Carter v Scotney - [2012] FMCA 853

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CARTER v SCOTNEY

[2012] FMCA 853

BANKRUPTCY – Sale of property by joint owner – purchase of subsequent property only in the name of other party – joint owner subsequently bankrupt – during 3 day period between sale of house 1 and purchase of house 2 proceeds held in term deposit – application by Trustee in Bankruptcy for summary judgment for amount equivalent to half value of term deposit – argument as to whether funds were ever in possession or control of bankrupt – letter of set-off in favour of National Australia Bank – consideration of terms of letter of set-off – determination of a triable issue existing – alternative security for Trustee in Bankruptcy – determination to grant leave to National Australia Bank to intervene if requested.

Bankruptcy Act 1966, ss.30, 58, 120, 121, 139DA ,139D(2)
Federal Magistrates Court Rules 2001, r.13.07
Federal Magistrates Act, s.17A
Federal Court of Australia Act 1976, s.31A

White Industries Australia Ltd v Commissioner of Taxation (2007) 160 FCR 298
Dey v Victorian Railway Cmrs (1949) 78 CLR 62 at 91-2; [1949] ALR 333 at 347-8
General Steel Industries Inc v Cmr for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129-30; [1965] ALR 636
Lawrenson Light Metal Die Casting Pty Ltd (in liq) v Cosmick Pty Ltd [2006] FCA 753
George (a bankrupt) v Fletcher (a trustee) [2010] FCAFC 53

Applicant:

MOIRA KATHLEEN CARTER AS TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF WILLIAM EDWARD SCOTNEY

Respondent:

KAREN RUTH SCOTNEY

File Number:

BRG 1057 of 2011

Judgment of:

Coker FM

Hearing date:

18 July 2012

Date of Last Submission:

18 July 2012

Delivered at:

Townsville

Delivered on:

14 September 2012

REPRESENTATION

Counsel for the Applicant:

Mr Coulsen

Solicitors for the Applicant:

Connolly Suthers

Counsel for the Respondent:

Mr Morzone

Solicitors for the Respondent:

Boulton Cleary & Kern

ORDERS

The application in the proceedings for summary judgment is allowed in part with the following orders pursuant to section 30 of the Bankruptcy Act 1966:
(a)Within 14 days the applicant will provide to the respondent by its solicitors all documentation necessary to transfer a one half interest in the property subject to the security held by the National Australia Bank over the property located at 168 Corcoran Street, Currajong, Queensland, more particularly described as Lot 483 on Registered Plan 711591, County of Elphinstone, Parish of Coonambelah, Title Reference 21312079 to the applicant as the trustee in bankruptcy of the Bankrupt;
(b)Within 7 days of receipt the respondent will execute such transfer documentation provided by the applicant and do all things necessary to give effect to a transfer to the applicant of a one half interest in the said property subject to the existing security.
The balance of the application for summary judgment be dismissed.
The application in relation to striking out of the defence be dismissed.
The National Australia Bank be served forthwith with a copy of this order and the application of 29 November 2011.
The National Australia Bank have leave to seek to be joined in these proceedings.
The costs of the applicant and respondent be reserved.
The application otherwise be adjourned to 9.30am on 7 November 2012.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT TOWNSVILLE

BRG 1057 of 2011

MOIRA KATHLEEN CARTER

Applicant

And

KAREN RUTH SCOTNEY

Respondent

REASONS FOR JUDGMENT

The applicant in these proceedings is Moira Kathleen Carter who is the trustee in bankruptcy of the bankrupt estate of William Edward Scotney. The respondent to these proceedings is Karen Ruth Scotney, the wife of the bankrupt.
In the original application filed by the applicant on 29 November 2011 she sought orders in these terms:
1.An order, pursuant to Sections 139DA and 139D(2) of the Bankruptcy Act 1966, vesting that real property described as Lot 493 on Registered Plan 711591, County of Elphinstone, Parish of Coonambelah, Title Reference 21312079 in the Applicant in her capacity as Trustee in Bankruptcy of the bankrupt estate of William Edward Scotney;
2.An order, pursuant to Sections 139DA and 139D(3) of the Act, directing the Respondent to execute such instruments and produce such documents of title and do such other acts or things as sis or are necessary to give effect to the order sought at paragraph 1hereof;
3.Costs.
In a defence filed in relation to the matter by the respondent, reliance was placed upon a specific denial of the fact that moneys from the sale of a jointly owned property had come into the possession or control of the bankrupt and the wife, and that therefore there had been some interest or entitlement which had passed from the bankrupt to his wife.
It was acknowledged by the respondent, however, that the applicant, as trustee in bankruptcy of the estate of William Scotney, was entitled to the benefit of any interest that the bankrupt may have held in a property which was subsequently purchased.
As a result of that an interim application was filed on 15 March 2012 by the applicant. Interim orders were sought in relation to the matter as follows:
On the grounds stated in the supporting Affidavit, MOIRA KATHLEEN CARTER as Trustee in Bankruptcy for the bankrupt estate of William Edward Scotney seeks the following interim orders:
1.An order, Pursuant to section 17A of the Federal Magistrates Act 1999 and/or Rule 13.07 of the Federal Magistrates Court Rules 2001, that the Applicant have summary judgment against the Respondent.
Alternative orders were also sought in relation to the striking out of various paragraphs of the defence that was filed in relation to the original application and orders were also sought in relation to costs.
The position taken by the respondent in relation to the interim application was, initially that the application should be dismissed and that orders should be made with regard to the payment of the respondent’s costs. At the time that the matter came before the Court however, it was noted that an alternative was proposed, in relation to the order for dismissal. The alternative order was in these terms:
1.The application in the proceedings for summary judgement is allowed in part with the following orders pursuant to section 30 of the Bankruptcy Act 1966:
(a)Within 14 days the applicant will provide to the respondent by its solicitors all documentation necessary to transfer a one half interest in the property subject to the security held by the National Australia Bank over the property located at 168 Corcoran Drive (sic) in Currajong in Queensland more particularly described as Lot 483 on Registered Plan 711591, County of Elphinstone, Parish of Coonambelah, Title Reference 21312079 to the applicant as the trustee in bankruptcy of the Bankrupt;
(b)Within 7 days the respondent will execute such transfer documentation provided by the applicant and do all things necessary to give effect to a transfer to the applicant of a one half interest in the said property subject to the existing security.
2.The application in relation to striking out of the defence be dismissed.
3. The applicant will pay the respondent’s costs of this application assessed on the indemnity basis, unless agreed.
Further positional changes occurred and the orders now sought by the applicant are in these terms:
(1) That the Respondent pay to the Applicant as Trustee of the Bankrupt Estate of William Edward Scotney the amount of $396,000.00 together with interest.
(2) The respondent pay the Applicant’s costs of and incidental to the Application and the Application for summary judgment to be assessed on a standard basis.
As I said, the position of the respondent is to either seek the dismissal of the application of 15 March 2012 or alternatively, to make orders with regard to a transfer of a one half interest in the property situate at 168 Corcoran Street, Currajong, in the State of Queensland.
By way of some background in relation to the matter, it is important to note the chronology that exists in relation to this particular matter. The applicant is the trustee in bankruptcy of the bankrupt estate of William Edward Scotney, the appointment having come about as a result of the filing by the bankrupt on 15 September 2010, of a debtor’s petition which was, on that day, accepted by the Insolvency and Trustee Service of Australia.
On 13 October 2010 the applicant and a joint trustee, Anthony Jay Edward Miskiewicz were appointed joint and several trustees of the bankrupt estate of the bankrupt.
Subsequent to 13 October 2010, but prior to the commencement of these proceedings, in November of 2011 the joint trustee, Anthony Jay Edward Miskiewicz resigned as a trustee in bankruptcy of the bankrupt estate leaving the applicant in these proceedings as the sole trustee in bankruptcy.
On 23 February 2010, a date obviously prior to the presentation of the debtor’s petition, the bankrupt and his wife, the respondent in these proceedings, were the joint registered proprietors of real property situated at 19 Mt Kulburn Drive, Jensen (hereinafter referred to as “the first house”).
On 23 February 2010 the first house was sold to a third party for a consideration of $800,000. There was no suggestion that the transaction was other than one at arms length and for an appropriate value.
At settlement, after payment, obviously, of expenses associated with the sale of the property, including agent’s commission and the like, an amount of $775,714.04 was received by the bankrupt and the respondent, though argument then arises as to whether, in fact, those funds ever came into the possession and control of the bankrupt and the respondent or whether, in fact, the funds were retained by the National Australia Bank, they having attended on behalf of the bankrupt and the respondent at settlement and received the settlement proceeds of the first house.
The proceeds were then applied as follows:
a)$379,714.04 in reduction of a credit facility in the name of the bankrupt and the respondent; and
b)$396,000 placed in a term deposit in the name of the bankrupt and the respondent.
On 26 February 2010 those funds were utilised, along with other moneys provided by the National Australia Bank, to effect the purchase of the property at 168 Corcoran Street, Currajong (hereinafter referred to as “the second house”).
That purchase was effected in the name of the respondent only and there was no mention of any interest held by the bankrupt.
The position taken by the trustee in relation to the matter is to say, understandably, that if the bankrupt had been already declared bankrupt as at a date prior to 26 February 2010, then there would have been no suggestion that the trustee would not have had a claim in respect of the term deposit and that, therefore, an order should be made in relation to the payment of a sum of $396,000 plus interest as may have accrued, to the trustee.
The position of the respondent in relation to the matter is to say that there was simply no interest held by the bankrupt or, in fact, the respondent in the moneys that were received by the National Australia Bank at settlement and that such funds were at all times held as a continuing security pending the purchase by the respondent of the second house. The respondent says that neither she nor the bankrupt had the use of or control of the term deposit funds pending settlement of the purchase of the property on 26 February 2010 and that accordingly, there was never a situation which arose where there may have appropriately been considered to be a claim, in respect of the term deposit.
As a result of these circumstances, however, a claim is suggested to arise on the part of the applicant pursuant to the provisions of sections 120 and 121 of the Bankruptcy Act, as well as pursuant to section 30 of the Bankruptcy Act. Section 30 of the Bankruptcy Act relates to the general powers of courts in bankruptcy and is in these terms:
(1) The Court:
(a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and
(b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.
(2) The Court may direct such inquiries to be made and accounts to be taken for the purposes of any proceeding before the Court as the Court considers necessary and may, when directing an account to be taken, or subsequently, give special directions as to the manner in which the account is to be taken or vouched.
(3) If in a proceeding before the Federal Court under this Act a question of fact arises that a party desires to have tried before a jury, the Federal Court may, if it thinks fit, direct the trial of that question to be had before a jury, and the trial may be had accordingly in the same manner as if it were the trial of an issue of fact in an action.
(5) Where:
(a) a bankrupt, a debtor or any other person has failed to comply with an order or direction of a Registrar, or with a direction or requirement of an Official Receiver or trustee, under this Act; or
(b) a trustee has failed to comply with an order, direction or requirement of a Registrar, or with a requirement or request of the Inspector-General, under this Act;
the Court may, on the application of the Registrar, Official Receiver, trustee or Inspector-General, as the case requires:
(c) order the person who has failed to comply with the order, direction, requirement or request, as the case may be, to comply with it; or
(d) if it thinks fit, make an immediate order for the committal to prison of that person.
(6) The power conferred on the Court by subsection (5) is in addition to, and not in substitution for, any other right or remedy in respect of the failure to comply with the order, direction, requirement or request, as the case may be
Section 30 is what might be considered a declaratory section detailing the wide powers of the court, including the power to make declaratory orders as well as orders granting injunctions and other equitable remedies, as well as the power to direct enquiries to be made and accounts to be taken for the purposes of proceedings before the court.
Sections 120 and 121 are in these terms:
SECTION 120
Undervalued transactions
Transfers that are void against trustee
(1) A transfer of property by a person who later becomes a bankrupt (the transferor ) to another person (the transferee ) is void against the trustee in the transferor's bankruptcy if:
(a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b) the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
Exemptions
(2) Subsection (1) does not apply to:
(a) a payment of tax payable under a law of the Commonwealth or of a State or Territory; or
(b) a transfer to meet all or part of a liability under a maintenance agreement or a maintenance order; or
(c) a transfer of property under a debt agreement; or
(d) a transfer of property if the transfer is of a kind described in the regulations.
(3) Despite subsection (1), a transfer is not void against the trustee if:
(a) in the case of a transfer to a related entity of the transferor:
(i) the transfer took place more than 4 years before the commencement of the bankruptcy; and
(ii) the transferee proves that, at the time of the transfer, the transferor was solvent; or
(b) in any other case:
(i) the transfer took place more than 2 years before the commencement of the bankruptcy; and
(ii) the transferee proves that, at the time of the transfer, the transferor was solvent.
Rebuttable presumption of insolvency
(3A) For the purposes of subsection (3), a rebuttable presumption arises that the transferor was insolvent at the time of the transfer if it is established that the transferor:
(a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor's business transactions and financial position; or
(b) having kept such books, accounts and records, has not preserved them.
Refund of consideration
(4) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
What is not consideration
(5) For the purposes of subsections (1) and (4), the following have no value as consideration:
(a) the fact that the transferee is related to the transferor;
(b) if the transferee is the spouse or de facto partner of the transferor--the transferee making a deed in favour of the transferor;
(c) the transferee's promise to marry, or to become the de facto partner of, the transferor;
(d) the transferee's love or affection for the transferor;
(e) if the transferee is the spouse, or a former spouse, of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 ;
(f) if the transferee is a former de facto partner of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 .
Protection of successors in title
(6) This section does not affect the rights of a person who acquired property from the transferee in good faith and by giving consideration that was at least as valuable as the market value of the property.
Meaning of transfer of property and market value
(7) For the purposes of this section:
(a) transfer of property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer.
SECTION 121
Transfers to defeat creditors
Transfers that are void
(1) A transfer of property by a person who later becomes a bankrupt (the transferor ) to another person (the transferee ) is void against the trustee in the transferor's bankruptcy if:
(a) the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and
(b) the transferor's main purpose in making the transfer was:
(i) to prevent the transferred property from becoming divisible among the transferor's creditors; or
(ii) to hinder or delay the process of making property available for division among the transferor's creditors.
Note: For the application of this section where consideration is given to a third party rather than the transferor, see section 121A.
Showing the transferor's main purpose in making a transfer
(2) The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
Other ways of showing the transferor's main purpose in making a transfer
(3) Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer.
Transfer not void if transferee acted in good faith
(4) Despite subsection (1), a transfer of property is not void against the trustee if:
(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b) the transferee did not know, and could not reasonably have inferred, that the transferor's main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.
Rebuttable presumption of insolvency
(4A) For the purposes of this section, a rebuttable presumption arises that the transferor was, or was about to become, insolvent at the time of the transfer if it is established that the transferor:
(a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor's business transactions and financial position; or
(b) having kept such books, accounts and records, has not preserved them.
Refund of consideration
(5) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
What is not consideration
(6) For the purposes of subsections (4) and (5), the following have no value as consideration:
(a) the fact that the transferee is related to the transferor;
(b) if the transferee is the spouse or de facto partner of the transferor--the transferee making a deed in favour of the transferor;
(c) the transferee's promise to marry, or to become the de facto partner of, the transferor;
(d) the transferee's love or affection for the transferor;
(e) if the transferee is the spouse, or a former spouse, of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 ;
(f) if the transferee is a former de facto partner of the transferor--the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 .
Exemption of transfers of property under debt agreements
(7) This section does not apply to a transfer of property under a debt agreement.
Protection of successors in title
(8) This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property.
Meaning of transfer of property and market value
(9) For the purposes of this section:
(a) transfer of property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer.

These sections enable the trustee to avoid transfers of property by the bankrupt to another person, within five years prior to the commencement of the bankruptcy, which were either at an undervalue or where the main purpose of the transfer was to defeat creditors, by removing from the purview or control of the trustee, property that would probably have become part of the estate or would have been available to the creditors, if the property had not been transferred.
It is these powers that are sought to be exercised by the applicant in relation to these proceedings, as the applicant contends that in relation to section 120, it is clearly a transfer of an interest without consideration or, certainly, a consideration which was of less value than the value of the interest that the bankrupt held in the term deposit of $396,000.
It should be noted, particularly, that subsection 7 of section 120 specifically notes that a transfer of property includes a payment of money, such that whatever may have been the interest that the bankrupt held in the term deposit of $396,000, is clearly property for the purposes of these proceedings, because the interest that is said to be held in the term deposit would, in some way, have become part of the bankrupt’s estate and would therefore have, in all likelihood, been available to creditors, if that interest had not passed to the respondent.
More particularly, the applicant contends that the bankrupt’s main purpose, at the time of making the interest that was held by the bankrupt in the term deposit available to the respondent, was to prevent any interest held in the term deposit from being available to the trustee in bankruptcy, for the purposes of distribution amongst the transferor’s creditors. It is suggested on the part of the applicant, that this can be inferred from the fact that, upon the bankrupt’s own admission, he was insolvent at the time of making the transfer.
That submission is drawn from the sworn statement of the bankrupt contained within his affidavit of 28 March 2012. In that at paragraph 2(h), the bankrupt says:
In or about June 2009, because of difficulty in making the interest payments due on the Loan, Macquarie Bank exercised its rights and took control of the Japanese investment.
More particularly, the bankrupt goes on to indicate that in December of 2009, the Macquarie Bank sold down the Japanese investments and it resulted in a shortfall of approximately $180,000 and that in April of 2010, proceedings were subsequently brought on the part of the Macquarie Bank seeking damages in an amount of $281,516.32 and that on 9 June 2010, the Macquarie Bank filed an application seeking default judgment against the bankrupt and on 21 June 2010, the Macquarie Bank obtained default judgment against the bankrupt.
Those particulars, it is said by the applicant, show clearly that the bankrupt did not have the capacity to meet his liabilities, as and when they fell due, and it was therefore clear, from the admissions made by the bankrupt, that he was insolvent at a time prior to the presentation of his debtors petition but, more particularly, at a time prior to the transaction the subject of these proceedings.
The respondent’s position in relation to this matter is, as I have indicated, to say that there was no interest held by she or the bankrupt in the moneys held in the term deposit. As argued in relation to this matter, it was contended that the National Australia Bank, as a secured creditor, would facilitate the sale of the first house, the payment down of an amount of $379,717.04, from a credit line facility and the holding of a sum of $396,000 in a term deposit but that it was, at all times, to remain as a security for the outstanding debt and pending the settlement of a purchase of the second house, to be held in the name of the respondent only.
The position of the respondent, therefore, is to say that there was never a situation where the bankrupt and the respondent could call for the funds held in the term deposit for the three days between 23 and 26 February 2010. The funds were never, it is argued, in the control of the bankrupt or the respondent, due to the banks overriding interest in the funds.
The argument put on behalf of the applicant was to say that before those moneys were utilised toward the purchase of the second house, that the bankrupt had a right to approach the bank and indicate that he wanted to deal with the money.
The respondent’s position was simply to say, that that was a right in name only and that if any such action had have been taken by the bankrupt or the respondent, then the National Australia Bank would have, no doubt, acted in accordance with the powers contained within the term deposit letter of set off which was dated 22 February 2010 and related to the basis upon which the amount of $396,000 was to be utilised.
In particular, I was referred by counsel for the respondent to paragraphs 2(d)(i) and 2(g) of that letter of set-off. Paragraph 2(d)(i) was in these terms:
2(d) as long as you remain liable to the Bank in respect of a financial facility or the guarantee shown in the Details:
(i) You may not without the Bank’s prior consent withdraw, transfer, mortgage, charge or declare a trust in respect of the term deposit held in your sole name or your share in a term deposit held by you with another Depositor.
Section 2(g) of the letter of set-off is in these terms:
2(g) this letter is to be treated as a continuing security for any liability any of you have to the Bank under a financial facility or the guarantee shown in the Details.
From the respondent’s perspective, therefore, it is clearly argued that whilst the letter of set off may not necessarily be seen as a security document, to all intents and purposes, it was effective in making unavailable to the bankrupt and the respondent, without the consent of the bank, any funds held in the term deposit. Further they argue that there was no evidence available of any such consent of the bank apart from for the purpose of the purchase of the second house and that it showed that the moneys held in the term deposit were a continuing security, relating to the dealings not only of the bankrupt and the respondent but also dealings of corporate entities on their behalf, and the security provided for the dealings of those various other entities.
The respondent says, therefore, that for summary judgment to be available or, in fact, upon a final hearing, for judgment to be available in relation to those funds, there must be at least some indication of a crystallisation of the moneys being available to the bankrupt, to say that he wished to deal with at least his share of the money, in a certain way.
The respondent says that that was never the case and that therefore, at the very least, there is a triable issue that arises in relation to the position with regard to those funds and whether they were, in fact, available to the bankrupt and therefore, by extrapolation, available to the trustee for the purposes of payment down of creditors.
To determine a summary judgment, there must, of course, be consideration of the provisions of section 17A of the Federal Magistrates Act, which is headed:
Summary judgment
(1) The Federal Magistrates Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is prosecuting the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.
(2) The Federal Magistrates Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
(4) This section does not limit any powers that the Federal Magistrates Court has apart from this section.
Disposal by summary judgment is detailed and explained more fully as to its operation in part 13.07 of the Federal Magistrates Court Rules.
13.07 Disposal by summary judgment
(1) This rule applies if, in a proceeding:
(a) in relation to the whole or part of a party’s claim there is evidence of the facts on which the claim or part is based; and
(b) either:
(i) there is evidence given by a party or by some responsible person that the opposing party has no answer to the claim or part; or
(ii) the Court is satisfied that the opposing party has no reasonable prospect of successfully defending the claim or part.
(2) The Court may give judgment on that claim or part and make any orders or directions that the Court considers appropriate.
(3) If the Court gives judgment against a party who claims relief against the party obtaining the judgment, the Court may stay execution on, or other enforcement of, the judgment until determination of that claim.
Section 17A of the Federal Magistrates Court Act 1999 is equivalent to section 31A of the Federal Court Act and confers a power to grant summary judgment. In relation to that power, I was referred specifically by counsel for both parties to various comments by Lindgren J contained within the judgment of White Industries Australia Ltd v Commissioner of Taxation (2007) 160 FCR 298. There Justice Lindgren, commenting upon the power conferred upon the Court pursuant to section 31A noted at paragraph 54:
[54] Under s 31A I must be satisfied that the applicants have no reasonable prospect of success, but as s 31A(3) makes clear, this does not mean that I must be satisfied that the proceeding is hopeless or bound to fail. I suggest that the legislature’s intention in enacting s 31A was to lower the bar for obtaining summary judgment (including summary dismissal) below the level that had been fixed by such authorities as Dey v Victorian Railway Cmrs (1949) 78 CLR 62 at 91-2; [1949] ALR 333 at 347-8, and General Steel Industries Inc v Cmr for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129-30; [1965] ALR 636 at 638-9: see Lawrenson Light Metal Die Casting Pty Ltd (in liq) v Cosmick Pty Ltd [2006] FCA 753 at [15].
In George (a bankrupt) v Fletcher (a trustee) [2010] FCAFC 53, the joiont majority of Justices Logan and Ryan, after commenting upon the statements of Justice Lindgren state the following at paragraph 76:
[76] These remarks have since frequently been cited with approval by various judges of this Court. They offer valuable guidance in relation to the background to the enactment, purpose and meaning of s 31A and its equivalent, s 17A. The suggestion made by Lindgren J (at [54]), with which we agree, that the intention of the legislature in enacting s 31A was to “lower the bar for obtaining summary judgment” does not carry with it the additional proposition that the intention was to remove the bar completely. True it is that s 31A is not concerned just with pleadings but with substance, not form. The mere presence of a factual controversy, however trifling, implausible, tenuous and tangentially relevant is not a bar to the exercise of the power conferred by s 31A to grant summary judgment. That would be inconsistent with the way in which the phrase “no reasonable prospect of success” is to be read in light of s 31A(3) (and s 17A(3)).
Accordingly, whilst it is true that the bar has been “lowered”, it is clear that it has not been removed. It is therefore necessary to exercise at least some degree of enquiry in relation to any defence that is raised because, as noted in George (a bankrupt) v Fletcher (a trustee) (supra), “the mere presence of a factual controversy, however trifling, implausible, tenuous or tangentially relevant is not a bar to the exercise of the power conferred by s 31A to grant summary judgment”.
There needs to be consideration of whether there is, no answer to the claim, or part of the claim, or alternatively that there is no reasonable prospect of successfully defending the claim, or part of the claim. If the Court is satisfied of that, then the Court may give judgment that is considered appropriate.
Here it is argued for the applicant that there is no controversy to preclude summary determination, though it is now acknowledged that that would be summary determination for a sum of $198,000, being half of the term deposit plus interest.
Of course, two issues arise in relation to that particular contention. The first is whether, in fact, there was or was not a security and whilst it is strongly argued, on the part of the applicant, that the letter of set-off is not a security document, it is certainly a document which must be considered, because of its direct influence upon what may or may not have been able to be done by the bankrupt or the respondent with the funds held in their name.
Secondly, and it is again relevant, there must be consideration of what is available for distribution. To make an order in relation to the amount of the term deposit, or even half of the term deposit, in a sum of $198,000 fails to recognise that whether it was or was not appropriately done, such an amount is not available for distribution to the applicant, as trustee in bankruptcy.
What remains is an equity in the second house.
The proposal that is put in relation to the matter by the respondent therefore, is that the most appropriate course would be to make an order in relation to the transfer of a one half interest in the second house to the trustee in bankruptcy, to be held pending the determination of all issues in relation the proceedings.
It is certainly contended, on the part of the respondent, that there is a defence to the applicant’s claim, and whilst it may be that that seems to be a prospect in relation to the matter, it is not appropriate to grant a summary determination, without the full opportunity of testing the evidence in relation to the matter.
There is, certainly, some strength in the argument that the National Australia Bank’s security, arising from the mortgage that it held over house one changed in specie but never changed its character, as a security for the bank, and that the National Australia Bank continued at all times to exercise power or control in relation to the moneys.
As was submitted in relation to this matter, the National Australia Bank was entitled to consent to the sale of the first property and to hold the proceeds of that sale as continuing security for the secured debt.
Similarly, the National Australia Bank was entitled to consent to the purchase of the second property, along with retaining a security in the equity that was created by that money as a continuing security for all of the debt secured by the National Australia Bank, and for which the bankrupt and the respondent remained liable.
I am satisfied that there is a triable issue in relation to these proceedings.
It may be that when the evidence is tested, the respondent will be found to have gained a direct benefit in relation to the use of the moneys previously held in term deposit for both parties, without appropriate consideration being paid. But until such time as that is able to be determined the issue remains one which is live and which, certainly, does not provide for there to be a summary judgment granted.
I note also, in passing, the provisions of section 58 of the Bankruptcy Act and, in particular, subsection (5) which is in these terms:
Nothing in this section affects the right of a secured creditor to realise or otherwise deal with his or her security.
It seems to me that, at the very least, the National Australia Bank has some interest in relation to these proceedings and to suggest that summary judgment could properly be ordered in relation to the interest, without the National Australia Bank being given the opportunity to be heard, flies in the face of the provisions of section 58(5).
That is not to say, however, and it is recognised by the respondent that the applicant, as trustee in bankruptcy of the bankrupt estate of William Edward Scotney, does not have either a constructive or resulting trust relating to the equity that might be held in the second house.
It is appropriate and was properly conceded therefore, on the part of respondent, that an alternative draft order could facilitate the recognition on the part of the trustee of the interest held in one half of the equity at 168 Corcoran Street, Currajong.
I am satisfied that an appropriate recognition of that interest can be reflected in making orders, generally in terms of the alternative draft order which was provided in relation to this matter.
It falls short of the entering of summary judgment for a specified sum as sought by the trustee in bankruptcy, but does provide that interest in property which is appropriately required to be recognised in light of the presentation of the debtor’s petition by the bankrupt in this matter.
It is also appropriate that the National Australia Bank have the opportunity to be heard in relation to these proceedings and in light of the fact that summary judgment is refused but other orders recognising the interests of the trustee are to be made, that the costs of both parties should be reserved to the final determination of the proceedings.

I certify that the preceding sixty-three (63) paragraphs are a true copy of the reasons for judgment of Coker FM

Date: 14 September 2012