Piscopo v Marsh
[2014] FCCA 1320
•17 October 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| PISCOPO v MARSH | [2014] FCCA 1320 |
| Catchwords: BANKRUPTCY – Death of bankrupt following bankruptcy – real property held by the trustee and the bankrupt’s widow – whether orders can and should be made for the sale of the property considered – whether the widow should be required to pay income contributions from the deceased estate considered – whether the widow should be required to account to the trustee for her administration of the deceased estate considered. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.30, 58, 139U, 139V, 139WA Bankruptcy Regulations 1966 (Cth) |
| Coshott v Prentice [2014] FCAFC 88 Park v Barclay [2010] FMCA 397 |
| Applicant: | SAMUEL PISCOPO |
| Respondent: | AMIRANTI PERDANI MARSH |
| File Number: | SYG 857 of 2014 |
| Judgment of: | Judge Driver |
| Hearing dates: | 5, 6 May, 17, 20, 23 June 2014 |
| Date of Last Submission: | 18 August 2014 |
| Delivered at: | Sydney |
| Delivered on: | 17 October 2014 |
REPRESENTATION
| Solicitors for the Applicant: | Mr T Sullivan Sullivan Fernan Lawyers |
| Counsel for the Respondent: | Mr Stuart |
| Solicitors for the Respondent: | McCullough Buggy Lawyers |
ORDERS
The Court declares that, pursuant to s.58 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), the Applicant is the equitable owner of one half share of the property at 102 Bobbin Head Road, Turramurra NSW 2074 (the property).
In the event that the parties have not agreed on arrangements for the sale of the property within 28 days of the date of these orders, Christopher Damien Darin and Aaron Kevin Lucan be appointed trustees for sale of the property, pursuant to s.66G of the Conveyancing Act 1919 (NSW) (Conveyancing Act) and that those trustees hold the property on the statutory trust for sale pursuant to s.66G of the Conveyancing Act.
In the event that order 2 applies, the following orders shall apply:
(a)the Respondent give vacant possession of the property to the trustees no later than 28 days from the date of appointment of the trustees (the operative date);
(b)the Respondent give to the trustees the certificate of title to the property no later than 28 days from the operative date by delivering that certificate of title to those trustees at the offices of Sullivan Fernan Lawyers at Level 5, 235 Clarence Street, Sydney NSW 2000.
The Respondent not do anything to devalue the property or adversely affect the insurance cover for the property.
The Court declares that the Deceased Estate of the bankrupt is liable for any and all income contributions for which the bankrupt was liable as at the date of his death and which remained unpaid as at the date of his death in accordance with regulation 6.15 of the Bankruptcy Regulations 1996 (Cth) as assessed as at the date of death of the bankrupt and/or at a later date.
Pursuant to s.92 of the Probate and Administration Act 1898 (NSW) (Probate and Administration Act) that within 28 days of the date of these orders the Respondent account to the Applicant for:
(a)all monies being the property of the Deceased Estate of the bankrupt seized by the Respondent either before or after her appointment as Administrator of the Deceased Estate of the bankrupt;
(b)any disposition of those monies; and
(c)all assets being the property of the Deceased Estate of the bankrupt seized or required to be seized and sold by the Respondent as Administrator of the Deceased Estate of the bankrupt.
That within 28 days of the date of these orders the Respondent, as Administrator of the Deceased Estate of the bankrupt, admit the Applicant as a creditor of the Deceased Estate of the bankrupt in the sum of $16,406.24 being income contributions assessed by the Applicant as being payable by the bankrupt from the date of bankruptcy to the date of death of the bankrupt.
Pursuant to s.92 of the Probate and Administration Act that the Respondent make any distribution payable to the Applicant calculated on a pro rata basis with other unsecured and non-priority creditors of the Deceased Estate after the payment of priority debts and expenses from:
(a)all monies being the divisible property of the Deceased Estate of the bankrupt seized by the Respondent either before or after letters of administration of the Deceased Estate of the bankrupt were granted to her; and
(b)the net proceeds of sale of all assets being the divisible property of the Deceased Estate of the bankrupt seized or required to be seized and sold by the Respondent as Administrator of the Deceased Estate of the bankrupt
within 60 days from the date of these orders.
The Applicant has leave and liberty to apply to the Court within 90 days from the date of these orders for an order that the Respondent pay to the Applicant:
(a)all monies received by her or dealt with by her in the course of her administration of the Deceased Estate of the bankrupt; and
(b)all monies received by her or dealt with by her after the death of the bankrupt and before letters of administration of the Deceased Estate of the bankrupt were granted to her
that vested in the Applicant pursuant to s.58 of the Bankruptcy Act.
The Applicant has leave and liberty to apply for an order for costs of these proceedings at any time until the sale of the property pursuant to orders 1-4.
The parties otherwise have liberty to apply for further directions or orders on five days notice.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 857 of 2014
| SAMUEL PISCOPO |
Applicant
And
| AMIRANTI PERDANI MARSH |
Respondent
REASONS FOR JUDGMENT
Introduction and background
The applicant, Samuel Piscopo (trustee), is the trustee of the bankrupt estate of the late Stuart Bruce Marsh (a former barrister). The respondent (Mrs Marsh) is his widow. By application filed on 31 March 2014, the trustee sought orders compelling the sale of a real estate property at 102 Bobbin Head Road, Turramurra, NSW, 2074 (the property) as well as orders:
a)requiring Mrs Marsh to account to the trustee for all moneys received and disbursed or otherwise dealt with by her in the course of her administration of the deceased estate of the bankrupt; and
b)requiring Mrs Marsh as administrator of that deceased estate to pay to the trustee the sum of $16,406.24 as income contributions assessed by the trustee being payable by the bankrupt from the date of the bankruptcy up until the date of the bankrupt’s death.
The matter came to me from the Registrar’s list on 5 May 2014. I commenced hearing the application the following day. It quickly became apparent, however, that there was an issue concerning the Court’s jurisdiction, at least to make orders requiring the sale of the property under the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). There was also a dispute between the parties as to whether genuine steps had been taken to attempt to resolve the dispute between them concerning the property, the deceased estate and the income contributions before the institution of proceedings in the Court. I made orders on 6 May 2014 granting the trustee leave to file and serve an amended application to include a claim under s.18 of the Federal Circuit Court of Australia Act 1999 (Cth) (Federal Circuit Court Act) and the Conveyancing Act 1919 (NSW) (Conveyancing Act) for the relief sought in the application in relation to the property, together with points of claim. I further ordered that no further steps were to be taken in relation to the dispute over the deceased estate and the income contributions until a genuine steps statement was filed and served in accordance with s.6 of the Civil Dispute Resolution Act 2011 (Cth).
The hearing was adjourned to 17 June 2014 and was heard over several days until 23 June 2014. My order concerning a genuine steps statement from the applicant was complied with on 29 May 2014. Points of claim were filed on the same day and amended on 16 June 2014. In addition, the trustee now relies upon an amended application filed in court by leave on 23 June 2014. That application, as amended, seeks the following relief:
1. A declaration pursuant to Section 58 of the Bankruptcy Act 1966 (Cth) that the Applicant is the equitable owner of one half share of the property at 102 Bobbin Head Road, Turramurra NSW 2074 (the property) by operation of Section 58 of the Bankruptcy Act 1966 (Cth).
2. That pursuant to Section 18 of the Federal Circuit Court of Australia Act 1999 (Cth) a trustee or trustees for sale of the property be appointed pursuant to Section 66G of the Conveyancing Act 1919 (NSW) and that that trustee or those trustees hold the property on the statutory trust for sale pursuant to Section 66G of the Conveyancing Act 1919 (NSW).
3. That the Respondent give vacant possession of the property to the trustee or trustees no later than 28 days from the date of these orders.
4. That the Respondent give to the trustee or trustees the certificate of title to the property no later than 28 days from the date of these orders by delivering that certificate of title to that trustee or those trustees at the offices of Sullivan Fernan Lawyers at Level 5, 235 Clarence Street, Sydney NSW 2000.
5.That the Respondent not do anything to devalue the property or adversely affect the insurance cover for the property.
6. In the alternative to order 2 and pursuant to Section 18 of the Federal Circuit Court of Australia Act 1999 (Cth) and [Section] 30 of the Bankruptcy Act 1966 (Cth):
(a) That the property be sold either by private treaty or public auction at the discretion of the Applicant.
(b) That the Applicant be appointed as trustee for the sale of the property.
(c) That the Respondent vacate the property no later than 28 days from the date of these orders.
(d) That the Respondent comply with all reasonable requests by the Applicant or agent of the Applicant with respect to the advertising, marketing and selling of the property.
(e) That the Respondent give to the Applicant all documents in her possession or control which are required by the Applicant to enable the sale and completion of the sale of the property no later than seven (7) days after the Applicant makes such request of the Respondent.
(f) That at the request of the Applicant or of any agent of the Applicant, the Respondent is to sign all documents necessary for the sale and completion of the sale of the property.
(g) That in the event that the Respondent refuses to sign or otherwise does not sign any and all documents that she is required by the Applicant or any agent of the Applicant to sign the Registrar is authorised to sign such documents in the place of the Respondent and any documents so signed will have the same force and affect as if they were signed by the Respondent.
(h) That the Respondent not do any act or thing to delay, hinder, prevent or otherwise adversely affect the sale of the property.
(i) That the Respondent not do any act or thing to delay, hinder, prevent tor otherwise adversely affect the completion of the sale of the property.
(j) That the Applicant account to the Respondent for the proceeds of sale of the property.
(k) That the Applicant pay to the Respondent the Respondent’s net share of the proceeds of sale of the property no later than 28 days after completion of the sale of the property.
7. A declaration that the Deceased Estate of the bankrupt is liable for any and all income contributions for which the bankrupt was liable as at the date of his death and which remained unpaid as at the date of his death in accordance with Regulation 6.15 of the Bankruptcy Regulations 1996 (Cth) as assessed as at the date of death of the bankrupt and/or at a later date.
8. Pursuant to the provisions of Section 18 of the Federal Circuit [Court] of Australia Act 1999 (Cth), Section 30 of the Bankruptcy Act 1966 (Cth) and Section 92 of the Probate and Administration Act 1898 (NSW) that within 28 days of the date of these orders the Respondent account to the Applicant for:
(a) all monies being the property of the Deceased Estate of the bankrupt seized by the Respondent either before or after her appointment at Administrator of the Deceased Estate of the bankrupt;
(b) any disposition of those monies; and
(c) all assets being the property of the Deceased Estate of the bankrupt seized or required to be seized and sold by the Respondent as Administrator of the Deceased Estate of the bankrupt.
9. That within 28 days of the date of these order the Respondent, as Administrator of the Deceased Estate of the bankrupt, admit the Applicant as a creditor of the Deceased Estate of the bankrupt in the sum of $16,406.24 being income contributions assessed by the Applicant as being payable by the bankrupt from the date of bankruptcy to the date of death of the bankrupt.
10. Pursuant to the provisions of Section 18 of the Federal Circuit [Court] of Australia Act 1999 (Cth), Section 30 of the Bankruptcy Act 1966 (Cth) and Section 92 of the Probate and Administration Act 1898 (NSW) that the Respondent make a distribution to the Applicant calculated on a pro rata basis with other unsecured and non-priority creditors of the Deceased Estate after the payment of priority debts and expenses from:
(a) all monies being the divisible property of the Deceased Estate of the bankrupt seized by the Respondent either before or after letters of administration of the Deceased Estate of the bankrupt were granted to her; and
(b) the net proceeds of sale of all assets being the divisible property of the Deceased Estate of the bankrupt seized or required to be seized and sold by the Respondent as Administrator of the Deceased Estate of the bankrupt
within 28 days from the date of these orders.
11. Pursuant to Section 30 of the Bankruptcy Act 1966 (Cth) that the Respondent pay to the Applicant:
(a) all monies received by her or dealt with by her in the course of her administration of the Deceased Estate of the bankrupt; and
(b) all monies received by her or dealt with by her after the death of the bankrupt and before letters of administration of the Deceased Estate of the bankrupt were granted to her
that vested in the Applicant pursuant to Section 58 of the Bankruptcy Act 1966 (Cth) within 28 days from the date of these orders.
12. That the Respondent pay the Applicant’s costs of this Application.
13. Any other orders that the Court deems fit.
Mrs Marsh’s genuine steps statement was filed on 16 June 2014.
The extent and detail of the dispute between the parties only became wholly apparent at the trial of this matter. That may reflect the circumstance that, prior to the death of the late Mr Marsh, the trustee had given him significant latitude to attempt to organise his own affairs. After the death of Mr Marsh and a period of unproductive discussions with Mrs Marsh, relations between the trustee and Mrs Marsh broke down early this year. Mrs Marsh, while conceding that the trustee has an interest in the property, disputes the precise extent of it. She contends that the Court does not have jurisdiction under either the Conveyancing Act or the Federal Circuit Court Act or the Bankruptcy Act to compel the sale of the property and, if the Court does have jurisdiction, she submits that the Court should exercise its discretion not to compel that sale. Further, while Mrs Marsh does not dispute the entitlement of the trustee to levy income contributions, she disputes her liability to pay the amount claimed by the trustee and contests his claim for an account of her administration of the deceased estate.
The pleadings, evidence and submissions
The trustee relies upon the amended application, points of claim and the affidavit of the trustee made on 27 March 2014. The trustee was cross-examined on that affidavit. Mrs Marsh relies upon her response filed on 4 July 2014, as well as her affidavits made on 24 April 2014, 12 June 2014 and 17 June 2014 as well as the affidavits of her solicitor, Joshua Randall made on 14 April 2014 and 16 June 2014.
At the end of the trial of this matter, I gave Mrs Marsh leave to file and serve further evidence, limited to evidence bearing upon the status and legal character of superannuation and life insurance payments received by Mrs Marsh following the death of Mr Marsh, as well as an amended response. Mr Randall made a further affidavit on 3 July 2014 bearing upon that issue. I received that affidavit. I also received affidavits by Christopher Damien Darin and Aaron Kevin Lucan made on 9 July 2014 providing their consent to be appointed trustees for the sale of the property in the event that the Court ordered a sale. The parties made extensive post hearing written submissions.
Consideration
The jurisdiction of the Court
While the parties are in agreement that the trustee has an interest in the property, they are in dispute over the extent of that interest. The dispute centres upon the mortgage over the property and payments made by Mrs Marsh. The trustee contends that he and Mrs Marsh hold the property as tenants in common in equal shares. Mrs Marsh contends that the value of the trustee’s share should be reduced by the extent of the mortgage.
There is no doubt that the Court has jurisdiction to grant declaratory relief to determine the interests of the parties in the property for the purposes of the trustee’s administration of the bankrupt estate under the Bankruptcy Act. Leaving to one side any relevant powers under the Bankruptcy Act, the Federal Court has an inherent power to grant declaratory relief[1]. Unlike the Federal Court, this Court is not a superior court. However, this Court has express statutory power to grant declaratory relief in s.16 of the Federal Circuit Court Act.
[1] see Robert Abrook & Ors and William John East as Administrator of the Family Security Friendly Society v Gregory Patterson & Ors, Chase Manhattan Bank Australia Limited, Bruce Edward Fordman & Ors and Alec Sharpe [1995] FCA 1666
I find that the Court has jurisdiction to deal with the trustee’s claim to declaratory relief.
The more difficult question concerns the Court’s jurisdiction to order the sale of the property. In his initial submissions, the trustee relied upon the decisions of this Court in Park v Barclay[2] and Pascoe v Smith & Anor[3]. As is noted in the respondent’s submissions, regard must be had to the decision of the Full Federal Court in Coshott v Prentice[4]. In that case, there was a contest as to whether the property in question vested in the trustee in bankruptcy at all. In the present case, there is no dispute that the bankrupt’s share of the property vested in the trustee. The Full Court in Coshott found at [100] that s.30 of the Bankruptcy Act does not extend to making orders for the sale of property which is co-owned. Further, at [101], the Court stated:
Equally and for the same reasons, the general powers vested in the Court to grant relief under ss 21, 22 and 23 of the Federal Court of Australia Act 1976 (Cth) and, in the exercise of its appellate jurisdiction, under s 28 of that Act, take the matter no further. Those powers must also be construed by applying the same established presumption with the same result. The submission to the contrary by the trustee in bankruptcy must be rejected.
[2] [2010] FMCA 397
[3] [2011] FMCA 528
[4] [2014] FCAFC 88
Nevertheless, the Full Court found at [105]-[122] in circumstances similar to the present that once it was seized of jurisdiction in a federal matter, the Federal Court has power to make orders pursuant to s.66G of the Conveyancing Act by virtue of the operation of s.79 of the Judiciary Act 1903 (Cth) (Judiciary Act).
This Court’s jurisdiction is effectively co-extensive in bankruptcy with that of the Federal Court. On the authority of the Federal Court decision in Coshott I find that the Court has jurisdiction to order the sale of the property pursuant to s.66G of the Conveyancing Act upon the operation of s.79 of the Judiciary Act. The issue of the extent of the trustee’s interest in the property is properly before the Court under the Bankruptcy Act and the Federal Circuit Court Act and the Court may deal with the whole of the dispute between the parties.
The Court’s jurisdiction to deal with proposed orders 7-11 of the amended application was not put in issue. I have proceeded on the basis that the Court has jurisdiction to make those orders, whether its jurisdiction comes from s.18 of the Federal Circuit Court Act, s.30 of the Bankruptcy Act or s.79 of the Judiciary Act (applying s.92 of the Probate and Administration Act 1898 (NSW) (Probate and Administration Act)). Ultimately those orders rely in part on the State Act, which in my view probably applies by virtue of s.79 of the Judiciary Act.
What is the trustee’s interest in the property?
When the estate of the late Mr Marsh was sequestrated, pursuant to s.58 of the Bankruptcy Act, his assets (other than protected assets) vested in his trustee in bankruptcy. The joint tenancy which had existed in the property between the late Mr Marsh and Mrs Marsh was severed and thereafter they held the property as tenants in common in equal shares. That does not mean, however, that the interest of the trustee was left unmodified by circumvening events. The property was subject to a mortgage in favour of the Suncorp Bank (Suncorp Metway). Initially, the mortgage was the responsibility of Mr Marsh (and hence the trustee) as well as Mrs Marsh. Mrs Marsh had also given a deed of guarantee and indemnity to Suncorp Metway. However, on 6 December 2013, with the consent of the trustee, Suncorp Metway’s mortgage was assigned to Mrs Marsh. At that time there was a debt of $367,163.62. The trustee consented to the assignment on the basis that he would have no continuing liability in respect of the mortgage. The trustee nevertheless accepts that he should account to Mrs Marsh for half the mortgage debt, namely $183,581.81. Mrs Marsh contends that the entire mortgage debt should be allowed against the trustee’s interest in the property.
I accept the trustee’s submission that the mortgage debt was never solely attributable to the bankrupt and that the mortgage debt should be held against the value of the property as a whole. Mrs Marsh is, however, entitled to the benefit of her payment to Suncorp Metway in consideration of the assignment of the mortgage to her. In that regard, I accept from the last affidavit of Mr Randall that the late Mr Marsh’s superannuation and life insurance entitlements were properly paid to Mrs Marsh. I also accept that she applied that money (being then her own money) to pay for the assignment of the mortgage to her from Suncorp Metway. As mortgagee, Mrs Marsh is entitled to be paid the value of the mortgage either directly by the trustee (which is unlikely) or from the proceeds of the sale of the property. Nevertheless, the trustee is entitled to set off against that liability half of the value of the mortgage that was always Mrs Marsh’s responsibility.
I will make the declaration sought by the trustee with that clarification.
Should orders be made compelling the sale of the property?
The bankruptcy administration is now approaching its fourth anniversary. The parties have negotiated, and I find have negotiated in good faith, but they have been unable to reach agreement on the purchase of the trustee’s share of the property by Mrs Marsh. The trustee’s frustration at the lack of resolution of those negotiations has been a significant cause of the present litigation.
Section 66G of the Conveyancing Act is in the following terms:
(1) Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.
(1A) Subject to this section, on the death of a co-owner, any proceedings by or against the co-owner under subsection (1) (whether instituted before or after the commencement of this subsection) survive against or for the benefit of the estate of the deceased co-owner despite, in the case of a joint tenancy, the rule of survivorship.
(2) Where the entirety of the property is vested in trustees or personal representatives, those trustees or personal representatives shall, unless the court otherwise determines, be appointed trustees on either of such statutory trusts, but subject, in the case of personal representatives, to their rights and powers for the purposes of administration.
(3)
(a) Where the entirety of the property is vested at law in co-owners the court may appoint a trust corporation either alone or with one or two individuals (whether or not being co-owners), or two or more individuals, not exceeding four (whether or not including one or more of the co-owners), to be trustees of the property on either of such statutory trusts.
(b) On such appointment the property shall, subject to the provisions of section 78 of the Trustee Act 1925 , vest in the trustees.
(4) If, on an application for the appointment of trustees on the statutory trust for sale, any of the co-owners satisfies the court that partition of the property would be more beneficial for the co-owners interested to the extent of upwards of a moiety in value than sale, the court may, with the consent of the incumbrancers of the entirety (if any), appoint trustees of the property on the statutory trust for partition, or as to part of the property on the statutory trust for sale, and as to part on the statutory trust for partition, but a purchaser shall not be concerned to see or inquire whether any such consent as aforesaid has been given.
(5)
(a) When such trustees for partition have prepared a scheme of partition they shall serve notice in writing thereof on all the co-owners of the age of eighteen years or upwards, and any of such co-owners dissatisfied with the scheme may, within one month after service upon him or her of such notice, apply to the court for a variation of the same.
(b) Where any of the co-owners is a person under mental disability, the notice shall be served on the person charged by law with the management and care of the property of the person under mental disability or, if there is no person so charged, on such officer of the court as may be prescribed by rules of court.
(c) Where any of the co-owners is a minor or a person who cannot be found or ascertained, or as to whom it is uncertain whether the co-owner is living or dead, the trustees may act on behalf of the minor or person, and retain land or other property to represent the co-owner’s share.
(6) In relation to the sale or partition of property held in co-ownership, the court may alter such statutory trusts, and the trust so altered shall be deemed to be the statutory trust in relation to that property.
(7) Where property becomes subject to such statutory trust for sale:
(a) in the case of joint tenancy, a sale under the trust shall not of itself effect a severance of that tenancy,
(b) in any case land shall be deemed to be converted upon the appointment of trustees for sale unless the court otherwise directs.
(8) This section applies to property held in co-ownership at the commencement of the Conveyancing (Amendment) Act 1930 and to property which becomes so held after such commencement.
(9) This section does not apply to property in respect of which a subsisting contract for sale (whether made under an order in a suit for partition, or by or on behalf of all the co-owners) is in force at the commencement of the Conveyancing (Amendment) Act 1930 if the contract is completed in due course, nor to land in respect of which a suit for partition is pending at such commencement if a decree for a partition or sale is subsequently made in such suit.
The trustee has a right to require Mrs Marsh to sell the property and, in the absence of her agreeing to sell, he can seek an order pursuant to s.66G of the Conveyancing Act for sale which Mrs Marsh could only successfully oppose in limited circumstances, which the trustee submits do not exist in this matter. There is an instructive exposition of the rights of the parties by his Honour Black J in Scott Darren Pascoe as trustee of the property of Arthur Linden Dyason, a bankrupt v Lindsey Jane Dyason & Ors[5], Black J also outlined the limited circumstances in which the Respondent can resist an order for sale of the property and I accept that those circumstances do not exist here. As Black J said at [1]:
[5] [2011] NSWSC 1217 (14 October 2011) (Dyason)
In these proceedings, the First Plaintiff (as trustee of the property of Arthur Linden Dyason, a bankrupt (“Mr Dyason”)) and Second Plaintiff (formerly also a trustee of Mr Dyason's property, who was joined as second plaintiff by orders made nunc pro tunc during the proceedings) seek orders under s 66G of the Conveyancing Act 1919 for a trustee to be appointed for the sale of a property situated at Martells Road, Brierfield and identified as Lot 31 in Deposited Plan 707896 (“the Property”). The Property is presently registered as tenants in common in the names of Lindsey Jane Dyason, the First Defendant (“Mrs Dyason”) on the one hand and the Plaintiffs on the other. The Plaintiffs also seek various ancillary orders.
The Second Defendant, Mr Dyason, appeared in person before me…[The First Defendant, Mrs Dyason, did not make an appearance and was unrepresented.]
The purpose of [s 66G of the Conveyancing Act] is “to provide a mechanism for terminating the co-ownership [of property] where the co-owners themselves cannot agree on how the co-ownership should be determined”: P Butt, Land Law , 6 th ed, 2010 at 265…
Although the Court has a discretion whether or not to make an order under this section, the grounds on which the Court will ordinarily refuse to make it are limited. For example, if it is inconsistent with a proprietary right or a contractual or fiduciary obligation, and there is no general jurisdiction to refuse to grant such an order on the basis of hardship or unfairness … In Hogan v Baseden (1997) 8 BPR 15,723 at 15,723, Mason P observed that it “would not be a proper exercise of discretion of the power to decline relief under s 66G ... to refuse an application on grounds of hardship or general unfairness.”
…In Cain v Cain [2007] NSWSC 623 at [9]- [10], Young CJ in Eq noted that the Court will usually consider it appropriate to make an order under s 66G of the Conveyancing Act unless persuaded by cogent arguments from those who oppose. His Honour then noted Counsel's summary of the categories of cases in which the Court has declined to grant such an order as including: where the legal title is held by trustees and the trust instrument contains its own procedure for sale; where the plaintiff's conduct rates as an estoppel against the sale; and where an order would be incompatible with a contractual or equitable duty binding the applicant. In Tory v Tory [2007] NSWSC 1078 at [42], White J noted that an order under s 66G of the Conveyancing Act “is almost as of right unless on settled principles it would be inequitable to allow the application,” and observed that an application would be refused if making the order would be inconsistent with a proprietary right or contractual or fiduciary obligation or on the basis of conventional estoppel or equitable estoppel. In Spathis v Nanos [2008] NSWSC 418 at [19]- [20], Jagot AJ observed that the discretion was not at large and is not to be exercised by reference to personal views about hardship or unfairness. The Court of Appeal also noted that the discretion to refuse relief under s 66G of the Conveyancing Act was a “limited one” in Ross v Ross [2010] NSWCA 301 at [36]; see also National Australia Bank Ltd v Pasupati [2011] NSWSC 540 at [20].
The first ground of the Defence filed by Mr and Mrs Dyason is that:
“The subject property has no equity available to the trustee …”
[However,] even if the possibility or probability that a sale of the property would not realise value for the Plaintiffs were established, I do not consider that this would provide a basis for declining to appoint trustees for sale on a co-owners' application under s 66G of the Conveyancing Act on the basis of the principles to which I have referred above.
The second ground of the Defence filed by Mr and Mrs Dyason is that:
“The subject property purchased in 1999 is an asset of the partnership...”
…
It is likely that the Statement of Affairs would have been accurate, since s 267(2) of the Bankruptcy Act provides that a person must not sign a declaration that he or she knows to be false and a note to that effect was included immediately above Mr Dyason's signature in the Statement of Affairs.
… Mr Dyason relied on the proposition that the Property was an asset of the partnership as a matter relevant to the exercise of the Court's discretion whether to make an order under s 66G of the Conveyancing Act, and I have referred above to the limited character of that direction. Mr Dyason contended that, if the Plaintiffs had previously distributed assets of the partnership in accordance with s 44 of the Partnership Act, then costs which have subsequently been incurred in the bankruptcy would not have been incurred. It is by no means self-evident that such costs would not have been incurred, particularly where there is little evidence before me as to the nature of the costs which have in fact been incurred by the Plaintiffs in the course of the bankruptcy. In any event, even if that were the case, it would not establish a basis for declining to make an order under s 66G of the Conveyancing Act having regard to the authorities to which I referred above.
The third ground of the Defence filed by Mr and Mrs Dyason is that:
“The Defendants do not wish to sell their home of the Defendants and their 3 children (Adam 18, Natasha 16 and Edward 14 years of age). A farm worker lives in the shed on the subject property.”
It is, of course, always regrettable if a family home needs to be sold as a consequence of bankruptcy. However, the case law makes clear that this does not provide a basis for declining to make orders under s 66G of the Conveyancing Act.
The Plaintiffs have been successful in the proceedings and the Defendants should jointly and severally pay their costs of the proceedings. It is appropriate that this order be extended to Mrs Dyason since, although she did not appear at the hearing, she also did not submit to any order of the Court and the Plaintiffs were therefore required to pursue their claim against her.
Mrs Marsh opposes an order for sale of the property pursuant to s.66G or at all on the grounds that the trustee has failed “to act in a reasonable fashion”[6] and requests the Court to exercise its discretion accordingly[7]. The trustee says that he has not failed to act reasonably but that, in any event, if he has done so, that is not a ground on which the Court can exercise its discretion when considering making an order for sale of the property.
[6] Mrs Marsh’s Points of Claim at [12]
[7] Mrs Marsh’s Points of Claim at [40]
Mrs Marsh has given evidence that she does not wish to sell the property and would prefer to purchase from the trustee his share of the property[8].
[8] T: p222 (17-20)
The trustee submits that Mrs Marsh’s preference is not a reason for the Court to exercise its discretion against an order for sale of the property.
Mrs Marsh and her solicitor concede that the trustee was very understanding in his dealings with Mrs Marsh and provided assistance and support to her up to January 2014[9].
[9] T: p16(43); AM [1] –[53]
This suggests that the trustee’s “failure to act in a reasonable fashion” must have occurred since January 2014.
Mrs Marsh contends that the conduct of the trustee should influence the Court to refrain from exercising its power. She contends that the trustee failed to obtain a proper valuation of the property or to make a reasonable offer or accept offers made by her. There have been at least three valuations obtained. While Mrs Marsh does not accept those as reliable, they were sufficient to provide a basis for negotiations between the parties. As is detailed in her submissions at [77], there have been not less than nine offers (mostly by Mrs Marsh) to purchase the property but the parties have not been able to reach agreement.
The fact that those negotiations have become protracted and have proved unsuccessful should not, in my view, be laid at the feet of the trustee as his fault. All of the offers made by Mrs Marsh have been modest ones, based upon a low valuation and, in my opinion, influenced by her proposition that the entire value of the mortgage should be held against the interest of the trustee. Having resolved the issue in dispute between the parties as to the value of the trustee’s interest, it would be appropriate to provide Mrs Marsh with a further limited opportunity to make a final offer to the trustee. That offer should be made and responded to within 28 days. If the offer is not accepted, then the only way of determining the true value of the property is to sell it. Mrs Marsh has always resisted the sale of the property but in circumstances where co-owners cannot agree on a sale between them the only rational solution is a sale to another person. The length of time that the issue has been left unresolved, and the fruitless, and ultimately hostile, discussions between the parties about the future of the property leads me to the view that orders for sale should be made, conditional upon the non acceptance of any final offer.
I accept that Mr Lucan and Mr Darin may properly be appointed trustees to administer the sale.
I will grant the relief sought by the trustee pursuant to the Conveyancing Act.
The income contributions
Much of the time in these proceedings involved the trustee’s claim for income contributions.
The trustee has not claimed relief under s.139U or s.139V of the Bankruptcy Act.
Although the proceedings were commenced on 31 March 2014, it was not until the 29 May 2014, that the trustee filed points of claim and 23 June 2014, that he filed an amended application.
The amended application includes claims in respect of income contributions at [7]-[11]. The trustee’s points of claim deal with the issue of income contributions commencing page 2 and ending at page 9. The total amount sought by the trustee is $16,406.24.
Mrs Marsh has not disputed the trustee’s entitlement to income contributions and acknowledges that the trustee is to be admitted as a creditor of the deceased estate in respect of the claim[10].
[10] JR2 letter to trustee’s solicitors 2 May 2014 page 38; JR2 letter to trustee’s solicitor 7 May 2014 page 41; affidavit in support of grant of probate filed in the Supreme Court
Mrs Marsh accepts that on 7 May 2012, the trustee sent her a letter revising income contributions sought to $8,564.84.
The trustee did not further correspond regarding those income contributions until January 2014[11].
[11] PS1 158 letter from trustee to Mrs Marsh’s solicitor dated 24 January 2014
At that time the trustee requested a statement showing how assets of the deceased estate were distributed.
On 25 February 2014, the trustee’s solicitors wrote to Mrs Marsh’s solicitors and indicated that rather than $8,564.84 in outstanding income contributions, the trustee sought $16,406.24[12].
[12] PS1 150
Mrs Marsh has conceded that prior to January 2014 in his dealings with her the trustee was very understanding and very accommodating[13].
[13] T: p16(1–5), p35(1-3), p258(34–35)
The trustee reassessed the income contributions payable by the bankrupt for the first year of his bankruptcy as being $8,564.84. That reassessment was not disputed by the bankrupt during his lifetime, and has not been disputed by Mrs Marsh at any time.
There is no dispute that the bankrupt did not pay the income contributions for his first year of bankruptcy.
The bankrupt died on 11 April 2012.
There is no dispute that Mrs Marsh has not paid the income contributions for the first year of bankruptcy either in her capacity as administrator of the deceased estate of the bankrupt or otherwise.
Mrs Marsh’s Summons for Letters of Administration was provided to the trustee by Mrs Marsh’s solicitors under cover of a letter dated 14 September 2012[14]. The documents in support of the Summons provided to the trustee included Mrs Marsh’s affidavit of 26 June 2012[15].
[14] Annexure “F” to the affidavit of JR dated 14 April 2014
[15] JR 1 Annexure “F”
Mrs Marsh has admitted in her affidavit of 26 June 2012, sworn in support of her Summons for Letters of Administration of the deceased estate of the bankrupt, that the outstanding income contributions for the first year of bankruptcy are a debt of the deceased estate[16].
[16] SP Annexure “R”
There is no evidence that the trustee has at any time disclaimed his right to be paid the income contribution for the first year of bankruptcy and at no time has the trustee advised Mrs Marsh and, prior to Mrs Marsh, the bankrupt, that he did not require payment of the income contribution for the first year of bankruptcy.
Mrs Marsh’s affidavit of 26 June 2012 shows that the deceased estate had a net value of $34,245.95. That alleged net value took account of all of the debts of the deceased estate as set out in Mrs Marsh’s affidavit.
That affidavit showed to the trustee that the deceased estate of the bankrupt had the capacity to not only pay the income contributions for the first year of bankruptcy, but also, at that time, to pay the income contributions for the second year of bankruptcy, even though at the time that the trustee received that affidavit, he had not reassessed the income contributions for the second year of bankruptcy, which up to that time he had assessed at nil.
On 25 February 2014 the trustee’s solicitors wrote to Mrs Marsh’s solicitors requesting from Mrs Marsh immediate payment of income contributions in the total sum of $16,406.24[17].
[17] JR 1 Annexure “EE”
On 28 February 2014 the trustee wrote to Mrs Marsh clarifying how the outstanding income contributions of $16,406.24 had been calculated[18].
[18] SP Annexure “T”
At no time prior to 25 February 2014 did Mrs Marsh or her solicitors advise that the deceased estate of the bankrupt had been distributed either in whole or in part.
On 3 March 2014 the trustee’s solicitors wrote again to Mrs Marsh’s solicitors demanding that income contributions in the total sum of $16,406.24 be paid immediately[19].
[19] JR 1 Annexure (unmarked, but numbered as page 7 (an apparent error))
There is no evidence that, before the trustee’s solicitors wrote to Mrs Marsh’s solicitors on 3 March 2014 either Mrs Marsh or her solicitors had advised the trustee that there were not sufficient funds in the deceased estate of the bankrupt to pay the income contributions of $16,406.24.
On 3 March 2014 Mrs Marsh’s solicitors wrote to the trustee’s solicitors in which Mrs Marsh’s solicitors, among other things, noted that:
Your letter dated 25 February 2014 was the first notification that the alleged income contributions had increased to $16,406.24. No explanation of your client’s past acknowledgement has yet been provided.”
Nothing was said in that letter with respect to the deceased estate of the bankrupt having the capacity or otherwise to meet payment of any income contributions assessed by the trustee[20].
[20] JR 1 Annexure “HH”
On 4 March 2014 the trustee’s solicitors wrote to Mrs Marsh’s solicitors. In that letter, the trustee’s solicitors provided an explanation to Mrs Marsh’s solicitors of how the income contributions payable by the bankrupt and sought from the proceeds of the deceased estate of the bankrupt by the trustee had been reassessed at a total of $16,406.24[21].
[21] JR 1 Annexure (unmarked, but numbered page 13 (second page 13))
On 11 March 2014 Mrs Marsh’s solicitors wrote to the trustee’s solicitors advising, among other things:
Your client has previously represented to this firm that the only outstanding amount for income contribution by the late Mr Marsh was in an amount of $8,564.84. Our client has relied upon that information and it is not her fault that your client was allegedly provided with incorrect advice.
There was nothing in that letter advising of why the sum of $8,564.84 had not been paid to the trustee or why that amount or the re-assessed amount of $16,406.24 could not be paid to the trustee from the deceased estate of the bankrupt. There was no representation in that letter to the effect that the reassessment caused any particular prejudice to Mrs Marsh[22].
[22] JR 1 Annexure “JJ”
Mrs Marsh’s evidence as to whether there has been a distribution of the deceased estate of the bankrupt is conflicting. Mrs Marsh has given evidence that there is a deficiency in the deceased estate but also gave evidence that she has spent all the funds in the deceased estate on living expenses and kept the bankrupt’s BMW motor car as her own on the basis that the trustee “gave it to her”. The trustee submits that there has in fact been a distribution of the deceased estate of the bankrupt through Mrs Marsh taking funds from the deceased bankrupt’s bank account for her own purposes and taking the BMW as her own. He submits that that was in breach of her fiduciary duties as the administrator of the deceased estate as she had not accounted to creditors of the deceased estate before doing so[23].
[23] T: p226(42) – p227(42), p250(27) – p251(18), p304(25 – 47)
The trustee is entitled to reassess income contributions at any time in accordance with s.139WA of the Bankruptcy Act.
As at 25 February 2014 the information provided to the trustee by Mrs Marsh with respect to the assets and liabilities of the deceased estate of the bankrupt was only the Summons for Letters of Administration which included her affidavit of 26 June 2012.
The reassessment for the second year of bankruptcy may have been higher if Mrs Marsh had accounted to the trustee for approximately $50,000.00 in debts payable by solicitors and which were disclosed in the bankrupt’s Statement of Affairs. The trustee submits that Mrs Marsh’s evidence in re-examination that the collection of those debts is disclosed in the bankrupt’s income tax return for 2010 is not credible as that income tax return relates to a period before bankruptcy and therefore is not relevant to the issue, given that the bankrupt declared income on the basis of receipts and not accruals[24]. I accept that submission.
[24] T: p198(3) – p199(1), p275(5 – 18)
Proceedings were issued in this matter on 29 March 2014 and in those proceedings the trustee sought payment from Mrs Marsh, either in her capacity as administrator of the deceased estate of the bankrupt or in her personal capacity because of Mrs Marsh’s failure to comply with the provisions of s.92 of the Probate and Administration Act, of the sum of $16,406.24 for outstanding income contributions.
It was not until the matter was before the Court that Mrs Marsh’s solicitor advised the Court and, consequently, the trustee, that the deceased estate of the bankrupt did not have the capacity to pay the income contributions assessed by the trustee although there appears to be no reason why the bankrupt’s BMW has not been sold to pay the income contributions at least in part. No explanation was provided at that time as to why the affidavit of Mrs Marsh of 26 June 2012 was wrong and there was no initial acknowledgement that the affidavit was incorrect and misleading of the trustee but there were such acknowledgements later in the proceedings[25]:
[25] T: p93(4 – 41), p8(45) – p9(27), p29(9) – p34(41), p195(38) – p196(28)
MR STUART: For the purposes of the – well, look I probably didn’t cross-examine the applicant on that, but it’s clear that there’s some errors in the affidavit as to administration.
HIS HONOUR: Yes.
MR STUART: That was filed in the Supreme Court and I don’t know if that’s conceded or not.
HIS HONOUR: Errors in whose affidavit?
…
MR STUART: And it is actually an affidavit that the respondent had drafted for her by Mr Randall for the purposes of obtaining the grant of probate.
…
HIS HONOUR: All right. What do you say the error is?
MR STUART: Well, there are numerous.
The trustee submits that if Mrs Marsh made errors in the Summons for Letters of Administration which were prepared on her behalf by her solicitors, and that, therefore, the trustee could not rely on the Letters of Administration on account of the errors, then Mrs Marsh as a fiduciary had a positive duty that she show to the trustee cogent evidence of why those Letters of Administration were incorrect and why the trustee could not rely on them and, further, why the trustee should not have any expectation with respect to receiving the whole of the income contributions sought by him.
The trustee submits that the provision of such evidence is an essential aspect of Mrs Marsh’s duty as administrator of the deceased estate in circumstances where a different position with respect to the deceased estate had been represented to the trustee. Mrs Marsh’s solicitor made admissions about previous material provided to the trustee failing to show the correct financial position of the deceased estate of the bankrupt[26]. I agree that if the income contributions are properly payable, then the capacity of the deceased estate to pay them needs to be clarified.
[26] T: p8(45) – p9(27), p29(18) – p32(25), p93(5) – p94(34)
The trustee seeks an order “That the Respondent account to the Applicant for all monies received and disbursed by her or otherwise dealt with by her in the course of her administration of the deceased estate of the bankrupt”. The trustee submits that that is a fundamental requirement of Mrs Marsh if she wants the trustee and the Court to accept that the affidavit sworn by her on 26 June 2012 was not correct and was misleading and that such an order is merely mandating that Mrs Marsh discharge her duties as administrator of the deceased estate and what is required by her to support the case that she has sought to make out in these proceedings regarding the outstanding income contributions. I accept that submission.
Paragraph 4.6 of Schedule 4A of the Bankruptcy Regulations 1966 (Cth) provides:
The trustee must … if necessary, take appropriate steps to recover contributions that remain unpaid after the time for payment has passed.
Mrs Marsh gave evidence that she spent the net amount of funds left in the deceased estate of the bankrupt as declared in her affidavit of 26 June 2012 sworn in support of her Summons for Letters of Administration on living expenses knowing that those funds should have been used to pay the creditors of the deceased estate of the bankrupt[27].
[27] T: p240(43) – p241(34)
The trustee submits, and I accept, that by Mrs Marsh taking funds and using funds from the bank accounts of the deceased estate of the bankrupt which formed part of the assets of the deceased estate of the bankrupt, she has caused a distribution of the deceased estate to be made as she is the sole beneficiary of the deceased estate. The trustee submits and I accept that as there has been a distribution of the deceased estate of the bankrupt, Mrs Marsh remains liable to all creditors of the deceased estate of the bankrupt, including the trustee for the amount of the income contributions, to the extent that the deceased estate of the bankrupt had the capacity as at the date of death of the bankrupt to pay those creditors because of the operation of s.92 of the Probate and Administration Act. As the NSW Supreme Court said in McGrath v Troy as administratrix of the estate of the Late Warren Terence Wade[28]:
The Act does not protect against claims or demands of which the administrator has notice or knowledge. If the administrator knows or has notice of facts which entitle a person to distribution of the estate, or knows or has notice of a demand, then he or she distributes at his or her peril.
[28] [2010] NSWSC 1470 (24 November 2010) at [99]
The trustee submits and I accept that he has never been given an accounting of the deceased estate of the bankrupt either in its incorrect state as set out in the Summons for Letters of Administration or in its correct state, whatever that is shown to be and that he has a statutory duty to pursue payment of the income contributions as assessed by him as being $16,406.24 pursuant to his obligations as a trustee in bankruptcy to the extent that those income contributions can be paid.
Mrs Marsh contends that at no stage had she denied the trustee’s entitlement to income contributions or denied her obligations to provide an accounting to the trustee of how the proceeds of the deceased estate were distributed.
Mrs Marsh submits that proceedings on the issue of unpaid income contributions were commenced without adequate justification.
Mrs Marsh maintains that the claim for income contributions being agitated in these proceedings, cannot be justified because:
a)the trustee is administering the assets of the deceased estate under the supervision of the Supreme Court of NSW. In the interests of comity, this Court should not interfere with that process;
b)prior to the institution of these proceedings, the trustee made one single request for details of how the monies in the deceased estate had been disbursed;
c)the trustee acknowledges that he does not know whether or not the monies in the deceased estate have been disbursed;
d)Mrs Marsh does not dispute the trustee’s entitlement to claim income contributions;
e)the trustee made no genuine attempt to resolve the matter before the institution of the proceedings regarding unpaid income contributions nor filed a Genuine Steps Statement before the institution of these proceedings.
I reject those contentions and prefer the submission of the trustee concerning the income contributions and the need for Mrs Marsh to account to the trustee for her administration of the deceased estate.
In my view, the administration of the deceased estate by Mrs Marsh has been opaque. Her legal representatives have conceded errors on her part relating to the BMW motor vehicle and otherwise. I find that the income contributions levied by the trustee against the bankrupt were properly made and that Mrs Marsh should account to the trustee for her administration of the deceased estate, in order to determine whether that estate is solvent and can meet the income contributions. If the estate cannot meet those contributions because Mrs Marsh has taken and used the funds in the deceased estate for her own personal use then the trustee should be entitled to claim them from Mrs Marsh’s share of the proceeds of the sale of the property.
I consider that it is premature to make order 11 sought in the application. There is presently no way of knowing whether there is any money held by Mrs Marsh that vested in the applicant trustee. I will, however, give the trustee leave and liberty to seek that order within 90 days if it appears to him to be necessary.
Proof of debt
Mrs Marsh lodged a proof of debt with the trustee well after the present proceedings were commenced, on 12 June 2014. In my view, the proof of debt is not relevant to any issue in these proceedings. The trustee has not ruled on that proof of debt. If he rules to reject the proof or to admit it only in part, Mrs Marsh can take further proceedings.
Costs
Both parties have sought their costs of the proceedings. The proceedings have come about because of the inability of the parties to resolve the issues in dispute between them by negotiation. The issues were complex and the negotiations protracted and ultimately acrimonious. Nevertheless, I have found that the parties negotiated in good faith, albeit that they were unable to reach agreement. The jurisdiction of the Court has been properly invoked to break the impasse.
The trustee’s case was not well prepared and the full extent of the issues to be resolved were not identified until the case had been properly pleaded and the issues explored at the trial. Even then, evidence was required after the trial and extensive post hearing submissions were required.
Mrs Marsh was represented on a pro bono basis and I have been assisted by her submissions. The issue of the Court’s jurisdiction was a matter of significance. The trustee has obtained in substance the orders he sought and will ultimately have the benefit of the release to him of value of his equity in the property. Provided that Mrs Marsh does not breach the orders in relation to the sale of the property, in my view, there should be no order as to costs. I will, however, grant the trustee liberty to apply to revisit that issue should there be an issue of non compliance by Mrs Marsh.
I certify that the preceding eighty-one (81) paragraphs are a true copy of the reasons for judgment of Judge Driver
Associate:
Date: 17 October 2014
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