National Australia Bank Limited v Kim Francis Hunter & Anor
[2013] NSWSC 71
•18 February 2013
Supreme Court
New South Wales
Medium Neutral Citation: National Australia Bank Limited v Hunter & Anor [2013] NSWSC 71 Hearing dates: 11 February 2013 Decision date: 18 February 2013 Jurisdiction: Common Law Before: Slattery J Decision: Defendants' notice of motion dated 20 November 2012 is dismissed. The consent judgment for possession of the whole of the subject Property, which was entered on 7 March 2012 is not set aside. Directions made for any further judgment on issues of costs.
Catchwords: PROCEDURE - Judgments and orders - consent judgment for possession of Real Property Act land signed on 7 March 2012 - First Defendant's Trustee in Bankruptcy executes consent judgment - First and Second Defendant are husband and wife - First Defendant executes transfer of property to Second Defendant before Consent Judgment - but transfer not registered - First and Second Defendants seek to set aside judgment under UCPR, rr 36.15 and 36.16 - whether judgment entered irregularly after service of the Statement of Claim only on the trustee in bankruptcy - whether the form of judgment for possession was irregular, such that it should in the Court's discretion be set aside - HELD - no requirement to serve the First Defendant with legal process in respect of proceedings commenced after his bankruptcy - no irregularity in the form of the judgment for possession is shown - BANKRUPTCY - bankruptcy courts - jurisdiction and powers of Court - first defendant bankrupt and Trustee appointed to his estate - whether the First and Second Defendant's motion to set aside the Consent Judgment requires the Court to determine the Trustee's authority to sign the March 2012 consent judgment, and in turn, the question of whether the First Defendant's interest in the subject property vested in the Trustee - whether the exclusive jurisdiction of the Federal Court of Australia and the Federal Magistrates Court in bankruptcy requires either of those Courts to determine that issue of authority rather than this court - HELD - the issues for determination must be decided within the exclusive jurisdiction in bankruptcy conferred by Bankruptcy Act 1966 (Cth) section 27 on the Federal Court of Australia and the Federal Magistrates Court. Legislation Cited: Bankruptcy Act 1966 (Cth)
Family Law Act 1975 (Cth)
Real Property Act 1900 (NSW)
Uniform Civil Procedure Rules 2005, rr 36.16 or 36.15Cases Cited: ANZ Banking Group Limited v Donnelly [2012] NSWSC 1615
Broadway Credit Union Limited v Bellamy [2000] NSWSC 778
Charan v Gleeson [2010] FMCA 703
Corke v Corke (1994) 48 FCR 359
Green v Schneller (2001) 189 ALR 464
Masters v Cameron (1954) 91 CLR 353
Mitrovic v Koren [1971] VR 479
National Australia Bank & Anor v The State of Victoria & Ors [2010] FCA 1230
Nullagine Investments v Western Australian Club (1993])177 CLR 635
Scott v Bagshaw (2000) 99 FCR 573
Sutherland v Brien (1999) 149 FLR 321
Whyte v Williams [1903] 29 VLR 69Category: Interlocutory applications Parties: Plaintiff/Respondent:- National Australia Bank Limited
First Defendant/Applicant:- Kim Francis Hunter
Second Defendant/Applicant:- Kim Lee HunterRepresentation: Counsel:
Plaintiff/Respondent:- B. Koch
First & Second Defendants/Applicants:- P.G. Cutler
Solicitors:
Plaintiff/Respondent:- Lisa Gaye Dorman, Turks Legal
First & Second Defendants/Applicants:- Kim Lee Hunter, Hunter Flood Lawyers
File Number(s): 2011/356806
Judgment
By a notice of motion filed on 21 November 2012 the First Defendant (Mr Kim Francis Hunter) and the Second Defendant (Mrs Kim Lee Hunter) move to set aside a consent judgment this Court entered on 7 March 2012 ("the Consent Judgment") in these proceedings. The National Australia Bank Limited ("the Bank") brought this action against Mr and Mrs Hunter.
The Consent Judgment in the Bank's favour is "for possession of the whole of the land comprised in the Certificate of Title" for a property in Seaview Street, Balgowlah Heights (NSW) ("the Property"). Mr Hunter was a bankrupt at the time of the Consent Judgment. Mr Hunter's trustee in bankruptcy, Mr Geoffrey Phillip Ready ("the Trustee"), assumed he had the legal authority to consent to the judgment, so he signed it.
There are a few principal events in the chronology of this case. As early as 1992 Mr and Mrs Hunter mortgaged the Property to the Bank. The Property is held under the Real Property Act 1900. From 1992 this mortgage was security: (1) for three loans the Bank granted to the Defendants, and to their related corporate entities; and (2) for Mr and Mrs Hunter's guarantees of those loans. In late 2010 and in 2011 the Bank cancelled all the loans for alleged defaults and demanded full repayment of its advances. But the Defendants and their corporate entities failed to repay the Bank. At the suit of another creditor Mr Hunter was made bankrupt on 16 March 2011. The Trustee was appointed the following day, 17 March 2011.
Mr and Ms Hunter married in November 1977 but they separated in November 2009. Upon their separation in November 2009 they reached and executed an informal mutual agreement for matrimonial property settlement. Under that informal agreement Mr Hunter's share of the Property was to be transferred to Mrs Hunter as part of a wider group of mutual transactions. In apparent performance of this informal agreement, Mr Hunter signed a Real Property Act Transfer of the Property. But the Transfer was neither lodged for registration under the RealProperty Act, nor registered. In March 2011, shortly before the Trustee was appointed, Mr and Mrs Hunter also executed a more formal agreement under Family Law Act 1975 (Cth), s 90C for their matrimonial settlement. That agreement obliged the parties to do everything necessary to transfer Mr Hunter's interest in the Property to Mrs Hunter.
The Bank commenced these proceedings by Statement of Claim filed on 8 November 2011. It sought the relief for possession of the Property ultimately obtained in the 7 March 2012 Consent Judgment. By the end of 2011 the Statement of Claim had been served on the Trustee and on Mrs Hunter. On 13 February 2012 the Trustee signed the form of the Consent Judgment at the Bank's request. After entry of the Consent Judgment on 7 March 2012 the Bank served the Statement of Claim on Mr Hunter. This was done pursuant to substituted service orders.
In January 2012 Mrs Hunter filed her Defence (which she subsequently amended in April 2012) and her Statement of Cross-Claim. In April 2012 the Bank filed its Defence to Cross-Claim. In May 2012, over 2 months after the Consent Judgment, Mr Hunter also filed a Defence. The matter is now listed for a 3 day hearing in the Common Law Division of the Court in April 2013. Both the Bank and Mrs Hunter are ready to conduct that hearing.
The Consent Judgment refers to the whole of the Property. The Bank does not contest that Mrs Hunter holds a one half interest in the Property. Mr and Mrs Hunter are shown as registered proprietors of the Property as joint tenants. But as a result of Mr Hunter's bankruptcy and the Trustee's appointment Mrs Hunter and the Trustee now each hold a half interest in the Property as tenants-in-common: Mrs Hunter was neither asked to nor gave her assent to the Consent Judgment before it was entered. The Consent Judgment neither binds her, nor her half of the Property.
The Parties' Submissions
The Defendants submit that the Consent Judgment should be set aside under Uniform Civil Procedure Rules ("UCPR") rr 36.16 or 36.15. They advanced the following submissions in support of this contention: (1) Mr Hunter was never personally served with the Statement of Claim; (2) the Trustee had no authority to consent to the Consent Judgment, because the Property was not beneficially owned by Mr Hunter at the time the Trustee was appointed, and did not vest in the Trustee, as Mr Hunter held the Property on trust for Mrs Hunter as a result of the property settlement; (3) Mrs Hunter will be prejudiced, by being denied the benefit for which she bargained under the matrimonial property settlement if the Consent Judgment is not set aside; and, (4) the Bank will not be prejudiced by the setting aside of the Consent Judgment, as the matter was already set down for trial, Mr Hunter has filed a Defence and the arguments raised in his Defence are in substance the same as the arguments raised in Mrs Hunters' Defence.
The Bank opposes the relief sought. It submits in response that: (1) personal service on Mr Hunter was not required, as he has no standing in the proceedings, and the Trustee, who has standing, was served; and moreover, even if lack of service was an irregularity, no prejudice to Mr Hunter occurred as he has no standing in the proceedings; (2) setting aside the Consent Judgment will be futile as the Bank will immediately be able to obtain judgment on the same terms; (3) the defendants' current application was not brought within the reasonable time after the alleged irregularity occurred; (4) this Court has no jurisdiction to make a decision in relation to the Trustee's authority to sign the Consent Judgment, and such a decision would involve an application to review the Trustee's determination that he had authority to so act, for which review the Federal Court has exclusive jurisdiction under the Bankruptcy Act 1966 (Cth), but such application would in any event now be out of time; (5) alternatively, if this Court has jurisdiction to review the Trustee's determination, such decision is beyond the ambit of the current proceedings; (6) the defences Mr Hunter seeks to raise in these proceedings are vested in the Trustee and he cannot raise them personally; (7) the terms of the mortgage over the Property prevented Mr Hunter from creating any new interest in relation to the Property in favour of Mrs Hunter; (8) Mrs Hunter will not be prejudiced if the Consent Judgment is not set aside, as she remains entitled to defend the proceedings in relation to her share of the Property (as opposed to Mr Hunter's share which is claimed to be transferred to her); and, (9) the Bank will be prejudiced if the Consent judgment is set aside, as it currently has enforceable rights against Mr Hunter's estate.
The plaintiff's Motion dated 20 November 2012 to set aside the Consent Judgment principally relies upon Uniform Civil Procedure Rules, r 36.15(1), which provides that "a judgment or order of the court in any proceedings may, on sufficient cause, be shown, be set aside by order of the court, if the judgment was given or entered or the order was made irregularly, illegally or against good faith". Mr and Mrs Hunter contend, on a variety of grounds, that the Consent Judgment was entered "irregularly".
Analysis of Issues Raised
The issues principally turn upon the question whether the Trustee had authority to give his assent to the Consent Judgment. Once that issue is resolved, so are many of the others. For example Mr and Mrs Hunter complain that Mr Hunter was never personally served with the Statement of Claim. It was accepted by both sides in argument that if the Trustee had authority to assent to the Consent Judgment, that the Trustee was served with a Statement of Claim and there would, in those circumstances, be no need for Mr Hunter to be served, as he had no capacity to act in place of the Trustee. Moreover, issues such as whether the Bank or Mr and Mrs Hunter would be prejudiced by the Consent Judgment will be resolved once it is determined whether or not the Consent Judgment was regularly entered by the Bank dealing with the Trustee. So these reasons deal with the issues in the following order:
(a) Was the Consent Judgment regularly entered under the Trustee's signature rather than under Mr Hunter's signature?
(b) Was there any other irregularity in the entry of the judgment warranting it now being set aside?
(a) The Authority of the Trustee
The Hunters argue that the Trustee had no legal authority to deal with Mr Hunter's interest in the Property when he signed the Consent Judgment in March 2012. The Bank disputes that contention, arguing that Mr Hunter's interest in the Property vested in the Trustee upon Mr Hunter's bankruptcy and that the Trustee thereafter had exclusive authority to deal with that interest, and that he, not Mr Hunter, appropriately signed the Consent Judgment. The resolution of this question turns on the construction of the provisions of the Bankruptcy Act 1966 (Cth) and authorities marking the extent of the federal jurisdiction in bankruptcy.
The Hunters' authority argument commences with more facts. Mr and Mrs Hunter made an informal and then a formal agreement for Mr Hunter to dispose of his half interest in the property to Mrs Hunter. After a lengthy marriage Mr and Mrs Hunter separated in November 2009. She practices as a solicitor with Hunter Flood Lawyers, the solicitors acting for the Hunters in these proceedings. She crafted an informal agreement, dated 23 November 2009, on their separation. That agreement, entitled "Property Settlement Between Kim Francis Hunter and Kim Lee Hunter", provides for practical division of their matrimonial property. Under this informal agreement Mr Hunter would take and be responsible for: a patisserie business, a family company, Indulgence Hunter Pty Limited, the net proceeds of sale of a unit in North Sydney, superannuation funds, personal effects; and he would have to meet some of the couple's personal loan obligations. Mrs Hunter would take and be responsible for: two motor vehicles, an interest in a number of legal practices, some minor superannuation funds, some bequests, the furniture and contents of the Property and her personal effects; and she would be responsible for meeting a private debt and the mortgage payments over the Property.
The informal deed effected this division of assets and liabilities by providing for the transfer of title of a number of assets from one party to the other. Mrs Hunter agreed to transfer her interest in the family company, Indulgence Hunter Pty Limited to Mr Hunter. And Mr Hunter agreed to transfer his interest in certain BMW and Honda motor vehicles to Mrs Hunter.
Then they agreed to transfer Mr Hunter's interest in the Property. Mr Hunter formally agreed in the following terms to that transfer:
"KF Hunter hereby transfers all his right title and interest as joint tenant in [the Property at Balgowlah] to pay KL Hunter and agrees 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 agreed to give further effect to this informal agreement: by further agreeing "to do all and any other acts and sign any other documents to give effect to the above properties settlement"; and, "to document the within property settlement in a formal family law agreement". They did both.
There is no suggestion in these proceedings that this was not an authentic document. It has a ring of authenticity to it; being a practical attempt to capture a moment of consensus before a parting couple went their separate ways. Subject to the operation of the Family Law Act 1975 in relation to property settlements, the November 2009 informal agreement would appear on its face to effect between Mr and Mrs Hunter an agreement which the parties wished to make immediately binding, although to be documented later: falling within the first class of Masters v Cameron (1954) 91 CLR 353 at 360 agreements, where the parties intended to be immediately bound to the performance of their bargain, having reached finality in all the terms.
The parties did formalise their agreement later. But it took them some time to do so. Mr Hunter's impending bankruptcy perhaps seemed to have spurred them into action. On 14 March 2011 Mr and Mrs Hunter executed a document entitled "Financial Agreement under s 90C of the Family Law Act 1975". This March 2011 formal agreement was made just two days before Mr Hunter was made bankrupt on a creditor's petition in the Federal Magistrates Court, on 16 March 2011. The sequestration order notes "that the date of the act of bankruptcy is 22 October 2010", which act of bankruptcy was non compliance with a bankruptcy notice. Thus, Mr Hunter's act of bankruptcy occurred after the separation and the making of the 23 November 2009 informal agreement, but long before the 14 March 2011 formal agreement was executed.
The March 2011 formal agreement essentially reflected the terms of the earlier informal agreement, thereby somewhat confirming the parties' earlier intentions to enter into a binding informal agreement in November 2009. The March 2011 formal agreement provided in clause 4(a): that Mr Hunter "shall do all acts and things and sign all documents necessary to transfer Kim Lee Hunter the right title interest in the real property situated at [the Property] at the expense of Kim Lee Hunter"; and in clause 4(b), that Mrs Hunter "shall assume all liability for and indemnify Mr Hunter against payments for the mortgage debts incurred over the matrimonial property". This formal agreement appears to conform with the formal requirements for a binding agreement under Family Law Act, s 90C. It was accompanied by certificates of independent advice to Mr and Mrs Hunter made in conformity with Family Law Act, s 90G. And the formal agreement has annexed to it a full statement of the assets and liabilities of the couple and their agreed estimated value.
The Hunters' argument turns to the legal effect of these informal and formal property settlement agreements. They contend that those agreements result in Mr Hunter's half share in the Property not being "the property of the bankrupt" within Bankruptcy Act, s 5, upon his later bankruptcy. Not being the "property" of the bankrupt, their argument proceeds, the Property does not come under the Trustee's control; rather Mr Hunter is free to deal with it; and, Mr Hunter should always have been served with legal process before any judgment was entered against him.
The Hunters' argument requires analysis of Bankruptcy Act, ss 5, 58, 115 and 116. Bankruptcy Act, s 5 defines "the property of the bankrupt" in relation to a bankrupt, as "the property divisible among the bankrupt's creditors", subject to some non applicable exceptions.
Bankruptcy Act, s 58 provides for the vesting of property upon bankruptcy. The general rule is where a debtor becomes bankrupt "the property of the bankrupt, not being after acquired property, vests forthwith in the Official Trustee or...a registered trustee... of the estate of the bankrupt..." (Bankruptcy Act, s 58(1)(a)); and, after acquired property of the bankrupt vests as soon as it is acquired, in the Official Trustee or the registered trustee (Bankruptcy Act, s 58(1)(b)). The expression "after-acquired property" in relation to a bankrupt means property required by or devolving on the bankrupt after the date of bankruptcy: Bankruptcy Act, s 58(6). Moreover, nothing in s 58 "affects the right of a secured creditor to realise or otherwise deal with his or her security": Bankruptcy Act, s 58(5).
Bankruptcy Act, s 115 fixes the commencement date of a bankruptcy. Where a person, such as Mr Hunter, becomes bankrupt on a creditor's petition then the bankruptcy relates back to and commences at the time of the commission of the earliest act of bankruptcy within six months before the presentation of that creditor's petition: Bankruptcy Act, s 115(1). In Mr Hunter's bankruptcy, that date is fixed at 22 October 2010.
Bankruptcy Act, s 116 identifies the property of the bankrupt which is divisible among the bankrupt's creditors. In general terms s 116(1) provides that all property vested in a bankrupt at the commencement of the bankruptcy or which otherwise devolves upon the bankrupt and before the bankrupt's discharge, is "property divisible among the creditors of the bankrupt": Bankruptcy Act, s 116(1). But this statutory command is subject to an exception upon which the Hunters rely in this proceeding. Bankruptcy Act, s 116(2) relevantly provides that "sub-section (1) does not extend to the following property: (a) property held by the bankrupt in trust for another person".
With this factual and legal background, the Hunters' argument may be summarised in the following propositions: (1) Mr Hunter's legal interest in the Property is held as trustee for Mrs Hunter under either or both of the November 2009 or March 2011 matrimonial property settlement agreements; (2) Bankruptcy Act, s 116(2) applies to Mr Hunter's half interest in the Property as trustee, and it is therefore not property divisible among his creditors and so is not "the property of the bankrupt" in Mr Hunter's bankruptcy; (3) Mr Hunter's half interest in the Property does not vest upon Mr Hunter's bankruptcy in the Trustee under Bankruptcy Act, s 58(1) and therefore Mr Hunter retains his right to deal with the Property, which is unaffected by bankruptcy law; thus, (4) the Consent Judgment signed by the Trustee was "irregular" within UCPR, r 36.15 because it was entered without Mr Hunter having been served the originating process and with the assent of someone not authorised to act on Mr Hunter's behalf, both of which actions denied him procedural fairness.
The plaintiff Bank seeks to answer the Hunters' argument at two levels, saying: this Court does not have jurisdiction to determine the issues raised in their argument; and, in any event the argument is invalid for various reasons. These reasons deal with the first of these answers. As the Bank is successful in my view on the first question of jurisdiction, it is not necessary to consider the second.
The Bank persuasively argues that the jurisdiction to determine the Hunters' argument is exclusively vested in the Federal Court of Australia and the Federal Magistrate's Court, not in this Court.
The Bank's argument, which I accept, is the following. The decision whether the Trustee has authority to sign the Consent Judgment, depends upon whether the Property is Bankruptcy Act, s 5 "property of the bankrupt [Mr Hunter]", and whether the Property has vested in the Trustee under Bankruptcy Act, s 58. Bankruptcy Act, s 58(3), constrains Mr Hunter from seeking determination of that issue in any court. Section 58(3) provides:-
"58 Vesting of property upon bankruptcy-general rule
(3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding."
By Bankruptcy Act, s 5, "the Court" is defined as "a court having jurisdiction in bankruptcy under this Act". This directs attention to Bankruptcy Act, s 27(1) which provides:-
"27 Bankruptcy courts
(1) The Federal Court and the Federal Magistrates Court have concurrent jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than:
(a) the jurisdiction of the High Court under section 75 of the Constitution; or
(b) the jurisdiction of the Family Court under section 35 or 35A of this Act."
The reference in s 27(1) to "jurisdiction and bankruptcy" directs attention to the s 5 definition of "bankruptcy". When used in relation to questions of jurisdiction and proceedings, "bankruptcy" means "any jurisdiction and proceedings under or by virtue of this Act".
What is the scope of Bankruptcy Act, s 27(1)? This issue has been considered in a number of cases. In Sutherland v Brien (1999) 149 FLR 321 Austin J decided that Bankruptcy Act, s 27(1) does not vest in those courts to which it refers, exclusive jurisdiction in respect of every question turning upon the interpretation and application of the Bankruptcy Act. As Barrett J explained in Green v Schneller [2001] NSWSC 897 at [22]; (2001) 189 ALR 464, "that must be so. When persons become bankrupt, it is necessary for courts to determine all kinds of questions about the consequences. One class of such questions relates to the nature of the rights of persons to property."
In Sutherland v Brien (1999) 149 FLR 321 Austin J decided that in cases concerning the nature of the rights of persons to property the Bankruptcy Act did not preclude the exercise of the well established jurisdiction of courts other than those mentioned in s 27(1), "to determine and declare rights to property and to make orders as to its destination".
But as Barrett J also explained in Green v Schneller [2001] NSWSC 897 at [22] that general jurisdiction, which lies in other courts, will be displaced by any aspect of jurisdiction clearly given to Bankruptcy Act, s 27(1) courts:-
"But that undoubted general jurisdiction will yield to any aspect of the jurisdiction for determination and declaration of such rights which the Bankruptcy Act itself places in the hands of s27(1) courts. In Scott v Bagshaw (above), the Full Federal Court noted that among the matters so placed in the hands of those courts is "applications to declare for or against the title of the trustee to any property". Because this is one of the matters s31(1) of the Act requires "the Court" to hear in open court, it is identified as a matter within the definition of "bankruptcy" and thereby seen to be within s27(1). That aspect of the general jurisdiction "to determine and declare rights of property and to make orders as to its destination" which entails "applications to declare for or against the title of the trustee to any property" is accordingly reposed in s27(1) courts alone."
The question Mr and Mrs Hunter now seek to agitate is whether or not the Property is caught by Bankruptcy Act, s 116(1), because as Mr Hunter's half interest in the Property is held in trust for Mrs Hunter under the partly performed property settlement, that provision, s116(1) "does not extend to...property held by the bankrupt in trust for another person": s 116(2). That question falls within the jurisdiction of Bankruptcy Act, s 27(1) courts. As the Full Court of the Federal Court explained in Scott v Bagshaw [2000] FCA 816; (2000) 99 FCR 573, Bankruptcy Act, the terms of s 27(1) are to be understood in context, and Bankruptcy Act, s 31(1)(f) elucidates what the drafter of s 27(1) had in mind as falling within the expression "bankruptcy" as defined in s 5(1) of the Act. Bankruptcy Act, s 31(1)(f) makes clear that:-
"In exercising jurisdiction under this Act, the Court shall hear and determine the following matters in open Court:
...
(f) applications to declare for or against the title of the trustee to any property...."
The Full Court pointed out in Scott v Bagshaw [2000] FCA 816 (at [18]); (2000) 99 FCR 573 that applications having the stated effect, namely declaring for or against the title of the trustee to any property "would be encompassed within the concept of 'bankruptcy'".
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 Act s 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.
Nor was it "irregular" under UCPR r 36.15 or liable to be set aside under UCPR r 36.16 because Mr Hunter was not served with process before judgment. The Hunters cannot establish in this Court that the Bank denied Mr Hunter procedural fairness because he was not served with legal process, to the service of which he was entitled before the Consent Judgment was entered. Mr Hunter would only be entitled to be served with the statement of claim if his share in the Property did not vest in the Trustee. But that is the question for a court exercising Bankruptcy Act section 27 (1) jurisdiction, not this Court. Moreover any contention from Mr and Mrs Hunter that Mr Hunter is entitled to be served with legal process somewhat conflicts with Bankruptcy Act s 58(3)(a), which constrains creditors from enforcing "any remedy against the person or property of the bankrupt in respect of a provable debt". Apart from the Bank's rights under its mortgage security (preserved by Bankruptcy Act s 58(5)) to proceed against Mr Hunter's share in the Property, Bankruptcy Act s 58 (3)(a) is an answer to any complaint on his part of procedural unfairness in relation to any personal remedy against him: the Bank cannot enforce such a remedy anyway. The Hunters' Motion fails for these reasons.
How then would the Hunters challenge the Trustee's decision to give his assent to the Consent Judgment? Under Bankruptcy Act, Part VIII, Division 4 the Trustee's conduct is subject to the supervision of the "Court", namely Courts vested with jurisdiction under Bankruptcy Acts 27(1). Bankruptcy Act, s 178 authorises a bankrupt "affected by an act, omission or decision of the trustee" to apply to the Court which may make such order in the matter as "it thinks just and equitable". The application must be made "not later than 60 days after the day in which the person becomes aware of the Trustee's act, omission or decision": Bankruptcy Act, s 178(2). The Trustee's decision to assent to the Consent Judgment, a decision made in March 2012, could not now be challenged without the leave of the Court to make an application out of time. The Federal Court or the Federal Magistrate's Court would have the power to make declarations as to the ownership of the Property on such an aplication. There are many examples of those two Courts making such declarations: see for example Charan v Gleeson [2010] FMCA 703 at [34].
The Hunters unsuccessfully sought to resist this conclusion. They argue that the matrimonial property settlements occurred well before Mr Hunter's bankruptcy, and that the Trustee has not made an application to set those settlements aside. The March 2011 formal settlement was not "well before" the bankruptcy. Indeed it occurred after the commencement of the bankruptcy, in October 2010. Leaving the consequences of the timing of the October 2010 settlement to one side, the November 2009 settlement agreement undoubtedly took place before the commencement of the bankruptcy. But its timing is no answer to the problem the Trustee has raised about jurisdiction. The November 2009 settlement agreement simply means that Mrs Hunter claims an equitable interest in the half share of the Property in Mr Hunter's name which the Trustee now holds. Mrs Hunter's claim to that equitable interest is as incapable of determination by this Court, as is Mr Hunter's wish to challenge the Trustee's dealing with a half share in the Property through the Consent Judgment. Mrs Hunter's claim to an equitable interest in the other half share of the Property, is an application "to declare for or against the title of the Trustee to any Property" within Bankruptcy Act, s 31(1)(f). By parity of reasoning, this issue must be determined within the exclusive jurisdiction of s 27(1) courts, not this Court.
The contest between Mrs Hunter and the Trustee must also be distinguished from the contest between the Hunters and the Bank. As to the contest between Mrs Hunter and the Trustee, it is not necessary to forecast her prospects. But perhaps it may be observed that Mrs 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) 48 FCR 359 at 365. As Mrs 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) 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 Mrs 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.
But the position between the Hunters and the Bank is quite distinct. Indeed the Hunters in their submissions do not dispute that the Bank is a secured creditor of both of them and that nothing in Mr Hunter's bankruptcy affects the Bank's right as a secured creditor to deal with its security: Bankruptcy Act, s 58(5). The Trustee's assent to the Consent Judgment is a recognition on his part that the Bank has this right under its mortgage security over the Property. After the Bank exercises its security rights against the Property (to the extent it is validly held by the Trustee), there may perhaps be a residue of value, left in the hands of the Trustee. Then Mrs Hunter and the Trustee may have to contest their entitlement to that residue in a Bankruptcy Act, s 27(1) court. But it is presently unclear whether there will be any residue worth contesting.
The parties put submissions about whether or not Mrs Hunter did acquire an equitable interest in Mr Hunter's share in the Property in November 2009. But it is unnecessary for this Court to consider those matters. They would only arise in any contest between the Trustee and Mrs Hunter should Mrs Hunter decide to challenge the Trustee's decision to assent to the Consent Judgment, or to challenge the Trustee's claim to legal and equitable ownership of Mr Hunter's half interest in the Property. It is not necessary to further elaborate upon or explain those arguments now. This Court cannot decide them. Whether or not Mrs Hunter acquired an equitable interest in Mr Hunter's half share in the Property in November 2009, by the time of Mr Hunter's bankruptcy, any residual equitable interest he continued to hold in the Property as a joint tenant with Mrs Hunter would certainly have been severed by the appointment of the Trustee upon the sequestration of Mr Hunter's estate, and been converted to a tenancy in common: Director of Public Prosecutions for Victoria v Le [2007] HCA 52 at [100] and Bankruptcy Act s 58(2).
It is sufficient to record the principal areas of the Hunters' alternative argument as being: (1) whether the informal agreement made in November 2009 which was not fully compliant with Family Law Act, s 90C effects the transfer of an equitable interest in the property from Mr Hunter to Mrs Hunter; (2) whether in the events which had happened between Mr and Mrs Hunter after the making of the November 2009 informal settlement, Mr Hunter actually became a trustee of that Property for Mrs Hunter at general law; and (3) whether the Trustee considered Mrs Hunter's interest when he assented to the Consent Judgment. Given the Hunters' failure on the first point, it is not necessary further to examine these issues.
(b) Is there Irregularity in Judgment Entry?
The Hunters submit that the Consent Judgment was also irregular and liable to be set aside under UCPR, r 36.15 because it is expressed as a judgment for possession against the whole of the Property. Most of the text of the Consent Judgment for possession of the whole of the Property is set out earlier in these reasons. But that judgment text is preceded by the words, "by consent as between the plaintiff and the first defendant". The Hunters argue that the judgment should have been expressed as granting possession only over Mr Hunter's interest in the Property. Upon analysis, this argument: misreads the form of the judgment; is incorrect in law; and, does not identify anything in the form of a judgment, which would warrant it being set aside, because it occasioned prejudice to Mrs Hunter.
The Consent Judgment is expressed only to be against the first defendant, Mr Hunter, whose estate has vested in the Trustee, and not against the second defendant, Mrs Hunter. Although it is expressed to be judgment for possession of the whole of the Property, there can be no doubt from its form that it is only a judgment against the Trustee in respect of the interest formally held by Mr Hunter and now vested in the Trustee. Such a judgment for possession of "the whole of" the Property is consistent with the nature of a tenant-in-common's interest in the property as explained by the High Court in Nullagine Investments v Western Australian Club (1993) 177 CLR 635 ("Nullagine"), at 643. The tenant-in-common's share is "undivided" in the sense that it is "a distinct share in property that has not yet been divided among the co-tenants" (Nullagine at p 643); so "a division of the property is repugnant to the nature of a tenancy in common" because "it is an essential characteristic of a tenancy in common that each of the tenants has the right to occupy the whole of the property in common with the others" (Nullagine at p 643). In short, "like joint tenants, tenants in common have a unity of possession" (Nullagine at p 643). Moreover, each tenant in common is able to enforce his right to possession by way of injunction against the other tenant in common if necessary: Mitrovic v Koren (1971) VR 479. It follows from this reasoning that a judgment for possession in respect of the share or interest of a tenant in common in land, which is an undivided share, should be expressed as a judgment in respect of the whole the property concerned.
Moreover, the form of the consent judgment reflects existing practice in respect of obtaining judgment for possession of the whole of the property against one of several tenants in common: see for example Broadway Credit Union Limited v Bellamy [2000] NSWSC 778 and ANZ Banking Group Limited v Donnelly [2012] NSWSC 1615 at [19].
Nor has Mrs Hunter shown that she is prejudiced in any way in her future conduct of the proceedings by leaving the Consent Judgment on the Court record in its present form. She was given, but declined to avail herself of, an opportunity to adduce evidence of such prejudice, if she contended that it existed. I therefore infer that she suffers no such prejudice. Moreover, the Bank has made clear that it will not attempt to take advantage of its judgment for possession before the final hearing of these proceedings, listed for 30 April 2013. If either party requires that this indication of intent from the Bank to be formalised, then that can no doubt be arranged through the making of consent orders arranged between the parties. In any event as the record now stands, the Bank would have to seek the Court's leave before a writ of execution for possession of the Property could be issued: UCPR, r 39.1. And where, as here, the Bank is seeking possession of its equitable interest in the Property as one of two tenants in common, against the other unwilling tenant in common, then an order for judicial sale (the standard remedy of an equitable chargee on default) would be required: Sood v Christianos [2006] NSWSC 1087. Thus, Mrs Hunter will have a further opportunity to be heard to resist an order for judicial sale, should she wish to demonstrate prejudice to her from the making of such an order at that time: see for example ANZ Banking Group Limited v Donnelly [2012] NSWSC 1615.
Conclusions and Orders
In the result the Hunters' Motion fails. It necessarily involves the determination of a question which the Court does not have jurisdiction to decide: namely, whether Mr Hunter's beneficial half interest in the Property vested in the Trustee upon his bankruptcy and became property of the bankrupt available for distribution to his creditors, or whether it did not so vest. The current Motion cannot be decided without determining that question, which question necessarily falls within the exclusive jurisdiction of the Federal Court of Australia or the Federal Magistrates Court. Moreover, these reasons also decide that there is no basis in the form of the Consent Judgment entered into between the Bank and the Trustee for it now to be set aside. Even if the form of the judgment gave rise to some concern, this is not a matter where Mrs Hunter can point to any prejudice to herself by the judgment remaining in its present form pending the determination of these proceedings on 30 April 2013.
That leaves the question of costs. On that question the issue arises as to whether counsel and solicitors for Mr Hunter were ever able to act in his name as a bankrupt to bring that part of the proceeding which relates to him. Bankruptcy Act, s 58(3)(a) may well mean that he could not bring these proceedings without leave of the Federal Court or the Federal Magistrates Court. That matter has not been argued before me and may also depend on the outcome of any Federal Court of Australia proceedings that may be brought. The practical view seems to have been taken on all sides that the arguments that might be advanced for Mr Hunter can be put by Mrs Hunter, as they have been. But there may be argument about this question and about whether costs should follow the event. I will hear the parties on this issue, if necessary. Otherwise I will confirm the proceedings as listed for hearing on 30 April 2013.
The order of the Court will be that the defendant's Motion dated 20 November 2012 is dismissed.
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Decision last updated: 19 February 2013
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