Dixon v Riquero
[2004] FMCA 173
•29 March 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DIXON v RIQUERO & ANOR | [2004] FMCA 173 |
| BANKRUPTCY – Where respondents’ real property vested in applicant trustee pursuant to s.58(1) Bankruptcy Act – where trustee did not perfect title – where applicant lodged caveat on title – where respondents discharged bankrupts – where lapsing notice served on applicant – where respondents exchanged contracts for sale with third party – where applicant offered to withdraw caveat on condition that proceeds of sale were paid to him – whether proceeds of sale of property also vested in Trustee – whether respondents can invoke defence of laches – whether the discharge of bankrupts affected title – whether, through his conduct, the applicant acquiesced and gave up rights to the property – whether estoppel will run. |
Bankruptcy Act 1966, ss.58(1), 116, 134
Gosden & Anor v Dixon & Anor (1992) 107 ALR 329
Adsett v Berlouis (1992) 37 FCR 201
Walsh v Alexander (1913) 16 CLR 293
Hooper v ANZ [1996] ANZ ConvR 400
Butler v Fairclough & Anor (1917) 23 CLR 78
Orr v Ford (1988-1989) 167 CLR 316
O’Brien v Sheahan [2002] FCA 1292
Sheahan v O’Brien & Anor [2003] HCATrans 308
Ford & Lee, Principles of the Law of Trusts (3rd ed, 1996)
| Applicant: | THOMAS WILLIAM FREDERICK DIXON AS TRUSTEE OF THE PROPERTY OF JUAN RIQUERO AND NANCY RIQUERO, BANKRUPTS |
| First Respondent: | JUAN RIQUERO |
| Second Respondent: | NANCY RIQUERO |
| File No: | SZ 2414 of 2003 |
| Delivered on: | 29 March 2004 |
| Delivered at: | Sydney |
| Hearing date: | 9 March 2004 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Mr J Johnson |
| Solicitors for the Applicant: | Roxburgh & Co |
| Counsel for the Respondent: | Mr M Cohen |
| Solicitors for the Respondent: | D. La Rosa, Izzo & Co |
ORDERS
The Court declares that the proceeds of sale of the property 1/45-47 Bartlet St Canley Vale described in Certificate of Title Folio Identifier 1/SP 8504 vests in the applicant pursuant to the provisions s.58(1) Bankruptcy Act.
The Court orders that the respondents pay to the applicant the net proceeds of sale currently held in the trust account of Messrs D. La Rosa Izzo & Co forthwith.
The respondents pay the applicant’s costs to be taxed, if not agreed, pursuant to the Federal Court Act and Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ 2414 of 2003
| THOMAS WILLIAM FREDERICK DIXON AS TRUSTEE OF THE PROPERTY OF JUAN RIQUERO AND NANCY RIQUERO, BANKRUPTS |
Applicant
And
| JUAN RIQUERO |
First Respondent
| NANCY RIQUERO |
Second Respondent
REASONS FOR JUDGMENT
Introduction
This is an application by Thomas William Frederick Dixon the trustee of Juan Riquero and Nancy Riquero who became bankrupt on
19 November 1992 on the basis of a creditor’s petitions filed by the Water Board. Both bankrupts were discharged by operation of law on or about 30 January 1996. At the date of bankruptcy the bankrupts were the registered proprietors of a property known as 1/45-47 Bartlet St Canley Vale in the state of New South Wales being the whole of the land contained in Certificate of Title folio identifier 1/SP 8504. This property had been acquired by the bankrupts for an amount of approximately $62,000 on 20 April 1988. The property had been purchased with the assistance of a mortgage that had been taken out pursuant to the terms of the NSW Mortgage Assistance scheme.
In his affidavit of 3 November 2003 the trustee stated:
“5. In their Statement of Affairs the bankrupts estimated the value of the property at $95,000.00. However, my enquires at the time revealed that its value was about $85,000.00 to $90,000.0. At that time various charges on the property (including the amount owed to the secured creditor Permanent Trustee Company Ltd) and the anticipated costs of sale exceeded the expected sale price such that there was no equity available to me in the property. In addition the property was in very poor condition.
…
8. At various times I endeavoured to encourage the secured creditor to realise its security under its mortgage but it did not do so. I believe that for at least a period of 18 months there was a stay order from Home Purchase Assistance Authority preventing any such action.”
The Canley Vale property, being property of the bankrupts, vested immediately in the Trustee pursuant to s.58 (1)(a) Bankruptcy Act. On 13 November 1995 the trustee lodged caveat number 0683128 on the title of the land. The bankrupts continued to live in the property in respect of which debts were incurred for water rates and strata levies. There was apparently no communication of relevance between the trustee and the bankrupts between the time of the lodgment of the caveat and a letter written by the bankrupts’ solicitors to the trustee on 13 June 2003. In the meantime Mr and Mrs Riquero instructed solicitors on 7 March 2003 to act on their behalf in relation to the sale of the property. The solicitor searched the title and discovered the trustee’s caveat but continued to accept instructions from Mr and Mrs Riquero and on 6 May 2003 exchanged contracts for the sale. He then prepared a lapsing notice and on 13 June 2003 served it upon the trustee.
On 4 July 2003 the trustee’s solicitors wrote to the solicitors for Mr and Mrs Riquero in the following form:
“We act for TWF Dixon who is the Trustee of the Bankrupt Estate of Juan and Nancy Riquero.
Mr Dixon has provided us with a copy of your letter to him of 13 June 2003 enclosing Notice to Caveator of proposed lapsing of Caveat.
We cannot understand the basis of your client’s application. You may be aware that last year your client’s apparently made an application to refinance the property which did not proceed – we are told because there were not sufficient funds to pay out the mortgagee and various creditors.
You will also be aware that Section 58 of the Bankruptcy Act vests the bankrupt’s property in the Trustee upon bankruptcy. This occurs in equity until such time as the legal estate vests upon registration of a vesting application.
The bankrupts are obliged at law to advise any proposed lender and prospective purchaser of their bankruptcy. In simple terms they are not permitted at law to deal with the property – certainly not without the permission of the Trustee.
There are no funds in the bankrupt estate to justify the Trustee seeking to obtain an order extending the operation of the caveat. However, if your client’s intend to deal with the property in any way then the trustee will take such action as he thinks fit to protect his interest. This may involve the immediate lodgment of a vesting application. It also seems to us that the Bankrupts may be committing an offence under the Bankruptcy Act should they otherwise attempt to deal with the property without the Trustee’s consent.
We request that you immediately contact the Trustee or David Mansfield at Moore Stephens PMN for the purposes of immediately advising the Trustee of your client’s intentions and in order that the position of the bankrupt estate can be further discussed.
That letter was faxed and on the same day a response was sent to the trustee providing him with a copy of the front page of the contract for sale, details of the sale price and proposed deductions and saying:
“Please advise the amount to be paid to you for a withdrawal of caveat. … Please also prepare a withdrawal of caveat and advise when we can settle with you.”
On 7 July 2003 the trustee wrote to the solicitors advising them that the estate had vested in him pursuant to subsection 58(1) of the Act and asking the solicitors to account to him for the total balance of the funds remaining on settlement of the sale of the bankrupts’ property. He offered to provide a withdrawal of caveat upon their undertaking that they would comply with those instructions.
On 8 July 2003 the solicitors for the Riquero’s wrote to the trustee:
“Please find copy of certificate of discharge which has been forwarded to us by our client.
It appears that our clients have been discharged from bankruptcy and no further monies will be owing to you.”
This letter elicited the following reply:
“I have received your letter dated 8 instant and agree that your clients were discharged from their bankruptcy, however their assets at the date of their bankruptcy remain vested in me. Their home at 1/45 Bartley St Canley Vale was an asset of their estate at that date.
Please advise me immediately whether you intend to comply with the instructions contained in my letter dated 7 July 2003. I put you on notice that should you fail to forward the surplus funds to me I propose to commence action against you personally to recover the relevant assets.”
On 11 July 2003 the trustee instructed solicitors who wrote to the Riquero’s solicitors setting out in more detail those matters referred to in the previous letter from the trustee. The letter ended with the following paragraph:
“The trustee requires your immediate undertaking to pay to him the surplus proceeds on sale. In the event that you are unable to do so for any reason then the Trustee will consider accepting an interim solution whereby those funds are to be placed either into your trust account or our trust account in the name of the trustee pending resolution.”
On 14 July 2003 Mr and Mrs Riquero’s solicitors gave an undertaking not to disburse any settlement funds without giving at least 14 days notice to the trustee.
It would appear that on that basis no response was made to the lapsing notice and settlement proceeded. The debts were paid out and approximately $69,562.83 was paid into the Riquero’s solicitors’ trust account. There then followed some correspondence between the two solicitors trying to sort out a way in which the money could be paid into Court. There were demands by the Trustee’s solicitors for payment of the money to them and counter demands by the Riquero’s solicitors for details of amounts owing in the bankrupt estate. In his affidavit of 4 February 2004 the Trustee set out those liabilities at paragraph [16]. Including legal costs they total approximately $50,000.
When the parties were unable to resolve their differences the trustee took out the application to this court on 10 November 2003 seeking a declaration that the property had vested in him pursuant to s.58(1) of the Act that the proceeds of sale also vested in him and an order that they be paid to him.
Submissions of the trustee
The trustee’s submissions are simple. He says that the property vested in him pursuant to the Bankruptcy Act and that he has never abandoned the property. In order to protect his position against a purchaser for value without notice he lodged caveat No 0683128. The lodging of the caveat did not give him any greater estate or interest in the land than that which he already had by virtue of the statute. That estate or interest was an equitable interest capable of being made a legal interest by the lodgment of formal documents with the Land Titles Office. The lapsing of the caveat made no difference either in law or equity or the circumstances of this case. The trustee rested squarely on the decision of McClelland J in the Supreme Court of NSW in Gosden & Anor v Dixon & Anor (1992) 107 ALR 329. At [25] his Honour said :
“The contention is that after a discharge it is not open to a trustee in bankruptcy to become registered by transmission and thus become the owner at law of property which he previously was the owner in equity.
I have not been referred to any decision on that question, but it seems to me that the answer is clear on general principles relating to the law of bankruptcy. In general terms, where a person becomes a bankrupt, property that belonged to him at the commencement of the bankruptcy or is acquired by him before his discharge vests in the relevant trustee and constitutes property which is available to be realised and divided amongst the bankrupts creditors. That, I think, is the effect of ss58(1) and 116 of the Bankruptcy Act. A discharge from the bankruptcy releases the bankrupt from his debts and enables him to retain property that he subsequently acquires free of any claim by the trustee. That, I think, is the effect of ss 153 and 116 of the Act. However, a discharge does not cause to be revested in the bankrupt any property which has been vested in the trustee prior to the discharge from bankruptcy. In regard to such property the trustee is still bound to collect and realise it, and to distribute the proceeds among the creditors, not withstanding the discharge. These propositions are clearly established by several decsions including Pegler v Dale (1975) 6 ALR 62; Re Balhorn; ex parte Balhorn & Official Trustee (1981) 39 ALR 223; Daemer v Industrial Commission (1990) 22 NSWLR 178. In the words of Lockhart J in Re Balhorn at 226:
“The trustee of a bankrupts estate is still bound to collect, realise and distribute such of the bankrupts property as was vested before discharge in the trustee.”
With regard to property under the provisions of the Real Property Act 1900 the effect of s.58(2) Bankruptcy Act is to vest that property in the trustee in equity and to postpone the vesting in law until registration in accordance with the relevant procedure under s.90 Real Property Act. The effect is s.58(2) for the purposes of stamp duty was considered by Hunt J in the case of Dixon v Chief Commissioner of Stamp Duties (1985) 3 NSWLR 347 where his Honour pointed out that the vesting take place in consequence of and by virtue of s.58, not by virtue of any subsequent event although the operation of the section in the case of Torrens Title land is postponed until registration.
If the trustee were not entitled to become the registered proprietor of Torrens Title land after a discharge in bankruptcy, then the machinery of the bankruptcy law could be brought to nought because, although the trustee would be the equitable owner of the land he would be deprived from giving effect to his equitable ownership in the way which under the Real Property Act is the proper machinery for that purpose, that is by registration. Given that the trustee remains bound after the discharge in bankruptcy to collect, realise and distribute the property, there is no reason to adopt a construction of the legislation which were denied to him the benefit of the machinery provisions which would enable him to perform that duty.
Accordingly, I am clearly of the view that the substantive matter upon which the plaintiffs rely in this proceeding, that is the proposition that after a discharge the trustee is not entitled to become registered as the proprietor of property which was, prior to the discharge, vested in him in equity, cannot be sustained.”
The trustee argues that upon completion of the sale the interest of the trustee became an interest in the residual fund of money which is now being held by the Riquero’s solicitors.
Submissions for the respondent
The first submission which the respondents make is that the trustee has only a defeasible equitable title to the land. They argue that at no material time has there been any step taken by the trustee to perfect the grant of his equitable title at law. They argue that the only way that this could be done is by way of transfer pursuant to the provisions of the Real Property Act 1900 (NSW). They further argue that the lodgment of the caveat was no more than a signal to the world that the applicant had a mere equity in the land but said nothing about any legal title. They argue that the nature of the interest would appear not to rise to a fully constituted equitable interest.
“That this must be so is by reason that, in the absence of invoking the aid of a court of competent jurisdiction such as this Court to perfect his title, there was no right in the applicant to exercise dominion over the land until registration of his title under the NSW statute, and at no time did he attempt to do so.”
The respondent’s argue that:
“Even as late as 18 June 2003, the applicant had notice of the defeasibility of his title by reason of the service of the lapsing notice by the respondents. The lapsing notice was allowed to expire without any attempt by the applicant to seek an extension of the caveat, presumably by reason that the applicant knew of the obligation to proffer the usual undertaking as to damages as the price of such extension and was unprepared to adopt such a level of risk. This would appear to be a clear signification of the nature of the applicant’s equitable interest as a statutory mere equity.
The respondent’s contend therefore that in the circumstances of the case, as at the time of the settlement of the conveyance of the land by the respondents on 15 July 2003 the applicant’s defeasible title was extinguished in its entirety, or alternatively, forever signified to be postponed to the interests of the respondents.”
The respondents also claim that the applicant acquiesced in their conduct in moving to have the caveat lapse and no equitable relief can be granted to him. They say that the trustee is unmeritoriously applying after the effluxion of more than ten years for the payment of his professional fees and that the equitable title vested in him has been defeated by the operation of the defence of laches arising from
“the equivalent to waiver or release given gross delay and the failure to object to the lapsing of the caveat and the operation of s.58 of the Act is no barrier to this result.”
Finally the respondents argue that the conduct of the applicant seeking to frustrate a state of affairs that the respondents have been allowed to assume or believe constituted an estoppel that can be raised by the respondents in meeting the applicant’s claim.
Discussion
A good starting point for determining the issues in this case would be the nature of the position of a trustee in bankruptcy. A trustee in bankruptcy has duties at common law; Adsett v Berlouis (1992) 37 FCR 201 at 208-209 and under the Bankruptcy Act itself cf. s.19. Those duties include the duty to collect in and sell all or such part of the property of the bankrupt which is available for distribution amongst creditors (ss.116, 134) as is necessary to satisfy the creditors including the Trustee’s charges and other statutory charges. To this extent it would seem to me that a bankruptcy trustee stands in the position of a trustee for sale. His title to the property (legal or equitable) is transferred to the proceeds of sale. The learned authors in Principles of the Law of Trusts (Ford & Lee, 3rd Ed, 1996) make the following comment at [17280]:
“ A trustee who properly disposes by sale of a legal estate or interest in trust property does so by virtue of two authorities: the legal authority conferred by ownership of the legal estate; and the equitable authority conferred by the trust instrument and trustee law. The trust ceases to attach to the property sold and attaches to the purchase price paid to the trustee.”
It is clear from the decision in Gosden that the discharge of the bankrupts in 1996 in no way affected the title to the property. The discharge does not effect a revesting. The bankrupts ceased to be bankrupts and are released from their obligations (s.149).
I do not accept the argument put by the respondents that the postponement of the vesting in law made the trustee’s title defeasible. Their argument appears to be that the defeasance occurred as a result of the trustee allowing the caveat to lapse. But as they themselves argued the caveat is no more than a warning. It does not create a charge on the land, it is evidence of a charge on the land. A creditor who claims a charge over land but then allows a caveat which he has placed on the title to lapse may lose his physical security but does not lose his right to the debt. A caveat is not a remedy for a wrong and the lodging of a caveat does not prevent the caveator from pursuing other remedies: Walsh v Alexander (1913) 16 CLR 293 at 304; see also Hooper v ANZ [1996] ANZ ConvR 400. The effect of a caveat was succinctly addressed by Griffith CJ in Butler v Fairclough & Anor (1917) 23 CLR 78 at 84. His Honour noted that the purpose of a caveat is to prevent the registration of competing interests which may defeat one’s equitable claim in land and that the effect of a caveat
“is not to enlarge or add to the existing proprietary rights of the caveator upon which the caveat is founded, but to protect those rights, if he has any …”
Caveats are not about creating or extinguishing rights, rather they are concerned with creating the opportunity for those with equitable interests in land to invoke the assistance of the Court to give effect to that interest prior to the registration of competing interests: Butler at 84. But whatever may be argued about the effect of the Trustee allowing the caveat to lapse in other cases I believe that the facts of this particular case indicate that the trustee never gave up his rights in respect of the proceeds of sale of the property. The correspondence which I have referred to evidences an acknowledgment by the Riquero’s through their solicitors that the title to this money is in dispute and is being claimed by the trustee and an arrangement whereby that money would be placed in the trust account so that the dispute could be litigated if not settled. It was on that basis that the trustee took no steps to resist the lapsing notice. These facts do not support the argument of the respondents that the trustee lost any interest which he may have had (and which I believe he did have) in those proceeds.
The action of the trustee does not to my mind indicate any acquiescence by him in the contentions of the respondents concerning their rights to the proceeds and his failure to perfect his title does not open up to the respondents any equitable defence of laches acquiescence or delay. There has been no evidence of any detriment suffered by the respondents as a result of the trustee’s conduct, therefore there is no foundation to support the relief claimed. In Orr v Ford (1988-1989) 167 CLR 316 Deane J said at 340-341:
“ On balance, the preferable approach is to treat the phrase “gross laches” as an intentionally imprecise one which involves not merely considerations of the period of the relevant delay but which invokes the traditional notions of equity and good conscience which are the general determinants of whether a plaintiff should be refused relief by reason of laches in the circumstances of a particular case. On that approach, the phrase refers to circumstances where inaction or standing by (with knowledge) by a plaintiff over a substantial period of time assumes an aggravated character in that it will, if the plaintiff is granted relief which he seeks, give rise to serious and unfair prejudice to the defendant or third party. … The ultimate test effectively remains that enunciated by Lord Selbourne L.C …speaking for the Privy council, in Lindsay Petroleum Co. v Hurd, namely, whether the plaintiff has, by his inaction and standing by, placed the defendant or a third party in a situation in which it would be inequitable and unreasonable “to place him if the remedy were afterwards to be asserted”: see Erlanger v New Sombrero Phosphate Co, and also per Rich J., Hourrigan.” (footnotes omitted.)
The arguments concerning estoppel were not strongly put. This case is readily distinguished from that of O’Brien v Sheahan [2002] FCA 1292. No representations by the trustee are alleged, there is no evidence of payments being made by the bankrupts for the upkeep of the property. The evidence would seem to be to the contrary in that the secured debt and the strata levies all increased over the period of time and no claim to an equity in the proceeds of sale was made. It is the Riquero’s case that they are entitled to the whole of the net proceeds. In making these comments I am not intending to trespass in any way upon the still outstanding issue of whether estoppel can run against a trustee in bankruptcy. In considering an application for special leave to appeal in Sheahan v O’Brien & Anor [2003] HCATrans 308 Gummow J said :
“In the Courts below the determination of the matter has been understood as depending upon the application of well-established principles of equitable estoppel to the particular facts of each case rather than upon any aspect of the law of bankruptcy, including any question as to the scope left by the statutory scheme of insolvent administration for the operation of the general law principles of estoppel.
The decision of the Federal Court from which special leave to appeal is sought in the two applications was dependent upon the conduct of the particular litigation … The decision of the Federal Court therefore should not be understood as establishing any generally applicable principle of law relating to estoppel in the administration of bankrupts estates.”
In all the circumstances I am satisfied that the applicant is entitled to the declaration and order which he seeks. I will make an order that the respondents pay the applicant’s costs.
I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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