McShanag v McShanag
[2023] FedCFamC2G 1209
•15 December 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
McShanag v McShanag [2023] FedCFamC2G 1209
File number: MLG 1739 of 2023 Judgment of: JUDGE FORBES Date of judgment: 15 December 2023 Catchwords: BANKRUPTCY - where property disclaimed by Trustees in bankruptcy - application for vesting of disclaimed property – where one tenant in common discharged liabilities and obligation of bankrupt - whether just and equitable to make order – orders made Legislation: Bankruptcy Act 1966 (Cth) s 133 Cases cited: Aprile v State of Queensland, in the matter of Leftwich [2021] FCA 471
Australia and New Zealand Banking Group Limited v State of Western Australia, in the matter of Aman [2022] FCA 191
Malhoul v State of New South Wales [2022] FCA 731
Division: Division 2 General Federal Law Number of paragraphs: 39 Date of hearing: 15 December 2023 Place: Melbourne Counsel for the Applicant: Ms Worsfield Solicitor for the Applicant: Robertson Hyetts First Respondent: No appearance Second Respondent: No appearance ORDERS
MLG 1739 of 2023 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: PAUL BRANDON MCSHANAG
Applicant
AND: LLOYD FRANCIS MCSHANAG
First Respondent
THE STATE OF VICTORIA (DEPARTMENT OF JUSTICE)
Second Respondent
ORDER MADE BY:
JUDGE FORBES
DATE OF ORDER:
15 DECEMBER 2023
THE COURT ORDERS THAT:
1.Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the one half share as tenant in common of the estate in fee simple for the property more particularly described in Certificate of Title Volume 12227 folio 312 being the property situated at and known as 197, 199, 201A Barker Street, Castlemaine, in the State of Victoria (the Property), disclaimed by Christopher John Palmer and Liam Thomas Bailey as trustees of the Bankrupt Estate of Lloyd Francis McShanag and currently registered in the name of Lloyd Francis McShanag, vest in the Applicant, with the effect that the Applicant shall become the sole registered proprietor of the Property subject to any charges over the Property (if any) imposed by statute.
2.Subject to these Orders, Order 1 will be effective from 19 January 2024.
3.A Respondent who opposes the making of the Order shall file and serve a response to the application and any supporting affidavit by no later than 4.00pm on 8 January 2024.
4.In the event a Respondent files a response opposing the application, Order 2 will be stayed pending the hearing and determination of the application.
5.A copy of these Orders shall be served by the Applicant upon the Respondents by no later than 21 December 2023.
6.No order as to costs.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE FORBES
INTRODUCTION
By an application filed on 26 September 2023, the applicant Paul Brandon McShanag seeks an order pursuant to section 133(9) of the Bankruptcy Act 1966 (Cth) (the Act) that any interest held by the first respondent, Lloyd Francis McShanag (the Bankrupt) in the property more particularly described in Certificate of Title Volume 12227 folio 312 being the property situated at and known as 197, 199, 201A Barker Street, Castlemaine, in the State of Victoria (the Property) vest in the applicant free of encumbrance.
The application is supported by:
(1)an affidavit of Paul Brandon McShanag sworn 25 September 2023; and
(2)an affidavit of Daniel Jones sworn 14 December 2023.
The application was heard by me on 15 December 2023. Ms Worsfield of counsel appeared on behalf of the applicant and, for reasons I will explain, there was no appearance on behalf of the respondents.
Having read and considered each of the supporting affidavits and the written and oral submissions made by counsel for the applicant, I am satisfied on the material before me that it is just and equitable for the Property to be vested in the applicant as proposed in the draft order which was provided to the Court prior to the hearing.
My reasons for being so satisfied are as follows.
BACKGROUND
The applicant is the sole owner and operator of McShanag's Pie Shop (the Bakery) which is located in Barker Street, Castlemaine. The bakery operates from the ground floor of the Property which is described in the application as incorporating 197, 199 and 201A Barker Street.
The applicant is 60 years old, has never married and has no children. He has lived and worked for most of his life in Castlemaine. The applicant has four sisters and one brother.
In or around 1979, when the applicant was aged about 16, the Castlemaine property and the Bakery were purchased by his parents. From the age of about 20, the applicant undertook a baker’s apprenticeship with his father and worked full-time at the Bakery. He has continued to do so for the last 40 years. The applicant’s siblings, including the Bankrupt, had no practical involvement in the bakery business and have pursued other careers and interests.
In or around 2002, the applicant’s father retired and the applicant purchased the Bakery from him. He leased the Bakery premises from his parents who retained ownership of the Castlemaine property. As mentioned, the Bakery has continued to operate under the applicant’s ownership.
Unfortunately, the applicant’s parents both passed away in 2020. They bequeathed the Castlemaine property to the applicant and the Bankrupt who became registered proprietors of it as tenants-in-common in equal shares on 1 April 2021. The applicant deposes that the property is currently valued at between $770,000 and $795,000.
The parents also bequeathed cash to each of the applicant’s sisters of an amount roughly equivalent to the value of the brothers’ interest in the Property.
Thereafter, the applicant and his brother operated a joint account which received the rent generated from the Castlemaine property, including rent the applicant continued to pay for the Bakery. Outgoings were also paid from the joint account, although the applicant deposes that he covered a number of expenses by himself.
In 2021, at the request of his brother Lloyd (prior to his bankruptcy), the applicant signed documentation that he believed had the effect of him guaranteeing a loan (Loan) to be borrowed from Mango Credit Pty Ltd (Mango) against a property purchase made by the brother in New South Wales. The applicant believed the loan was to be secured against the NSW property. However, for reasons which need not be explored in detail, the documents executed by the applicant in fact mortgaged his share of the Castlemaine property against the loan from Mango and the applicant was listed as a co-borrower with his brother. The applicant did not receive any funds from Mango and he did not benefit from the loan in any way.
On 8 November 2021, Christopher John Palmer and Liam Thomas Bailey were appointed as trustees to administer the estate of the bankrupt brother pursuant to a debtor’s position lodged by the Bankrupt.
On or around 20 June 2022, Mango commenced proceedings in the County Court of Victoria (proceeding No. CI-22-02349) (County Court proceedings) against both the applicant and the Bankrupt seeking possession of the Castlemaine Property. It was the issuing of those proceedings which caused the applicant to realise that he was a co-borrower of the loan to purchase the NSW property. The applicant deposes to believing that he had been mislead by the solicitors acting on the transaction.
The applicant defended the County Court proceedings, and issued a third-party claim against the solicitors who explained the transaction and witnessed the execution of the documents in connection with the loan. In his defence the applicant alleged that the mortgage on the loan was unenforceable as against him, that the lawyers had been negligent in witnessing the documents and by not properly explaining the nature and effect of the documents to him, and that the lawyers were liable for misleading and deceptive conduct.
The County Court proceedings were subsequently compromised after a lengthy mediation. On 9 June 2023 the parties’ compromise was recorded in executed terms of settlement (Terms of Settlement) which, among other things provided:
(1)for the applicant to pay Mango $512,500 to discharge its mortgage over the Castlemaine property;
(2)for the solicitors to contribute $100,000 to that payment; and
(3)for the applicant to pay $80,000 to ASCF Funding Solutions Pty Ltd to remove a caveat over the property which had been granted by the Bankrupt.
The trustees in bankruptcy did not appear in the mediation and were not parties to the Terms of Settlement. However, pursuant to clause 1 of the Terms of Settlement, the settlement itself was subject to the trustees agreeing to its terms, agreeing to disclaim their interest in the Castlemaine property and agreeing to do all things necessary to transfer the Property to the applicant.
The applicant also paid a second caveator, Logik Group Pty Ltd (Logik) money to remove another caveat that the Bankrupt had granted over the Property.
At all material times, and again in his affidavit filed in support of this application, the applicant deposes that the caveats were not known to him.
On 5 July 2023, the trustees disclaimed their interest in the Property in accordance with the Terms of Settlement. A formal Notice of Disclaimer dated 5 July 2023 is annexed to the applicant’s affidavit. The applicant contends that by reason of that notice, the Bankrupt’s share of the Castlemaine property is now disclaimed property within the meaning of section 133 of the Act.
By reason of his status as a person claiming an interest in, or under a liability not discharged by the Act in respect of, the disclaimed property, the applicant asserts standing in accordance with s 133(9) of the Act to bring this application.
CONSIDERATION
Section 133(9) of the Act provides as follows:
“(9)The Court may, on application by a person either claiming an interest in, or being under a liability not discharged by this Act in respect of, disclaimed property, and after hearing such persons as it thinks fit, make an order, on such terms as the Court considers just and equitable, for the vesting of the property in, or delivery of the property to, a person entitled to it or a person in whom, or to whom, it seems to the Court to be just and equitable that it should be vested or delivered, or a trustee for that person.”
The applicant submits that it is just and equitable for the Court to vest the Bankrupt’s share of the disclaimed property in him.
By his application filed on 26 September 2023, the applicant seeks an order to give effect to that outcome. By reason of that order, he would become the sole registered proprietor of the Castlemaine property in which the bakery operates.
I am satisfied based on the evidence and submissions currently before the Court that the applicant is entitled to the relief sought.
The applicant has worked in or operated the bakery business in the previously encumbered property for over 40 years. It is clearly the source of his livelihood. He has paid a significant sum of money to compromise County Court proceedings and to discharge liabilities incurred by the Bankrupt.
Based on the Terms of Settlement and subsequent payments, the applicant has paid in the order of $600,000 to discharge a mortgage and caveats over the Property in respect of debts and obligations of the bankrupt tenant in common. Based on current valuations, the Bankrupt’s interest in the property is at best valued at around $400,000. The sums paid by the applicant comfortably exceed the value of any equity that the Bankrupt and his trustees might have claimed in the Property. It is entirely unsurprisingly that the Trustees were agreeable to disclaim their interest in the property having regard to the applicant’s half interest in the property and the payments made by him pursuant to the Terms of Settlement.
Counsel for the applicant drew my attention to Aprile v State of Queensland, in the matter of Leftwich [2021] FCA 471 and Malhoul v State of New South Wales [2022] FCA 731 as relevant examples of cases where the Court has made orders vesting property in a tenant in common who was responsible for discharging the mortgage over the whole of the property. In the present case, the applicant has similarly taken steps to discharge mortgages and other encumbrances over the property prior to making the application.
As to the technical requirements of section 133(9), Banks-Smith J noted in Australia and New Zealand Banking Group Limited v State of Western Australia in the matter of Aman [2022] FCA 191 at [47]:
“[47]Generally speaking, an applicant for vesting orders under s 133(9) should show that the application has been brought against and served upon the relevant Crown entity and any other person with a relevant interest in the proceeding, and that those parties have either not sought to appear in the proceedings, or that they do not oppose the vesting orders: Commonwealth Bank of Australia v State of Queensland, Re Hewton [2021] FCA 22 at [20(a)] (Derrington J). Similarly, notice of the application should be given to the trustee in bankruptcy: Hewton at [20(b)].”
I am satisfied that the application is valid and has been brought against those with a relevant interest in the proceedings. The Property and the applicant’s interest in the property have been properly identified.
The application seeking an order pursuant to section 133(9) has been served on the Bankrupt’s trustees and on the second respondent, the State of Victoria, in respect of whom the applicant seeks that the order be given effect by amendment to the Certificate of Title. I am satisfied on the affidavit of Mr Jones that each of the respondents has been served and are on notice of the application.
Neither of the respondents have filed an appearance, a response or other material in the Court. However, each of the respondents has separately written to the applicant’s solicitors indicating that they neither consent to nor object to the application. Copies of that correspondence are annexed to the applicant’s affidavit.
The trustees have disclaimed their interest in the Property and the State does not oppose the orders sought. At the hearing before me on 15 December 2023 neither of the respondents appeared. Whilst I am satisfied on the material filed by the applicant that the respondents have expressed a “neutral” position in relation to the application, and based on other evidence I anticipate they have no opposition to orders being made, I am mindful to remove any ambiguity. I propose to make an order to put their position beyond doubt.
DISPOSITION
Subject to the reservation below, I am satisfied on the evidence that it is just and equitable to make the orders sought by the applicant.
The respondents have not, for reasons explained, engaged in these proceedings.
Out of an abundance of caution, to satisfy the Court as to respondents’ position, I propose to make orders which delay the operation of the substantive order sought by the applicant for a period of approximately one month.
I will afford each of the respondents an opportunity to file a response to the application and any affidavit in support of their opposition. If either respondent opposes the application, the principal order will be stayed until they have been heard. In the event the respondents choose not to engage in the proceeding, the substantive order will operate from 19 January 2024.
The applicant does not seek any order for costs.
I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Forbes. Associate:
Dated: 15 December 2023
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