HST Building Group Pty Ltd v Naudi

[2020] SASC 15

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

HST BUILDING GROUP PTY LTD v NAUDI & ANOR

[2020] SASC 15

Judgment of Judge Dart a Master of the Supreme Court

6 February 2020

REAL PROPERTY - GENERAL PRINCIPLES - INCIDENTS OF ESTATES AND INTERESTS IN LAND - POSSESSION

Plaintiff lent to a company - defendants' land mortgaged to secure payment - default - first defendant becomes bankrupt - trustee does not oppose the making of an order for possession - second defendant says first defendant's interest in the land held on trust for him - plaintiff says should have possession of the land so far as it represents the first defendant's interest - joint tenancy - plaintiff prepared to undertake not to take any steps that would impair the second defendant's claim to hold all of the land beneficially - appropriate to make an order for possession.

Held: Appropriate to make an order for possession of the first defendant's interest in the land.

Real Property Act 1886 Part 17, s 74, s 170; Bankruptcy Act 1996 s 58, referred to.
Albany Home Loans Ltd v Massey & Anor [1997] 2 All ER 609; Cirillo & Anor v City Corp Australia Ltd & Ors (2004) 2 ABC(NS) 525; Director of Public Prosecutions for the State of Victoria v Le (2007) 232 CLR 562; National Australia Bank v Stirk [2009] NSWSC 184; Quennell v Maltby [1979] 1 All ER 568; Wright v Gibbons (1949) 78 CLR 313, considered.

HST BUILDING GROUP PTY LTD v NAUDI & ANOR
[2020] SASC 15

JUDGE DART:

1. The plaintiff in this action is the registered second mortgagee of land situated at North East Road, St Agnes.  The land is comprised of five separate Certificates of Title.  The first registered mortgagee is Australia and New Zealand Banking Group Ltd (“ANZ”).  The two defendants are registered proprietors of the land. 

2. In this action the plaintiff seeks an order for possession. The action is brought pursuant to Part 17 of the Real Property Act 1886 (SA) (“the Act”). Ordinarily such matters proceed summarily, but pleadings have been filed because of the defences raised.

3. The plaintiff advanced monies to a company for the purpose of developing the land.  The first defendant was director of the company, Softec Homes Pty Ltd.  Since the commencement of these proceedings, the company has been wound up by order made in the Federal Court.  The defendants agreed to mortgage the land to secure the advance.  On 21 March 2019 a sequestration order was made against the first defendant in the Federal Circuit Court of Australia.  Mr Naudi was appointed the first defendant’s Trustee in Bankruptcy.  The Trustee has been joined as the first defendant in lieu of the bankrupt. 

4. Upon the making of the sequestration order, the property of the bankrupt vests in the Trustee in Bankruptcy.[1]  A bankrupt who remains the registered proprietor of land has a bare legal interest only, which he holds for the benefit of the trustee in bankruptcy.[2]  A bankrupt proprietor of land has no standing to appear in proceedings and no entitlement to oppose the making of orders by the Court.[3]

   [1]    Bankruptcy Act 1996 (Cth) s 58.

   [2]    National Australia Bank v Stirk [2009] NSWSC 184.

   [3]    Cirillo & Anor v City Corp Australia Ltd & Ors (2004) 2 ABC(NS) 525 at 545.

5. This matter has a lengthy procedural history.  It was listed for trial in 2018.  Prior to the trial the parties conducted a mediation and the matter appeared to be resolved.  The defendants did not perform the agreed terms of settlement.  The plaintiff thereafter had the matter re-listed for trial.  The trial was to be held in late 2019. 

6. Prior to the second trial all parties requested the Court vacate the trial.  The parties have a practical problem.  It appears that the debt owed to the first mortgagee exceeds the value of the land.  Having a trial to determine whether or not the plaintiff is entitled to possession and sale of the land would produce no commercial benefit. 

7. The parties are now jammed in this litigation.  The ANZ has not indicated to the parties that it is prepared to take possession and sell the land.  If that course were to occur, this matter could be adjourned until sale of the land has occurred.  If the sale generated surplus funds, the issues in this matter would still need to be resolved.  If not, the issues are simply academic.

8. The plaintiff seeks an order for possession in respect of the bankrupt’s interest in the land.  The trustee does not oppose the making of a possession order.  He does not intend to defend these proceedings.  The second defendant opposes the order.  He asserts that the first defendant only ever held his interest in the land as a trustee for him.  That is a matter in dispute between the parties. 

9. The bankrupt and his brother are joint proprietors on each of the five titles.  Where two or more persons are registered as joint proprietors as an estate in land, they are deemed to be joint tenants.[4]  The interest of a joint tenant is an interest over the whole of the land that is shared with the other joint tenants.  In Wright v Gibbons Dixon J said: [5]

   “Each of them [the joint tenants] has a right shared with his co-tenants to the whole common property, but not individual right to any undivided share in it … for this reason, joint tenants should not be spoken of as holding undivided shares.”

   [4]    Real Property Act 1886 s 74.

   [5] (1949) 78 CLR 313 at 330.

10. A joint tenancy arises where it is established that the so-called four unities exist.  Joint tenants must have unity of time, unity of title, unity of interest and unity of possession.  There is no reason here to doubt that they existed at the time the land was acquired by the defendants.

11. Before considering whether to make the possession order, it is appropriate to consider whether there is still a joint tenancy. A joint tenancy can be severed. There are a number of ways that may occur. Relevant for present purposes is the question of whether the bankruptcy of the first defendant severed the joint tenancy so that the trustee and the second defendant hold the land as tenants in common. The bankruptcy of a registered proprietor is an event that can effect a severance of the joint tenancy. Relevant for present purposes is the provision of s 170 the Act:

    170—Transmission by bankruptcy or statutory assignment

    Upon the registered proprietor of any estate or interest in land becoming bankrupt or making a statutory assignment, the Official Receiver (if no trustee has been appointed) or the trustee of such bankrupt or assignor shall be entitled to be registered as proprietor of such estate or interest.

12. As mentioned above, a bankrupt registered proprietor holds land on trust for his trustee.  In Director of Public Prosecutions for the State of Victoria v Le Kirby & Crennan JJ, in a joint judgment, stated the position to be as follows: [6]

    A joint tenancy in land has two distinguishing features:  the right of survivorship and the unities of title, interest, possession and time[7].  In Land Law[8], Professor Butt describes the possible methods of termination of joint tenancy of land as follows[9]:

    "A joint tenancy terminates in one of three ways.  The first is by operation of the right of survivorship, when the land vests entirely in the last surviving joint tenant.  The second is by sale or partition …  The third is by severance ..."

    Professor Butt goes on to recognise that, for the purposes of severance, "a joint tenant is regarded as having a potential share in the land commensurate with that of the other joint tenants"[10].  Alienation of a joint tenant's interest in land is one method of severance.  This can occur as a result of a legal process.  For example, taking a joint tenant's interest in land in execution of a judgment will sever a joint tenancy[11].  With Torrens title land, severance of a joint tenancy occurs once property vests in a trustee in bankruptcy in equity[12].  To employ a word used of different facts[13], but equally applicable here, the joint tenancy "transmogrifies" to a tenancy in common, once a trustee in bankruptcy is registered as proprietor of the bankrupt's interest[14].  Professor Butt gives other examples of severance of joint tenancy as a result of legal processes[15].  What the examples have in common is that certain court orders are inconsistent with the continuation of a joint tenancy.

    [6] (2007) 232 CLR 562 at [99]-[100].

    [7]    Butt, Land Law, 5th ed (2006) at 214 [1405], 216 [1410].

    [8]    Butt, Land Law, 5th ed (2006).

    [9]    Butt, Land Law, 5th ed (2006) at 237 [1456].

    [10] Butt, Land Law, 5th ed (2006) at 237 [1458]. (original emphasis)

    [11] Guthrie v Australia and New Zealand Banking Group Ltd (1991) 23 NSWLR 672 at 680 per Meagher JA. See also Mitrovic v Koren [1971] VR 479 at 481 per Gowans J.

    [12] Bankruptcy Act 1996 (Cth), s 58(2).  See also Re Holland; Ex parte Official Trustee in Bankruptcy (1985) 5 FCR 165 at 167 per Fisher J.

    [13] Peldan v Anderson (2006) 227 CLR 471 at 483 [29] per Gummow ACJ, Kirby, Hayne, Callinan and Crennan JJ.

    [14] Sistrom v Urh (1992) 40 FCR 550 at 556.

    [15] See for example Butt, Land Law, 5th ed (2006) at 249-250 [1487].

13. There is no evidence before the Court that the trustee has become registered proprietor of the land.  It is registration that severs the joint tenancy.  Accordingly, whilst the beneficial interest in land has vested in the trustee, it would appear that the joint tenancy has not yet been severed.  The plaintiff’s application for possession needs to be dealt with in the context of a joint tenancy. 

14. A possession order should only be made if it is appropriate.  The Court does have a general power to decline to make a possession order.  A mortgagee must only seek possession for a proper purpose.  In Quennell v Maltby Lord Denning MR said: [16]

    A mortgagee will be restrained from getting possession except where it is sought bona fide and reasonably for the purpose of enforcing a security and then only subject to such conditions as the court thinks fit to impose.

    [16] [1979] 1 All ER 568 at 571.

15. In Albany Home Loans Ltd v Massey & Anor[17] the Court of Appeal was dealing with the question of whether it was appropriate for a judge to have made an order against one of two joint proprietors.  The defendants were husband and wife.  The husband had no defence, but the wife was pursuing a defence of undue influence.  A possession order had been made against the husband in the lower court, but not against the wife. 

    [17] [1997] 2 All ER 609.

16. The Court of Appeal was concerned about the making of a possession order against one of two joint proprietors in circumstances where the property was the matrimonial home.  The effect of the possession order would mean that the husband could not remain in the matrimonial home without committing a contempt.  In the result, the appeal was dismissed on the giving of an undertaking by the mortgagee that the husband would not be required to leave the property until the case against his wife was finalised.  Schiemann LJ, with whom Aldous LJ agreed, noted as follows:[18]

    I conclude with a few comments on what currently seems to me to be the appropriate course to follow in other cases should district judges be faced with a submission by one mortgagor that an order for possession against him made now would not advantage the mortgagee because the other mortgagor is entitled to remain in possession.  In general such a submission will have force.  There are no doubt a number of ways in which effect could be given to it.  It seems to me that the judge in those circumstances, in the absence of an undertaking on the lines of the one in the present case, ought in general to adjourn the proceedings with liberty to restore if the other mortgagor leaves the property or an order for possession is made against that other mortgagor.

    [18]   Albany Home Loans Ltd v Massey & Anor [1997] 2 All ER 609 at 613.

17. The land here is vacant land.  At no time have the defendants resided on the land.  The issue that arose in Albany Home Loans does not arise.  There is no suggestion that the plaintiff is seeking possession other than for the bona fide purpose of enforcing the security.  The second defendant’s position is that the order should not be made because it might prejudice its right to argue that the first defendant, at all times, held the land on trust for him.  The plaintiff is prepared to give an undertaking to take no steps to prejudice the trust claim of the second defendant.

18. It is appropriate to make the order for possession in respect of the interest in the land formerly held by the first defendant.  The trustee does propose to defend the claim.  The Court should finalise the proceeding so far as it deals with the first defendant.  The making of the order is likely to allow the plaintiff better standing to negotiate with the ANZ.  The position of the second defendant can be appropriately protected by an undertaking from the plaintiff.  I will hear the parties as to the appropriate form of the orders and the undertaking.