Draper v Official Receiver - [2005] FMCA 1371

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DRAPER & ANOR v OFFICIAL RECEIVER & ANOR

[2005] FMCA 1371

BANKRUPTCY – Application that Official Trustee convey interest in land forming part of bankrupt estate – allegation of express or resulting trust – equitable estoppel said to arise from delay in realising interest in real property.

Bankruptcy Act 1966, (Cth) ss.149; 133; 116(2)(a)
Law of Property Act 1936; ss.29(1), 29(2)

Sistrom v Urh 117 ALR 528
O’Brien v Shehan [2002] FCA 1292
Draper & Anor [2004] FMCA 423
Draper v Tragauer [2004] FCA 1710
Jones v Dunkel (1959) 101 CLR 298
Calverley v Green (1984) 155 CLR 242

Applicants:

KEITH LAWRENCE DRAPER & BARBARA OLIVE DRAPER

Respondents:

PATRICIA TRAGAUER OFFICIAL RECEIVER FOR THE BANKRUPT ESTATE OF KEITH LAWRENCE DRAPER &
BRUCE JAMES CARTER AS TRUSTEE OF THE BANKRUPT ESTATE OF KEITH LAWRENCE DRAPER

File Number:

ADG 260 of 2003

Judgment of:

Lindsay FM

Hearing date:

14 & 15 February 2005

Date of Last Submission:

15 February 2005

Delivered at:

Adelaide

Delivered on:

23 September 2005

REPRESENTATION

Counsel for the Applicant:

Not applicable

Solicitors for the Applicant:

Applicant in Person

Counsel for the 1^st Respondent:

Mr Gretsas

Solicitors for the 1^st Respondent:	Gretsas Ghrzaszcz
Counsel for the 2^nd Respondent:	Mr Britton-Jones

Solicitors for the 2^ndRespondent:

Cowell Clarke

ORDERS

That the further amended application filed on 24 November 2004 is dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
ADELAIDE

ADG 260 of 2003

KEITH LAWRENCE DRAPER & BARBARA OLIVE DRAPER

Applicants

And

PATRICIA TRAGAUER OFFICIAL RECEIVER FOR THE BANKRUPT ESTATE OF KEITH LAWRENCE DRAPER & BRUCE JAMES CARTER AS TRUSTEE OF THE BANKRUPT ESTATE OF KEITH LAWRENCE DRAPER

Respondents

REASONS FOR JUDGMENT

The applicants filed a further further amended application on 24 November 2004, which came on for hearing before me on the 14 and 15 February 2005.
They relied on affidavits sworn on 5 August 2004, 20 August 2004, 28 November 2004 and 25 January 2005. They were both cross‑examined. The first respondent, Ms Tragauer, relied upon an affidavit filed on 7 October 2004. Written and oral submissions were submitted by all parties.
Most of the orders sought in the amended application of the applicants filed on 9 March 2004 were summarily dismissed by me on 22 July 2004. An appeal against those orders was dismissed by Mansfield J on 22 December 2004.
In the further further amended application three different types of orders are sought.
·Paragraphs 1 to 6 seek orders the effect of which would be to extinguish the second respondent's Title in land owned jointly by the second respondent and the second applicant at MacDonald Park (hereinafter referred to as "MacDonald Park").
·Paragraph 7 seeks an order annulling the first respondent's bankruptcy.
·Paragraph 8 seeks damages – $500,000 for "actual" damages, punitive damages and $40,000 damages in respect of a loss on a property at Marleston.
Mr Draper became bankrupt on 12 July 1989. He was discharged from that bankruptcy on 25 July 2002 by operation of law (s.149 of the Bankruptcy Act 1966 (Cth).
When the sequestration order was made the applicants were registered as joint tenants as the proprietors of MacDonald Park. The effect of the sequestration order was to sever the joint tenancy such that they held the property as tenants in common in equal shares, holding the property upon trust for Mrs Draper and the trustee of Mr Draper. Subsequently the Official Trustee (not the Official Receiver) became registered as the holder of Mr Draper's interest in the property. That occurred on 16 November 1989. (As to the effect of a sequestration order upon the holder of an interest as a joint tenant, see the discussion of same by the Full Court of the Federal Court in Sistrom v Urh 117 ALR 528.)
On 18 March 2003 the second respondent became the trustee of the bankrupt estate of Mr Draper.
The bankrupt estate's interest in MacDonald Park has never been realised, either by way of transfer or sale of the property. The applicants say that the interest of the second respondent should be conveyed to Mrs Draper because of the operation of various equitable doctrines.
This claim was anticipated by me when I gave the applicants leave to amend their amended application on 22 July 2004. I made reference when doing so to the decision of Carr J in O'Brien v Sheahan [2002] FCA 1292, a case involving delays by a trustee in realising his equity in a property in which both registered proprietors were bankrupt (see par 74 to par 76 of Draper and Anor [2004] FMCA 423). The anticipated claim was also the subject of certain observations by Mansfield J on appeal (see par 35 of His Honour's judgment reported as Draper v Tragauer [2004] FCA 1710).
I set out in full the claim for relief as it relates to Macdonald Park.
1.A declaration that at all relevant times the beneficial interest in the whole of the property was held by the Applicant Keith Lawrence Draper in trust for the Applicant, Barbara Olive Draper, the other joint tenant and that pursuant to s. 116(2) of the Bankruptcy Act the Property did not vest to the Respondents.
2.A declaration that the Respondents did not at any relevant time have a right to a vesting order in relation to the Property.
3.A declaration that the Respondents are in equity and good conscience estopped from exercising any right in relation to the realisation of any interest in the property.
4.A declaration that it would be unconscionable, unjust, oppressive, vexatious and an abuse of power for the Respondents to exercise any right including the realisation of any interest in the Property.
5.A declaration that as a result of the conduct of the Respondents that there was a disclaimer of onerous property in relation to the Property or alternatively the Respondents are estopped from denying such a disclaimer.
6.An order directing the Respondents to take such steps and to file such documents at the Lands Title Office as may be necessary to relinquish any right estate interest or title in the Property and to transfer the whole of the legal and beneficial interest to the Applicant, Barbara Olive Draper.
Mr and Mrs Draper took a transfer of MacDonald Park on 11 July 2005. It was registered on 12 July 2005. The purchase price was $48,000. The purchase price was made up of $40,000 jointly borrowed by Mr and Mrs Draper from the Savings and Loans Credit Union. The balance was provided by way of vendor finance secured by way of second mortgage. By 1996 both mortgages had been paid out. The applicants’ claim that Mrs Draper paid all mortgage payments and outgoings and all improvements to the property, which included the erection of a shed in which the applicants resided. Both Mr and Mrs Draper maintain that it was their intention at the time of purchase that MacDonald Park would be held solely for the benefit of Mrs Draper.
It is common ground that the contract to purchase MacDonald Park was originally entered into by a company known as Kebar Sporting Goods Pty Ltd which subsequently assigned the contract in relation to same to Mr and Mrs Draper. There is a dispute apparently as to whether both Mr and Mrs Draper or only Mr Draper were shareholders in that company at the relevant times, but no dispute that it was under the control of one or both of them.
On 31 July 1990 an officer of the first respondent wrote to Mrs Draper and put her upon notice that MacDonald Park would have to be sold and the proceeds shared between them or that Mrs Draper would need to make an offer to purchase the Official Trustee's interest in the property. Specifically the Official Trustee advised of its intention to share in any increased equity arising from any appreciation of the value of the land if the matter remained unresolved. The Official Trustee has never resiled from that position. Correspondence between the Official Trustee and Mrs Draper has occurred in fits and starts ever since. The correspondence is exhibited to Ms Tragauer's affidavit. Mrs Draper has from time to time retained legal advice and threatened legal action to have the Official Trustee's interest in MacDonald Park removed.
Mr and Mrs Draper have continued to occupy MacDonald Park.
Section 116 of the Bankruptcy Act describes the property of the bankrupt that is divisible among creditors. Sub-section (2)(a) of the Act provides that it does not include property held by the bankrupt in trust for another person.
The applicants' case is clear enough. It is that Mr Draper held his interest in MacDonald Park on trust for Mrs Draper. Two foundations of that assertion are given: firstly, the agreement between them at the time of purchase and, secondly, as best I understand the submission, the Trust operates by necessary implication from the nature of a joint tenancy. Finally, it is suggested that the trustee's delay in realising his interest in MacDonald Park carries the consequence that the respondents are estopped from maintaining their interest and should be ordered to reconvey the interest of the Official Trustee in the property to Mrs Draper.
The first difficulty for the applicants is that I do not accept that the agreement alleged at or prior to the time of the purchase of MacDonald Park is made out. I find on the evidence before me that no such agreement existed. I summarise my reasons for finding thus:
(1)Mr Draper asserted that the only reason he appears on the Title was the insistence of the first mortgagee, the Savings and Loans Credit Union, that he be a registered proprietor. He said that he had a letter from them to that effect. It turned out that the letter was one insisting only that he be a joint borrower. Confronted with the letter in cross‑examination, Mr Draper could only suggest that it meant something other than it said. His presence on the Title as a joint registered proprietor was left unexplained.
(2)Unexplained also is why, given their intention, the contract is first placed in the name of their company.
(3)No officer of the relevant Credit Union was called to give evidence and no reason advanced as to why any such officer was unavailable to give evidence. In those circumstances it seems to me that it is open to me to draw an inference that the evidence of the relevant officer from the Credit Union would not have assisted the applicants (see Jones v Dunkel (1959) 101 CLR 298).
(4)No reference to the agreement or the trust or the fact that his interest in the property was legal but not equitable is made in any of the documents completed by Mr Draper at or about the time of his bankruptcy.
(5)There was no reference to the agreement in Mr Draper's affidavit filed on 9 March 2004 in support of the original amended application. Confronted with this in cross‑examination, Mr Draper says that his claim is only as to a constructive trust and not an express trust. However, the claim to a trust arising from an express agreement between he and his wife is asserted in par 6 of his affidavit sworn on 5 August 2004. He is not able to account in cross‑examination for these contradictory assertions. These matters appear at p 31-33 inclusive of the transcript of 14 February 2005.
(6)Most telling of all on the issue of the agreement was Mrs Draper's complete inability to provide any detail whatsoever about the agreement. She could not say what property the agreement related to (the Drapers owned a property at Marleston at the time of the purchase of MacDonald Park). It may have related to one or other of those properties or both of them; apart from saying that the agreement provided that she was to be given an (unspecified) property "in lieu of wages", she knew no other term of the agreement. Her evidence persuaded me beyond reasonable doubt when taken in conjunction with the matters referred to in paras 1 - 55 above, that no such agreement existed (see transcript of 14 February 2005 at p 54 - 58 inclusive).
(7)Even had I been satisfied as to the existence of some form of oral agreement, Mr and Mrs Draper would have been confronted by the difficulty presented by s.26 of the Law of Property Act1936. That provides as follows:
“29(1) Subject to the provisions hereinafter contained with respect to the creation of interests in land by parol –
(a)no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law;
(b)a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will;
(c)a disposition of an equitable interest or trust subsisting at the time of the disposition must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by his will.
(2) This section shall not affect the creation or operation of resulting, implied, or constructive trusts.”
No such writing is produced.
What then of the constructive trust? It will be recalled that the purchase price of MacDonald Park was principally made up of monies borrowed from the Savings and Loans Society. Those monies were jointly borrowed. There was evidence produced during the course of the hearing as to the relative incomes of Mr and Mrs Draper at or about the time that the money was borrowed. Mr Draper was earning approximately $34,000 gross in respect of his employment as an accountant. Mrs Draper was earning approximately $12,500.
There was an assertion by Mr and Mrs Draper in their affidavits that Mrs Draper met all of the mortgage instalments. Her evidence in that regard indicated that she was paying an amount of $319 per fortnight or $8,294 per annum in respect of instalments on the first mortgage. After her taxation liability was taken into account, that left her with a disposable income of approximately $1,700. She was at some pains during the course of her evidence to indicate that she met all of her reasonable living expenses from that money. She was also at some pains to eschew any suggestion that Mr Draper was either assisting her in meeting the payments of the mortgage or assisting her in respect of her general living expenses. She attempted to point to assistance provided by other family members to her to explain her being able to meet her other general living expenses if she was meeting the mortgage solely out of her own funds. She could provide no explanation why her husband, with whom she was living, would not have provided the sort of financial assistance to her that he was able to provide, given their salary discrepancy. Leaving aside these problems arising on the evidence for Mrs Draper, that is, that I do not accept that she could reasonably have been able to meet all of the mortgage instalments from her own earnings and yet maintain herself and meet her living expenses out of the small balance that remained, I am confronted by the decision of the High Court in Calverley v Green (1984) 155 CLR 242 and in particular the judgment of Gibbs CJ at p 251. That was a case where a purchase price was met from monies borrowed by the parties to the proceedings. His Honour had this to say at p 251:
“In the present case however both purchasers contributed the purchase money. The amount of $18,000 borrowed under the mortgage was provided equally by the parties, for it was lent to them jointly, on terms which made them jointly and severally liable for its repayment, and, having thus been borrowed, was applied by them in part payment of the purchase price”.
Further, at p 252:
“The extent of the beneficial interests of the respective parties must be determined at the time when the property was purchased and the trust created. The fact that the mortgage debt was repaid by the appellant is therefore not relevant in determining the extent of the interests of the parties in the land, although it may be relevant on an equitable accounting between the parties”.
To similar effect was the decision of their Honours Mason and Brennan JJ at p 257.
I do not accept on the evidence in any event that Mrs Draper was meeting the mortgage instalments out of her own income. No rational explanation was given as to why the parties would have entered into such an arrangement, given the discrepancy between their respective incomes.
These matters are dealt with because it might be thought that the facts alleged by Mr and Mrs Draper were capable of giving rise to the inference that there was a resulting trust created on account of their unequal contributions to the purchase price; that is, that Mr Draper held his estate and interest in MacDonald Park on a resulting trust for Mrs Draper on account of these unequal contributions. But in view of my findings as to their respective contributions that argument cannot be sustained.
Nothing has been presented in the evidence to persuade me other than that Mr and Mrs Draper were pooling their incomes at the respective times and that the mortgage instalments and their other living expenses and any moneys associated with the improvement of the land would have been met from their joint incomes to which Mr Draper was overwhelmingly the major contributor.
I should not conclude my remarks on this topic without noting my concern that, in respect of this topic of the uses to which her own income was put at the relevant times, I was most concerned that Mrs Draper was deliberately giving me an account which was not truthful, and I refer in particular to the transcript in relation to this topic at p 61 - 64 inclusive.
There was a separate factual assertion made by Mr and Mrs Draper that Mrs Draper was solely responsible for meeting from her own income all monies associated with improvements to the land. Not a single receipt in respect of any work performed by any tradesman or any material purchased to enable improvements to be carried out was produced by the parties or either of them and at the end of the case Mr and Mrs Draper were unable to point to any evidence which would persuade me that this assertion was the case.
Given these factual findings, there is not only no suggestion as to the creation of a resulting trust but no basis provided for any suggestion that there should be some form of equitable accounting as between Mr and Mrs Draper in respect of the contributions to the mortgage (or purchase price) or contributions to alleged improvements.
That left Mr Draper's assertion that a joint tenancy, of its nature, implied the creation of a resultant trust in which each joint tenant held his or her interest on trust for the other. Mr Draper was unable to take that submission any further than merely asserting it.
I find, then, that there is no evidence capable of supporting the assertion that there was either an express or any form of constructive trust in operation at the time of the purchase of MacDonald Park by Mr and Mrs Draper or at any time subsequent to its purchase.
I turn then to the arguments advanced by the applicants in relation to what might be described as the general issue of equitable estoppel.
It is the case that the Official Trustee and subsequently Mr Carter has been the registered proprietor of what was formerly Mr Draper's interest in MacDonald Park for many years now. It is also the case that a reasonable person might have had an expectation that in the 16 years since the date of the making of the sequestration order some steps might have been taken by a prudent trustee to realise the interest. Certainly there have been, more particularly in the early days, a number of suggestions made on behalf of the Official Trustee to Mrs Draper that she should purchase the Official Receiver's interest, but in the light of her refusal to make any offer in relation thereto and, indeed, in the light of her assertions that the official trustee did not have any proper title to the interest which was formerly that of Mr Draper in the MacDonald Park property, it might be expected that the Official Trustee or subsequently Mr Carter would have taken some steps to arrange for the sale of the property. That has not happened.

What is clear, though, on the evidence before me is that at a very early time in their dealings the Official Trustee made it clear that he was intending to benefit from an appreciation in the value of his equity in MacDonald Park and that he has not resiled from that intention.
In the judgment which determined the earlier application in these proceedings, I considered the facts which arose in the case of O'Brien v Sheahan (supra). That was a decision of Carr J on appeal from a Federal Magistrate. The Federal Magistrate had considered whether any estoppel arose out of any specific representation that the trustee of the bankrupt registered proprietors had made. The specific representation that was the subject of the Federal Magistrate's consideration was one by the trustee that the bankrupts could keep the property if there was no equity in it (this followed the trustee's insistence that there be a valuation of the property). However, on appeal the Learned Judge found a further basis for estoppel in the conduct of the trustee. In particular, at paras 45 and 46 of his judgment the Learned Judge referred to certain factual matters arising in the case before him which enabled him to find that equity required that the official trustee be obliged to convey his estate and interest in the real property to the bankrupts without consideration.
“The appellants provided the Official Receiver with the last of those valuations by March 1997. In all these circumstances, I consider that it was incumbent upon the Official Receiver, within a reasonable time thereafter, to make a decision (and inform the appellants) whether he was (at that time) going to take any steps to realise the property for the benefit of the creditors and, if not, to inform the appellants what other course he proposed to take.
By not doing so during a period of over four years, I consider (and so find) that the Official Receiver and, subsequently, the respondent, represented and maintained such representation to the appellants that they did not propose to assert any entitlement to any net proceeds from the realisation of the property. Important factors in that assessment are:
·the request and then the direction (the Official Receiver told the appellants, by letter dated 5 March 1997, that they would be in contempt of Court if they failed to comply) to the appellants to obtain the valuations;
·the finding by the Magistrate that Mr Peel led the O’Briens to believe that they could remain in the property whilst they continued to “pay the mortgage”;
·Mr Peel’s statement to the appellants that so long as they lived in the property it was their responsibility to deal with any mortgage commitments;
·The Magistrate’s finding that the respondent and the Official Receiver knew full well that the appeallants were making payments to the first mortgagee which had the effect of preserving the property; and
·The very long period which expired before the respondent eventually decided to sell the property”.
The facts of that decision are immediately distinguishable from the facts of this case. Here, there was no ambiguity about the position adopted by the Official Trustee at an early stage of the exchanges between the parties that he was claiming to be entitled to a realisation of his equity in the property. There was absent from any of the correspondence and absent from any of the evidence produced by Mr and Mrs Draper any of the representations of the type made in O'Brien.
What characterises this case is the continued assertion by Mrs Draper of her entitlement to a "vesting order" in respect of the Official Trustee's interest and the official trustee's continued repudiation of her assertion in that regard.
I am unable to find in the facts and circumstances of this particular case any representation, whether express or by omission, which would give rise to the same kind of equitable estoppel as arose in O'Brien's case.
Furthermore, there are no facts and circumstances arising in this case which suggest to me that the official trustee has engaged in any form of unconscionable conduct such as would give rise to the estoppel which is alleged by Mr and Mrs Draper.
Counsel for the Official Trustee dealt in some detail with the assertion in par 5 of the final orders sought in the further further amended application that there was a disclaimer of onerous property in terms of s.133 of the Bankruptcy Act. Apart from the assertion that has made its way into the application itself, no facts were alleged to indicate that any such disclaimer had been made, let alone that it had been made in writing, as is required by the section. I cannot identify any facts relating to the conduct of the Official Trustee which would give rise to any basis for claiming that the Official Trustee is somehow estopped from denying that he has made the disclaimer.
Paragraph 7 of the final orders sought in the further further amended application seeks an annulment. That was sought in the amended application dealt with in my judgment of 22 July 2004. No additional facts and circumstances have been raised in affidavit material filed subsequently to that determination which are capable of grounding an entitlement to an annulment. The suggestions that the bankruptcy was irregular and that the order by way of stay made by Fisher J in the Federal Court had the effect of voiding the sequestration order were agitated in the earlier phase of the proceedings and the argument was rejected. No facts have been alleged that are capable of sustaining the allegation that the petitioning creditor ought not to have presented its petition or that the petitioning creditor was motivated by malice. Amongst the assertions made in the affidavit material are assertions that the judgments of the Federal Court and the High Court which gave rise to the judgment sum on which the petitioning creditor relied are flawed and should be revisited. No basis for my revisiting those matters which have been determined many years ago has been set forth in the affidavit.
I turn then to the claims for damages. Once again, damages were sought in the application that has already been determined and it is clear to me that the claim for damages in this application is made on no different basis. No fact has been alleged which is capable of grounding a jurisdiction in the court to award damages. No fact has been alleged to suggest that this court could determine a claim for damages as part of the same judicial controversy relating to some other dispute. Any claim for damages would presumably be upon the basis of a claim for damages and negligence. The acts complained of were many years ago and would prima facie be well out of time. No facts suggesting the basis for allowing the institution of a claim for damages out of time is even alleged.
For the foregoing reasons the further further amended application filed on 24 November 2004 is dismissed.
A claim for costs on an indemnity basis was made on behalf of the first respondent. I think it appropriate to provide the parties with an opportunity to read these Reasons and consider any further submissions they wish to make before that issue is determined.

I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of Lindsay FM

Associate: Kate Clarke

Date: 23 September 2005