Juratowitch as trustee of the Bankrupt Estate of McDougall v McDougall
[2017] FCCA 446
•9 March 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| JURATOWITCH AS TRUSTEE OF THE BANKRUPT ESTATE OF MCDOUGALL v MCDOUGALL & ANOR | [2017] FCCA 446 |
| Catchwords: SALE OF LAND – Putative purchaser failing to pay the whole of the contract sum payable under the sale contract – whether the unpaid sum was still due. DOCTRINE OF MERGER – Whether a right to receive the unpaid balance of the contract sum merged with the conveyance of the land to the daughter – balance did not merge notwithstanding that the daughter became registered as proprietor of the land. EQUITY – Whether daughter enjoyed rights as beneficiary of a constructive trust having regard to her financial contributions towards the construction of a second dwelling on the land – whether her lesser beneficial interest merged with the greater legal interest conferred by registered proprietorship of the land. PRACTICE AND PROCEDURE – Whether trustee should obtain summary judgment under s.17A of the Federal Circuit Court of Australia Act 1999 (Cth) – whether daughter had no reasonable prospects of success of resisting trustee’s claim for unpaid balance of the contract sum – extensive review of the authorities – “no reasonable prospects” found – summary judgment ordered. |
| Legislation: Bankruptcy Act 1966 (Cth), s.120 Federal Circuit Court of Australia Act 1999 (Cth), s.17A |
| Cases cited: Allen v Richardson (1879) 13 Ch D 524 Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd [2008] FCA 1257 Paramasivam v University of New South Wales [2007] FCAFC 176 Professor L L Stevens, Contracts for the Sale of Land – The Operation of the Merger Doctrine, (1973) 47 ALJ 631 |
| Applicant: | DANIEL PETER JURATOWITCH |
| First Respondent: | DOONE LEE MCDOUGALL |
| Second Respondent: | VICTORIAN REGISTRAR OF TITLES |
| File Number: | MLG 1351 of 2016 |
| Judgment of: | Judge Wilson |
| Hearing date: | 16 February 2017 |
| Date of Last Submission: | 16 February 2017 |
| Delivered at: | Melbourne |
| Delivered on: | 9 March 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr P Fary |
| Solicitors for the Applicant: | Harris Carlson Lawyers |
| Counsel for the First Respondent: | Mr P Agardy |
| Solicitors for the First Respondent: | Ellinghaus & Lindner |
| No appearance by the Second Respondent |
ORDERS
The first respondent is to pay the applicant the sum of $216,738.76 plus interest calculated at a rate of 2% per annum above the rate fixed for the time being by s.2 of the Penalty Interest Rates
Act 1983(Vic).
All extant applications are otherwise dismissed.
The hearing date of 16 October 2017 (for an estimated two-day hearing) is vacated.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1351 of 2016
| DANIEL PETER JURATOWITCH AS TRUSTEE OF THE BANKRUPT ESTATE OF JENNIFER MARGARET MCDOUGALL |
Applicant
And
| DOONE LEE MCDOUGALL |
First Respondent
And
| VICTORIAN REGISTRAR OF TITLES |
Second Respondent
REASONS FOR JUDGMENT
Introduction
By initiating application filed 24 June 2016, the trustee of the bankrupt estate of Jennifer Margaret McDougall (“the trustee”) sought payment of the sum of $216,738.76, alternatively damages, or a declaration of invalidity concerning a transfer of land.
On 16 February 2017 the trustee moved for summary judgment.
Synopsis
For the reasons that follow, in my judgment it is appropriate to grant relief under s.17A of the Federal Circuit Court of Australia
Act 1999 (Cth) and I make orders in accordance with paragraph 1 of the trustee’s application for summary judgment.[1][1] Interim application filed by the applicant on 25 January 2017.
Relevant factual scenario
On 28 February 2013, pursuant to a sequestration order made by Registrar Luxton of this court, the trustee was appointed to the bankrupt estate of Jennifer Margaret McDougall (“JMM”).
Between 22 February 1991 and the date of the making of the sequestration order, JMM was the sole registered proprietor of the land situated at 5 Oakdale Road Upwey being the land more particularly described in Certificate of Title Volume 08097 Folio 105. In these reasons I shall call that real property “the Upwey property”.
Between the date of registration of JMM’s interest as proprietor and the date on which the sequestration order was made, the Upwey property was the subject of registered mortgage AW510497P in favour of Pepper Finance Corporation Ltd (“Pepper”), registration of which was effected on 28 July 2006.
Almost two years later, on 21 July 2008 Gippsreal Ltd lodged caveat AF979605M (“the Gippsreal caveat”). On 4 November 2009 the Gippsreal caveat was withdrawn by registered instrument AG849915P. Very little information emerged in the trustee’s affidavit material about the interest claimed in respect of which the Gippsreal caveat notified.
On 5 November 2009, that is to say the day after the withdrawal of the Gippsreal caveat, a person who assumed considerable significance in this case, Peter Frederick Sangster, lodged a caveat AG852651E
(“the Sangster caveat”). Although not stated expressly in the affidavit material in this case, the Sangster caveat lapsed upon the registration of instrument of mortgage AG972861W on 14 January 2010
(“the Sangster mortgage”).
On the same day as the sequestration order was made
(28 February 2013) several critical events occurred in relation to the registered interests in and concerning the Upwey property –
a)first, on that day a partial discharge of the Sangster mortgage was registered in dealing AK214568R;
b)second, a further partial discharge of the Sangster mortgage was registered in dealing AK214569P;
c)third, and most importantly, the fee simple estate that JMM held as sole proprietor was transferred by endorsement from JMM to Doone Lee McDougall (“DM”) by instrument AK214507F. The register revealed that DM became the sole registered proprietor of the Upwey property on 28 February 2013; and
d)fourth, on the same day mortgage AK214571D to Australia and New Zealand Banking Group Ltd (“ANZ”) was registered.
Within two weeks thereafter, the trustee lodged his caveat as trustee of the bankrupt estate of JMM.
The consideration for the transfer of registered proprietorship between JMM and DM was $820,000.00, at least according to the instrument of transfer of land AK214570F4.
The trustee swore in his affidavit of 23 June 2016 that DM is the daughter of JMM.
Having examined the documentation concerning the alleged sale of the Upwey property between JMM and DM, the trustee deposed to the way the proceeds of sale were applied at settlement, according to the conveyancing statement of adjustments. The trustee stated that the sale price for the Upwey property was $820,000.00. He said the statement of adjustments showed that a deposit of $82,000.00 was paid leaving a sub-total of $738,000.00 to which an amount on account of adjustments had to be added making the sum due to the vendor JMM $738,779.96. The trustee examined the total of the sums shown on the statement of adjustments as having been paid at settlement of the conveyancing transaction. The trustee swore that the settlement cheques due to various payees (presumably at the direction of JMM) totalled $604,041.20. An amount of $215,958.80 was to be paid to
Mr Sangster, according to the statement of adjustments.
The trustee swore that Pepper was paid $444,678.35 to discharge its mortgage.
By letter dated 28 March 2013, Mr Sangster wrote to the trustee informing the trustee that at settlement of the sale of the Upwey property Mr Sangster received $146,815.80 in reduction of the overall debt due to him.
On 18 December 2015 the trustee’s solicitors wrote to the solicitors for Mr Sangster. In that letter, the trustee’s solicitors pointed out –
a)JMM sold the Upwey property to DM;
b)upon sale, Sangster as mortgagee received $604,041.20 of the contract sum of $820,000.00 leaving on unpaid balance of $216,738.76;
c)Sangster purported to take a charge over the Upwey property to secure the amount that ought to have been paid to JMM as vendor;
d)Sangster, as mortgagee in possession, allowed the Upwey property to be disposed of to a relative of the bankrupt and in the process allowed a substantial sum to be foregone; and
e)Sangster failed to take reasonable care and exercise his obligations as mortgagee in good faith to ensure that the best possible price for the Upwey property was obtained.
Various exchanges followed between Sangster and the trustee’s solicitors culminating in a letter dated 19 January 2016 from the trustee’s solicitors to the solicitors for Sangster. The trustee’s solicitors recorded the contention that DM owed Sangster the unpaid balance of $216,738.76 and that Sangster claimed to hold a registered charge over the Upwey property to secure payment of that amount.
In his affidavit in support of this application[2] the trustee contended that DM failed to pay JMM the sum of $216,738.36, as result of which JMM as bankrupt suffered loss and damage. The trustee stated that interest was accumulating at the daily rate of $68.20 and that as at
23 June 2016 interest stood at $88,387.86. The trustee sought orders –
a)requiring DM to pay the trustee $216,738. 76;
b)alternatively damages; and
c)DM to pay the trustee interest.
[2] Affidavit of Daniel Peter Juratowitch sworn 22 December 2016.
In the trustee’s amended application[3] he sought orders beyond the monetary sum. He sought –
a)a declaration that the Upwey property was subject to an unpaid vendor’s lien in the trustee’s favour;
b)an order for the sale of the Upwey property; and
c)alternatively, a declaration that the transfer of title to the Upwey property from JMM to DM was void under s.120 of the Bankruptcy Act 1966 (Cth) and that the trustee be declared as the sole registered proprietor.
[3] Amended application filed 20 October 2016.
On 19 August 2016 I made orders by consent that addressed certain procedural steps and the convening of the mediation in this proceeding. Counsel then appearing was the same counsel who appeared before me on 16 February 2017. The proceeding did not settle at mediation. Instead, on 25 January 2017 the trustee filed an interim application for summary judgment in terms of paragraphs 1, 2A, 4 and 7 of the trustee’s amended application.
With leave, DM filed amended grounds of opposition to the trustee’s claim in his amended application.[4] In essence, DM contended –
a)DM did not purchase the Upwey property for a consideration that was less than market value;
b)the purchase price was paid in full by discharging mortgages over the property that fully encumbered the title to it;
c)the transfer between JMM and DM was not void;
d)the trustee was not entitled to interest or damages; and
e)the trustee was not entitled to a vendor’s lien nor an order for sale.
[4] Amended Notice stating grounds of opposition to application, interim application or petition filed 7 November 2016.
In her affidavit affirmed 21 September 2016, DM stated she was the registered proprietor of the Upwey property and that she lives there with her parents Peter and Jennifer McDougall along with her
12-year old daughter. She stated that she and her daughter live in a separate residence that was constructed on the Upwey property in 1994. DM stated that in order for her to purchase the Upwey property, she obtained mortgage finance from ANZ and that she applied $604,041.20 of funds supplied by ANZ towards the purchase. She said Sangster agreed to accept $146,815.80 at settlement, inferentially, to discharge part of his mortgage over the Upwey property.
DM affirmed that Sangster had been involved in her family for many years as a provider of mortgage finance. She stated that the contract between JMM and DM required DM to procure the discharge of the mortgages over the Upwey property “and to relieve my mother from liability under those mortgages. That has been done”.[5]
[5] Affidavit of Doone Lee McDougall sworn 21 September 2016 at [18].
The contract between JMM and DM did not contain a term to that effect. But even if such term had been included in the contract between JMM and DM, the real issue is whether DM paid the contract price in full.
In her affidavit sworn 14 February 2017, DM swore that if she had not purchased the Upwey property and secured discharges of mortgages then encumbering that land, the mortgagees would have taken possession and conducted a mortgagees’ sale deriving no net financial benefit to the trustee because the bankrupt had a “negative equity”.[6] By the expression “negative equity”, I took DM to mean that the bankrupt owed more to mortgagees whose mortgages encumbered the property than the Upwey property was worth.
[6] Affidavit of Doone Lee McDougall sworn 21 September 2016 at [14].
DM stated that the value of the construction work to the two-storey residence built on the Upwey property was $180,000.00.
DM stated that she paid amounts totalling $769,804.03 or that amounts totalling that sum were paid at her direction. Given that she borrowed from ANZ an amount less than $650,000.00, precisely how DM funded those payments totalling $796,804.00 was not explored in the affidavit material.
DM indicated she opposed the application for summary judgment and that she wanted to defend the proceeding.
The relevant enabling legislation and the decided cases
Section 17A of the Federal Circuit Court of Australia Act 1999 (Cth) was introduced at about the same time as was s.31A of the
Federal Court of Australia Act 1976(Cth) in response to what was perceived at the time to be an increase in unmeritorious litigation in federal courts. Section 17A(1) of the Federal Circuit Court of Australia Act 1999 (Cth) is of particular relevance in this case. It permits this court to give judgment in favour of one party against another in relation to the whole or any part of the proceeding if, among other things, the court is satisfied that the party against whom a proceeding is being prosecuted “has no reasonable prospect of successfully defending the proceeding” or that part of the proceeding in respect of which the motion for judgment is made. Section 17A(3) of the
Federal Circuit Court of Australia Act 1999(Cth) provides that a defence need not be hopeless or bound to fail for it to have no reasonable prospects of success.
In considering this application for summary judgment, I have kept steadily in mind the observations of the High Court in Spencer v Commonwealth[7] where the court held that the power to dismiss a proceeding summarily is not to be lightly exercised.
[7] (2010) 241 CLR 118.
In deciding whether a trial is warranted the court (me, in this case) must assess from pleadings (if relevant), affidavits and any other evidence adduced, whether the claim is sufficiently strong and whether there are any real, as opposed to fanciful, issues of fact or law that require proper determination at trial. The authorities demonstrating that proposition are plentiful including Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd,[8] Imobilari Pty Ltd v Opes Prime Stockbroking Ltd[9] and Jefferson Ford Pty Ltd v Ford Motor Company of Australia Limited[10] (“Jefferson Ford”). As recently as last week, Perry J of the Federal Court of Australia delivered judgment on point in Riva NSW Pty Limited v Official Trustee in Bankruptcy.[11]
[8] [2008] FCA 1257 at [28].
[9] [2008] FCA 1920 at [6].
[10] (2008) 167 FCR 372.
[11] [2017] FCA 188.
In Jefferson Ford, the Full Court (Finkelstein, Rares and Gordon JJ) provided a scholarly analysis of the summary judgment procedure in the federal jurisdiction, tracing the historical genesis of the rules to modern day learning. There, the Full Court explained that the power to enter final judgment is not to be exercised unless it is clear that there is no real question of fact or law to be tried. But if there is a serious, difficult or disputable question of fact or law raised, the case will go to trial. In support of those propositions, the court referred to the High Court decisions in Fancourt v Mercantile Credits Ltd[12] and Theseus Exploration NL v Foyster.[13]
[12] (1983) 154 CLR 87, 89.
[13] (1972) 126 CLR 507, 515.
Over a century ago, Lord Halsbury said of the summary judgment procedure in Jacobs v Booth’s Distillery Co[14] that it was intended to prevent sham defences from defeating rights of parties by delay. After citing those observations in Jefferson Ford, Finkelstein J held (at [18]) that summary judgment can only be ordered in a plain or obvious case. His Honour focused on the wording of s.31A of the Federal Court of Australia Act 1976 (Cth), equivalent to s.17A of the Federal Circuit Court of AustraliaAct 1999 (Cth), that the touchstone is
“no reasonable prospect” of successfully defending a claim. If there is a real issue of fact to be determined or where there is a real issue of law, the case should go to trial, as Rares J held in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd,[15] and in other cases such as Paramasivam v University of New South Wales[16]and PZ Cussons (International) Ltd v Rosa Dora Imports Pty Ltd.[17]
[14] (1901) 85 LT 262.
[15] [2006] FCA 1352.
[16] [2007] FCA FC 176.
[17] [2007] FCA 1642.
One of the reasons for introducing s.17A of the Federal Circuit Court of Australia Act 1999 (Cth) was the desire to enable this court to control the costs of and delays in litigation by summarily dismissing claims that have no reasonable prospect of success, a matter on which Gordon J made observations in Jefferson Ford (at [125] et seq). Her Honour pointed out that the party moving for summary judgment bears the onus of persuading the court that the opponent has no reasonable prospect of success, a matter pronounced upon in Crayford Freight Services Ltd v Coral Seatel Navigation Co.[18]
[18] (1998) 82 FCR 328.
Consideration
On the hearing of the application for summary judgment, Mr Fary of counsel for the trustee contended that DM failed to pay the balance of the contract sum for the Upwey property ($216,738.36), plus interest, that the enforcement of the debt due to the bankrupt JMM vested in the trustee and that DM had no basis (inferentially, in fact and law) for defending the trustee’s claim for breach of the contract of sale of land. Mr Fary submitted that insofar as DM asserted some interest by way of constructive trust, any such interest had no bearing on DM’s liability to pay the balance of the contract sum due.
On behalf of DM, before me Mr Agardy of counsel submitted that DM’s defence had two dimensions, as he called them. First, he submitted that DM applied the purchase price in partial discharge of the Sangster mortgage. Second, Mr Agardy contended that by reason of DM’s expenditure of $180,000.00 in construction costs on the Upwey property, an adjustment in equity had to be made to reflect that expenditure and its corresponding improvement to the property and with that the enhancement in the value of the property.
Let me take each proposition in turn.
As to the first, it was beyond argument that DM did not pay the balance of the purchase price. To this day, she has not paid the balance of the purchase price. Subject to the precise terms of the particular contract for the sale of land, ordinarily the purchaser is required to pay in full the contract sum, plus or minus adjustments, before the vendor will execute a transfer of land as a necessary preliminary to obtaining registration of the purchaser’s proprietorship of the land under sale. In this case, JMM provided DM with all documents that enabled DM to become registered as the proprietor of the Upwey property, notwithstanding the fact that DM did not pay JMM in cash the full contract sum.
In debate, Mr Fary pointed out that upon settlement of a contract for the sale of land, ordinarily, rights and liabilities merge with the settlement. He said one right that did not merge was the right to receive payment of the whole the contract sum. Mr Fary did not take me to authority on point but the proposition is well known, one illustration which was the High Court’s decision in Svanosio v McNamara[19] where McTiernan, Williams and Webb JJ held as follows –
Upon the execution of the conveyance the rights and obligations of the parties under the contract are merged in the conveyance except in so far as the contract provides expressly or impliedly that merger shall not take place—for instance where it is intended that a right to compensation given by the contract may be exercised even after completion.[20]
[19] (1956) 96 CLR 186.
[20] (1956) 96 CLR 186, 206-207.
Expressing a detailed and very learned exposition on the operation of the doctrine of merger, Professor L L Stevens wrote his famous treatise Contracts for the Sale of Land – The Operation of the Merger Doctrine,[21] which I have carefully considered in formulating these reasons including reference to the emergence of the doctrine in conveyancing practice as propounded by Malins VC in Allen v Richardson.[22]
[21] (1973) 47 ALJ 631.
[22] (1879) 13 Ch D 524.
To my mind, a provision of the contract as fundamental as the requirement for the purchaser to pay the contract price in full impliedly fell outside of the provisions that merged upon the conveyance. In other words, despite the conveyance, the purchaser DM was still contractually bound to pay the whole of the contract sum, especially the amount the trustee has sworn is presently unpaid.
To my mind, it was erroneous for DM to have asserted that DM discharged her contractual obligations to JMM by paying out several of JMM’s mortgagees. JMM, not DM, was required to satisfy the mortgagees in order to obtain a discharge of those mortgages. As a matter of practical reality, DM may have applied part of the proceeds she obtained from ANZ to pay out certain of JMM’s mortgagees. But that did not render the proper characterisation of the situation as being one where DM discharged those mortgages. She did not discharge those mortgages. It fell to JMM to satisfy each of her mortgagees. DM may well have and probably did put JMM in funds to allow JMM to pay out those mortgagees thereby enabling JMM to call for a discharge of the mortgages upon paying them in full. But DM had no standing to call for those mortgages to be discharged as she was not the mortgagor. Put slightly differently, JMM not DM enjoyed the equity of redemption, being “the very nature and essence of a mortgage”, as was held by Lord MacNaghten in Noakes & Co Ltd v Rice.[23]
[23] [1902] AC 24, 30.
Let me now address DM’s claim to an equitable interest in the Upwey property. She contended that she expended more than $180,000.00 on the construction of a second dwelling on the land. DM and her daughter have lived in that second dwelling for a considerable time.
DM asserted that from the date on which the second dwelling on the Upwey property was constructed, she acquired an equitable interest in relation to the Upwey property. Accepting for the purposes of the argument that DM was able to demonstrate that in fact and in law her assertions in respect of an equitable interest were made out, it must be recalled that on and from February 2013, DM’s equitable interest in the Upwey property merged upon her acquisition of the fee simple interest as the sole registered proprietor of the Upwey property. In other words, her lesser equitable interest merged in the greater legal interest conferred by sole registered proprietorship of the Upwey property. To my mind, principles concerning the merger of estates as espoused in such cases as Radin v Commonwealth Bank of Australia (Lindgern J)[24] and Lansen v Olney (French J)[25] were entirely apposite in this case. Accordingly, it was not possible for DM to concurrently assert that she held an interest as the beneficiary under a constructive trust while at the same time maintaining an indefeasible interest as the registered proprietor of the fee simple estate in the Upwey property.
[24] [1998] ACL 295 FC 1.
[25] (1999) 100 FCR 7, 25.
Counsel for the trustee contended that the alleged constructive trust issue raised by DM had no bearing on the trustee’s claim for payment of the money sum sought being the unpaid balance of the contract price.
I agree.
The question was whether DM’s assertions about discharging various mortgages and her assertion to an equitable interest were sufficiently strong as not to be fanciful, in accordance with the learning most comprehensively recorded in Jefferson Ford. Put slightly differently, I was required to assess whether, after considering those issues, DM had “no reasonable prospect” of defending the trustee’s claim for the unpaid balance of the contract sum.
In my judgment DM has no reasonable prospect of defending the trustee’s claim for payment of the unpaid balance the contract sum. In my view the balance of the contract sum remains due. That sum is due as a debt due to the trustee. I reject the contention that DM “paid” the unpaid contract sum by “discharging” JMM’s liability under various mortgages to various mortgagees. I also reject the concept that DM is entitled to assert a claim as beneficiary under a constructive trust on account of her contribution of $180,000.00 for the construction costs of the second dwelling on the Upwey property. DM is the registered proprietor of the Upwey property and whatever equitable interest she may have enjoyed prior to being registered as the sole proprietor, any such lesser interest merged with her greater legal interest as registered proprietor.
In this case it is appropriate to make an order in accordance with paragraph 1 of the trustee’s amended application.
I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of Judge Wilson
Date: 9 March 2017
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