Official Trustee in Bankruptcy v Frederiksen
[2007] FMCA 1915
•16 November 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| OFFICIAL TRUSTEE IN BANKRUPTCY v FREDERIKSEN | [2007] FMCA 1915 |
| BANKRUPTCY – Vesting of property in Trustee in Bankruptcy – disposal of property after discharge from bankruptcy – entitlement of Trustee to proceeds of sale – whether Trustee estopped from claiming proceeds. |
| Bankruptcy Act1966: ss 5, 58, 116, 178, 179 |
| Sonenco (No 77) Pty Ltd v Silvia (1989) 24 FCR 105 O’Brien v Sheahan [2002] FCA 1292 Rankin v Official Trustee in Bankruptcy [2005] FCA 1084 Re Balhorn; ex parte Balhorn and Official Trustee (1981) 39 ALR 223 Gosden v Dixon (1992) 107 ALR 329 Dixon v Riquero [2004] FMCA 173 |
| Applicant: | OFFICIAL TRUSTEE IN BANKRUPTCY |
| Respondent: | LAUST BO FREDERIKSEN |
| File number: | BRG 884 of 2006 |
| Judgment of: | Wilson FM |
| Hearing dates: | 12 February 2007 & 1 March 2007 |
| Date of last submission: | 1 March 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 16 November 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr Looney |
| Solicitors for the Applicant: | Bennett & Philp |
| The Respondent in person: | Mr Frederiksen |
| Solicitors for the Respondent: | N/A |
ORDERS
It is declared that:
(a)The property situated at Lot 104 Barrams Road, South Ripley, and described as Lot 104 on Crown Plan M3174, County of Stanley, Parish of Bundamba Title Reference No. 12430113 (“the Ripley Property”) vested in the applicant when the respondent became bankrupt;
(b)The proceeds from the sale of the Ripley Property retained by the applicant form part of the divisible estate of the respondent.
The respondent pay to the applicant the sum of $39,730.15.
If the respondent fails to pay the amount payable pursuant to order 2 hereof within 28 days of the date of the order (“the final date for payment”) then:
(a)It be declared that the Holden Commodore Registration number 889 IYD purchased by the respondent on or about 10 November 2005 (“the Commodore”) forms part of the divisible estate of the respondent;
(b)The amount payable by the respondent to the applicant pursuant to order 2 sought herein shall be reduced by the amount of the proceeds of sale of the Commodore received by the applicant after deducting there from all reasonable and proper expenses incurred by the applicant in owning and effecting the recovery and sale of the Commodore.
The respondent pay interest to the applicant on the sum of $39,730.15:
(a)In respect of $2,000.00 thereof from 11 June 2004 to the date of payment;
(b)In respect of $37,730.15 thereof from 24 October 2005 to the date of payment.
The respondent pay the applicant’s costs of and incidental to the application to be taxed, if not agreed on the indemnity basis.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 884 of 2006
| OFFICIAL TRUSTEE IN BANKRUPTCY |
Applicant
And
| LAUST BO FREDERIKSEN |
Respondent
REASONS FOR JUDGMENT
The respondent became bankrupt on his own petition on 28 June 2000. He was discharged from bankruptcy by operation of law on 29 June 2003. The applicant was the respondent’s trustee in bankruptcy.
At the time he became bankrupt, the respondent owned a parcel of vacant land, which he valued at $40,000. It was encumbered by a mortgage securing a liability owed by the respondent and his then wife to the Commonwealth Bank. The trustee in bankruptcy did not have the property transferred into its name during the currency of the bankruptcy. Subsequent to his discharge from bankruptcy, the respondent sold the land for $475,000. The issue in dispute is whether the trustee or the respondent is entitled to all or part of the proceeds of sale.
In his Statement of Affairs filed 28 June 2000 the respondent disclosed:
a)as an asset, the vacant land (more particularly described below) valued at $40,000;
b)as a liability, that he said was not a joint debt, a mortgage to the Commonwealth Bank secured against the vacant land, pursuant to which it was asserted that $50,000 was owing;
c)his current address as 209 Margate Street, Mt Gravatt East.
The property referred to in paragraph 3(a) hereof is situated at Lot 104 Barrams Road, South Ripley and is more particularly described as Lot 104 on Crown Plan M3174, County of Stanley, Parish of Bundamba Title Reference No. 12430113. It is referred to as the Ripley property.
The evidence establishes that the respondent was, at the date of his bankruptcy, the registered proprietor of the Ripley property, and that it was encumbered by a mortgage to the Commonwealth Bank.
Section 58(1) Bankruptcy Act 1966 (“the Act”) provides:
(1) Subject to this Act, where a debtor becomes a bankrupt:
(a) the property of the bankrupt, not being after‑acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b) after‑acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.
“The property of the bankrupt” is defined in s.5 of the Act to relevantly mean the property divisible among the bankrupt’s creditors. Section 116(1)(a) of the Act provides:
(1) Subject to this Act:
(a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge;
is property divisible amongst the creditors of the bankrupt.
It follows, in my view that the Ripley property vested in the applicant trustee as at the date of the respondent’s bankruptcy. As the Full Federal Court observed in Sonenco (No 77) Pty Ltd v Silvia (1989) 24 FCR 105 at 112, the trustee in bankruptcy took the property of the bankrupt subject to any “equities” affecting it, and the trustee’s title to the property was no better than the bankrupt’s.
The question is whether any conduct on the part of the trustee precludes it from an entitlement to the property.
In Australian Bankruptcy Law & Practice, Fifth edition, Darvall & Fernon, at [58.1.60], the learned authors state:
“. . . notwithstanding that property may have vested in the trustee under [s. 58(1)], the trustee can in appropriate circumstances be estopped by his conduct from asserting a claim to the property: O’Brien v Sheahan [2002] FCA 1292 at [42 – 45].”
As the respondent placed considerable reliance on this alleged principle and the decision cited in support of it, it is necessary to look at what was decided in O’Brien v Sheahan. In that case:
a)On 5 December 1996 both applicants were made bankrupt;
b)At the time of their bankruptcy the applicants were the registered proprietors of a residential property that was their matrimonial home, valued between $220,000 and $250,000;
c)The applicants then owed approximately $250,000 on two mortgages secured against the property;
d)On 6 December 1996 the male applicant spoke with his case officer at ITSA and went through the Statement of Affairs;
e)The applicants allege that the case officer said to them “if there is no equity in your house you can keep it”. This evidence was rejected;
f)The applicants were asked to provide three valuations of the property, and did so. The trustee did not contact the applicants after they provided the valuations;
g)The female applicant was discharged from bankruptcy on 7 December 1999. At the time of hearing the male applicant was still an undischarged bankrupt;
h)On 14 February 2001 the trustee wrote to the applicants stating that he intended to have the property valued, following which he would determine whether to realise any equity in it;
i)The valuation so obtained revealed that the property was worth $370,000;
j)In the intervening period the applicants had continued making payments to the mortgagees such that their indebtedness was for $183,000 - $185,000. The applicants’ payments were $69,240;
k)The applicants also paid all rates and taxes assessed in respect of the property;
l)The male applicant had also carried out work improving and maintaining the property.
At first instance it was determined that:
a)The trustee had informed the applicants that their property had vested in the trustee, but as long as they were living in the property it was the applicants’ responsibility to attend to all mortgage payments;
b)There was no discussion about the effect of the applicants continuing to make the mortgage payments, and no representation that by doing this the applicants would earn themselves an equity in the property;
c)It would be unconscionable for the trustee to retain the benefit of the expenditure made by the applicants on preserving the property;
d)An equity was created in favour of the applicants by the preservation of the property;
e)Any restitutionary remedy should be proportionate to the amounts paid by the applicants;
f)Because the applicants utilised after-acquired property to make the payments for part of the period, their equity would be defeated in the case of payments made until their discharge from bankruptcy;
g)The female applicant could therefore only set up her equity out of the monies paid by her after she ceased to be a bankrupt.
On appeal it was argued that an equitable estoppel arose against the trustee that prevented him from relying on his legal rights to the property. Carr J agreed that it would be unconscionable for the trustee to retain the benefit of the expenditure by the applicants on preserving the property. Where his Honour disagreed with the decision at first instance was in the need for the Federal Magistrate to go beyond a consideration of specific representations, and decide whether there was a representation by conduct, including inaction and silence.
Carr J considered that in advising the applicants to obtain valuations to assist the trustee in deciding whether to sell the property, it was incumbent on the trustee, within a reasonable time, to make a decision and inform the applicants whether he was going to take any steps to realise the property for the benefit of creditors and, if not, to inform the applicants what other course he intended to take. By not doing so for over four years Carr J found that the trustee had represented that he did not propose to assert any entitlement to any net proceeds from the realisation of the property. At [49] Carr J said:
“In my opinion, as the years passed without any action on the part of the Official Receiver, a combination of the original conduct (demanding valuations) and statements made by [the case officer] on the Official Receiver’s behalf, his failure to take any action to realise the property, and his silence (despite knowing that substantial payments of capital and interest were being made by the appellants) gave rise to the representation that the Official Receiver was no longer interested in realising the property and had, in effect, abandoned it to the appellants.”
His Honour found that the applicants acted in reliance on the representation or assumption or expectation by making the payments of principal, interest, rates and taxes, and undertaking renovations to the property and the trustee knew that they were doing so. His Honour concluded at [56]:
“In my opinion, it would be unconscionable, on well-accepted equitable principles, to allow the respondent to do this. He should not be allowed, after so many years, to step in and unconditionally assert his legal rights.”
An application for special leave to appeal was refused. In Rankin v Official Trustee in Bankruptcy [2005] FCA 1084 Heerey J summarised the special leave application thus:
“In rejecting the application for special leave in Sheahan v O’Brien [2003] HCATrans 308 Gummow and Hayne JJ made it clear that the decision of the Federal Court the subject of the application should not be understood as establishing that the law relating to estoppel was generally applicable in the administration of bankrupt estates.”
In Rankin:
a)In 1985 the applicants had contracted to purchase the relevant property (which became their matrimonial home) pursuant to a contract that required periodic payments of the purchase price and interest, prior to them both being declared bankrupt on 6 April 1992;
b)It was accepted that their interests as purchasers under the contract vested in their trustee in bankruptcy;
c)In their Statement of Affairs the applicants disclosed the property as having a value of $38,500 and their liability as $35,000;
d)The applicants were aware at the time of their bankruptcy that the trustee had taken their interest in the contract;
e)The male applicant alleged that the trustee told him that he was not going to sell the house as the sale would not realise any money apart from what was owed to the vendor;
f)The applicants’ statutory discharge was due to come into effect on 7 April 1995. Prior to this the trustee wrote advising that their interest in the property had vested in the trustee, and inviting them to discuss the matter;
g)At a meeting the trustee’s representative explained to the applicants’ their options;
h)The applicants had no further contact with the trustee until 23 February 2004 when the male applicant telephoned the trustee and advised that the applicants had signed a contract of sale for $120,000;
i)After discharge from bankruptcy the applicants had continued to make the payments required of them under their contract with the vendor. They made improvements to the property.
Heerey J held that the trustee had not disclaimed the benefit of the contract held by the applicants. At [34] his Honour said:
“Discharge from bankruptcy did not cause the contract, as property of the bankrupts, to revest in them. The property of the applicants divisible among their creditors remained vested in the trustee. Their entitlement was to any surplus remaining after payment in full of the costs, charges and expenses of the administration, all debts that had been proved in the bankruptcy and interest on interest bearing debts that had been proved: Re Balhorn; ex parte Balhorn and Official Trustee (1981) 39 ALR 223 at 226; Gosden v Dixon (1992) 107 ALR 329 at 331.”
His Honour considered an argument that there was an estoppel operating against the trustee. After the passage set out above, his Honour continued:
“This point was not argued in the present case . . . I shall therefore deal with the estoppel argument on the assumption that principles of estoppel are applicable in a bankruptcy context and without any consideration whether this is so as a matter of law.”
Heerey J pointed out that to give rise to an estoppel, any representation must be clear and unequivocal. His Honour rejected that there was any such representation on the evidence before him. His Honour did say, in the context of distinguishing O’Brien v Sheahan at [44]:
“In any case, I must say with respect that it is difficult to see how mere inactivity on a trustee’s part could overcome the clear rule that property of a bankrupt does not revest in the bankrupt upon discharge.”
Finally, reference should be made to Dixon v Riquero [2004] FMCA 173, a case referred to by counsel for the applicant. In that case:
a)At the date of their bankruptcy in November 1992 the respondents were the registered proprietors of real property encumbered by a mortgage;
b)In their Statement of Affairs the respondents valued the property at $95,000 but the trustee valued it at $85,000 - $90,000;
c)Liabilities attached to the property and the expenses of sale exceeded the expected sale price;
d)The respondents continued to live in the property and incur debts for rates and the like;
e)On 7 March 2003 the respondents contracted to sell the property. Correspondence ensued between the trustee’s solicitors and the respondents’ solicitors, the end result of which was that the net sale proceeds were held on trust pending determination by the court as to which party was entitled to them.
Raphael FM correctly rejected an argument that as the trustee had not registered his interest, his title was defeasible. His Honour then turned to consider arguments raised by the respondents relying upon the doctrines of waiver and estoppel. His Honour started from the uncontroversial position that the discharge of the respondents from bankruptcy in no way affected the title to the property. Discharge does not effect a revesting. His Honour then rejected the arguments advanced by the respondents, primarily because there was no evidence of any detriment suffered by the respondents as a result of the trustee’s conduct. This disposed of the reliance on laches. His Honour found that no representations were made by the trustee, and there was no evidence of payments being made by the respondents for the upkeep of the property. The trustee was entitled to all of the sale proceeds.
The authorities to which I have referred make it abundantly clear that mere delay, without more, is not sufficient to preclude the trustee from asserting his right to the proceeds of sale of property vested in him. In the present case, counsel for the trustee boldly advanced the submission that equitable principles of estoppel do not apply to the administration of bankrupt estates. As has been observed both in the High Court, in Rankin and in Riquero this is an issue that is not yet resolved by authority. There are strong arguments either way. On the one hand, one might ask why, in a statutory scheme that has been comprehensively analysed over many decades, is there a need for the intrusion of equity. A trustee’s duties are well settled. An aggrieved bankrupt has the right to seek redress from the court under ss.178 and 179 of the Act. Yet, on the other hand, even s.178 refers to the court granting such relief as is just and equitable. That seems to import equitable notions. In Australian Bankruptcy Law & Practice, supra at [116.2.25] the learned authors refer to the application of equitable principles in ascertaining property divisible among creditors, but do note a distinction between the rights of creditors and those of the bankrupt.
I do not think the correct view is as dogmatic as counsel submitted. There may well be room for the application of equitable principles to the administration of an estate in bankruptcy, whether by way of s.178 or more generally. This, however, is not the case to resolve that interesting question. It can be decided on the assumption that such principles do apply.
The respondent cannot successfully argue that the Ripley property was not “property” that vested in his trustee, even if the liabilities secured against the property exceeded its value. Nor can he argue that upon his discharge from bankruptcy he acquired any interest in the Ripley property. Rather, to succeed, what the respondent must show is that by its conduct, either express or implied, the trustee has acted in such a manner that it would be unconscionable for it to retain the proceeds of sale of the Ripley property as against the respondent.
In that regard, the respondent relies on two conversations that he says he had with the trustee. Mr Sanmugaratnam Saravanabhava (referred to as Mr Sara) was responsible for the day to day administration of the respondent’s bankrupt estate. In a statement given to the trustee’s solicitor, and dated 6 August 2006, the respondent said, at paragraph 41:
“Shortly after I became bankrupt I spoke with Sara who was the ITSA case officer handling the administration of my bankrupt estate. Sara then spoke to my solicitor Varro Clarke. Sara also spoke to the CBA. I believe that Sara told myself, Varro Clarke and also the CBA that ITSA had no interest in the Margate Street and Ripley property as the CBA was a secured creditor. On this basis and the action of ITSA on the sale of the Margate Street property, I did not believe that I had to disclose any dealings in relation to the Ripley property to ITSA or account to ITSA for the proceeds of the sale of the property.”
I will return to the sale of the Margate Street property shortly. In his affidavit filed 7 February 2007 the respondent says that during a conversation with Mr Sara on 5 July 2000, he asked if the trustee wanted the Ripley property and Mr Sara said to him:
“No, ITSA is not interested in the Ripley or the Margate properties as the Commonwealth Bank of Australia is a secured creditor and there is no realisable equity in the properties whatsoever.”
The respondent says that he expressed the desire to be able to continue the Commonwealth Bank home loan. According to the respondent, Mr Sara said he would make enquiries, as he would be speaking to the Commonwealth Bank in any event.
Mr Sara denies making the statement referred to at paragraph 27. He accepts that in late June or early July 2000 he spoke with the respondent and his former solicitor, Mr Clarke. Mr Sara said that it was his practice to prepare a written record of any significant conversations concerning the administration of a bankrupt estate with which he was involved. He did not prepare a note of his discussion with the respondent and his solicitor. In support of his denial that he made any statement to the respondent to the effect that the trustee had no interest in the Ripley property Mr Sara refers to the fact that on 11 July 2000 he completed a preliminary report to creditors in which he recorded, at note (4):
“Mr Frederiksen stated that he had a sole interest in a vacant land property at [the Ripley property], the value of which he estimated at $40,000. The property is subject to security, and he has estimated his liability to the Commonwealth Bank of Australia, the mortgagee, at $50,000. I have received information from the Commonwealth Bank of Australia that the subject property was offered as security for a joint borrowing by Mr Frederiksen with his spouse, Ms Prudence W Law, to enable them to refinance a loan to improve the real property at 209 Margate Street, Mt Gravatt Qld 4122 at which Mr Fredericksen resides. Although Mr Fredericksen has an equitable interest in the house property, it is possible that the realisable interest in the relevant properties would be minimal given the current market conditions”.
In the same report, under the heading “Outstanding Issues” Mr Sara identified:
“(1)To communicate with the Commonwealth Bank of Australia to ascertain its intentions in respect of the real properties situate at [the Ripley property] and 209 Margate Street. If a sale eventuates, the trustee will take appropriate action to obtain an accounting of the sale and realise any surplus.”
A copy of the preliminary report was sent to the respondent. It ought to have been apparent to the respondent by the time he received the preliminary report that the trustee had not abandoned any claim to the Ripley property, or at least to any surplus after the secured creditor’s debt was satisfied. It is inconsistent for Mr Sara to have told the respondent that the trustee was not interested in the property only a matter of days before the preliminary report was written. It is also unlikely that the trustee would have committed itself to a position in the very early stages of the respondent’s bankruptcy, when it had not obtained any corroborating evidence as to the value of the property. Further, I accept that the trustee had sent a questionnaire to the Commonwealth Bank, and it had not returned the questionnaire by the time the statement was allegedly made.
Both the respondent and Mr Sara gave evidence before me. I thought Mr Sara’s evidence was the more plausible. It is corroborated by contemporaneous events, particularly the preliminary creditors report.
I reject the respondent’s evidence that the trustee represented to him that it had no interest in the Ripley property. Even if such a statement was made before the issue of the preliminary report to creditors, it was not reasonable for the respondent to continue to rely on that statement having regard to the contents of that report to which I have referred. Further, it was not reasonable for the respondent to rely on any statement made by the trustee’s representative because the respondent ought to have known that any information upon which the trustee relied may not have been complete or accurate. In particular, in his Statement of Affairs, the respondent stated that the liability secured against the Ripley property was in the sum of $50,000 and it was not a joint debt. In fact, the Ripley property was provided to the Commonwealth Bank as collateral security for a joint home loan advanced to the respondent and his wife, that was also secured against the property situated at 209 Margate Street, Mt Gravatt East, which was registered in the name of the respondent’s wife. It would be inequitable for the respondent to be entitled to rely on a representation made by the trustee’s representative when the respondent himself had provided false information to the trustee regarding the true status of the property and any encumbrance attached to it.
Mr Sara says that he closed the respondent’s file on 30 November 2000 in accordance with ITSA internal policies. He made an entry on the computerised system which read:
“Outstanding issues and time frames
(1)vacant land at Ripley Qld 4306 and house property at 209 Margate Street, Mt Gravatt Qld 4122. No equity. No further action”
There is no evidence that the contents of this record were ever communicated to the respondent. In my view, it does not support the respondent’s argument. At best it reflects an attitude on behalf of the trustee to “wait and see” if there was any equity in the Ripley property that could subsequently be realised. Mr Sara says that he formed the view that both properties were possible assets in the bankrupt estate but because the Commonwealth Bank liability secured against the Ripley property exceeded the value of the property he decided not to proceed with a transmission in bankruptcy due to the expense involved. This decision meant no action was required on behalf of the trustee at that stage. I accept that evidence.
The respondent said, at paragraph 32 of his affidavit filed 7 February 2007 that in late July 2000 he was contacted and subsequently visited by a male representative of the Commonwealth Bank. He says the person inspected the Margate property and informed the respondent that the home loan could continue as it had prior to the bankruptcy as the Commonwealth Bank had received assurances from ITSA that they would not seek to make any claims against the properties that secured the loan, namely the Margate property and Ripley property. After cross examination of the respondent (particularly at T42) I am satisfied that the person who visited the respondent’s home was a valuer appointed by the bank. This person was not called to give evidence. The respondent’s evidence of what was said to him was hearsay, and accordingly inadmissible.
Further, the applicant relied on an affidavit of Brett Mortimore of the Commonwealth Bank, who gave evidence that the bank was not informed by the trustee that it would not make any claim against the property. Mr Mortimore was not required for cross-examination. His evidence was unchallenged. I accept it. This further undermines the credibility of the respondent regarding the alleged conversation in July 2000.
The respondent and his wife separated in December 2001. The respondent says that he and his wife undertook extensive renovations to the Margate Street property but they seem to have been mostly, if not entirely carried out before the respondent’s bankruptcy. The respondent has stated that when he became bankrupt the amount owing to the Commonwealth Bank pursuant to the loan secured against both the Margate Street property and the Ripley property was $182,275.04. It cannot be said with any particularity that any further work was performed on the Margate Street property in reliance on the trustee’s alleged representation set out at paragraph 27. The work was carried out before the respondent became bankrupt.
The Margate Street property was sold, and the sale was completed on 10 May 2002. The sale proceeds were sufficient to discharge the Commonwealth Bank mortgage secured against the Ripley property. These sale proceeds were those of the respondent’s estranged wife. The Margate Street property was in her name.
The respondent says that prior to the completion of the sale, he contacted Mr Sara. In his statement, previously referred to at paragraphs 27-29, the respondent is vague about his discussions with Mr Sara. There is nothing in that document that would be sufficient to support a finding that there had been a representation by the trustee.
The respondent in his affidavit filed 6 December 2006 says that he telephoned Mr Sara on 1 May 2002. He says that he told him he had separated from his wife, and that she had entered into a contract to sell the property at Margate Street, Mt Gravatt East. The respondent was primarily trying to stop his wife being able to sell the property and keep any part of the proceeds. He says that he told Mr Sara that his wife would pay out the Commonwealth Bank loan secured against the Ripley property. The respondent said that Mr Sara told him he would have to look up the file. The respondent says that he was on a mobile phone, and said he would call back.
The respondent says that he called Mr Sara again. He says that Mr Sara said there was nothing that he or the respondent could do to prevent the respondent’s wife from selling her property. The respondent says that Mr Sara told him that if he received any part of the sale proceeds of the Margate Street property as part of a property settlement he would have to advise his trustee. The respondent says that Mr Sara also indicated that it was up to the Commonwealth Bank to deal with the Ripley property as it was a secured creditor in the bankruptcy.
The respondent did not speak to Mr Sara on 1 May 2002. Mr Sara was on leave between 26 April and 7 May 2002. This was confirmed by his employer. Although I accept that the respondent telephoned Mr Sara’s direct telephone number twice on 1 May 2002, he plainly did not speak to Mr Sara as alleged. When confronted with this the respondent accepted that perhaps he spoke to somebody else. The respondent’s evidence does not persuade me that any statement was made by any person on behalf of the trustee which could reasonably have led the respondent to believe that he was entitled to deal with the Ripley property, then unencumbered, to the exclusion of his trustee in bankruptcy. This is implausible. In cross examination, the respondent accepted that if he received a property settlement from his former wife, he would have to account to the trustee for that, and if he won the lottery he would have to do likewise. Yet he steadfastly maintained that he did not have to tell the trustee about what he intended to do with the Ripley property. Further, the respondent accepts that he did not tell his trustee that the mortgage secured against the Ripley property had been released. In those circumstances, even if the trustee had made a representation, it would not be unconscionable for him to resile from it, if it was made in ignorance of the true facts.
As the above cases to which I have referred make clear, if the trustee is to be estopped from relying upon his legal right to the property of the bankrupt, there must be a clear and unequivocal representation (either express or by conduct, including silence) that is relied on by the bankrupt to his detriment. That did not occur in the present case. The trustee is therefore entitled to the proceeds of sale of the Ripley property.
The respondent was notified on 4 February 2004 that he had been discharged from bankruptcy. On 11 June 2004 he granted a call option over the Ripley property in favour of Wingate Properties Pty Ltd, for which the respondent received $2,000. The respondent did not tell the trustee about this. He says he spent this money on his living expenses.
On 24 October 2005 the respondent entered into the contract of sale for the Ripley property to Swanbank Enterprises Pty Ltd. On 9 November 2005 he received the deposit of $47,500. The respondent says that he deposited these monies into a bank account that he opened and used some $17,500 to acquire a motor vehicle that he identified in evidence.
On 11 April 2006 the respondent’s trustee in bankruptcy became aware that the respondent had contracted to sell the Ripley property to Swanbank Enterprises Pty Ltd, and settlement was due on the conveyance on 24 April 2006. Both the purchaser and the trustee lodged caveats to protect their respective interests in the property.
After satisfying itself that the sale by the respondent to Swanbank was at fair value, the trustee allowed the sale to be completed, but retained the balance sale proceeds of $427,102.44. Those funds are currently held in trust.
By application filed 21 November 2006, the applicant sought a declaration pursuant to s.30 Bankruptcy Act that:
a)The property situated at Lot 104 Barrams Road, South Ripley and described as Lot 104 on Crown Plan M3174, County of Stanley, Parish of Bundamba Title Reference No. 12430113 vested in the applicant when the respondent became bankrupt;
b)The proceeds from the sale of the said property form part of the divisible estate of the respondent.
The applicant also sought orders that the respondent pay to the applicant:
a)$2,000 being the option fee paid to the respondent under a call option dated 11 June 2004 made in respect of the said property;
b)$47,500 being the deposit paid to the respondent under the contract of sale for the said property.
The trustee accepted (at T70 and T77) that the respondent should be reimbursed for expenses that he incurred in maintaining the Ripley property. Documents exhibited to the respondent’s affidavit show that he paid rates on the property of $5,169.85. He erected fencing at a cost of $3,000. He cleared vegetation at a cost of $1,600. The total of these sums is $9,769.85.
The applicant suggests that I make an order that the respondent demonstrate to the satisfaction of the trustee that he has paid these amounts, and if he does so, he be entitled to a remission of that sum against what is otherwise owed to the trustee. In my view, there is no need for such an order. The respondent gave evidence of what expenses he had incurred, and was not challenged on them in cross examination.
The respondent also sought credit for payments made against the home loan mortgage secured against Margate Street and the Ripley property. In my view, the payments on this mortgage were not related in any way to any belief on the part of the respondent that he had some entitlement to the Ripley property. The mortgage was paid so that he and his wife could continue to live in the property.
The trustee is entitled to the declarations sought. It is also entitled to be reimbursed the sum of $39,730.15. Orders were also sought for the payment of interest and costs. Such orders are, in my view, appropriate.
I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of Wilson FM
Associate: Lynnette Chin
Date: 16 November 2007
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