction of his loan account. The applicant claimed that Giuseppe "appropriated" the rent on the property at least up until 1985. It was further said that he signed the rent book. An examination of the rent book however indicates that the signatures are likely to be those of Carmine and Girolama. In any event, collection of the rent by Giuseppe would not be inconsistent with a valid transfer to the GAF Trust, as long as he accounted to the Trust for that rent, as he in fact did. The GAF Trust was a very simple operation. Its only asset was the shop at 18 Itala Avenue. It kept little in the way of accounting records; in effect, as Mr Harmer said, its annual tax return and financial statements were its accounts. It had no bank account. But given the uncomplicated nature of its 12. business, these circumstances do not point to an intent to defraud. The use of an individual rather than a company as trustee would save the registration and annual costs of Maintaining a company. Reliance was placed on a form which Giuseppe and Girolama signed on 22 September 1982 in support of an application to the Commonwealth Bank for a loan for the erection of a house at Coronado Court. The application form was signed by Giuseppe and Girolama. The form includes the following (typed additions in italics): "The loan is required to assist:- (i) To erect a dwelling on the property offered as security at a eernteact price of $137,129." The printed form further states: "The property offered as security will be occupied by me/us as a home." The printed form provided for details of liabilities and assets. Under the latter heading there is included "Property offered as security (if title not in applicant(s) name, deposit paid) Land $54,000." Under the heading "Assets" the form provides for various other items such as bank accounts and life insurance. There then appears: "Other Assets Shop at Itala Avenue, Croydon Park $60,000". I do not regard this document as constituting an admission by Giuseppe that 18 Itala Avenue was "really" his or that he was 13. treating it "as his own" and that the transfer of the property to the GAF Trust was a sham. Both Giuseppe and Girolama were "Specified Beneficiaries" of the GAF Trust. The trustee had express power to borrow moneys (cl.7(c)) and to give guarantees for repayment of loans and to give mortgages over trust property to secure the same (cl.7(d)). The statement in the bank application form says no more than that. The property at 18-"Itala Avenue was never in fact used as a security for the bank loan in respect of Coronado Court, or for any other borrowing or acquisition by Giuseppe. There is no evidence otherwise of retained benefit for Giuseppe. The GAF Trust lodged tax returns with the ATO including annual financial statements. From those it appears the profits and distributions were as follows: 1981 1982 1983 1984 1985 1986 1987 1988 1989 Profit 1120 4085 4160 5200 5000 5025 5200 5200 6240 Distribution Cosimo Jnr 560 862 180 4400 4209 5200 6240 Paul dnr 560 862 180 400 390 400 2600 Concetta Licar1 1500 3200 Pasquale Jnr 861 3800 Salvatore 400 416 416 Natale Licari 994 2600 I am unable to find that there was any promise, arrangement or understanding at the time of the transfer for a benefit to be retained by Giuseppe. At this stage it will be convenient to mention an argument which was put generally in relation to all the properties 14. claimed. The applicant argued that " -.. the lands were treated as (Giuseppe's) own and ... his intention was always that the land be his free of the trusts." In support of this contention it was further said: "In the execution of the conspiracy to defraud the Commissioner of Taxation, the bankrupt employed the contrivance of placing assets in false names so as to disguise their true ownership [presumably a reference to, amongst other things, false bank accounts]. The placement of the lands in the names of--trustees and asserting it was held pursuant to the trusts, is similar in form to this dishonesty, occurred at the same time, and permits an inference that it was little different in truth." For the reasons given in Official Trustee v Paul Alvaro I do not accept this reasoning as valid. It seems particularly inappropriate when applied to 18 Itala Avenue. Giuseppe's first wife had died leaving five children who were, at the date of the transfer, aged between 19 and 8. Eight months after the establishment of the GAF Trust Giuseppe married a young wife. Such a period does not suggest to my mind, as the applicant submitted, that "... the establishment of the Trust had nothing to do with remarriage". I find the circumstances are very consistent with an intention on the part of Giuseppe to make provision for the children of his first marriage. It was also said by the applicant in support of the contention mentioned that "In his admissions the bankrupt frankly admitted he purchased the lands and transferred them later to the trustees, albeit he asserts they were then subject to the trusts." I do not see how this advances the applicant's case. The 15. construction put on the admissions is consistent with what the respondents now say was the true position. Claim II - 10 Sierra Avenue The claim is based on s.121 and resulting trust. The purchase price of $55,775 was provided by a loan of $20,000 from thé Commonwealth Bank secured by mortgage over the property and the balance was contributed by Giuseppe. Of that contribution $21,698.74 had been in savings'. banks accounts in the name of Giuseppe as follows: Giuseppe as trustee for Carmine 9,939.95 Giuseppe as trustee for Concetta 8,358.79 Giuseppe 3,400.00 The funds (along with a cash deposit of $13,400 whose source is not disclosed by the evidence) were deposited in an account in the name of Carmine, out of which the purchase price was paid. In his admissions Giuseppe referred to the property as "a house which I assisted my son Carmine Alvaro to purchase for $55,775 ... my contribution being the sum of $35,775." Carmine, not Giuseppe, conducted the negotiations for the purchase with the vendor's agent and signed the contract as purchaser. From the bank documents it is clear that the bank treated Carmine as the purchaser and mortgagor, albeit that the bank was aware he was assisted financially by his father. 16. Subsequently Giuseppe received a cheque for $6,800 from an insurance company in payment of a motor vehicle claim. The cheque was made over to Carmine and applied towards the mortgage over the property. Prior to his marriage in 1986 Carmine continued to live with his family firstly at 16A Itala Avenue and subsequently at 8 Coronado Court.~ Between the time of acquisition and his Marriage, Carmine let the property to tenants. Repayments of the mortgage loan were by monthly instalments of $204. Carmine was employed as an apprentice hairdresser by his uncle Paul Senior. Since the property was producing rent and he was a young single man living with his father and stepmother, there is no ground for concluding that he was not able to meet the loan commitments himself, apart from the admitted gift of $6,800. Upon her marriage, Rita Alvaro was given $3,000 by her mother which she banked in an account in the names of herself and her husband. She had herself saved over $12,000 at the time. In her affidavit she deposed: "After our marriage Carmine and I moved in to live at 10 Sierra Avenue, Grange. I understand Carmine had owned this house for many years prior to our marriage. I always understood it to be Carmine's house and nobody else's." Rita gave evidence but was not challenged in cross-examination as to the passage just mentioned. - 17. After the marriage Rita continued to work, her income varying depending on the requirements of her employer. Her nett income ranged from $120 to $300 per week. From her income and from the balance of monies held in her joint account she and her husband were able to pay for renovations to the property in 1988. The main expenditure was: Joinery and furniture 5,080 Kitchen appliances 1,896 Windows 1,118 8,094 Some years later a carport was built at a cost of about $1,000. Rita Alvaro deposed: "I invested my savings in this house on the belief that the house belonged to nobody else other than my husband." Rita, Carmine and their children continue to live in the house. I find that the claim insofar as it is based on s.121 is not made out. Part of the initial contribution towards the purchase price by Giuseppe was, I find, a gift. A significant part of Giuseppe's contribution came from a bank account specifically earmarked as being held in trust for Carmine and thus properly to be considered as money to which Carmine was beneficially entitled. The gift of other monies to Carmine for the purpose of acquiring this property complements the transfer of 18 Itala Avenue to the GAF Trust; it is to be noted that Carmine did not receive distributions from the GAF Trust. There is no suggestion of any repayment by Carmine or 18. any claim for repayment by Giuseppe. A further gift was made in the form of the insurance payment. The purchase of the property was not a disposition within the meaning of the principles discussed in Official Trustee v Paul Alvaro. I say this because it seems on the evidence that Carmine was the moving force in the purchase. He conducted the negotiations with the vendor's agent and arranged the mortgage loan from the bank. Aliso Carmine himself provided a substantial part of the purchase price by accepting the obligations under the mortgage. The mortgage loan, together with the $9,939.95 to which he was beneficially entitled from the trustee savings account, made up over half the purchase price. I am not satisfied that this was a case of Giuseppe providing money to the vendor to transfer the property to Carmine. In any event, I am not satisfied there was an intent to defraud creditors. The contract was executed almost four years before Giuseppe received the amended assessments. Nor was there any retention of benefit by Giuseppe. It is hard to see how there could be any such retention without Rita being made aware of it prior to or at the time of the marriage. There is no suggestion that this occurred. The circumstances of the marriage strikingly negative any such suggestion. Rita and Carmine had courted for some.five years prior to the marriage. However she was Maltese. Carmine's family disapproved of her because she was not Calabrese. As a result 19. of their disapproval, she did not meet Giuseppe until after the marriage. The only members of Carmine's family to attend the wedding ceremony were his sister Maria Concetta and his stepmother Girolama. It was not that they took the side of their brother and stepson against Giuseppe. Rita deposed: "They both tried to talk Carmine out of proceeding with the marriage at the church in my presence." If 10 Seaview Avenue was "really" Giuseppe's and subject to some promise, arrangement or understanding on the part of Carmine to that effect, it is odd indeed that Giuseppe did not take advantage of his ""rights" to withdraw his benevolence when the son had thwarted the family's wishes - and the more so since Giuseppe had by this time received the amended assessments and no doubt needed money for legal costs and possible tax liabilities. Also, three years after the amended assessments Carmine and Rita spent some $9,000 of their own money on improvements to the property. It must have been apparent to them then that Giuseppe was facing serious financial problems. If Carmine regarded the property as something which could be taken back at any time by Giuseppe, such expenditure is inexplicable. As to the claim for a resulting trust, it may be doubted whether the presumption arises in the first place because, for the reasons mentioned, it was not a case of A buying property in the name of B, but rather A making a gift to B who buys the 20. property partly with the proceeds of the gift and partly with other resources of his own. But in any event the presumption of advancement clearly applies. Carmine was a young man just entering adulthood and I do not see any reason why the presumption should not apply. Claim III - 8 Coronado Court The claim is based on s.121 and resulting trust. The evidence relating to the acquisition of this land and the erection of the house was complicated and mysterious. It included amongst other things a supposed loan to Condo Developments by a man called Umberto Remo and an equivalent loan by Condo Developments to Giuseppe, which loans were set off against each other by Condo Developments, but only after the NCA raid in 1987. At the committal proceedings Giuseppe admitted falsely informing the ATO that loans and gifts totalling $179,000 from friends and relatives had been provided and also that false statutory declarations had been made as to the source of funds. It is not necessary to canvass this evidence in detail. I find that the land was purchased through cash provided by or on behalf of Giuseppe, that cash having been recorded in the books of Condo Developments as a loan from Remo. The construction of the house cost at least $213,891, the figure admitted by Giuseppe. Apart from a loan from the Commonwealth Bank of $30,000 there is no satisfactory explanation for the 21. funding of the cost of that work. There is some evidence that Girolama brought funds in Italian currency to Australia at different times and had in her possession at the time of the NCA raid a bank book for an account with Banco di Napoli in the name of a person with her maiden surname, although a different Christian name (Domenica). But I cannot find positively that she contributed to the cost of the works. The most likely expYanation, which I find as a fact, was that the cost of the works over and above the bank loan was provided by Giuseppe. This would no doubt have included a significant amount of income undisclosed to the ATO, although I note that the proceeds of the sale of 16A Itala Avenue on 5 April 1982 would also have been available. However I am unable to find there was an intent to defraud creditors within the meaning of s.121. The date title was taken was three years before the amended assessments. As is more fully discussed in Official Trustee v Paul Alvaro, it is one thing to disguise a source of income by false bank accounts and the like, it is another to conceal assets. Here of course the property was revealed on a public register as being one in which Giuseppe himself held a half interest. Nor is there the element of retained benefit in relation to Girolama's half interest. When one asks what could be the benefit retained by Giuseppe, the answer cannot be occupation of the property, because the occupation he has enjoyed is referable to his own (disclosed) interest as joint proprietor. 22. Nor can it be access to rents or profits since the property was used and, I find, always intended to be used, as a home to be occupied by the owners. The only retained benefit possible therefore would be access to the capital represented by Girolama's half interest. If there is one form of property which law, equity and community experience would treat as "really" belonging to a wife, it is her joint interest as registered proprietor in the matrimonial home. It would require clear evidence to reach the conclusion that at the time this interest was acquired Girolama was a party to a promise, arrangement or understanding with her husband that her interest was available to Giuseppe at any time, notwithstanding her undoubted legal and equitable rights. There is no such evidence in the present case. For the reasons just mentioned I think the presumption of advancement clearly applies and there is no resulting trust. Claim IV - 67 George Street The applicant's claim is based on s.i21, sham and resulting trust. On 13 March 1984 a contract was entered into for the purchase of this property for a price of $42,000. Carmine found the property and asked Giuseppe for advice. In his public examination Carmine said that he and his brother had "had enough of the snack bar" (presumably the Arndale Deli). The purchaser was stated to be "Giuseppe Alvaro and/or nominee". 23. The contract was signed by Giuseppe. In 1985 (reference to a year means a financial year, unless otherwise stated) two units were erected on the land. Expenditure was: 11 April 1984 Contract Price 42,000 Stamp Duty and Settlement costs 1,073 43,773 Construction costs 65,798 109,571 -- The sources of funds were: Purchase: Commonwealth Bank fully drawn loan 43,000 (The balance of this loan ($41,668.17) was repaid on 28 August 1984 from the proceeds of the sale of the Arndale Deli.) Construction of Units: Sale of Arndale Deli 36,023.49 Commonwealth Bank bridging loan 20,000.00 Commonwealth Bank overdraft facility 9,774.68 65,798.17 The timing of the construction compared with the closure of the false name Condello, Violi and Vitelone bank accounts points towards the conclusion that, contrary to the applicant's submission, the construction of the units was not financed from those accounts. The AF Trust lodged tax returns including annual financial statements. From those it appeared that the profits and distributions were as follows: 24. 1984 1985 1986 1987 1988 1989 Profit 15,270 3,409 5,951 4,560 9,974 5,523 Distribution Pasquale 1,000 Carmine 5,270 3,000 Cosimo Jnr 3,409 2,951 3,724 7,674 4,723 Paul Jnr 416 1,500 Salvatore 416 400 400 Pasquale Jnr 400 400 There was evidence that in 1985 and 1986 Reserve Bank cheques drawn in favour of "G Alvaro" were deposited in the bank account of the AF Trust. It is likely that these were social security cheques drawn in favour of Giuseppe. It was put on behalf of the applicant that Giuseppe was "topping up" the AF Trust operating account with his social security funds and that this was something indicating his control of the Trust. At his public examination Giuseppe said that sometimes he would give social security cheques to his sons in return for cash rather than cash the cheques himself. If the cash so exchanged by the sons was rent money that would be a ready explanation to explain the deposit of cheques in the Trust account. In any case there would seem to be no point in putting the cheques into a form in which they would attract taxation in the hands of the beneficiaries. I do not find that there was an intent to defraud creditors in respect of this property. Its acquisition was financed entirely from commercial borrowing. The registration of the title in the name of Combran with the public disclosure of 25. directors and shareholders together with the lodging of annual financial statements with the ATO is inconsistent with an intent to conceal. There was no retained benefit by Giuseppe and no basis for finding any promise, arrangement or understanding at the time of acquisition for such a benefit. The subsequent history of the AF Trust is. consistent with it being controlled by the directors of Combran in accordance with the terms of the Trust. Giuseppe was never a director of Combran and only became a shareholder by succession on the death of his son Pasquale. As far as the evidence discloses, Giuseppe's only connection with the construction of units on the George Street property was that he dealt with a Mr Brian Wilson for the supply of curtains. Counsel for the applicant argued a circumstantial case that undisclosed funds had been used in the purchase of the Arndale Deli and profits from the subsequent sale of the Deli used for the construction of the units at George Street. The evidence does not satisfy me that this was the case. But in any event the argument appears based on a misconception which underlies much of the applicant's argument in the present case and indeed in Official Trustee v Paul Alvaro. Section 121 is not a tracing mechanism. It directs attention at a disposition (including a disposition in the extended sense discussed in Official Trustee v Paul Alvaro) and poses the question whether that disposition was made with the proscribed intent. The 26. relevant asset may have been acquired from impeccable sources or by the use of illicit means. But what matters for the purpose of s.121 is whether the asset, ex hypothese the property of the debtor or at least under his control, is disposed of with intent to defraud creditors. Moreover, subsequent expenditure on improvement of the property, whether the funds have a lawful origin or otherwise, is only relevant to the extent that it throws light on the intention at the time of disposal. The fact that such expenditure constitutes a gift to the apparent owner of the property does not necessarily mean there was to be a retained benefit for the person making that expenditure. It may be a gift and no more. The intent to defraud not being established and _ the circumstances being otherwise consistent with the ordinary purposes of a discretionary trust, I find there was no sham and no resulting trust. Claim V - 127 Crown Terrace The applicant's claim is based on s.121, sham and resulting trust. On 27 September 1988 Combran entered into a contract to purchase this property for $85,000. The property is about half a kilometre from 67 George Street. Settlement took place on 14 October 1988 when the contract price together with stamp duty and costs of $3,287, were paid. The purchase was funded by a Commonwealth Bank small business loan of $90,000. 27. For the reasons discussed in Official Trustee v Paul Alvaro I find there was here no disposition by Giuseppe. In any event the funds were completely provided by a commercial borrowing. There was no concealment. There is no basis for sham or resulting trust. Social Security Fraud In his written final submissions under the heading "Fraudulent Schemes" counsel for the applicant raised as well as "Taxation Fraud" a case under the sub-heading of "Social Security Fraud". It was said that Giuseppe obtained social security benefits "by fraudulent means, concealing his true income and assets to achieve that end". It was said that "... with every fortnightly payment of social security benefits procured by fraud, a debt was owed by the bankrupt to the Commonwealth to repay the money so obtained, see 9.1224 Social Security Act 1991." This argument raises a serious question of procedural fairness. The present case and Official [Trustee v Paul Alvaro were conducted on affidavit and without pleadings. With the wisdom of hindsight, the omission of pleadings may have been a mistake. The two cases involved nine separate claims. The respondents resisting these claims had a variety of legal and equitable interests. It seems highly desirable that an applicant seeking to make out such a complex case should state with some particularity what is relied upon to establish intent to defraud and lack of good faith. This is the more so when, as has been seen, that case necessarily involves an 28. allegation that the disponees were in some way party to the fraud. Both in this case and the previous one the applicant's counsel commenced with an opening based on lengthy written submissions. In the present case that took the form of a 36 page document, most of it single spaced. In the whole of that opening submission there was no mention of the Commonwealth, in its capacity as a claimant to recover fraudulently obtained social security benefits, as a creditor whom the bankrupt intended to defraud. Among the witnesses called by the applicant there were two officers of the Social Security Department but their evidence went to interviews with Giuseppe and Girolama and were understandable as being evidence of admissions as to what they said or did not say about assets or liabilities. It was only in counsel's closing submissions, after counsel for the respondents had all completed final addresses, that the submission to which I have just referred was made. There was no evidence as to whether or not Giuseppe has been prosecuted for social security fraud in the same way as he has been for fraud relating to tax. In any event it appears the Commonwealth did not lodge a proof of debt against his estate. The present case has been conducted on the basis that the bankrupt made dispositions with intent to defraud one creditor, namely the ATO. Section 121 can of course be 29. infringed whether the intent is to defraud creditors generally, or one or more creditors: see s.6 of the Act. But the way the case has been presented makes it quite unfair to allow this new formulation to be put at such a late stage. Conclusion The application will be dismissed with costs .ncluding _ reserved costs. 30. I certify that this and the preceding twenty-nine (29) pages are a true copy of the reasons for judgment of his Honour Mr Justice Heerey. Ge. mcd 1994 SSO Appearances Counsel for the applicant: Mr D Meagher QC with Ms S$ Maharaj Solicitor for the applicant: Australian Government Solicitor Counsel for the second respondent: Mr M Abott QC with Mr H Patsouris Solicitor for the second respondent: Patsouris & Associates Counsel for the fourth respondent: Mr P Waye Solicitor for the fourth respondent: PN Waye & Associates Counsel for the beneficiaries of the Giuseppe Alvaro Family Trust and the Alvaro Family Trust: Ms L Powell Solicitor for the beneficiaries of the Giuseppe Alvaro Family Trust WAG Morris, Pearce & and the Alvaro Family Trust: Associates Dates of hearing 21,26,27,28,29 and 30 September 1994 2 JUDGES' CHAMBERS FEDERAL COURT OF AUSRALIA 450 LITTLE BOURKE STREET TABeRAle MELBOURNE, 3000 2 November 1994 Sonia Cornale Federal Court of Australia Principal Registry Law Courts Building Queens Square SYDNEY NSW 2000 Dear Sonia, Re: Guiseppe Alvaro & Anr ex parte: The Official Trustee in Bankruptcy No. SB 135 of 1990 Re: Paul Alvaro & Anr ex parte: The Official Trustee in Bankruptcy No.SB 240 of 1991 and SB 241 of 1991 Negative Instruments Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia No. VG 157/158 of 1993 I enclose copies of the judgments delivered by his Honour Mr Justice Heerey in the above matters on 31 October 1994. A diskette record of the judgments are also enclosed. These judgments are for general distribution. David Brenjian Associate to Heerey J