Lucan as Trustee of the Bankrupt Estate of Tomic v Tomic
[2021] FCCA 831
•28 April 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Lucan as Trustee of the Bankrupt Estate of Tomic v Tomic [2021] FCCA 831
File number(s): SYG 2118 of 2020 Judgment of: JUDGE CAMERON Date of judgment: 28 April 2021 Catchwords: BANKRUPTCY AND INSOLVENCY – application for declaration of trustee in bankruptcy’s interest in bankrupt’s real property – whether application for relief against non-bankrupt co-owner of property constitutes part of the same “matter” – Court’s power to appoint under a State Act a trustee for sale of co-owned property. Legislation: Bankruptcy Act 1966 (Cth), ss 30, 153A
Property Law Act 1958 (Vic), ss 228, 232
Judiciary Act 1903 (Cth), s 79
Federal Circuit Court Rules 2001 (Cth), r 11.02
Cases cited: Coshott v Prentice (2014) 221 FCR 450
Pekar v Holden (Trustee) [2017] FCA 596
Number of paragraphs: 25 Date of last submissions: 18 December 2020 Date of hearing: On the papers Place: Sydney Counsel for the Applicant: Mr J. K. Raftery Solicitor for the Applicant: Roser Lawyers Counsel for the Respondents: Ms K. Lim ORDERS
SYG 2118 of 2020 BETWEEN: AARON KEVIN LUCAN AS TRUSTEE OF THE BANKRUPT ESTATE OF GEORGE TOMIC
Applicant
AND: VESNA TOMIC
Respondent
ORDER MADE BY:
JUDGE CAMERON
DATE OF ORDER:
28 APRIL 2021
THE COURT DECLARES THAT:
1.Half the beneficial ownership of the property at 39 Becket Street North, Glenroy Victoria 3046, also known as Certificate of Title Volume 11300 Folio 170, (“Property”) vested in the applicant upon the applicant’s appointment as trustee of George Tomic’s bankrupt estate on 14 November 2016.
THE COURT ORDERS THAT:
1.Within 30 days of the date of this order, the respondent deliver up vacant possession of the Property to the applicant.
2.If the respondent fails to comply with order 1 above, a writ of possession shall issue in the applicant’s favour forthwith.
3.Within 30 days of the date of this order:
(a)the respondent and any occupiers of the Property:
(i)vacate the Property; and
(ii)remove any goods, garbage, chattels and/or belongings from the Property that have not vested in the applicant;
(b)the respondent and any other occupiers of the Property must give the applicant:
(i)the certificate of title of the Property;
(ii)the keys to the Property; and
(iii)any alarm or access codes for the Property.
4.The applicant:
(a)is appointed trustee for the sale of the Property;
(b)may engage agents to provide services and expertise reasonably necessary or appropriate to assist in the preparation for sale and selling of the Property, including but not limited to real estate agents, valuers, cleaners, tradespeople, accountants, solicitors, conveyancers and auctioneers;
(c)may sell the Property, and have sole conduct of the sale of the Property;
(d)may sell the Property by private treaty, auction or tender;
(e)may, if the Property is sold by auction, decide whether or not to set a reserve price and, if so decided, the reserve price;
(f)may deal with the goods and chattels deemed abandoned at the Property at his sole discretion;
(g)may execute all documents, and take all necessary or appropriate steps on behalf of the respondent in relation to the sale of the Property, including but not limited to the execution of any:
(i)agreement with real estate agents, valuers, cleaners, tradespeople, accountants, solicitors, conveyancers, auctioneers or other agents;
(ii)any contract of sale;
(iii)nomination form;
(iv)any document under the Transfer of Land Act1958 (Vic);
(v)any notice relating to a contract of sale; and
(vi)any other document relating to the sale of the Property.
5.The applicant pay half of the proceeds of sale to the respondent.
6.The applicant may apply the remainder of the proceeds of sale as follows:
(a)payment of such amount as is necessary to discharge any mortgage or charge (in order of priority) registered on the title of the Property and any loan/s secured by that mortgage registered prior to the applicant’s appointment as trustee over the Property;
(b)payment of the agent’s commission and advertising expenses and legal expenses of the sale and transfer of the Property;
(c)payment of the applicant’s costs at the applicant’s firm’s hourly rates and disbursements incurred in selling the Property; and
(d)payment of the costs, remuneration, disbursements or any additional charges of the applicant in his capacity as trustee of the Bankrupt Estate of George Tomic to effect the annulment of the Bankrupt Estate pursuant to section 153A of the Bankruptcy Act 1966 (Cth) (“Act”).
7.The respondent do all things as may reasonably be required by the applicant, his selling agent or his solicitors for the purpose of achieving a sale of the Property with vacant possession, including but not limited to providing access to the Property for the purpose of a valuation or for viewing by potential purchasers.
8.The applicant’s costs of this proceeding be paid in priority in accordance with s.109 of the Act from the property of the Bankrupt Estate of George Tomic.
REASONS FOR JUDGMENT
Judge Cameron
INTRODUCTION
On 9 September 2020 the applicant, Mr Lucan, in his capacity as a trustee of the bankrupt estate of George Tomic sought from the Court in the exercise of its jurisdiction under the Bankruptcy Act 1966 orders pursuant to ss.228(2)(a) and 232 of the Property Law Act 1958 (Vic) that he be appointed a statutory trustee for the sale of a property in Glenroy, Victoria, described in Certificate of Title - Volume 11300 Folio 170, (“Property”).
The application in its original form referred to Vesna Tomic as first respondent and her brother, George Tomic (“Bankrupt”), as second respondent. No evidence of service on the Bankrupt was filed and in the applicant’s amended application he was no longer cited as a respondent. Although the issue was not discussed, it would appear that by virtue of r.11.02(1) of the Federal Circuit Court Rules 2001 (Cth), the Bankrupt has never been a party to this proceeding and thus the omission of his name from the amended application should be understood to be no more than a recognition of that fact.
FACTUAL BACKGROUND
The Property was co-owned by the Bankrupt and the respondent, Ms Tomic. It is not apparently subject to a mortgage. The Bankrupt’s interest in the Property vested in Mr Lucan as trustee following a sequestration order made in this Court on 14 November 2016. After a transmission application, the applicant was registered as tenant in common with Ms Tomic.
After having written to Ms Tomic on 21 November 2016 seeking her co-operation in the realisation of his interest in the Property, whether through her purchase of his interest or a sale of the entire property, the applicant wrote to the Bankrupt’s solicitors on 11 January 2017 advising an intention to sell the Property. He also wrote that day to Ms Tomic inviting her to offer to acquire his interest in the Property failing which he would move to sell it.
Then ensued correspondence concerning the assets and liabilities of the estate and the possibility that a compromise might be proposed by the Bankrupt. Absent such an offer being made, the applicant’s then-solicitors wrote to Ms Tomic on 27 April 2017 regarding the sale of the Property. On 17 November 2017 the Trustee’s current solicitors wrote to the Bankrupt and to Ms Tomic setting out an annulment calculation in respect of the estate and advising that if satisfactory arrangements were not made for the realisation of the applicant’s interest in the Property, the applicant would have to take steps to have the Property sold. No proposal in relation to the Property having been made by the Bankrupt or Ms Tomic in response to the letters of 17 November 2017, the applicant’s solicitors advised the Bankrupt and Ms Tomic by letters dated 20 December 2017 that they had been instructed to apply to the Court for vacant possession of the Property and for its sale. The Bankrupt and Ms Tomic were both advised that expense would be avoided if Ms Tomic were to consent to the Property’s sale.
On 21 February 2018 solicitors newly acting for the Bankrupt wrote to the applicant’s solicitors seeking information concerning the debts of the estate and indicating opposition to the proposal to sell the Property. The applicant’s solicitors replied on 23 February 2018 stressing the need to proceed with the administration of the estate and the options open to the Bankrupt and Ms Tomic regarding the Property and the realisation of the applicant’s interest in it. No reply to that letter was received and on 20 March 2018 the applicant’s solicitors wrote again to the solicitors for the Bankrupt advising that proceedings for vacant possession of the Property would be commenced shortly.
On 10 July 2018 the applicant’s solicitors wrote to the Bankrupt and Ms Tomic giving them notice to vacate the Property by 31 August 2018. On 13 December 2018 proceedings for possession and sale of the Property were commenced in the Victorian Civil and Administrative Tribunal (“VCAT”). After various interlocutory steps, the matter was struck out on 1 October 2019.
On 19 March 2020 the applicant’s solicitors wrote to Ms Tomic giving her notice to vacate the Property by 14 April 2020.
Ms Tomic deposed in her affidavit of 6 November 2020 that she and the Bankrupt had been devised the Property by their mother but since their mother died in 2012 she had maintained it and paid the rates and charges. She deposed that she suffered from post-traumatic stress disorder, depression, anxiety and also panic attacks and anxiety outside the home. Ms Tomic deposed that she had spoken to a local estate agent regarding selling the Property by public auction and agreed to co-operate with the agent in the sale process. She asked that the applicant’s “legal costs, agents commission, advertising expenses and legal expenses of the sale and transfer of the Property and any additional charges, be taken out of [the applicant’s] share of the proceeds” of sale of the Property.
The Bankrupt deposed in his affidavit of 5 November 2020 to the course events which led to his bankruptcy and to having left the Property some years earlier to the care of his sister. He deposed to the Property being important to Ms Tomic who suffered from poor psychiatric health.
ORDERS SOUGHT
In his amended application the applicant sought a declaration:
… that half the beneficial ownership of the property at 39 Becket Street North, Glenroy VIC 3046 also known as Certificate of Title Volume 11300 Folio 170 (Property) is vested in the Applicant upon the Applicant’s appointment as trustee of Mr George Tomic’s (Bankrupt) bankrupt estate on 14 November 2016, under Bankruptcy Act 1966 (Cth) (Act) ss 58 and 116.
and orders for:
a)vacant possession of the Property;
b)the appointment of him as trustee for sale of the property with related powers;
c)the application of the proceeds of sale to the discharge of the mortgage on the Property (of which there did not appear to be one), the expenses of the sale including the applicant’s fees, the “Payment of the costs, remuneration, disbursements or any additional charges of the applicant in his capacity as trustee of the Bankrupt Estate of George Tomic to effect the annulment of the Bankrupt Estate pursuant to s.153A of the Bankruptcy Act 1966 (Cth)”; and
d)division of the remaining balance between him and the respondent.
For her part, Ms Tomic sought orders to the effect that:
a)the applicant’s professional fees associated with the sale together with the expenses of the sale be paid from the Bankrupt’s share of the proceeds of sale; and
b)she receive one half of the sale price without deduction.
RELEVANT LAW
Sections 228 and 232 of the Property Law Act relevantly provide:
228 What can VCAT order?
(1)In any proceeding under this Division, VCAT may make any order it thinks fit to ensure that a just and fair sale or division of land or goods occurs.
(2) Without limiting VCAT's powers, it may order—
(a)the sale of the land or goods and the division of the proceeds of sale among the co-owners; or
(b)the physical division of the land or goods among the co-owners; or
(c)that a combination of the matters specified in paragraphs (a) and (b) occurs.
…
232 Other matters in VCAT orders
In any proceeding under this Division, VCAT may order—
(a)that the land or goods be sold by private sale or at auction;
(b)that the co-owners may purchase the land or goods at that sale or auction;
(c)in the case of a private sale, that the sale be at fair market price as determined by an independent valuer;
(d)in the case of an auction, that the reserve price is the reserve price set by VCAT;
(e)that an independent valuation of the land or goods take place;
(f)that a sale is to be completed within a specified time;
(g)that the costs of the sale be met—
(i)by one or more of the co-owners; or
(ii)from the proceeds of the sale;
(h)that the sale and division of the proceeds of sale or the physical division of the land or goods is subject to any terms and conditions which VCAT considers necessary or desirable in any particular case;
(i)in the case of land, that any necessary deed or instrument be executed and documents of title be produced or other things be done that are necessary to enable an order to be carried out effectively;
(j)in the case of land to which the Transfer of Land Act 1958 applies, directing the Registrar of Titles to make amendments to the Register within the meaning of that Act or do any act or make any recordings necessary to give effect to an order under this Division.
CONSIDERATION
The Court’s jurisdiction and power
The applicant has not suggested that he has any claim on Ms Tomic’s assets, whether under the Bankruptcy Act or otherwise, or that Ms Tomic has breached an obligation under that Act: see Coshott v Prentice (2014) 221 FCR 450 at 472 [95]. However, as was the case in Coshott v Prentice (see at 477 [122]):
a)the principal parties to the proceeding are tenants in common in equal shares of the property in issue;
b)the applicant’s claim for a declaration as to his interest in the Property as an asset to be brought to account in the bankrupt estate is essential to the determination of his claim for orders for the sale of the Property;
c)the declaration and the orders for sale are dependent upon the applicant establishing his interest in the Property;
d)the declaration and the orders for sale are sought by the applicant in the discharge by him of his duties to bring to account and realise the Bankrupt’s assets;
e)the fact that the property is co-owned with a non-bankrupt person does not logically break the connection between the issues.
Those considerations lead to the conclusion that the application for the declaration and the orders for sale are part of the same dispute or matter.
The Court’s task is to quell the controversy between the parties and to that end it has jurisdiction under the Bankruptcy Act to deal with issues arising under that Act as well as accrued jurisdiction to determine those aspects of the matter that involve claims for relief under State laws. When a cognizable application to a court exercising federal jurisdiction, including an application engaging the accrued jurisdiction, seeks relief under a State law, s.79 of the Judiciary Act 1903 (Cth) picks up that State law and applies it as a surrogate federal law, thereby enabling that court to provide remedies otherwise afforded only under State law in the exercise of State jurisdiction: Coshott v Prentice at 475 [111]-[113].
In this matter, which is concerned with the applicant’s discharge of his duties under the Bankruptcy Act, the Court’s accrued jurisdiction and s.79 of the Judiciary Act operate to empower it to make orders under ss.228 and 232 of the Property Law Act, notwithstanding that that Act refers to VCAT and not to it: Coshott v Prentice at 475 [113], 476 [116] and 477 [120], [122]; Pekar v Holden (Trustee) [2017] FCA 596 at [46] – [47].
The expenses of a sale
The applicant opposed Ms Tomic’s prayer that her brother’s bankrupt estate bear the entirety of the expenses associated with the sale of the Property and submitted that there was no reason for one party to shoulder that burden.
I agree with the applicant’s submission that his conduct does not merit criticism. Indeed he has been patient and would appear to have exercised considerable forbearance. I also agree that there is no presumption that the party commencing the proceeding ought to be liable for the costs of the sale. However, I do not agree that there is no reason for the Court to order that one party be solely responsible for the costs of the sale of the sale of the Property as he submitted. I note that this was the outcome in Pekar v Holden (Trustee) [2017] FCA 596.
It must be accepted that it is only the applicant who seeks the sale of the Property and that Ms Tomic is an unwilling vendor. The fact that she has been unsuccessful in preventing the sale may sound in costs but it is fair to say, based on the evidence, that Ms Tomic is most unlikely to derive any practical benefit from the sale of the Property which has been her home for many years, whereas the parties who will benefit are the Bankrupt’s estate and, through it, the Bankrupt’s creditors. If those interests wish to realise the asset in question then they should be willing to pay what it takes to achieve that end.
I acknowledge that one day Ms Tomic or her heirs would probably have had to realise her share of the Property, that the expenses of sale are almost a necessary incident of real property ownership, that the expenses of sale have to be incurred at some time and that there would ordinarily be no reason not to bear them now if they have to be borne at some point. However, Ms Tomic’s personal circumstances persuade me that she is unlikely to have sought to sell the property in the foreseeable future or to have shouldered those expenses and that to deduct expenses of sale from her share of the proceeds of sale would be materially adverse to her financial situation.
In the circumstances, I conclude that the expenses of the sale should be borne entirely by the Bankrupt’s estate.
The expenses of effecting an annulment of the bankruptcy
Ms Tomic submitted that:
… Coshott v Prentice establishes that costs and professional fees of the trustee in bankruptcy is not to be paid from proceeds of sale referable to the half-share interest of the non-bankrupt co-owner (being the First Respondent). The trustee’s fee can be taken only from the bankrupt estate of George Tomic. (references omitted)
Ms Tomic noted in that regard that s.30 of the Bankruptcy Act, which invests this Court with jurisdiction under that Act, does not empower it to interfere with her property rights and the applicant has against her, as the co-owner of the Property, the same rights as her brother had before he became bankrupt: Coshott v Prentice at 473 [100]. The consequence of that was that the Court had no jurisdiction to make an order the effect of which was that she had to part with a portion of her share of the proceeds of sale to fund his work as trustee of the Bankrupt’s estate.
In his written submission in reply the applicant eschewed any claim to payment of his fees from Ms Tomic’s share of the proceeds of sale.
Should the property be sold?
The parties agreed that the Property should be sold, although they sought different orders in that regard. The orders proposed by the respondent provide for further consultation and negotiation between the parties as well as for Ms Tomic to continue to reside in the Property until seven days before settlement of the proposed sale. I am not persuaded that Ms Tomic’s proposals are likely to be practical or efficient. Consequently, the orders to be made will be based on those proposed in the amended application.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Cameron. Associate:
Dated: 28 April 2021
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