Maxwell-Smith v Donnelly (No 3)

Case [2011] FCA 1226

FEDERAL COURT OF AUSTRALIA

Maxwell-Smith v Donnelly (No 3) [2011] FCA 1226

Citation: Maxwell-Smith v Donnelly (No 3) [2011] FCA 1226
Parties: EUGENE MAXWELL-SMITH and INGE MAXWELL-SMITH v MAX CHRISTOPHER DONNELLY and S & E HALL PTY LTD
File number: NSD 198 OF 2004
Judge: NICHOLAS J
Date of judgment: 31 October 2011
Catchwords: BANKRUPTCY – application under s 179 of the Bankruptcy Act 1966 (Cth) – consideration of trustee’s refusals to reconvey property to former bankrupts in circumstances where trustee’s costs, charges and expenses of administration remain unpaid – application dismissed
Legislation: Bankruptcy Act 1966 (Cth) ss 154, 179
Cases cited: Maxwell-Smith v Donnelly (No 2) [2011] FCA 259
Maxwell-Smith v Donnelly [2011] FCA 523
Maxwell-Smith v Donnelly [2010] FCA 474
Re Gault; Gault v Law (1981) 57 FLR 165
Ferella v Official Trustee in Bankruptcy (2010) 188 FCR 68
Maxwell-Smith v S & E Hall, in the matter of Maxwell-Smith [2004] FCA 840
Maxwell-Smith v Donnelly [2005] FCA 332
Maxwell-Smith v Donnelly [2006] FCAFC 150
Date of hearing: 24 June 2011
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 37
Counsel for the Applicants The Second Applicant appeared in person and on behalf of the First Applicant
Counsel for the First Respondent: Mr BJ Skinner
Solicitor for the First Respondent: Church & Grace
Solicitor for the Second Respondent: The Second Respondent did not appear

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 198 of 2004
BETWEEN:

EUGENE MAXWELL-SMITH
First Applicant

INGE MAXWELL-SMITH
Second Applicant
AND:

MAX CHRISTOPHER DONNELLY
First Respondent

S & E HALL PTY LTD
Second Respondent

JUDGE:

NICHOLAS J

DATE OF ORDER:

31 OCTOBER 2011

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The application filed on 2 February 2011 is otherwise dismissed.

2.Order 2 made by Nicholas J on 25 March 2011 be varied so as to substitute “8C” for “8B”.

3.A writ of possession in respect of the property known as 8C Surf Circle, Tura Beach, New South Wales issue but not before 28 days from today. 

4.The application for a stay is dismissed.   

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 198 of 2004
BETWEEN:

EUGENE MAXWELL-SMITH
First Applicant

INGE MAXWELL-SMITH
Second Applicant
AND:

MAX CHRISTOPHER DONNELLY
First Respondent

S & E HALL PTY LTD
Second Respondent

JUDGE:

NICHOLAS J

DATE:

31 OCTOBER 2011

PLACE:

SYDNEY

REASONS FOR JUDGMENT

Background

  1. There are two principal matters outstanding in this long-running dispute between the applicants (Mr and Mrs Maxwell-Smith) and their former trustee in bankruptcy, Mr Max Donnelly (the trustee). The first arises out of Mr and Mrs Maxwell-Smith’s application for relief pursuant to s 179(1) of the Bankruptcy Act 1966 (Cth) (the Act) filed in court on 2 February 2011 (the application).  In my previous reasons for judgment delivered on 25 March 2011, I explained why most of the claims for relief…

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AGLC
Maxwell-Smith v Donnelly (No 3) [2011] FCA 1226
Case
[2011] FCA 1226
Decision Date

CaseChat Overview and Summary

Maxwell-Smith v Donnelly (No 3) involves an application by Mr and Mrs Maxwell-Smith under section 179 of the Bankruptcy Act 1966 (Cth) against Mr Donnelly, the trustee of their bankrupt estates. The applicants sought relief from the Court on the basis that the trustee had refused to reconvey property to them until their outstanding debts to the trustee were paid. This dispute came before the Federal Court of Australia, which was required to decide whether the trustee's actions were appropriate under the circumstances.

The primary legal issue was whether the trustee's refusal to reconvey the property was justified given the outstanding costs and charges related to the administration of the bankrupt estates. The Court considered the trustee's entitlement to retain the property until his claims were settled, as provided for under section 154(1)(b) of the Act. Additionally, the Court needed to determine if the trustee acted improperly by registering the title of the Jindabyne property in his name.

The Court found that the trustee's actions were in line with the provisions of the Bankruptcy Act and that it was both normal and proper for the trustee to register the bankrupts' interests in the property in his name. The Court also concluded that the trustee was open to discussions and negotiations regarding his entitlements, and his refusal to reconvey the property was justified until his claims were settled. The Court dismissed the application, noting that the trustee's position had been communicated to the applicants on multiple occasions.

The Court's final orders were that the application filed on 2 February 2011 be dismissed, with specific variations to a previous order and the issuance of a writ of possession for the Tura Beach property. The application for a stay was also dismissed.

Orders

Orders of the court

1. The application filed on 2 February 2011 is otherwise dismissed.

2. Order 2 made by Nicholas J on 25 March 2011 be varied so as to substitute “8C” for “8B”.

3. A writ of possession in respect of the property known as 8C Surf Circle, Tura Beach, New South Wales issue but not before 28 days from today.

4. The application for a stay is dismissed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

Background

Background to the litigation

Mr and Mrs Maxwell-Smith relied on parts of a number of affidavits, statements and other documents filed throughout the course of this proceeding. Counsel for the trustee did not take any formal objection to any part of the material relied upon by Mr and Mrs Maxwell-Smith but submitted that such material should be received by the Court subject to relevance. Having reviewed that material, it is readily apparent that some of it is not relevant to the issues to be determined but, rather, repeats arguments which Mrs Maxwell-Smith has previously put to this Court and which have been considered and dealt with in previous judgments. I should add that I have read all the material which Mrs Maxwell-Smith indicated she wishes to rely upon (including that referred to in the notice served by her dated 9 May 2011) some of which consists of affidavits made by the trustee as well as Mr and Mrs Maxwell-Smith back in 2004. Mrs Maxwell-Smith was cross-examined by counsel for the trustee. The facts On 15 September 2003, pursuant to a sequestration order of this Court, Mr Donnelly was appointed trustee to each of Mr and Mrs Maxwell-Smith’s bankrupt estates. Following the making of the sequestration order the trustee instructed solicitors to lodge caveats against the titles of properties in which Mr and Mrs Maxwell-Smith held an interest, being the Tura Beach property and the Jindabyne property (together, the properties). The Tura Beach property was an unencumbered property registered to Mr and Mrs Maxwell-Smith. Title to the Jindabyne property was registered to four individuals as joint tenants each holding an equal share in the property. Mr and Mrs Maxwell-Smith owned one half of the Jindabyne property and the remaining half was owned by two of Mrs Maxwell-Smith’s sons (the co-owners) each of whom had a one quarter share. In about January 2004, the trustee instructed his solicitors to cause Mr and Mrs Maxwell-Smith’s interests in the properties to be registered in his name. Nobody was living at the Jindabyne property at that time and it was apparently used, or intended to be used, as a holiday house for Mr and Mrs Maxwell-Smith’s family. On 10 February 2004, Mr and Mrs Maxwell-Smith filed an application to have their bankruptcies annulled which was served on the trustee by Mrs Maxwell-Smith on 27 February 2004. Following a hearing on 11 June 2004, Mr and Mrs Maxwell-Smith’s bankruptcy was annulled by Moore J on 2 July 2004: Maxwell-Smith v S & E Hall, in the matter of Maxwell-Smith [2004] FCA 840. In April 2004, Mr and Mrs Maxwell-Smith’s interests in the Jindabyne property were transferred into the trustee’s name. However, in his evidence to me the trustee said that at that time he was not aware that this had occurred as he did not have access to the certificate of title which he believed was required to be produced to the Land Titles Office in order for the transfer to be registered. The trustee said in his evidence to me that he became aware that he had been registered on the title to the Jindabyne property shortly after a further hearing before Moore J on 10 September 2004. I accept this evidence from trustee.

Evidence

Evidence Before The Court

The procedure for inquiry under s 179(1) of the Act has been described as involving a ‘two-stage’ process. First, the Court must be satisfied that it is appropriate to order an inquiry. Secondly, if the Court orders an inquiry, the inquiry must take place and the Court will thereafter make such orders as it thinks fit in the circumstances. The power to order an inquiry is discretionary and the Court will not ordinarily make an order for an inquiry unless it is satisfied that a proper case for one has been demonstrated: Re Gault; Gault v Law (1981) 57 FLR 165. The power to make orders under s 179(1) continues to operate after the bankrupt has been discharged: Ferella v Official Trustee in Bankruptcy (2010) 188 FCR 68 at [22]. The evidence Mr and Mrs Maxwell-Smith relied on parts of a number of affidavits, statements and other documents filed throughout the course of this proceeding. Counsel for the trustee did not take any formal objection to any part of the material relied upon by Mr and Mrs Maxwell-Smith but submitted that such material should be received by the Court subject to relevance. Having reviewed that material, it is readily apparent that some of it is not relevant to the issues to be determined but, rather, repeats arguments which Mrs Maxwell-Smith has previously put to this Court and which have been considered and dealt with in previous judgments. I should add that I have read all the material which Mrs Maxwell-Smith indicated she wishes to rely upon (including that referred to in the notice served by her dated 9 May 2011) some of which consists of affidavits made by the trustee as well as Mr and Mrs Maxwell-Smith back in 2004. Mrs Maxwell-Smith was cross-examined by counsel for the trustee. The facts On 15 September 2003, pursuant to a sequestration order of this Court, Mr Donnelly was appointed trustee to each of Mr and Mrs Maxwell-Smith’s bankrupt estates. Following the making of the sequestration order the trustee instructed solicitors to lodge caveats against the titles of properties in which Mr and Mrs Maxwell-Smith held an interest, being the Tura Beach property and the Jindabyne property (together, the properties). The Tura Beach property was an unencumbered property registered to Mr and Mrs Maxwell-Smith. Title to the Jindabyne property was registered to four individuals as joint tenants each holding an equal share in the property. Mr and Mrs Maxwell-Smith owned one half of the Jindabyne property and the remaining half was owned by two of Mrs Maxwell-Smith’s sons (the co-owners) each of whom had a one quarter share. In about January 2004, the trustee instructed his solicitors to cause Mr and Mrs Maxwell-Smith’s interests in the properties to be registered in his name. Nobody was living at the Jindabyne property at that time and it was apparently used, or intended to be used, as a holiday house for Mr and Mrs Maxwell-Smith’s family. On 10 February 2004, Mr and Mrs Maxwell-Smith filed an application to have their bankruptcies annulled which was served on the trustee by Mrs Maxwell-Smith on 27 February 2004. Following a hearing on 11 June 2004, Mr and Mrs Maxwell-Smith’s bankruptcy was annulled by Moore J on 2 July 2004: Maxwell-Smith v S & E Hall, in the matter of Maxwell-Smith [2004] FCA 840.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

At the time the trustee wrote to the co-owners of the Jindabyne property he was claiming $92,704.69 said to be due to him as at 31 July 2004. This claim (for the period 16 September 2003 to 31 July 2004) was eventually taxed and, as a result, a substantially reduced amount was allowed. Nevertheless, the extent of his entitlements for that and subsequent periods was not determined until my judgment of 25 March 2011 was delivered following a second taxation by the Registrar. Consideration In my judgment in this proceeding given on 25 March 2011 I dismissed the majority of the claims to relief included in the application: [2011] FCA 259 at paras [36] and [39]. However, I was not satisfied at that time that the matters raised in para six of the application had been previously dealt with by the Court and that it should also be dismissed: [2011] FCA 259 at para [38]. Having now had the opportunity to receive further material, I have come to the view that the balance of the application should be dismissed. The first matter concerns the alleged misconduct on the part of the trustee in causing the title to the Jindabyne property to be registered in his name. This matter was squarely raised before Wilcox J in the Maxwell-Smiths’ previous application for relief under s 179(1) of the Act: Maxwell-Smith v Donnelly [2005] FCA 332. His Honour recounted the Maxwell-Smiths’ argument at para [10] and made a finding that “it was both normal and proper for the trustee to seek to have the bankrupts’ interests in the Jindabyne property put in his name” at para [11]. This point was also the subject of submissions by counsel on appeal from Wilcox J’s decision before the Full Court: Maxwell-Smith v Donnelly [2006] FCAFC 150. I am not satisfied that it is either necessary or desirable for there to be any further inquiry into that matter. The next matter concerns the ongoing refusals of the trustee to reconvey the title to the Jindabyne property to Mr and Mrs Maxwell-Smith. It is apparent that by the time of Mrs Maxwell-Smith’s first request to reconvey the Jindabyne property the trustee had formed the view that the Maxwell-Smiths would strongly resist payment of his entitlements and that such resistance was likely to result in further costs being incurred. Therefore, the trustee considered that he should retain his right in the Jindabyne property, as provided for under s 154(1)(b) of the Act, until such time as his entitlements were paid. The trustee has maintained this position since the first request was made. His position has been communicated to Mr and Mrs Maxwell-Smith repeatedly. I do not think that the trustee can be fairly criticised for maintaining this position. I am satisfied that the trustee was at all relevant times open to discussions concerning the extent of his entitlements once Mr and Mrs Maxwell-Smith’s bankruptcies were annulled. I am also satisfied that he was also open to negotiate a significant reduction in the amount of his claim in order to finalise his administration and thereby enable Mr and Mrs Maxwell-Smith to reacquire title to the properties. The notion that the trustee could have submitted a “final account, properly taxed by the appropriate authorities” following which he would then be paid sounds simple enough but was complicated by the existence of the torrent of litigation in which the trustee was about to become involved.