BNY Trust Company of Australia Ltd v Morrell
[2008] FMCA 1406
•22 October 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BNY TRUST COMPANY OF AUSTRALIA LTD v MORRELL | [2008] FMCA 1406 |
| BANKRUPTCY – Application to set aside sequestration order – issues concerning lenders mortgage insurance considered. |
| Bankruptcy Rules 2006, r.4.06 Bankruptcy Act 1966 |
| Totev v Sfar [2008] FCAFC 35 |
| Applicant: | BNY TRUST COMPANY OF AUSTRALIA LIMITED (ACN 050 294 052) (FORMERLY KNOWN AS JP MORGAN TRUST AUSTRALIA LIMITED) |
| Respondent: | ANNETTE MARY MORRELL |
| File Number: | MLG 619 of 2008 |
| Judgment of: | Burchardt FM |
| Hearing date: | 8 September 2008 |
| Date of Last Submission: | 8 September 2008 |
| Delivered at: | Melbourne |
| Delivered on: | 22 October 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr P. Fary |
| Solicitors for the Applicant: | Gadens Lawyers |
| The Respondent: | In person |
ORDERS
That compliance with rule 4.06 of the Bankruptcy Rules 2006 be dispensed with.
That the application for review of the sequestration order of Registrar Moore made on 17 July 2008 be dismissed.
That the decision and orders of Registrar Moore on 17 July 2008 be affirmed.
That the Applicant’s costs be paid out of the estate of the bankrupt in accordance with the Bankruptcy Act 1966.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 619 of 2008
| BNY TRUST COMPANY OF AUSTRALIA LIMITED (ACN 050 294 052) (FORMERLY KNOWN AS JP MORGAN TRUST AUSTRALIA LIMITED) |
Applicant
And
| ANNETTE MARY MORRELL |
Respondent
REASONS FOR JUDGMENT
Mrs Annette Morrell seeks to review the sequestration order made against her by Registrar Moore on 17 July 2008.
There were essentially two points made on Mrs Morrell's behalf by her husband, who by leave of the Court conducted her advocacy for her.
First, the Morrells assert that they do not know to whom they owe the admitted debt arising out of the shortfall between the sale price of their former home and the moneys advanced secured by that property.
Second, they say that if the Applicant is in truth the creditor, the creditor is obliged to extend to Mrs Morrell the benefit of loan protection insurance taken out by Mr and Mrs Morrell when the property was purchased and the loan entered into.
For the reasons that follow, I think that neither of these points is made out and the application for review must be dismissed.
Preliminary matters
Counsel for the Applicant raised the now increasingly well-known difficulty as to formal matters exemplified by the recent Federal Court case of Totev v Sfar [2008] FCAFC 35 (“Totev”).
Given that the affidavit material filed by Mrs Morrell expressly concedes indebtedness, and given that the matters required to be established by rule 4 of the Bankruptcy Rules 2006 (“the Rules”) are not in any way in issue, I have indicated at an early stage that I would dispense with compliance with the requirements of r.4.06 of the Rules. That was a course of action approved (in the sense that it was said to be available) by Emmett J in Totev at [15], [22] and [45] and by Bennett J at [52].
The facts
From the affidavit material filed by both parties, it is clear that Mrs Morrell (together with her husband, who has already been made bankrupt arising out of the same course of events) bought their former home in Strathmore and obtained a loan from Pioneer Mortgage Services to enable that to occur.
At the time the loan was taken out, the Morrells paid a loan risk fee or premium for lenders mortgage insurance. In her affidavit filed on 23 July 2008, Mrs Morrell stated:
“I understand that the Lenders Mortgage Insurance is insurance covering the lender against loss arising from, inter alia, inability by the borrowers to pay and a claim can be made in those circumstances so that the lender is paid by the insurer when the borrower cannot meet their Mortgage payments.”
She went on to contend that if the Applicant had acquired the rights of Pioneer then it should have made a claim on the insurance policy.
It should be noted that the affidavit material filed by the Applicant clearly indicates her indebtedness in the primary sum originally owed.
Rory James Ratz, a senior credit controller of the Applicant, has filed three affidavits in this proceeding. In his second affidavit, sworn on 25 August 2008, he set out the somewhat complex corporate structure and arrangements that govern the manner in which the Applicant in fact was the true lender of the funds advanced to the Morrells.
It is not necessary to traverse the materials advanced in that affidavit. It is clear in my view from Mr Ratz’s affidavit that the Applicant is properly entitled to enforce the debt owed by the Morrells.
Exhibit RJR6 annexed to that affidavit is a true copy of the lenders mortgage insurance master policy between the Applicant and the insurer. It is clear from the standard terms which form part of that exhibit that the Applicant could only claim on its insurance following the sale of the former matrimonial home. The standard terms also include at clause 12 a subrogation clause which would, in the event of any ultimate default by the Morrells, enable the insurer to sue them directly.
In her affidavit filed on 4 September 2008, Mrs Morrell again takes issue with the way in which the Applicant has, as it were, dealt with the insurance matter.
She deposes at paragraph 30(a) of her affidavit that it was a requirement of the Applicant that the sum of about $25,500.00 was paid to obtain the mortgage insurance policy. She went on to say that if, as Mr Ratz had already asserted, the rights which the Applicant creditor had under the mortgage policy were a right of the insured, not a right of Mr and Mrs Morrell, then she ought to be refunded her $25,592.05 that she paid for the premium.
By leave, a further affidavit from Mr Ratz was filed on 12 September 2008. In that affidavit, Mr Ratz deposed that:
“I have now established that there was no lenders mortgage insurance policy in relation to the Loan and there was never any lenders mortgage insurance premium paid by the Morrells.
As stated in paragraph 3 of this my affidavit, a “Loan Risk Fee”, as opposed to a lenders mortgage insurance premium, was paid in light of the exposure to JP Morgan (as defined in My Earlier Affidavit) in relation to the Loan. As the loan to valuation ratio was 95%, either a Loan Risk Fee or premium for lenders mortgage insurance was payable by the Morrells to JP Morgan. JP Morgan chose to charge a Loan Risk Fee, as opposed to a premium for lenders mortgage insurance.”
If that assertion made by Mr Ratz is correct then of course the loan risk fee was a simple flat charge payable as consideration by the Morrells to obtain their loan, and that is the end of the matter.
Mrs Morrell has, however, taken issue with Mr Ratz’ assertion in an affidavit filed on 19 September 2008.
Given that the matter has largely proceeded, and in fact been argued, on the basis that an insurance premium of the type described in the materials tendered to the Court was indeed taken out, I will nonetheless deal with this aspect of the dispute on the footing that mortgage insurance did in fact obtain.
It is unfortunately the case that counsel for the Applicant is correct when he asserts that Mr and Mrs Morrell do not, albeit very understandably, understand the true purport of lenders mortgage insurance.
Lenders mortgage insurance is designed to ensure that in the event that the borrower does not make appropriate repayments, the property is sold and the shortfall is covered by the insurer.
The contract of insurance is wholly between the lender and the insurer, and there is no obligation pursuant to the terms of the contract between the lender and the borrower for the lender to exercise their powers in any particular way.
Even if one were to assume that it was incumbent upon the lender to exhaust its rights under the insurance policy, it is clear from the terms of the policy - and in particular the subrogation clause - that no benefit would thereby accrue to Mr and Mrs Morrell, who would simply stand liable to the insurer instead of to the Applicant in this case.
Conclusion
Accordingly, the two matters asserted by Mrs Morrell as being grounds to set aside the sequestration order made by Registrar Moore fail.
In the light of the decision in Totev, and bearing in mind accordingly that this is a hearing de novo, I will make the usual necessary orders to dispose of the application for review.
I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Burchardt FM
Associate: Brooke Evans
Date: 22 October 2008
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