Pascoe v Smirneos & Ors
[2010] FMCA 404
•7 June 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PASCOE v SMIRNEOS & ORS | [2010] FMCA 404 |
| BANKRUPTCY – Application by trustee for orders in aid of realising bankrupt’s interest in real estate – property co-owned with non-bankrupt spouse – principal creditor seeking execution against co-owner for joint indebtedness – jurisdiction of court not contested – orders made for appointment of trustees for sale with vacant possession. |
| Bankruptcy Act 1966 (Cth), ss.30, 30(1), 58 Federal Court Rules (Cth), O.63 Federal Magistrates Act 1999 (Cth), ss.14, 15, 18 Federal Magistrates Court Rules 2001 (Cth), r.1.05(3)(b), Sch.3 Pt.2 Conveyancing Act 1919 (NSW), s.66G, Div.6 Pt.IV |
| Park v Barclay [2010] FMCA 397 Pattison v McKinnon [2008] FCA 1624 |
| Applicant: | SCOTT DARREN PASCOE in his capacity as trustee of the property of Helen Smirneos, a Bankrupt |
| First Respondent: | HELEN SMIRNEOS, A BANKRUPT |
| Second Respondent: | ANDREW SMIRNEOS |
| Third Respondent: | GEOFFREY REIDY in his capacity as trustee of the property of Peter Smirneos, a Bankrupt |
| Fourth Respondent: | WESTPAC BANKING CORPORATION ABN 33 007 457 141 |
| Fifth Respondent: | NATIONAL LENDING PTY LIMITED ACN 119 336 631 |
| File Number: | SYG 346 of 2010 |
| Judgment of: | Smith FM |
| Hearing date: | 7 June 2010 |
| Delivered at: | Sydney |
| Delivered on: | 7 June 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr B Skinner |
| Solicitors for the Applicant: | Kemp Strang |
| Counsel for the First Respondent: | No appearance by or on behalf of the First Respondent |
| Counsel for the Second Respondent: | No appearance by or on behalf of the Second Respondent |
| Counsel for the Third Respondent: | Mr P Cutler |
| Counsel for the Fourth Respondent: | No appearance by or on behalf of the Fourth Respondent |
| Counsel for the Fifth Respondent: | Mr J Hogan-Doran |
| Solicitors for the Fifth Respondent: | Tucker & Cowen |
ORDERS
The First and Second Respondents and any occupants of the whole of the land Folio Identifier 12/5/2166, known as 124 Tennyson Road, Gladesville in the State of New South Wales (“the Property”), vacate the Property within seven (7) days after the date of this order.
A writ of possession issue forthwith in the event that either of the First and Second Respondents or any other occupants fail to provide vacant possession of the Property in accordance with order 1 above.
The Applicant and Mark Robinson both of Level 5, 55 Hunter Street, Sydney, in the State of New South Wales (“the Trustees”), are appointed trustees for sale of the Property.
The Property is vested in the Trustees, subject to any encumbrances affecting the entirety of the said land but free from encumbrances, if any, affecting any undivided share or shares therein, to be held by the Trustees upon the statutory trust for sale created pursuant to Division 6 Part IV of the Conveyancing Act 1919 (NSW) subject to any alterations made by these orders.
The Trustees are empowered to offer the Property for sale and to sell the Property by public auction with power to fix a reserve price, or alternatively, to sell the Property by private treaty at the best available price.
The Trustees are empowered and authorised to obtain valuations of the Property prior to advertising it for sale.
Any party is at liberty to purchase the Property whether at auction or at private treaty.
The Trustees shall hold the net proceeds of sale of the Property, after deduction of their costs and expenses, rates, taxes, costs of insurance, repairs properly payable out of income and other outgoings, upon trust:
(a)For Westpac Banking Corporation in the amount secured by Mortgage registered number AC243751.
(b)To pay the amount of $82,520.02 into Court to be administered pursuant to Federal Magistrates Rules r.1.05(3)(b) and Sch.3 Pt.2, adopting Federal Court Rules O.63.
(c)For the Fifth Respondent in the amounts of its costs in relation to the present application on an indemnity basis.
(d)As to one half of the balance, for the Applicant as trustee in bankruptcy of the property of the First Respondent.
(e)As to the remaining half of the balance, for the Fifth Respondent in the amount owing by the Second Respondent under the judgment of the District Court in proceedings File.4502/07 entered on 6 February 2008, and including any interest due on that judgment and its costs of attempting to enforce the judgment in that Court.
(f)To pay any remaining monies into Court to be administered pursuant to Federal Magistrates Rules r.1.05(3)(b) and Sch.3 Pt.2, adopting Federal Court Rules O.63.
The Third Respondent must provide the Trustees with a withdrawal of Caveat No. AD432197 in registrable form at or prior to settlement of any sale.
The Fifth Respondent must provide the Trustees with a withdrawal of Caveat No. AC832670 in registrable form at or prior to settlement of any sale.
The Fifth Respondent must provide the Trustees with a withdrawal of Writ No. AE157620 in registrable form at or prior to settlement of any sale.
If either the Third or Fifth Respondents fail to comply with any of the orders in the preceding three paragraphs, the Registrar may execute any of the instruments referred to in those orders.
The Trustees, the parties, and any person or persons claiming an interest in the funds paid into Court, have liberty to apply to the Court for directions and further orders in relation to any matter arising under these orders.
The applicant must serve a copy of these orders on the First, Second, Third, and Fourth Respondents before 5pm on 8 June 2010. Service on the First and Second Respondents may be effected in person or by leaving a copy attached to the front door of the Property.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 346 of 2010
| SCOTT DARREN PASCOE in his capacity as trustee of the property of |
Applicant
And
| HELEN SMIRNEOS, A BANKRUPT |
First Respondent
| ANDREW SMIRNEOS |
Second Respondent
| GEOFFREY REIDY in his capacity as trustee of the property of |
Third Respondent
| WESTPAC BANKING CORPORATION ABN 33 007 457 141 |
Fourth Respondent
| NATIONAL LENDING PTY LIMITED ACN 119 336 631 |
Fifth Respondent
REASONS FOR JUDGMENT
(revised from transcript)
Helen Smirneos and Andrew Smirneos were registered co‑owners of a ‘duplex’ in Tennyson Road, Gladesville. The evidence suggests that it is currently occupied by them as their home. They have a son, Peter Smirneos, who in 2006 was married to Barbara Smirneos. For convenience and without disrespect, I shall refer to the four members of the Smirneos family by their Christian names.
The present proceedings were commenced by Mr Pascoe as trustee of Helen’s bankrupt estate, pursuant to a sequestration order which was made on 2 August 2006. In that capacity, he now appears on the title of the Gladesville property as co‑owner with Andrew. He seeks orders to enable the entire property to be sold with vacant possession by trustees for sale for the benefit of Helen’s bankrupt estate, and with appropriate recognition of the interests of other persons in the property and the proceeds of sale.
Helen and Andrew are joined as respondents to the application, but have chosen not to contest it. Westpac Bank has a registered first mortgage over the property, and is the largest creditor of both Helen and Andrew. It was served with notice of the proceedings, but has chosen not to appear, apparently due to the manifest sufficiency of its security. Two other persons who have lodged caveats on the title, being National Lending Pty Ltd and Mr Reidy were joined as respondents and have appeared. I shall consider their interests in the property below.
No party before me has contested the Court’s jurisdiction under s.30 of the Bankruptcy Act 1966 (Cth) to make orders in the present circumstances on the application of a trustee in bankruptcy in relation to the appointment of trustees for sale and distribution of the proceeds of property forming part of the bankrupt estate, and the issue of a writ of possession in aid of that sale. The parties have accepted that this jurisdiction encompassed the making of orders in the nature of those proposed by Mr Pascoe. Similar orders were also sought in a response filed by the fifth respondent, National Lending Pty Ltd, which was served on the other respondents. In the absence of contrary submissions, I am content to assume that sufficient support for the existence of jurisdiction in the present matter is found in the authorities cited and applied by Jessup J in Pattison v McKinnon [2008] FCA 1624. These authorities give broad effect to the power conferred by s.30(1) of the Bankruptcy Act to:
… make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case [of bankruptcy] …
In effect, Mr Pascoe’s application asks the Court to make orders in its bankruptcy jurisdiction in support of his administration of Helen’s bankrupt estate analogous to those which might be made by the Supreme Court of New South Wales under s.66G of the Conveyancing Act 1919 (NSW) and in its related jurisdictions. The circumstances which I shall describe below point to the convenience and efficiency in making such orders in the present case, as a necessary part of resolving all issues arising between the parties in the matter (cf. Federal Magistrates Act 1999 (Cth), ss.14 and 15). It is unnecessary to consider whether the Court could also assume jurisdiction to make the proposed orders directly under s.66G as an ‘associated’ matter under s.18 of the Federal Magistrates Act.*
* I note that I was not referred to the judgment of Jarrett FM in Park v Barclay [2010] FMCA 397, which was given shortly before this judgment, in which his Honour distinguished the previous line of cases and held that he had no jurisdiction to make an order for sale against a non‑bankrupt co‑owner.
National Lending’s interests in relation to the property rights of both Helen and Andrew are explained in a chronology of events which has been outlined by counsel for National Lending in written submissions. I accept that it accurately summarises the relevant evidence which is before me, and shall adopt it with some amendments:
Factual Outline
2.On or about 10 May 2006, Helen and Andrew signed and thereby accepted a letter of offer from National Lending (the Loan Agreement) whereby they agreed to borrow and National Lending agreed to lend $200,000 on certain terms and conditions including as to monthly interest payments (at the rate of 27.5% p/a reduced to 22.5% p/a if paid on time or before the ninth day of each and every month) and fees.
3.On 2 August 2006, a sequestration order had been made under s.43 of the Bankruptcy Act 1966 (Cth) against the estate of Helen. She thereby became a bankrupt and has continued to be a bankrupt to the present day. Helen’s interest in the Gladesville property thereupon vested in Mr Pascoe pursuant to s.58 of the Bankruptcy Act.
4.On 9 August 2006, Helen and Andrew executed a second mortgage (the Mortgage) in favour of National Lending over the Gladesville property.
5.On 9 August 2006, pursuant to the Loan Agreement and the Mortgage, National Lending advanced to Helen and Andrew the sum of $200,000. It also lodged a caveat to give notice of its interests in the Property under the Mortgage.
6.It was an express term of the Mortgage that Helen and Andrew each:
mortgages to the mortgagee all the mortgagor’s estate and interest in the above land, and covenants with the mortgagee that the provisions set out in the annexure and/or memorandum specified below are incorporated in this mortgage.
7.The Mortgage, in registrable form, included:
§ An annexure marked “A” providing for the advance of $200,000 on 9 August 2006, the rate of interest in accordance with the Loan Agreement; and
§ A registered memorandum of mortgage numbered Q86000, which included a clause 5 that provided that enforcement costs would be recoverable on a solicitor and client basis.
8.On 17 October 2007, the Register was amended to record the interest of Mr Pascoe as Helen’s trustee in bankruptcy.
9.In early 2007, Helen and Andrew failed to repay the loan or make payments of interest as it accrued.
10.On 26 March 2007, National Lending served on Helen and Andrew, by way of registered mail, a letter enclosing a Notice of Default issued pursuant to s.57(2)(B) of the Real Property Act 1900 and sought the sum of $18,718.32 being $18,468.32 as overdue interest and $250 for a Statutory Notice fee. Despite service of the notice, Helen and Andrew failed to make payments of any sums to National Lending.
11.On 21 September 2007, the Third Respondent, Mr. Reidy, as trustee of the estate of Helen and Andrew’s bankrupt son, Peter, lodged a caveat dated 17 August 2007 claiming an interest in the Property.
12.On 8 October 2007, National Lending lodged a proof of debt against the estate of Helen in the amount of $255,539.96. Mr Pascoe has not rejected that proof at all or in any quantum. According to Helen’s statement of affairs dated 15 October 2006, other unsecured creditors total approximately $48,000. Some $39,000 of this is or was a personal loan from St George Bank.
13.On 9 October 2007, National Lending commenced proceedings against Andrew in the District Court of New South Wales.
14.Andrew did not file or serve a defence. On 4 February 2008, National Lending filed a Notice of Motion for Default Judgment.
15.On 6 February 2008, National Lending obtained judgment against Andrew in the sum of $269,746.63. and $2,652.35 in costs in addition to interest on the judgment debt (the Judgment).
16.On 6 June 2008, National Lending obtained a Writ for Levy issued by the District Court of New South Wales at Sydney for the amount of $281,605.59 enforceable against any property of Andrew.
17.On 19 August 2008, the Writ for Levy on Property was registered in the Register kept under the Real Property Act 1900, pursuant to section 105 of that Act.
18.In or about late February 2009, a Notice of Sale and Judgment Creditors Notice was served on Andrew.
19.None of the monies lent have been repaid by Helen or Andrew.
The evidence before me shows a considerable amount of correspondence between various persons interested in the Gladesville property between 2006 and Mr Pascoe’s present application on 22 February 2010, without any agreement being able to be arrived at as to how the property should be realised for the benefit of the undoubted creditors of Helen and Andrew, and in particular National Lending. The situation has been complicated by reason of the presence on the title of not only the first mortgage to Westpac Bank and the caveat by National Lending in relation to its interests under the documents signed by Helen and Andrew, but also by a caveat by Mr Reidy, who is the trustee of Peter under a sequestration order made on 13 March 2006.
The circumstances of Peter’s bankruptcy are not shown in the evidence before me. Mr Reidy seems to have done little in pursuing a claim against Helen or Andrew or upon the Gladesville property. He did identify a transaction of possible interest to Peter’s estate in bankruptcy, which is recorded in documents obtained by Mr Reidy from the National Australia Bank Limited. They revealed that, prior to Westpac Bank advancing money to Helen and Andrew in early 2006 upon security of the Gladesville property, that property had been used by Peter, Barbara, Helen and Andrew as partial security for funds borrowed from the National Australia Bank. Those funds were secured also on the title of a property owned by Peter and Barbara at Ryde and possibly other property. According to the National Australia Bank records, the liabilities of all four borrowers were fully discharged from the proceeds of a mortgagee sale by the National Australia Bank of the Ryde property. There was also a surplus from the sale of the Ryde property in the sum of $82,520.02. The National Australia Bank documents obtained by Mr Reidy suggest, although the circumstances are left very unclear, that this fund was applied for the benefit of Helen and Andrew when discharging the National Australia Bank security over the Gladesville property and when they made the borrowings from the Westpac Bank which were then secured on the Gladesville property. No interest of Peter or Barbara was noted on the title of the Gladesville property at that time, arising from this transaction.
There is absent from the evidence before me any evidence, whether admissible or otherwise, as to the underlying transactions in 2006 between the four members of the Smirneos family, in relation to how that fund of $82,520.02 came to be used for the benefit of Helen and Andrew when refinancing their Gladesville property. It is quite possible that the fund discharged existing personal obligations by Peter and Barbara owed to their parents, and that the transaction gave rise to no claim or interest by either of them against their parents nor in relation to the Gladesville property.
The present proceedings might appear to have given ample opportunity to Mr Reidy, Helen and Andrew to put complete evidence before the Court as to the underlying transactions, but they have chosen not to take that opportunity. Rather, Helen and Andrew have chosen not to participate in the proceedings, although it seems that they have been receiving legal advice about their position. For his part, Mr Reidy disregarded the Court’s directions for the filing of evidence, and chose not to appear until today’s hearing. He then tendered the totally inconclusive documents obtained from the National Australia Bank. In this situation, National Lending submits that, in the absence of evidence, I should conclude that Mr Reidy has failed to establish any legal or equitable interest of the bankrupt estate of Peter in the Gladesville property or in its proceeds under an order for sale. It submits that I should order him to remove his caveat, and make no provision for the distribution of any of the sales proceeds to him, Peter or Barbara.
I accept that Mr Reidy has failed to present evidence establishing the “equitable interest” in the Gladesville property which he claims in his caveat, despite being given clear notice that this was challenged by both Mr Pascoe and National Lending in the present proceedings. However, neither Peter nor Barbara have been joined as respondents to the proceedings, although it seems highly likely that they are fully aware of them. I therefore consider that today’s orders should not attempt conclusively to determine Mr Reidy’s claim on behalf of Peter’s estate, to an equity in the property or its proceeds arising from the application of the fund of $82,520.02. Nor would it be appropriate to foreclose a possible claim by Barbara in relation to the transaction discovered by Mr Reidy. The evidence before me and the submissions of such parties as have participated in the hearing do not point to any possible larger sum being the subject of any claim by Peter or Barbara on the proceeds of the Gladesville property which could have priority over the claims of Mr Pascoe and National Lending. However, I propose to order that this amount, as well as any residue in relation to Andrew’s share of the net proceeds of sale, should be paid into Court to allow any persons interested in those funds to establish their claims, including Mr Reidy should he think appropriate.
On all the evidence before me, I am satisfied that all persons appearing to claim an interest in the Gladesville property or in the proceeds of its sale have been joined to the present application, and have been properly served. No party who has appeared today has contested that it would be appropriate to appoint trustees for sale of the property, and that vacant possession should be given by Helen and Andrew to allow that sale. I am satisfied that it is appropriate to allow the issue of a writ of possession, if vacant possession cannot be achieved from them promptly by agreement.
Helen and Andrew have been on notice since 2006 that Mr Pascoe has been seeking vacant possession and the sale of the property to allow him to realise Helen’s interest in the property in the interests of her creditors, including National Lending. They have for a long period been on notice that National Lending has been seeking recovery of their borrowings from both of them, including by obtaining judgment against Andrew and enforcement of a writ of execution in relation to the Gladesville property. In practical effect, National Lending has the dominant interest in the proceeds of sale of both of their interests, and has as great an interest as Mr Pascoe in obtaining orders which will achieve this. Correspondence before me indicates that the present application has effectively discouraged the NSW Sheriff from acting upon the writ of execution against Andrew’s interest in the property, leaving National Lending to obtain enforcement against Andrew in the course of the present proceedings.
I am satisfied that National Lending has, in effect, been the moving party, certainly in recent years, to bring the matter to a head, and that it has incurred substantial costs in obtaining the judgment against Andrew, and seeking appropriately to enforce it in the District Court and then in this Court. I am satisfied by the written submissions of its counsel that it has an equitable interest in relation to Andrew’s title to the property, by way of an equitable mortgage or charge arising from the circumstances of his execution of the documents referred to above. It also has established an interest in the proceeds of sale by way of processes of execution arising from its judgment against Andrew for the full amount of the advances to Helen and himself. It is appropriate in the present matter that this Court should give recognition to those processes. I am therefore satisfied that it is appropriate for orders now to be made directing the trustees for sale to distribute to National Lending from Andrew’s share of the net proceeds an amount not exceeding the total amount recoverable under the District Court judgment.
Under the terms of the National Lending mortgage signed by Andrew and Helen, it has a contractual right to recover all its expenses, including legal costs incurred as a consequence of default on the part of the borrowers. I consider it appropriate that those amounts should also be part of the indebtedness which I propose to recognise in my orders when directing distribution of the proceeds of the sale. I consider that National Lending’s legal costs in the present proceedings should also be paid on an indemnity basis, to recognise that contractual liability of Helen and Andrew.
As I have explained above, the National Australia Bank documents presented to me today by Mr Reidy in support of his caveat on the title of the Gladesville property raise no more than a possibility of a claim having passed into Peter’s estate against his parents, giving rise to a constructive trust or other equitable interest in that property or its proceeds. Mr Reidy’s representative today did not oppose the appointment of trustees for sale, but sought appropriate recognition of this claim. For reasons indicated above, I have not been satisfied that I should give a direction to the trustees to advance any of the net sales proceeds to Mr Reidy, or for that matter, to Peter or to Barbara. Enough has been put before me, however, to make it appropriate, in my opinion, to reserve out of the net proceeds a fund which should be paid into Court to await the making of any claims by any person establishing an interest in that fund. This will allow Mr Reidy to decide whether he wishes to present a more fully supported claim.
Nor am I now in a position to determine how any residue from the sales proceeds should be distributed to either Andrew or Helen after the discharge of their creditors and Helen’s bankruptcy. On the present incomplete valuation evidence it is possible, if not probable, that a sale will realise sufficient net funds to pay National Lending’s claim against both Helen and Andrew, to pay other creditors claiming in Helen’s bankrupt estate, and also to cover the expenses of administering that estate. Exactly how National Lending’s claims will be adjusted between Andrew’s share of the net proceeds and the funds to be paid to Mr Pascoe will require future negotiations between the relevant people. However, I shall order that any balance in relation to Andrew’s share should be paid into Court to await any applications by any person claiming an interest in that fund, if any.
I am satisfied that it is appropriate to make orders for the removal of the existing caveats and writs on the title lodged by Mr Reidy and National Lending. They did not oppose this. I shall give general liberty to apply to persons who may wish to clarify or seek further orders.
Essentially, the orders which I am making today, subject to some incidental matters which I ruled upon in the course of the hearing, have been agreed between the counsel who appeared today, and I am indebted for their assistance.
I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 22 June 2010
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