Re Lucera; Ex parte Official Trustee in Bankruptcy v Lucera

Re: GUISEPPE LUCERA A Bankrupt
Ex Parte: THE OFFICIAL TRUSTEE IN BANKRUPTCY Applicant, NINFA LUCERA First
Respondent, REGISTRAR OF TITLES Second Respondent and GUISEPPE LUCERA The
Bankrupt
No. VB 1524 of 1988
Number of pages - 12

(1994) 53 FCR 329

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
GENERAL DIVISION
OLNEY J

HEARING

MELBOURNE, 1 September 1994
#DATE 5:10:1994
#ADD 12:7:1995

Mr R. Frazzetto (instructed by the Australian Government Solicitor) appeared for the applicant.

Mr R. Berglund (instructed by Kenyons appeared for the first respondent.

The second respondent and the bankrupt did not appear.

JUDGE1

OLNEY J The applicant (the trustee) is the trustee in bankruptcy of the estate of Guiseppe Lucera (the bankrupt) who became a bankrupt on 12 December 1988.

The bankrupt and his wife (Mrs Lucera) were formerly the registered proprietors of a house property at 11 Riddle Street Fawkner (the land) which they held as joint tenants until 2 July 1987 when the land was transferred into Mrs Lucera's name as sole proprietor. The transfer was expressed to be "in consideration of a gift" and it is common cause that by operation of s 120 of the Bankruptcy Act 1966 the transfer is void as against the trustee.
Subdivision J of Division 4B of Part VI of the Bankruptcy Act (subdivision J) which is comprised of ss 139ZQ to 139ZT, deals with the collection of money or property by the Official Receiver from parties to transactions that are void against a trustee in bankruptcy. It came into operation on 1 July 1992.
Section 139ZQ provides:

139ZQ(1) If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the official Receiver:

(a) if the Official Trustee is the trustee - on the initiative of the Official Receiver; or

(b) if a registered trustee is the trustee - on application by the trustee;

may require the person, by written notice given to the person, to pay to the trustee an amount equal to the money or the value of the property received.

(2) The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee.

(3) The notice may:

(a) require the amount to be paid at a time or within a period set out in the notice; or

(b) require the amount to be paid at such times, and in such instalments, as are set out in the notice.

(4) After the Official Receiver has given a notice to a person under subsection (1), the Official Receiver may at any time, by a further notice given to the person, revoke or amend the first-mentioned notice.

(5) If the Official Receiver gives a notice under this section, the Official Receiver must send a copy of the notice to the bankrupt and, if a registered trustee is the trustee, to the trustee.

(6) A notice to be given under this section to the Commonwealth, a State or a Territory, or to an authority of the Commonwealth, of a State or of a Territory, is taken to be duly given if it is given to a person who, by any law, regulation, appointment or authority, has the function of paying, or in fact pays, money on behalf of a Department of the Commonwealth, of that State or of that Territory, or on behalf of the authority, as the case may be.

(7) If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee.

(8) An amount payable by a person to the trustee under this section is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction.

On 16 September 1992 the Official Receiver in Bankruptcy for the Bankruptcy District of Victoria (the Official Receiver) caused to be served upon Mrs Lucera a notice (the notice) the relevant parts of which were in the following form:

BANKRUPTCY ACT 1996
INSOLVENCY AND TRUSTEE SERVICE, AUSTRALIA
OFFICIAL RECEIVER'S OFFICE
MELBOURNE
NOTICE UNDER SECTION 139ZQ
Bankruptcy District of the ) NO: VG 1524 of 1988/5
State of Victoria ) RE: Bankrupt Estate of Guiseppe Lucera
TO: Ninfa Lucera
11 Riddle Street
FAWKNER VIC 3060

TAKE NOTICE that I, ALISTAIR ASHLEY PAGE, of 470 Collins Street, Melbourne, Official Receiver for the abovenamed Bankruptcy District, hereby give notice that you, being a person who has received property from Guiseppe Lucera of 11 Riddle Street, Fawkner in the State of Victoria as a result of Guiseppe Lucera transferring ("the transactions) to you of his interest in the property at 11 Riddle Street, Fawkner in the State of Victoria, more particularly described in Certificate of Title Volume 8629 Folio 085 ("the property") are required to pay to the Official Trustee, of 10th Floor, 470 Collins Street, Melbourne the sum of fifty thousand dollars being the value of the property received by you.

The facts and circumstances by which I consider that the transaction is void under section 120 of the Bankruptcy Act 1966 are as follows:

1. Guiseppe Lucera ("the bankrupt") was declared bankrupt by way of a sequestration order dated 12 December 1988. The Official Trustee is trustee of the bankrupt estate of the bankrupt.

2. On 27 May 1976 the bankrupt and yourself were registered as joint proprietors of the property.

3. On 15 April 1987 the bankrupt transferred his half share in the property to you. The Transfer of Land form shows that the consideration was "in consideration of a gift".

4. On 2 July 1987, you were registered as the Bole proprietor of the property.

5. On 21 January 1991 a caveat was lodged on the title to the property by the Australian Government Solicitor on behalf of the Official Trustee.

On 7 November 1990 you made an offer of $20,000.00 to the Official Trustee to purchase the Official Trustee equity in the property. This offer was put to a meeting of creditors of the bankrupt estate on 14 February 1991 and was rejected.

7. On 18 April 1991 the Australian Government Solicitor wrote to you requesting that you make a better offer, as your previous offer had been rejected by the creditors.

8. On 19 September 1991 the Australian Government Solicitor received a letter from your solicitors, Messrs Rossi Ryan and Raniga, advising that the offer of $20,000.00 would not be increased.

9. A kerb side valuation received from Paul Failla of Lewis Realty Pty Ltd. 289-291 Sydney Road, Brunswick on 21 October 1991 states that the property is valued at $100,000.00.

10. On 22 October 1991 Messrs Rossi Ryan and Raniga were advised that the Official Trustee would not accept a figure less than $50,000.00 for their equity in the property.

11. No further offer has been made by you.

PAYMENT is required to be made by 4 November 1992.

(I presume that the second sentence in the paragraph numbered 5 was intended to be numbered 6 and I will treat it as if it were so numbered).
The caveat referred to in paragraph 5 of the notice was lodged by the Official Receiver on 21 January 1991 against the land comprised in Certificate of Title Volume 8629 Folio 085. The caveat is numbered R 182048W in the records of the Registrar of Titles.
Mrs Lucera has refused to pay the sum claimed in the notice.
The trustee now seeks to exercise its statutory power of sale and seeks directions in relation thereto pursuant to s 134(4) of the Bankruptcy Act.
The trustee seeks orders that:

1. The land and premises situate at and known as 11 Kiddle Street, Fawkner in the State of Victoria, and being the whole of the land more particularly described in Certificate of Title Volume 8629 Folio 085, be sold with vacant possession and for cash.

2. The Applicant have the conduct of the sale.

3. The sale be by public auction, for cash and at a reserve price to be fixed by the Applicant in consultation with a licensed real estate agent and auctioneer appointed to conduct the sale.

4. The proceeds of sale be paid to the Applicant and applied

( i ) first in payment of the costs and expenses of and incidental to the sale;

(ii) second in payment to the Applicant of the sum required by the Official Receiver to be paid pursuant to the Notice given to the Firstnamed Respondent under Section 139ZQ of the Bankruptcy Act;

(iii) third in payment of the remaining balance to the Firstnamed Respondent.

5. The Firstnamed Respondent execute all such documents and do all such things as are necessary to enable the applicant to effect the sale.

6. There be liberty to the parties to apply upon notice for further Directions as to the working out of this Order.

7. The costs of the Applicant of and incidental to this application be taxed and paid by the Firstnamed Respondent.

8. The coats of the Secondnamed Respondent be taxed and paid by the Applicant.
The Registrar of Titles who is named as the second respondent, filed notice of intention to appear at the hearing of the application but did not appear. Counsel for the trustee advised the Court that the Registrar no longer had any concerns which justified an appearance.
On the day of the hearing Mrs Lucera also filed, by leave, notice of intention to appear and to oppose the making of any orders or directions on the following grounds:

1. The notice served upon the Firstnamed Respondent pursuant to the provisions of Section 139ZR (sic) of the Bankruptcy Act 1966 "the Act") is of no effect in that:

1.1 It fails to identify or identify properly the property said to be the subject of the notice,

1.2 It fails to correctly specify the value of the property the subject of the notice in that it values the whole of the property now owned by the Firstnamed Respondent whereas the value of the property which should have been demanded is the value at the date of the transfer said to be void as against the Official Trustee of the property of the bankrupt as joint proprietor in the whole of the property now owned by the Firstnamed Respondent.

2. The Official Trustee is not empowered pursuant to the Act to sell or dispose of in any way property owned by the Firstnamed Respondent and which was not acquired by the Firstnamed Respondent pursuant to any disposition which is void as against the Official Receiver.

3. The Official Trustee seeks to dispose of property namely the interest of the Firstnamed Respondent acquired by her other than pursuant to a void disposition.

4. The Act does not require the Firstnamed Respondent to participate in any sale by the Official Receiver of any property which was acquired by the Firstnamed Respondent from the Bankrupt pursuant to a void disposition.

(The reference in paragraph 1 to s 139ZR is obviously incorrect and I will treat it as a reference to s 139ZQ). The material filed by the trustee in support of the application includes two letters relating to the value of the land. The first was written by one Paul Failla who is described as Sales Executive/Auctioneer with the Lewis Realty Pty Ltd. The letter is dated 21 October 1991 and so far as relevant states:

Re: 11 RIDDLE STREET FAWKNER

The property at No. 11 Kiddle Street, Fawkner, is situated on a corner allotment and its construction is of a solid red brick.

The property comprises of 3 main bedrooms, formal lounge (currently used as a study piano room), formal dining room, sep. bathroom with shower over bath, separate laundry with access to a store room or billiard room of concrete perma brick construction of approx. 16' x 12', separate toilet with bidet and vanity, sun room/passageway to an 8 year old extension which leads to a massive kitchen meals area and family room approx. 24' x 14', rear garden has a brick barbeque, iron garage with side drive from Chester Court. The front garden is extremely well kept and it boasts high brick red fence with iron picket fence and garden lantern. Chattels and fixtures are of good quality.

If the property is to be marketed through an Auction program it could achieve a price from around $98,000 to $105,000. Please note if the property was situated in a different pocket it would achieve much more, but regardless of the pocket it is a very sound and well kept home, close to all public amenities. In my previous letter dated 18th October, 1991, I mention recent sales within the surrounding area, but No. 11 Riddle Street, Fawkner is of a higher standard.

I hope you will find this information useful. I you have any further queries please contact me.

Yours faithfully,

LEWIS REALTY PTY LTD

PAUL FAILLA

Sales Executive/Auctioneer
The second letter was written by one Mark Imbesi a director of Stockdale and Leggo (Glenroy) Pty Ltd. It is dated 15 October 1993 and so far as relevant states:

RE: KERBSIDE APPRAISAL - THIS IS NOT A SWORN VALUATION BANKRUPT ESTATE OF LUCERA AND SCOCCO

PPTY: 11 RIDDLE STREET, FAWKNER.

I thank you for allowing me the opportunity to provide you with a Kerbside Market appraisal of the property.

Taking current market conditions into consideration and recent sales of similar type properties in the area, I an of the opinion that if the property were to be offered for sale on today's market, a satisfactory sale in the $90,000 range is anticipated.

I am not a registered valuer and this is not a sworn valuation. Should you require a sworn valuation, I would be happy to arrange same for you.

This Appraisal has been prepared solely for your information and not for any third party. Although every care has been taken in arriving at the figure, I stress that it is an opinion only and not to be taken as a sworn valuation. I must add the warning that neither myself nor my company shall be held responsible should the Appraisal or any part thereof be incorrect or incomplete in any way.

I remain at your service if we are able to assist you further with any Real Estate query you may have.

Yours Faithfully,
STOCKDALE and LEGGO
(GLENROY) PTY LTD
MARK IMBESI DIRECTOR.
Before proceeding further it is appropriate to point out that there are a number of obvious errors in the notice. First, and this point is central to Mrs Lucera's 5 opposition to the application, it is not correct to say, as the notice says in paragraph 3, that the bankrupt transferred "his half share in the property" to Mrs Lucera. What he transferred was his interest as a joint tenant in the property. Second, it is not correct to say, as the notice says in paragraph 9, that "a kerbside valuation from Paul Failla states the property is "valued at $100,000" Failla in fact estimated that at auction the property could achieve a price from around $98,000 to $105,000.
Whilst dealing with the notice, it is difficult to see how the contents of paragraphs 5, 6, 7, 8, 10 and 11 can be relevant facts and circumstances because of which the Official Receiver considers that the relevant transaction is void against the trustee".
Where a notice under s 139ZQ is given to a person in respect of any property, the property is charged with the liability of the person to make payments to the trustee as required by the notice (8 139ZR(1)) and the trustee has power to sell the property subject to any charges which have priority. The proceeds of such a sale are, to the extent of the charge, to be applied in or towards the discharge of the liability created by the notice (s 139ZR(6)).
On the application of the person to whom the notice is given, or any other interested person, the Court, if satisfied that Subdivision J does not apply to the person on the basis of the facts and circumstances set out in the notice, may make an order setting the notice aside in which case the notice is taken not to have been given (s 139ZS).
Failure or refusal to comply with a notice given under s 139ZQ is an offence punishable by imprisonment for a period not exceeding 6 months (s 139ZT).
Although Mrs Lucera has not made any formal application to set aside the notice, insofar as her notice of intention asserts that the notice served on her is of no effect, it is clear that she asserts that Subdivision J does not apply to her on the basis of the facts and circumstances alleged in the notice and accordingly I propose to treat her response to the trustee's application as an application to set the notice aside.
Being relatively new legislation there is very little judicial authority dealing with Subdivision J. In re Pearson; ex parte Wansley v Pearson 46 FCR 55, after summarising the provisions of ss 139ZQ-139ZT, Wilcox J said at pp 59-60:

I question the value of Subdiv J at least in its present form. As soon as the notice was served, Mrs Pearson's solicitors asserted that it failed to satisfy the requirements of s 139ZQ. When the matter first came before me for directions, it appeared that this would be the question for determination.

Yet the real issue between the parties was whether the transfer to Mrs Pearson was void against the trustee. There seems to be a danger that the new procedure will lure parties into litigation about formal matters, irrelevant to the issue they really need to have determined.

When the present parties turned to the question how they could resolve their fundamental dispute, a second difficulty emerged. Section 139ZS empowers the Court to set aside a s 139ZQ notice if it is satisfied that the "Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice". Clearly, the Court can set aside the notice if the stated facts and circumstances do not lead, in law, to the transaction being void against the trustee. But can the Court go behind the stated facts and investigate their truth? If the Court finds that the true facts are different from those stated in the notice, and do not justify its issue, may the Court set aside the notice? The stated (or true) facts and circumstances may provide prima facie support for the notice, but the recipient be under no liability to the trustee because of defences arising out of additional facts needing to be proved by the recipient. Does Subdiv J accommodate this situation? If so, how?

The parties perceived the problems 1 have mentioned. They wished to avoid becoming bogged down in difficulties arising out of the form of Subdiv J and the terms of the notice. So they sensibly agreed to resort to the old-fashioned way of determining the matter. Mr Wansley filed a second application, in which he sought a declaration that the transfer to Mrs Pearson was void and a consequential order directing her to transfer to him a one-half interest in the property. By agreement, the two matters were heard together.
In the only other reported decision of which I am aware which touches upon Subdivision J namely Re Wedgwood: ex parte Bank of New Zealand 116 ALR 153, Cooper J dealt with an application to set aside a s 139ZQ notice on the basis that the sum sought to be recovered had been received pursuant to the applicant's solicitor's lien over an unpaid account and that therefore there had been no "transaction" which was void pursuant to either s 115 or s 122 of the Bankruptcy Act. The applicant adduced evidence (apparently without objection) in support of its case which contradicted the Official Receiver's view that the transaction was void as against the trustee in bankruptcy.
I share the view expressed by Wilcox J in Pearson that Subdivision J is of questionable value. There are many criticisms that can be made of the Subdivision, not the least being that if literally construed, the Official Receiver can render a person liable to a criminal sanction without having to prove more than the fact of service of a notice under s 139ZQ. Be that as it may, it would seem to be the case that whatever the words "is satisfied that this subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice" mean, a person to whom a notice has been given may challenge the statement of facts and circumstances for the purpose of an application to set the notice aside. If this is not the case a notice based upon a wholly erroneous statement of facts which at its face value may lead to a conclusion that the person has received money or property as a result of a transaction that is void under Division 3, would have no recourse either against an action based on the notice pursuant to s 139ZQ(8), or against a prosecution pursuant to 6 139ZT(1). In the absence of clear words to that effect it cannot be thought that Parliament would have intended such consequences.

In the present case the trustee has thought it necessary to support the application by evidence directed to proving the facts asserted in the notice and in my opinion it is proper that this be done. However, the necessary consequence is that the person to whom the notice is given, or indeed the bankrupt, should be able to challenge the evidence so adduced.
By operation of s 58(1), where a debtor becomes a bankrupt the property of the bankrupt vests forthwith in the trustee in bankruptcy. However where the law of a State requires that transmission of property be registered and enables the trustee to be registered as the owner of any such property that is part of the property of the bankrupt, notwithstanding that the property vests in the trustee in equity by virtue of s 58, it does not vest at law until the requirements of the relevant State law have been complied with (s 58(2)).
Section 51 of the Transfer of Land Act 1958 (Victoria) provides:

51 (1) Upon the bankruptcy of the registered proprietor of any land, or upon any bankrupt before obtaining his discharge or certificate becoming the proprietor of any land, his trustee shall be entitled to be registered as proprietor in respect thereof; and the Registrar, upon the receipt of an office copy of the appointment of the trustee and an application in an appropriate approved form by the trustee to be 80 registered, shall in any relevant part of the Register make a recording (by the appropriate description whether as trustee assignee or official receiver) of the appointment of such trustee.

(2) Thereupon such trustee shall become the transferee and be the proprietor of the estate or interest of the bankrupt and shall hold subject to all equities upon which the bankrupt held; but for the purpose Of any dealing with the land under the provisions of this Act such trustee shall be the registered proprietor thereof.

(3) Unless prior to a bankrupt registered proprietor dealing with any land under the operation of this Act the trustee in his bankruptcy has either applied to be registered as proprietor thereof or has lodged a caveat against dealings by the bankrupt any dealings by the bankrupt with any person dealing bona fide and for value with him shall not be affected by any order of sequestration.

(4) This section shall be read and construed as subject to any law of the Commonwealth of Australia relating to bankruptcy
A settlement avoided under s 120 is avoided from the accrual of the trustee's title, namely from the time when the debtor becomes a bankrupt. (Re Brall: Ex parte Norton (1893) 2 QB 381; Re Vansittant (1893) 2 QB 777; Re Carter and Kenderdine's Contract (1897) 1 Ch 776).
Upon one of two joint tenants becoming a bankrupt the tenancy is severed whereupon the trustee in bankruptcy and the other joint tenants hold the property as tenants in common in equal shares. (Re Butler's Trusts: re Hughes v Anderson (1888) 38 Ch D 286; Gasden v Dixon (1992) 107 ALR 329)"
Applying these principles to the facts of this case (it being conceded that the transfer in favour of Mrs Lucera as sole proprietor was void against the trustee) the position seems to be that upon the debtor becoming bankrupt, the trustee became entitled in equity to an interest in the land as a tenant in common in equal shares with Mrs Lucera.
The substance of the transaction whereby the bankrupt and Mrs Lucera joined in a transfer of the property to Mrs Lucera as sole proprietor can fairly be said to be a disposition of property (and thus a settlement of property for the purposes of s 120) insofar as the bankrupt thereby ceased to have an interest as joint tenant in the property. The Official Receiver is entitled under s 139ZQ(1) to give notice requiring the person who received "any property" (in this case the former interest of the bankrupt in the land) to pay the trustee the value of the property so received. Although the Bankruptcy Act provides no specific guidance, "the value of the property received" can only mean the value of the property at the time it was received. I have formed this view not only from the ordinary meaning of the words but also from the fact that the same subsection deals with the case of money which has been received as a result of a void transaction and in that case the liability is to pay "an amount equal to the money ... received". Clearly this can only refer to the sum of money actually received at the time of the transaction and by parity of reasoning, the value of the property received must mean the value of the property at the time it was received.
The notice given to Mrs Lucera does not correctly identify the property said to have been received by Mrs Lucera nor does it attempt to value the "property" which Mrs Lucera received as a result of the void transaction. It is not altogether clear how a trustee in bankruptcy should value a former interest of a bankrupt as a joint tenant in his matrimonial home. It is not an interest which necessarily has a market value and it certainly cannot be assumed that it is worth half of the market value of the property as a whole. Be that as it may, the notice in this case states a value for the whole property which is not supported by evidence and further it makes an unstated, but unsupported, assumption that the value of the interest transferred by the bankrupt was valued at half of a sum thought to be somewhere near its value more than 4 years later. For these reasons I am of the opinion that the notice is irregular and should be set aside. if s 139ZS(1) does not provide sufficient authority for such an order, then s 30 does. By virtue of s 139ZS(2), the notice is taken not to have been given and accordingly no liability has been created by reason of it. It follows also that the caveat which the Official Receiver has lodged against the title to the whole property should be withdrawn forthwith.
Apart from the question of the validity of the notice, in a case in which the trustee is in a position to obtain a registered title to property under the Transfer of Land Act, I would hesitate to give directions of the type sought in the present case. In my opinion s 139ZQ should not be resorted to as a means of short circuiting the normal and established procedures appropriate to the registration of title.
There will be an order setting aside the notice served on Mrs Lucera on 16 September 1992. The trustee's application will be otherwise dismissed with costs.

[1994] FCA 715

05 OCTOBER 1994