Kim Francis Hunter v Geoffrey Phillip Reidy (Trustee of the Bankrupt Estate of Kim Francis Hunter)
[2013] FCCA 439
•22 April 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| KIM FRANCIS HUNTER & ANOR v GEOFFREY PHILLIP REIDY (TRUSTEE OF THE BANKRUPT ESTATE OF KIM FRANCIS HUNTER) | [2013] FCCA 439 |
| Catchwords: BANKRUPTCY – Application under s.178 of the Bankruptcy Act 1966 (Cth) for declaration that Trustee had no authority to sign a consent judgment for possession of properly in respect of which the court declares that the bankrupt was trustee for his former wife – consequential orders and declarations. |
| Legislation: Bankruptcy Act 1966 (Cth) ss.30, 31, 120, 121, 178 |
| National Australia Bank Limited v Kim Francis Hunter & Anor [2013] NSWSC 71 |
| First Applicant: | KIM FRANCIS HUNTER |
| Second Applicant: | KIM LEE HUNTER |
| Respondent: | GEOFFREY PHILLIP REIDY TRUSTEE OF BANKRUPT ESTATE OF KIM FRANCIS HUNTER |
| File Number: | SYG 405 of 2013 |
| Judgment of: | Judge Raphael |
| Hearing date: | 22 April 2013 |
| Date of Last Submission: | 22 April 2013 |
| Delivered at: | Sydney |
| Delivered on: | 22 April 2013 |
REPRESENTATION
| Solicitors for the Applicants: | Hunter Flood Lawyers |
| Solicitors for the Respondent: | Matthews Folbigg Pty Ltd |
THE COURT DECLARES:
Under ss.178 and 31(1)(f) of the Bankruptcy Act1966 (Cth) that the respondent had no authority to sign the consent judgment on behalf of the bankrupt on 13 February 2012 in Supreme Court proceedings of New South Wales 2011/356806.
Under ss. 30 of the Bankruptcy Act 1966 (Cth) that as from 23 November 2009, Kim Francis Hunter holds all his beneficial interest in the property at 53 Seaview Street, Balgowlah, New South Wales, (Folio identifier 22/1/165048) on trust for Kim Lee Hunter. Such beneficial interest did not vest in the respondent at the commencement of the bankruptcy of Kim Francis Hunter.
ORDERS
Orders 2,3 & 6 sought in the amended application be withdrawn.
The respondent’s costs be paid out of the assets of the bankrupt estate of Kim Francis Hunter in accordance with his ordinary indemnity from the estate in respect of his costs.
The time for filing of the amended application be extended until 1 March 2013.
The respondent provide a withdrawal of caveat AG154375 registered on the title of 53 Seaview Street Balgowlah (Folio identifier 22/1/165048) to the applicant’s solicitors within seven days of the date of this order.
The trustee take all steps necessary to affect the transfer of the property at 53 Seaview Street, Balgowlah to Kim Lee Hunter and that any costs of or relating to the transfer be paid by Kim Lee Hunter.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 405 of 2013
| KIM FRANCIS HUNTER |
First Applicant
| KIM LEE HUNTER |
Second Applicant
And
| GEOFFREY PHILLIP REIDY (TRUSTEE OF BANKRUPT ESTATE OF KIM FRANCIS HUNTER) |
Respondent
REASONS FOR JUDGMENT
There comes before me today the hearing of an application by Ms Kim Lee Hunter for orders or declarations under s.178 of the Bankruptcy Act1966 (Cth),[1] that the respondent, the trustee of the bankrupt estate of Kim Francis Hunter, who is also named as an applicant, had no authority to sign a consent judgment on behalf of the bankrupt on 13 February 2012 in the Supreme Court of New South Wales proceedings 2011/356806, and an order pursuant to ss.30 and 31(1)(c) of the Act, extending the time in which orders or declarations pursuant to s.178 of the Act may be sought.
[1] The ‘Act’.
It is well to set out now the provisions of s.178, which is headed “Appeal to court against trustee’s decision”:
(1) If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.
(2) The application must be made not later than 60 days after the day on which the person became aware of the trustee's act, omission or decision.
Both applicants are persons affected by the action of the trustee in this matter. Ms Lee Hunter’s interest is explained below.
The application was commenced in this court on 18 March 2013. The matter has come before the court on previous occasions, the last time on 15 April 2013, when I indicated that I would hear the matter today. The application itself contained a number of orders that were being sought, but by consent, orders 2, 3 and 6 of the application have been withdrawn.
This leaves order 1, the order which I have described, and order 4, which is described as:
“An order under section 30 of the Bankruptcy Act 1966 exercising jurisdiction under 31(1)(f) of that Act, that as from 23 November 2009 Kim Francis Hunter holds all his beneficial interest in the property 53 Seaview Street, Balgowlah, (Folio identifier 22/1/165048) on trust for Kim Lee Hunter and that such beneficial interest did not vest in the respondent at the commencement of the bankruptcy of Kim Francis Hunter.”
Order 5 in the application is:
“An order that the respondent provide a withdrawal of caveat AG154375, registered on the title of 53 Seaview Street Balgowlah (Folio identifier 22/1/165048) to the applicant’s solicitor, within 7 days of the date of this order.”
History
The history of this matter can be gleaned from the affidavits of Kim Lee Hunter, filed on 1 March 2013, and Kim Francis Hunter, filed on 1 March and 22 April 2013. Put shortly, the Hunters were married on 5 November 1977 and formally separated on 23 November 2009. Mr Hunter was a businessman who ran the business known as Indulgence, a catering business. Ms Hunter is a solicitor.
When the parties separated, they drew up a financial agreement. It was in a handwritten form, but it was signed by both parties and dated. It provided for a division of their joint property so that Mr Hunter got the business, Ms Hunter got the matrimonial home at Seaview Street, Balgowlah and two motor vehicles; she retained her share in her legal practice and the personal effects at the home. Mr Hunter kept his superannuation and some shares. By clause 2 of the agreement, Mr Hunter transferred all his right title and interests as joint tenant in 53 Seaview Street Balgowlah to K.L. Hunter and agreed to sign all and any documents, including a Real Property Act transfer, and do all things necessary to effect registration of such transfer.
The parties separated, but no formal steps were taken to put into effect the agreement until 14 March 2011 when they signed a financial agreement under s.90C of the Family Law Act 1975 (Cth). The effect of this document was to formalise the agreement that had been made in 2009; however, by this time, Mr Hunter was in serious financial strife, and indeed, a sequestration order was made against him on 16 March 2011. It would appear that the petitioning creditor had nominated a trustee, who is Mr Geoffrey Phillip Reidy, the respondent in these proceedings.
On 12 October 2011 the National Australia Bank commenced proceedings against Mr and Ms Hunter seeking possession of the Seaview Street property, claiming that it stood as security for a mortgage facility, more particularly described in the statement of claim. Ms Hunter was named as the second defendant, and it was alleged that she was a party to the mortgage and the loan agreement upon which they were being sued. It would appear that by this time Mr Reidy had either become registered as the proprietor of a half interest in the Balgowlah property, or had had a caveat placed over the title to protect his interest as the person to whom the bankrupt’s interest vested pursuant to the Act.
On 18 October 2011 Mr Reidy wrote to the National Australia Bank, informing them that he did not wish to be joined as a defendant in the possession proceedings, nor did he intend to disclaim his interest in the property. However, that decision changed. On 16 February 2012, by consent, an order was made in the following form:
“CONSENT JUDGMENT FILES (sic) 16 FEBRUARY 2012
By Consent as between the plaintiff and the first defendant:
1. Judgment for possession of the whole of the land comprised in Certificate of Title, folio identifier 22/1/165048 and known as 53 Seaview Street, Balgowlah Heights in the State of New South Wales. “
Copies of the consent judgment and order are found as annexures to the affidavit of Mr Kim Lee Hunter of 1 March 2013.
Ms Hunter has defended the proceedings brought by the bank, which are due to be heard on 30 April 2013. It is not necessary to go into her grounds of defence in these proceedings, but it is necessary to note that she raised with the bank the fact that, in her view, the trustee had no right to consent to the judgment that he did because she was the equitable owner of the whole of the property. The trustee had no right, title or interest therein which would have allowed him to take the steps that he did.
When the bank declined to accept Ms Hunter’s submission, she took out a Notice of Motion in the Supreme Court proceedings that was heard on 11 February 2013 and determined by Slattery J on 18 February 2013. His Honour’s judgment has been of great assistance to this court in coming to the conclusions that it has in relation to this matter. A copy of his judgment: National Australia Bank Limited v Kim Francis Hunter & Anor [2013] NSWSC 71 is attached to Ms Hunter’s affidavit of 1 March 2013.
His Honour noted at [28] that the decision as to whether the trustee had authority to sign the consent judgment depended upon whether the property is property of the bankrupt that vested in the trustee under section 58 of the Act. His Honour also noted the property that vests in the trustee does not include property in respect of which the bankrupt is, himself, a trustee.
The ratio of Slattery Js decision was that the Supreme Court of New South Wales had no jurisdiction to make any orders of the type requested by Ms Hunter in respect of the trustee’s action. At [36] his Honour noted:
“For the Hunters to succeed on this Motion the Court would have to "declare...against the title of the trustee" to the Property. The Hunters cannot succeed without this Court finding that Mr Hunter's half share in the Property did not vest in the Trustee on Mr Hunter's bankruptcy. For that reason their Motion is an application which Bankruptcy Act, s 31(f) makes clear, falls within the exclusive jurisdiction of Bankruptcy Acts 27(1) courts and cannot be determined by this Court. It then follows, in my view that the Hunters cannot now establish that the Trustee's signing the Consent Judgment was "irregular" within UCPR, r 36.15 on the basis that the Trustee had no authority to sign it..”
At [38], his Honour provided Ms Hunter with his views as to how she could challenge the decision of the trustee. That was by bringing the very proceedings that are now before me. At [40] his Honour obiter made some observations upon Ms Hunter’s claim:
“The contest between Ms Hunter and the Trustee must also be distinguished from the contest between the Hunters and the Bank. As to the contest between Ms Hunter and the Trustee, it is not necessary to forecast her prospects. But perhaps it may be observed that Ms Hunter may have an arguable case against the Trustee arising out of the November 2009 informal property settlement. Bankruptcy Act, s 123(6) protects from invalidity dispositions and assignments by a bankrupt "executed, made or incurred by the debtor before the day in which the debtor becomes a bankrupt, under or in pursuance of the maintenance agreement or maintenance order". The Bankruptcy Act also saves from invalidity, through s 123, conveyances, transfers or assignments for valuable consideration. It would appear to be arguable upon the face of the November 2009 settlement that each of the parties both gave and received consideration for their respective promises, which were part of a give and take arrangement to achieve final property resolution on separation. Upon bankruptcy the trustee is generally bound by the equities which affect the bankrupt. So if a third party has an equitable interest in property, when it passes to the Official Trustee it is "clogged with all the equitable conditions which attach to it": Whyte v Williams [1903] 29 VLR 69 per Madden CJ at 81 and Corke v Corke [1994] FCA 944; (1994) 48 FCR 359 at 365. As Ms Hunter arguably provided consideration to Mr Hunter for the agreement to transfer his half interest in the Property to her, then her equitable interest may be enforceable against the Trustee, and this case may be distinguishable from cases such as Corke v Corke [1994] FCA 944; (1994) 48 FCR 359, where such enforcement was not available. The November 2009 agreement is in any event outside the relation back period for a bankruptcy commencing in October 2010, and it may perhaps support the transfer of an equitable interest in the Property to Ms Hunter. But I express no final view about that question. It is a matter for another Court to determine upon much fuller evidence than is now before this Court.”
Discussion
Whilst this court is not bound by obiter views expressed in the Supreme Court of New South Wales, those views must, of course, be given very serious consideration when the question to be determined is the one addressed by the Supreme Court Justice. The affidavits which have been put before me show, with some clarity, that the agreement made in 2009, at a time when it would appear Mr Hunter’s financial position was sound, has been put into effect. In the affidavit of 21 April 2013 he shows how he received in cash or equivalent some $537,945.77 as part of his share of the joint property under the agreement. He also received Ms Hunter’s shares in the business which he valued at some $300,000 plus at the time.
We therefore have a situation wherein a document that complies with all the provisions of s.54A of the Conveyancing Act 1918 (NSW) to create an equitable interest in the property came into existence some two years prior to the bankruptcy and, so far as this court is aware, in circumstances that show no hint of a conveyance at an undervalue or a conveyance made to defeat creditors of the type referred to in ss.120 and 121 of the Act.
As Slattery J says, the effect of the document would be to cast Mr Hunter as a bare trustee of his share of the property for Ms Hunter and the property of which he was bare trustee would not be property in which his creditors would have any interest and thus, not property which would vest in his trustee. The court having come to this conclusion, noting always that the trustee neither consents nor opposes the orders requested, believes that it follows that it should make the orders sought so that Ms Hunter can take what is rightfully hers and defend with such strength as she can muster the proceedings brought by the National Australia Bank.
An application under s.178 must be made within 60 days after the date on which the person became aware of the trustee’s act or omission, but the court has power under s.30(1)(b) to make orders as it considers necessary for the purposes of carrying out or giving effect to the Act, and by s.31(1)(f) to extend time. In this particular case the decision of the trustee was put into effect on 7 March 2012 and almost a year has passed. But for most of that time the applicants were seeking that the trustee voluntarily abandon his claim to the property and when he did not do so, sought orders from the Supreme Court where they believed appropriate relief could be given. I think that it is in order for this court to extend the time under s.178(2) of the Act in the circumstances that I have described.
I should also make it clear that in making the declarations and orders that I propose to make I have made no prejudicial comment upon the actions of the trustee. In his role as protector of the interests of the unsecured creditors of the bankrupt the trustee is entitled to require a matter such as this to be established to the satisfaction of a court and that is what has been done.
In those circumstances, I propose to make a declaration under s.178 and s.31(1)(f) of the Bankruptcy Act 1966 (Cth) that the respondent had no authority to sign the consent judgment on behalf of the bankrupt on 13 February 2012 in Supreme Court proceedings of New South Wales 2011/356806. I propose to make an order under ss. 30 and 31(1)(f) extending the time for making this application until 1 March 2013. I propose to make a declaration that as from 23 November 2009, Kim Francis Hunter holds all his beneficial interest in the property at 53 Seaview Street, Balgowlah, New South Wales, Folio identifier 22/1/165048 on trust for Kim Lee Hunter and that such beneficial interest did not vest in the respondent at the commencement of the bankruptcy of Kim Francis Hunter. I propose to make an order that the respondent provide a withdrawal of caveat AG154375 registered on the title of 53 Seaview Street Balgowlah (Folio identifier 22/1/165048) to the applicant’s solicitors within seven days of the date of this order.
I propose to make an additional order to those sought by the applicant to the effect that the trustee take all steps necessary to affect the transfer of the property at 53 Seaview Street, Balgowlah to Kim Lee Hunter and that any costs of or relating to the transfer be paid by Kim Lee Hunter. These orders are in addition to the orders made at the commencement of today’s hearing in accordance with the short minutes of order amended by me in brown, signed and placed with the papers.
I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Judge Raphael.
Date: 3 June 2013
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