Cooper (Trustee), in the matter of Mayne (Bankrupt) v Nash
[2023] FedCFamC2G 840
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Cooper (Trustee), in the matter of Mayne (Bankrupt) v Nash [2023] FedCFamC2G 840
File number(s): ADG 328 of 2021 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 15 September 2023 Catchwords: BANKRUPTCY – application by trustee in bankruptcy for an interlocutory injunction compelling person holding a registered mortgage over property vested in the trustee to discharge the mortgage on the completion of sale of the property on terms that the proceeds of sale including the amount that is purportedly secured by the mortgage be paid into a controlled account pending the final hearing of the trustee’s claim that the mortgage is void under s 120 and s 121 of the Bankruptcy Act 1966 (Cth) – whether there is a serious question to be tried that the mortgagee did not advance the money that is purportedly secured by the mortgage – whether there is a serious question to be tried that the debt purportedly secured by the mortgage is statute barred – whether trustee will suffer loss if injunction not granted – application for an injunction dismissed. Legislation: Bankruptcy Act 1966 (Cth) ss 27, 30(1), 58(1), 116, 120, 121
Law of Property Act 1936 (SA) s 69
Limitation of Actions Act 1936 (SA) s 33
Real Property Act 1886 (SA) s 57(3)
Cases cited: Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561
Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148
Parker v Paton (1941) 41 SR (NSW) 237
Division: General Number of paragraphs: 26 Date of hearing: 14 September 2023 Place: Sydney Solicitor for the Applicant: Mr L Rowley of Charlton Rowley, by video Counsel for the First Respondent: Mr A Lazarevich, by video Solicitor for the First Respondent: Fletcher & Lawson Lawyers The Second Respondent: No appearance by, or on behalf of, the second respondent Solicitor for the Third Respondent: Mr F Camatta of Camatta Lempens, by video ORDERS
ADG 328 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF THE BANKRUPT ESTATE OF LAWRENCE KEITH MAYNE
BETWEEN: NICHOLAS DAVID COOPER AS TRUSTEE OF BANKRUPT ESTATE OF LAWRENCE KEITH MAYNE
Applicant
AND: WILLIAM NASH
First Respondent
LAWRENCE KEITH MAYNE
Second Respondent
MERRILY GAYNOR MAYNE
Third Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
15 SEPTEMBER 2023
THE COURT ORDERS THAT:
1.The application in a proceeding for an injunction filed on 7 September 2023 is dismissed.
2.Subject to order 3, the applicant pay the first and third respondents’ costs of the application in a proceeding.
3.The parties have liberty to apply to vary or discharge order 2.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
The applicant (Trustee), who is the trustee in bankruptcy of the estate of the second respondent, Mr Mayne, applies for a mandatory injunction in relation to the dealing of the proceeds of an anticipated sale of a property. Before I identify the order the Trustee seeks, and to be in a position to determine the application, it will be necessary to set out the circumstances in which the Trustee applies for the mandatory injunction.
BACKGROUND
Immediately before Mr Mayne became bankrupt on 28 January 2016, Mr Mayne and his wife, Ms Mayne (the third respondent), were the registered proprietors of a property in South Australia (Property); and they held their interest in the Property as joint tenants.
On 17 May 2011 Mr and Ms Mayne purported to grant a mortgage (Mortgage) over the Property to the first respondent, Mr Nash. The memorandum of Mortgage describes the consideration for the granting of the Mortgage as follows:
You, the Mortgagor, acknowledge giving this mortgage in consideration of a loan to you by us, the Mortgagee, and to secure repayment to us of that loan, as well as securing payment of other monies payable under this mortgage.
The principal sum of the loan is: $205,000.00
Two hundred and five thousand dollars
The time you must repay the principal sum to us is:
The Principal Sum is due and payable at settlement when the Whole of the land comprised in Certificate of Title . . . . is sold.
. . . .
No interest is payable on the principal sum unless you default in repaying it.
In that case, you must pay interest at the default interest rate on the outstanding amount from the due date until payment in full.
The default interest rate is: NIL % per annum
On 8 November 2021 the Trustee commenced a proceeding against Mr Nash in which he claimed that:
(a)Mr and Ms Mayne’s granting of the Mortgage constituted the transfer (Transfer) of “the whole of their interest in the Property in favour of [Mr Nash] under the Mortgage”;
(b)the Transfer occurred in the period commencing more than 5 years before the commencement of Mr Mayne’s bankruptcy, and ending on the date of Mr Mayne’s bankruptcy;
(c)no consideration was given or received for the Transfer;
(d)pursuant to s 120(3A) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) Mr Mayne was insolvent;
(e)alternatively, but for Mr and Ms Mayne having granted the Mortgage, the Property would probably have become part of Mr Mayne’s bankrupt estate, or would probably have been available to creditors; and
(f)Mr Mayne’s main purpose in granting the Mortgage was to prevent the Property from becoming divisible among his creditors, or to hinder or delay the process of making the Property available for division among his creditors.
In the alternative to these allegations, the Trustee alleged that Mr Nash advanced no money to Mr and Ms Mayne or, if he did, the money was repayable “instanta”, and their recovery is now barred by the operation of s 33 of the Limitation of Actions Act 1936 (SA) (Limitation Act).
On the basis of these allegations the Trustee claims a declaration that “the Mortgage” is void as against the Trustee or, in the alternative, a declaration that the Mortgage does not secure any liabilities of Mr or Ms Mayne. The Trustee also claimed “[c]onsequential orders compelling [Mr Nash] to withdraw the Mortgage or for its removal”.
On 16 December 2021 Mr Nash filed a defence in which he alleges as follows:
5.1. The Respondent has known Mr and Mrs Mayne since the mid 1980’s.
5.2. The Respondent advanced to Mr Mayne a series of loans on oral terms for business purposes on terms that the Respondent would be repaid when Mr and Mrs Mayne’s Property was sold, but that otherwise the loans would be interest free. The dates and amounts of the advances were as follows:
5.2.1.February 1995 - $10,000, which amounts were repaid in 1995.
5.2.2. August 1995 - $50,000.
5.2.3. September 2000 - $45,000.
5.2.4. November 2003 - $100,000.
5.2.5. May 2008 - $20,000.
5.3. Aside from the $10,000 payment in 1995 and a further payment of $10,000 made in 2011, the remainder of the advances were not repaid.
5.4. In 2011 Mr Mayne and Mrs Mayne entered into a written Mortgage with the respondent.
5.5. The Mortgage is registered.
5.6. The Mortgage provides:
5.6.1. That the principal sum secured was $205,000.
5.6.2. That the principal sum is payable by Mr and Mrs Mayne when the Property was sold.
5.6.3. That the mortgage secures the amount of $205,000 owing to the Respondent by the mortgagors, Mr and Mrs Mayne.
Mr Nash also pleaded that no more than 50% of the Property “would pass to” the Trustee because Ms Mayne is a co-owner of the Property.
On 23 August 2022 the Trustee filed an amended statement of claim in which he added Mr and Ms Mayne as respondents. The amended statement of claim alleges that, by virtue of s 58(1) and s 116 of the Bankruptcy Act, on 28 January 2016 (when Mr Mayne became bankrupt), the whole of Mr Mayne’s interest and estate in the Property vested in the Trustee, and the joint tenancy between Mr and Ms Mayne was severed. In addition, the amended statement of claim seeks an order for possession of the Property.
At a time not revealed by the evidence the Trustee authorised a marketing campaign for the sale of the Property. As a result of that campaign the Trustee’s estate agent procured an offer to purchase the Property for an amount it is unnecessary to set out in these reasons. The Trustee believes the offer reflects the market value of the Property; and he desires to accept it. A contract for the sale of the Property has been provided to the Trustee and to Ms Mayne; and both the Trustee and Ms Mayne desire to sign the contract for sale. Mr Nash, however, through his solicitor, has informed the Trustee’s solicitor that he is not willing to discharge the Mortgage unless he is paid $205,000. The Trustee is not willing to sign the contract unless Mr Nash assures him that he will consent to discharge the mortgage on the basis that the proceeds of sale will be placed in an account pending the determination of the Trustee’s claims at trial; and the Trustee is concerned that if a contract for sale is not executed “shortly”, the offer will be withdrawn.
APPLICATION FOR MANDATORY INJUNCTION AND PARTIES’ SUBMISSIONS
In these circumstances the Trustee applies for the following orders
1.Upon sale of the whole of the land comprised in Certificate of Title Register Book Volume . . . (“the Land”), the Applicant and the Third Respondent are to cause the proceeds of sale to be applied as follows:
1.1. In payment of any reasonable costs, fees and charges occasioned by the sale.
1.2. In satisfaction of the liability of the Second Respondent and the Third Respondent to Westpac and/or in discharge of Registered Mortgage No. 9725640.
1.3. Upon withdrawal of Registered Mortgage No. 11627819 by payment of any surplus proceeds of sale into the Suitor's Fund of this Honourable Court on account of these proceedings until final order.
2. The First Respondent is to cause Registered Mortgage No. . . . to be discharged on sale of the Land on the basis that the Applicant and the Third Respondent cause an amount of $205,000 to be paid into the Suitor’s Fund of this Honourable Court on account of these proceedings in accordance with Order 1.3 herein.
3.Costs in favour of the Applicant against the First Respondent on the basis of an indemnity.
The Trustee submits he has a reasonably arguable claim for the final relief he seeks. The basis of that submission is that there is no dispute between the parties there are no documents that evidence the loans the defence alleges Mr Nash had made to Mr and Ms Mayne; and that the only acknowledgement of the debt secured by the Mortgage is the Mortgage itself. The Trustee also submits that, even if the Mortgage secured a loan, the recovery of the loan is barred by the Limitation Act.
The Trustee further submits that the balance of convenience favours the granting of an injunction in the terms he seeks. The Trustee submits:
(a)Mr Nash has not taken any action, or threatened to take any action to enforce his rights under the Mortgage; he has instead passively awaited action by the registered proprietors to sell the Property.
(b)The injunction the Trustee seeks will do nothing more than realise the Property over which Mr Nash holds a mortgage, and set aside the proceeds for sale to be distributed after the Court determines at final hearing whether the Mortgage is void. Mr Nash would therefore be in no worse position if the injunction the Trustee seeks is granted.
(c)If an injunction is not granted, Mr Nash would be paid $205,000 out of the proceeds of sale; but if the Trustee were to succeed at hearing, the Trustee would have to recover the $205,000 from Mr Nash, and Mr Nash may not be in a position to pay that amount.
(d)The injunction, if granted, would maintain the status quo.
Mr Nash, on the other hand, submits the Trustee does not have an arguable case for the relief he seeks. Mr Nash points to Ms Mayne having executed the Mortgage, and to Ms Mayne’s accepting she is liable under the Mortgage for the debt the Mortgage purports to secure. Mr Nash further points to the Trustee not challenging, because he has no standing to challenge, Ms Mayne’s liability under the Mortgage. Mr Nash also submits the Trustee has presented no evidence that discloses an arguable case that Mr Nash did not advance the money which in the defence he alleges he advanced to Mr and Ms Mayne. Finally, Mr Nash submits there is no need to grant an injunction because there is sufficient equity in the Property to discharge the Mortgage.
PRINCIPLES
Given this Court has jurisdiction in bankruptcy under s 27 of the Bankruptcy Act, the Court may, under s 30(1)(b) of the Bankruptcy Act, make such orders, including the granting of injunctions, as the Court considers necessary for the purpose of carrying out or giving effect to the Bankruptcy Act. The orders the Court may grant include the granting of an interlocutory injunction to preserve the status quo or subject matter of a proceeding pending the determination of a claim for a legal remedy. The principles that guide the exercise of that power are well established: a court will grant an interlocutory injunction if it is satisfied that:[1]
(a)there “is a serious question to be tried or that the [applicant] has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the [applicant] will be held entitled to relief”;
(b)the applicant “will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted”; and
(c)the “balance of convenience favours the granting of an injunction”.
[1] Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148, at page 153 (Mason ACJ)
DETERMINATION
The Trustee will bear the onus of proving at trial that Mr Nash did not advance all or any of the money that is purportedly secured by the Mortgage; and he therefore bears an onus to adduce some evidence in support of his present application for an interlocutory injunction that would support a finding that there is a serious question to be tried that Mr Nash did not advance money that is purportedly secured by the Mortgage. The Trustee, however, has not adduced any evidence that is relevant to proving that Mr Nash did not advance any money to Mr and Ms Mayne; or that Mr Nash did not advance any of the amounts he alleges in the defence he advanced to Mr and Ms Mayne.
It is likely that evidence relevant to whether Mr Nash advanced money to Mr and Ms Mayne is peculiarly within the knowledge of Mr Nash, and Mr and Ms Mayne; but that does not relieve the Trustee from the burden of adducing some evidence that shows there is a serious question to be tried that Mr Nash did not advance the money that is purportedly secured by the Mortgage. As Jordan CJ said in Parker v Paton.[2]
Where, as here, all the facts are peculiarly within the knowledge of the defence, although the plaintiffs are not absolved from the obligation of establishing a prima facie case, the doctrine of the scintilla is applied somewhat indulgently, and comparatively slight evidence may be regarded as calling for an explanation.
[2] Parker v Paton (1941) 41 SR (NSW) 237, at page 243. See also Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561, at pages 564-566 (Hunt J)
In the absence of the Trustee tendering any evidence that is probative of Mr Nash not having advanced money that is purportedly secured by the Mortgage, I am not prepared to find there is a serious question to be tried that Mr Nash did not advance money to Mr Mayne and Ms Mayne that is purportedly secured by the Mortgage. That is not to say the Trustee will not be in a position at trial to adduce probative evidence on this issue.
I also do not accept there is a serious question to be tried that the debt that is purportedly secured by the mortgage is barred by the Limitation Act. Presumably the Trustee intends to allege that all but $20,000 of the amounts Mr Nash in his defence alleges he advanced to Mr and Ms Mayne had become barred by the time Mr and Ms Mayne executed the Mortgage on 17 May 2011. If that is what the Trustee intends to allege, it would be necessary for him to allege the facts on which he relies to support the contention that the recovery of the debts were barred by 17 May 2011; and also the facts on which he intends to rely for contending that the acknowledgment of debt made in the Mortgage, which has been registered and is therefore deemed to be a deed, [3] does not have effect according to its terms.
[3] Subsection 57(3) of the Real Property Act 1886 (SA) provides: “Every instrument registered in the Register Book or the Register of Crown Leases will be deemed to be a deed duly executed by the parties.”
The harm the Trustee says he will suffer if an injunction is not granted is based on the assumption that, if no injunction is granted, he will proceed with the contract for sale of the Property and, on settlement, he will apply $205,000 of the proceeds of sale to discharge the Mortgage; but, if he succeeds in his claims at trial, the Trustee will or may be unable to recover the $205,000 he would have paid to Mr Nash. I am not satisfied, however, that the Trustee proposes to enter into a contract of sale of the Property if an injunction is not granted.
The likely course the Trustee will pursue if an injunction is not granted is that he will not enter into a contract to sell the Property until after the trial and final determination of his claims in this proceeding. In those circumstances, the potential harm to the Trustee if an injunction is not granted is that he will be unable to obtain as good a price as that which appears to be currently on offer. There is, however, no evidence to suggest there is a tangible prospect of this occurring. The Trustee deposes that he believes the current offer reflects the market value of the Property; and there is no evidence there is some tangible prospect that the market value of the Property will decline by the time the Trustee’s claims are determined at trial.
It is the case that Ms Mayne, through her solicitor, has put the Trustee on notice that she reserves her rights against the Trustee “for any loss in value that may fall upon [Ms Mayne]”. This reservation of rights appears to be premised on the view that on settlement Ms Mayne will only be liable to have deducted from the proceeds of sale her share in the Property 50% of the debt that is purportedly secured by the Mortgage, as opposed to the Trustee wholly applying Ms Mayne’s share towards the discharge of the Mortgage. Given the Trustee claims that no money was advanced by Mr Nash to Mr Mayne and to Ms Mayne, it would not be reasonable for the Trustee to sell the property on the basis that on settlement Ms Mayne would only pay 50% of the debt purportedly secured by the Mortgage. Such course may diminish the value of the equity in Mr Mayne’s share in the Property if the Trustee succeeds at trial in proving that the Mortgage does not secure the debt it purports to secure. In that regard, I am satisfied there is a serious question to be tried that at trial the Trustee is entitled to contend that the Mortgage does not in truth secure the debt it purports to secure, and is not bound by Ms Mayne’s acknowledgment that the Mortgage does secure such debt.
There are in any event other remedies that may be available to both the Trustee and Ms Mayne. It may be open to them to apply for an order for the appointment of trustees to sell the Property.[4]
[4] Under s 69 of the Law of Property Act 1936 (SA)
I am therefore not satisfied there is a tangible prospect that the Trustee will suffer any harm if the injunction he seeks is not granted. The question whether Mr Nash will suffer any detriment if an injunction were granted does not arise; and therefore, no question of the balance of convenience arises.
CONCLUSION
I propose to order that the application in a proceeding for an injunction be dismissed.
There is no apparent reason why costs should not follow the event. I therefore propose to order that the Trustee pay Mr Nash’s and Ms Mayne’s costs of the application in a proceeding for an injunction. I will, however, reserve to the parties liberty to apply to vary or set aside the order for costs I propose to make.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 15 September 2023
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