Nugawela v Commonwealth Bank of Australia - [2018] WASCA 70

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT :   THE COURT OF APPEAL (WA)
CITATION:   NUGAWELA -v- COMMONWEALTH BANK OF AUSTRALIA [2018] WASCA 70
CORAM:   MURPHY JA
BEECH JA

HEARD:   23 APRIL 2018
DELIVERED          :   23 APRIL 2018
PUBLISHED           :   10 MAY 2018
FILE NO/S:   CACV 106 of 2017
BETWEEN:   PATRICK ALLAN NUGAWELA
Appellant

AND

COMMONWEALTH BANK OF AUSTRALIA
Respondent

VALMA HOLMES
Third Party

ON APPEAL FROM:
Jurisdiction              :   SUPREME COURT OF WESTERN AUSTRALIA
Coram:   ALLANSON J
Citation: COMMONWEALTH BANK OF AUSTRALIA -v- NUGAWELA [2017] WASC 303
File Number             :   CIV 1694 of 2017

Catchwords:

Practice and procedure - Appellant bankrupt - Appellant's property subject to first mortgage - Standing to bring appeal - Application by third party to be joined - Third party allegedly the beneficial owner of appellant's property - Whether any basis to appeal or permit joinder - Application to adduce additional evidence - Turns on own facts

Legislation:

Bankruptcy Act 1966 (Cth), s 5, s 43, s 58, s 116
Rules of the Supreme Court 1971 (WA), O 18 r 6(3)
Transfer of Land Act 1893 (WA), s 4, s 68

Result:

Appeal dismissed
Applications dismissed

Category: B

Representation:

Counsel:

Appellant	:	In Person
Respondent	:	Mr C P K Russell
Third Party	:	In Person

Solicitors:

Appellant	:	In Person
Respondent	:	HWL Ebsworth Lawyers
Third Party	:	In Person

Case(s) referred to in decision(s):

Commonwealth Bank of Australia v Nugawela [2017] WASC 303
Deputy Commissioner of Taxation v Nugawela (No 2) [2017] FCCA 1999
Deputy Commissioner of Taxation v Nugawela [2015] WASC 468
Hanshaw v National Australia Bank Limited [2012] NSWCA 100
Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407
McCallum v Commissioner of Taxation (Cth) (1997) 75 FCR 458
Mills v Stokman (1967) 116 CLR 61
Nugawela v Deputy Commissioner of Taxation [2016] FCA 578
Nugawela v Deputy Commissioner of Taxation [2016] FCAFC 164
Nugawela v Deputy Commissioner of Taxation [2017] FCA 897
Nugawela v Deputy Commissioner of Taxation [2017] HCASL 114
Nugawela v Deputy Commissioner of Taxation [2017] WASCA 9
Perpetual Trustee Co Ltd v Cuitanovic as trustee of the bankrupt estate of Kosta Dimitrovski [2013] NSWSC 722
Stone v Permanent Custodians Ltd [2016] WASCA 200
Whitebread v Whitebread [1967] NSWR 323; (1967) 10 FLR 120

REASONS OF THE COURT:

Introduction

This matter came before the court on 23 April 2018 by way of a registrar's notice to attend dated 7 March 2018 to consider:
(a)the question of the appellant's (Dr Nugawela's) standing to appeal against the decision of Allanson J on 19 October 2017 in Commonwealth Bank of Australia v Nugawela[1] (primary decision);
(b)an application by Dr Nugawela, filed 1 February 2018, to adduce additional evidence in the appeal and for an extension of time to consider that evidence; and
(c)an application by Ms Holmes, filed 22 December 2017, to be joined as a party to the appeal.
[1] Commonwealth Bank of Australia v Nugawela [2017] WASC 303.
By the primary decision, Allanson J granted an application for summary judgment by the respondent (the bank) for orders for possession of two properties owned by Dr Nugawela and mortgaged by him to the bank to secure certain loan agreements.
Dr Nugawela is bankrupt.
At the conclusion of the hearing on 23 April 2018, we ordered that the appeal be dismissed, and that Ms Holmes' application be dismissed. We said that we would provide reasons subsequently, and these are our reasons.

Background

Dr Nugawela has been in disputes with the Australian Taxation Office for a number of years. It is not necessary to go into detail about these matters for present purposes, save to note the following history of litigation which forms the context to the present proceedings.
On 19 August 2015, the Deputy Commissioner of Taxation (Deputy Commissioner) obtained summary judgment against Dr Nugawela in the sum of $1,668,164.16: Deputy Commissioner of Taxation v Nugawela[2] (original taxation decision).
[2] Deputy Commissioner of Taxation v Nugawela [2015] WASC 468.
Following the entry of summary judgment, the Deputy Commissioner issued a bankruptcy notice. A challenge to the validity of the bankruptcy notice failed: Nugawela v Deputy Commissioner of Taxation.[3] An appeal from that decision was also dismissed: Nugawela v Deputy Commissioner of Taxation.[4]
[3] Nugawela v Deputy Commissioner of Taxation [2016] FCA 578.
[4] Nugawela v Deputy Commissioner of Taxation [2016] FCAFC 164.
On 7 February 2017, the Court of Appeal dismissed an appeal commenced by Dr Nugawela against the original taxation decision: Nugawela v Deputy Commissioner of Taxation.[5] A special leave application was refused in respect of that decision: Nugawela v Deputy Commissioner of Taxation.[6]
[5] Nugawela v Deputy Commissioner of Taxation [2017] WASCA 9.
[6] Nugawela v Deputy Commissioner of Taxation [2017] HCASL 114.
On 21 February 2017, a registrar of the Federal Circuit Court of Australia made a sequestration order under the Bankruptcy Act 1966 (Cth) against Dr Nugawela's estate.[7]
[7] Nugawela v Deputy Commissioner of Taxation [2017] FCA 897 [30].
On 10 March 2017, Dr Nugawela applied to the Federal Circuit Court for a review of the registrar's orders. He also filed an interim application with that court for a stay of the sequestration order.[8]
[8] Nugawela v Deputy Commissioner of Taxation [2017] FCA 897 [31].
On 14 March 2017, the application for a stay was allowed on an interim basis pending further orders of the court. Subsequently, on 19 June 2017, the Federal Circuit Court dismissed the stay application: Deputy Commissioner of Taxation v Nugawela.[9]
[9] Deputy Commissioner of Taxation v Nugawela [2017] FCCA 1289.
On 9 August 2017, Dr Nugawela's application for a review of the Registrar's sequestration order was heard by Judge Lucev. On that day, his Honour made a number of orders, including an order dismissing an oral application made by counsel on behalf of Dr Nugawela for an adjournment of the proceedings; an order dismissing a stay application filed by Dr Nugawela on 6 July 2017; and an order dismissing Dr Nugawela's application for review of the Registrar's sequestration order.[10] Reasons were delivered on 31 August 2017: Deputy Commissioner of Taxation v Nugawela (No 2).[11]
[10] Nugawela v Deputy Commissioner of Taxation [2017] FCA 897 [34].
[11] Deputy Commissioner of Taxation v Nugawela (No 2) [2017] FCCA 1999.
Dr Nugawela commenced an appeal from Judge Lucev's decision and, by an application dated 31 August 2017, sought to stay all proceedings of sequestration pending the determination of his appeal.[12] That application was, however, dismissed by Barker J on 21 September 2017: Nugawela v Deputy Commissioner of Taxation.[13]
[12] Nugawela v Deputy Commissioner of Taxation [2017] FCA 897 [32], [36].
[13] Nugawela v Deputy Commissioner of Taxation [2017] FCA 897.

Primary proceedings

On 1 May 2017, the bank commenced the primary proceedings by filing a writ in the General Division of the Supreme Court.
The bank pleaded three written loan agreements dated 5 March 2012, 16 April 2002, and 12 November 2001 entered between Dr Nugawela and the Bank of Western Australia Ltd.[14] Dr Nugawela gave security for the loan agreement dated 5 March 2012 by a first registered mortgage over two properties in the suburb of Greenwood. The other two loans were each secured by a mortgage over one of the properties.[15]
[14] Relevantly, the bank is the successor in law to the Bank of Western Australia Ltd and thus is the successor in law to the loan agreements.
[15] Primary decision [3] - [4].
As at 4 January 2017, Dr Nugawela was in default of each of the loan agreements. Written notice of default, dated 10 January 2017, had been served on Dr Nugawela on or about that date.[16]
[16] Primary decision [5].
On 6 July 2017, the bank applied for summary judgment by chamber summons.[17]
[17] Primary decision [6].
On 5 October 2017, Allanson J heard that application, and on 19 October 2017, as noted earlier, his Honour delivered the primary decision and granted summary judgment in favour of the bank. His Honour found, relevantly, in effect, that the bank has a good claim for possession of the secured property, and none of the material filed by Dr Nugawela raised a triable issue. His Honour said that, on the material before him, there was no issue or question in dispute which ought to be tried.[18]
[18] Primary decision [17].

Appeal

Dr Nugawela filed a notice of appeal on 8 November 2017 and an amended notice of appeal on 13 November 2017.

The contentions of Dr Nugawela and Ms Holmes

Ms Holmes

Ms Holmes is the mother‑in‑law of Dr Nugawela. She claims an equitable interest in one of the Greenwood properties pursuant to a constructive trust. The constructive trust is said to have arisen by reason of Ms Holmes and her late husband having advanced $150,000 to Dr Nugawela on a date unspecified, but, it appears, perhaps, around 2002. Ms Holmes lodged a caveat over the property in respect of her alleged equitable interest on 24 February 2016.[19] Ms Holmes claims, in effect, that she has an interest in the matters in dispute in the appeal within the meaning of O 18 r 6(3) of the Rules of the Supreme Court 1971 (WA).

Dr Nugawela

[19] Affidavit of Valma Holmes sworn 21 December 2017.

Dr Nugawela supports Ms Holmes' contention. Further, he says, in effect, that as he holds that property on trust for Ms Holmes, that property is not, by reason of s 116(2)(a) of the Bankruptcy Act, an asset which is divisible amongst his creditors.[20] As to the other property, Dr Nugawela says that it is subject to an order in the Family Court in favour of his wife, and that, pursuant to s 116(2)(q) of the Bankruptcy Act, that property is also not an asset available to his creditors.[21] Dr Nugawela said:[22]
The Family Court orders require that after the bank has been satisfied of its security … the remainder shall be the property of Mrs Nugawela.
[20] Appeal ts 20.
[21] Appeal ts 20, 23 - 25.
[22] Appeal ts 25.
In his written submissions,[23] Dr Nugawela relied heavily on the decision of the Full Court of the Federal Court in McCallum v Commissioner of Taxation (Cth).[24]
[23] Dr Nugawela's submissions filed 19 January 2018, pars 47, 48, 55.
[24] McCallum v Commissioner of Taxation (Cth) (1997) 75 FCR 458.
Dr Nugawela also relied on statements in Cummings v Claremont Petroleum NL,[25] that when a trustee declines to exercise his power to sue or to appeal against a judgment, a court is empowered to prevent an injustice and consider an appeal and to make such order as it thinks just and equitable.[26]
[25] Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124, 138 - 139.
[26] Dr Nugawela's submissions filed 19 January 2018, pars 46, 49, 58.

Disposition

Ms Holmes' application

The affidavit relied on by Ms Holmes in support of her application is by way of general assertion, rather than evidence of the primary facts in support of the alleged trust. In other words, there is no credible evidence before this court to the effect that Ms Holmes has the interest claimed. In any event, the equitable interest claimed by Ms Holmes does not give her an interest in the matters in dispute in the (purported) appeal. The appeal is in respect of a judgment for possession in favour of the bank as first registered mortgagee, pursuant to a mortgage which was registered on the relevant title on 24 April 2002. The bank, as registered first mortgagee, has an interest in the land which it holds free from all encumbrances save those recorded on the register: s 68 of the Transfer of Land Act 1893 (WA), read with the definitions of 'proprietor' and 'encumbrances' in s 4. The effect of registration is to destroy prior unregistered interests, including Ms Holmes' claimed interest, which would have conflicted with, or encumbered, the registered proprietor's interest. It allows the registered proprietor to transfer a title free from such unregistered interests. See Leros Pty Ltd v Terara Pty Ltd;[27] Mills v Stokman.[28]
[27] Leros Pty Ltd v Terara Pty Ltd [1992] HCA 22; (1992) 174 CLR 407, 418 ‑ 420.
[28] Mills v Stokman [1967] HCA 15; (1967) 116 CLR 61, 72 ‑ 73, 78.
Accordingly, the claimed equitable interest of Ms Holmes could have no bearing on the appeal, even if the appeal were competent. There was no proper basis for her proposed joinder.

Dr Nugawela

Once a person becomes a bankrupt, they are deprived of the right to bring or maintain an action in respect of the property that, upon their bankruptcy, vests in the Official Trustee: Stone v Permanent Custodians Ltd.[29] During bankruptcy, a bankrupt 'has no right to bring or prosecute proceedings to protect, enhance or add to the property of which he has been divested on bankruptcy': Cummings.[30]
[29] Stone v Permanent Custodians Ltd [2016] WASCA 200 [22].
[30] Cummings (135 – 136).
A person becomes a bankrupt upon a sequestration order being made against their estate: s 43(2) of the Bankruptcy Act. Where a debtor becomes a bankrupt, 'the property of the bankrupt' vests forthwith in the Official Trustee: s 58(1) of the Bankruptcy Act.
Pursuant to s 5(1) of the Bankruptcy Act, 'property' is defined as 'real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property'. Also pursuant to s 5(1), 'the property of the bankrupt' means, relevantly, 'the property divisible among the bankrupt's creditors and any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt'.
Property divisible among creditors is set out in s 116(1) of the Bankruptcy Act. Section 116(1)(a) provides, relevantly, that property divisible among the creditors of the bankrupt includes 'all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy'. Section 116(2) provides that s 116(1) does not extend to various kinds of property, including property held in trust (s 116(2)(a)), and property held under an order under the Family Law Act 1975 (Cth) by which the trustee is required to transfer the property to the spouse of the bankrupt (s 116(2)(q)).
Section 58(2) of the Bankruptcy Act deals with vesting of property under s 58(1) where laws require registration for transfer of property.[31] Section 58(2) provides, relevantly:
Where a law of the Commonwealth or of a State or Territory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property, notwithstanding that it vests in equity in the trustee by virtue of this section, does not so vest at law until the requirements of that law have been complied with.
[31] See also s 132 of the Bankruptcy Act.
Subject to a consideration of the matters raised by Dr Nugawela in [21] above, in accordance with s 58(1), s 58(2) and s 116 of the Bankruptcy Act, read with the definitions of 'property' and 'the property of the bankrupt', Dr Nugawela's two Greenwood properties, over which he had given security to the bank, vested in the Official Trustee upon Dr Nugawela becoming a bankrupt, although the legal title remained with Dr Nugawela until the trustee applied to be registered as proprietor. Further, any equitable interest or rights analogous to an equity of redemption held by Dr Nugawela in respect of the charged property vested in the Official Trustee: Perpetual Trustee Co Ltd v Cuitanovic as trustee of the bankrupt estate of Kosta Dimitrovski;[32] Whitbread v Whitbread;[33] Hanshaw v National Australia Bank Limited.[34]
[32] Perpetual Trustee Co Ltd v Cuitanovic as trustee of the bankrupt estate of Kosta Dimitrovski [2013] NSWSC 722 [4].
[33] Whitbread v Whitbread [1967] NSWR 323; (1967) 10 FLR 120, 121.
[34] Hanshaw v National Australia Bank Limited [2012] NSWCA 100; (2012) 264 FLR 294 [21] - [22].
In relation to Dr Nugawela's contentions in [21] above, as indicated earlier, Ms Holmes' affidavit is more in the nature of assertion than evidence. Also, there is nothing in the material before us to suggest that Ms Holmes has taken any steps to establish her claimed interest against the trustee. However, even if Ms Holmes has the beneficial interest which she and Dr Nugawela assert, the result is that Dr Nugawela has no interest in the properties the subject of the appeal, and no potential basis upon which to resist the bank's claim to possession as first mortgagee. Nor, for the reasons given earlier, does Ms Holmes have any interest which could defeat the bank's right to possession.
In relation to the other Greenwood property, Dr Nugawela has not produced any order of the Family Court, and there is no satisfactory material before us to indicate that such an order has been made or the terms of any order. However, even if there were a Family Court order to the effect indicated by Dr Nugawela, it is, according to his submissions, in effect subject to the bank's rights as first mortgagee.
The decision in McCallum does not assist Dr Nugawela. It was concerned with the right of a bankrupt taxpayer to apply for a review of an assessment, by the Federal Commissioner of Taxation, of his taxable income. By its nature, the subject matter of that application is not property of the bankrupt. The recognition, by Lehane J, of the possibility that the taxpayer and his trustee in bankruptcy may, in some circumstances, both have standing to challenge an income assessment reflected the statutory setting and the nature and consequences of a challenge to an assessment.[35] By contrast, this appeal concerns real property of which Dr Nugawela has been divested on his bankruptcy, or (on his case) in which he has no relevant interest at all.
[35] McCallum (474).
Nor does Dr Nugawela's reference to Cummings assist him. What was said in Cummings at [26] above concerned the right of a bankrupt to make an application to the bankruptcy court under (the now repealed) s 178 of the Bankruptcy Act.[36] That is not the case here.
[36] Cummings (138).
It follows that either, Dr Nugawela, as a bankrupt, has no standing to bring or maintain an action in respect of the properties in question, or (on his case) he has no relevant interest in the properties and no basis for resisting the bank's claim for possession. His appeal is either incompetent or (on his case) it has no reasonable prospect of success.

The application to adduce further evidence and extend time

Given that the appeal is incompetent and must be dismissed, there is no basis upon which to accede to the purported appellant's application to adduce additional evidence and to extend the time for filing an appellant's case. In any event, the array of disparate materials annexed to the affidavit in support of the application provide no basis for giving leave to adduce additional evidence or to extend time. Accordingly, had the appeal not been dismissed as incompetent, we would have dismissed this application on its merits in any event.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CL
ASSOCIATE TO THE HONOURABLE JUSTICE MURPHY
10 MAY 2018