Re Roberts, David John & Anor Ex Parte Australian Telecom Employees Credit Co-operative v Taylor, Edward Peter

[1982] FCA 157

Re: DAVID JOHN ROBERTS and BARBARA ROBYN ROBERTS
Ex Parte: AUSTRALIAN TELECOM EMPLOYEES CREDIT CO-OPERATIVE LIMITED
And: EDWARD PETER TAYLOR
No. 61 of 1980X
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
Sweeney J.

CATCHWORDS

Bankruptcy: Whether applicant is a secured creditor of the debtors or either of them - condition in loan agreement made between the applicant and the first named debtor that first named debtor shall execute an equitable charge over specific property in favour of the applicant - whether the loan agreement itself creates a charge - whether the holder of such a charge is a secured creditor within the meaning of the Bankruptcy Act 1966.

Bankruptcy Act 1966 (C'th): S5(1).

HEARING

MELBOURNE

#DATE 5:8:1982

ORDER

1. declares that the applicant is a secured creditor of the estate of the debtor David John Roberts, as the holder of an equitable charge over the sum of $3,948.73, being half of the proceeds of the sale by the respondent of the house property at 50 Leawarra Parade, Frankston in the State of Victoria, and being the whole of the land more particularly described in Certificate of Title, Volume 8908 Folio 501.

2. orders that the costs, including reserved costs, of the applicant in its capacity as respondent to the application dated 8 February 1982 of and incidental to that application be taxed and paid out of the estate of the debtors.

3. orders that the costs, including reserved costs of the respondent of and incidental to both the application dated 8 February 1982 and the applicationd dated 12 March 1982 be taxed and paid out of the estates of the debtors.

4. reserves liberty to either party to apply in relation to the question as to how the orders for costs herein should be borne as between the joint and separate estates of the debtors, and generally, both as to the application dated 8 February 1982 and as to that dated 12 March 1982.

JUDGE1

By application dated 12 March 1982 ("the present application") Australian Telecom Employees Credit Co-operative Limited ("the applicant") seeks the following orders:

1. An order and declaration that the respondent holds the sum of $7,897.45 forming part of the proceeds of the sale by the respondent of the house property at 50 Leawarra Parade, Frankston in the State of Victoria and being the land more particularly described in Certificate of Title Volume 8908 Folio 501 on trust for the applicant absolutely.

1. An order that the respondent do forthwith pay and distribute the sum of $7,897.45 to the applicant.

1. Such other orders or declarations as to the Court may seem appropriate.

1. An order as to the costs of this application.

In his notice of intention to oppose the application, Edward Peter Taylor ("the respondent") set out the following grounds.

1. The applicant is not a secured creditor of the debtors or either of them.

2. The applicant is not entitled to be paid in priority to the creditors of the debtors but ranks equally with them.

3. If the applicant is a secured creditor, which is not admitted, it is a secured creditor in respect of the separate estate of David John Roberts only.

4. The land mentioned in paragraph 1 of the application is a jointly owned asset of the debtors.

5. If the applicant was at any time a secured creditor of either or both the debtors, which is not admitted, it no longer is a secured creditor as the security which it claims no longer exists.

6. The respondent does not hold the sum of $7,897.45 or any other sum on trust for the applicant.

There was no dispute between the parties as to the relevant facts which gave rise to the present application. On 3 May 1979 David John Roberts applied to the applicant for a further loan. On 10 May 1979 the applicant approved Mr Roberts' application. Mr Roberts was offered a loan of $10,000.00. This sum represented a further loan of $8,932.00 together with the balance outstanding under a previous loan in the sum of $1,068.00. The loan was accepted by Mr Roberts on 13 May 1979 on the conditions set out in the relevant loan agreement, conditions 8 and 9 of which provided as follows:

"8. The member shall execute a Equitable charge in favour of the Society over the member's interest in the property situated at and known as 50 Leawarra Parade, FRANKSTON to secure repayment of the loan and interest thereon such equitable charge to contain such covenants and conditions as the Society shall require and to be prepared and registered at the expense of the member.

9. The member agrees to the lodging of a caveat over his property with the Credit Co-operative as security against his loan and agrees to pay all costs involved in same."

No caveat was lodged by the applicant nor was any further document prepared for execution by Mr Roberts. Mr Roberts made repayments under the loan agreement and on 2 April 1980 the balance outstanding was $8,461.00.

On 2 April 1980 a meeting of the creditors of Mr Roberts and his wife Barbara Robyn Roberts ("the debtors") pursuant to Part X of the Bankruptcy Act 1966 (the Act) was held, at which a special resolution was passed requiring the debtors to execute a deed of assignment pursuant to Part X of the Act. A deed of assignment was executed by the debtors on 2 April 1980 and by the respondent as trustee on 3 April 1980.

The joint statement of affairs presented by the debtors to the meeting of their creditors showed the applicant as a secured creditor in the sum of $8,461.00. The statement described the security as a caveat although no caveat had in fact been lodged by the applicant at that time.

The property situated at 50 Leawarra Parade, Frankston ("the property") was owned by the debtors as joint tenants. By a transfer of land dated 9 June 1980 the debtors transferred the property to the respondent pursuant to the deed of assignment. By a contract of sale dated 4 August 1980 the respondent sold the property to third parties, Mr & Mrs Cassidy. Settlement of this sale took place on 2 September 1980.

After having paid out the amount owing under a mortgage over the property and the expenses associated with the sale the trustee received and still holds the sum of $7,897.45.

On 15 September 1980 a caveat was lodged at the Office of Titles on behalf of the applicant. On 24 September 1980 the documents required to transfer the property from the respondent to Mr & Mrs Cassidy were lodged at the Office of Titles including the transfer from the debtors to the respondent. Subsequently, the caveat lodged on behalf of the applicant was allowed to lapse.

By letter dated 29 May 1981, the solicitors for the applicant wrote the following letter, omitting formal parts, to the solicitors for the respondent:

"We refer to previous correspondence in this matter and advise that we have now submitted a brief to counsel and he confirms as follows:-

1. The effect of the loan agreement herein, of which you have a copy, creates an equitable charge in respect of the property of the bankrupts. (sic).

2. The trustee of the estate of the bankrupts (sic) can take no higher interest in the property of the bankrupts (sic) than the bankrupts (sic) had at the date of their bankruptcy (sic), and accordingly the trustee's interest in the land is subject to not only the pre-existing mortgage, but the pre-existing charge.

3. The lapsing of the caveat does not affect the security and indeed it was on this basis that the caveat was allowed to lapse. Your client now holds the balance of the proceeds of sale on trust for our client and we hereby demand from your client the sum of $9,459.54 or the balance of proceeds of sale, whichever is the lesser, being the amount due to our client and shall look to your client for this amount. Counsel has further advised that in the event of your client refusing to accede to the demand hereby made, the proper form for determining the matter is in an application for a declaration from the Federal Court in its Bankruptcy Jurisdiction, and we would be obliged if you could advise as follows:-

(a) Whether your client will or will not accede to our demand;

(b) Whether your client will refrain from making a distribution pending the outcome of this matter;

(c) Whether your client will object to the matter being determined in the Federal Court in its Bankruptcy Jurisdiction. In the event of your client's reply to (a) being in the negative and (b) and (c) being in the positive, we undertake to forthwith make application for such a declaration. We have, as a matter of form, sent a letter of demand this day to the trustee."

The reply, dated 2 June 1981, was, omitting formal parts, as follows: "We acknowledge receipt of your letter of the 29th May last. We are instructed to answer your enquiries as follows:-

(a) our client will not accede to your demand,

(b) our client will refrain from making a distribution pending the outcome of this matter,

(c) our client does not object to the matter being determined in the Bankruptcy Court."

When the application came on for hearing Mr Davey of Counsel for the applicant indicated that his client only sought to persist with its application in respect of half of the sum of $7,897.45 initially claimed. He abandoned any claim by the applicant against Mrs Roberts' half share in the net proceeds of the sale of the jointly owned property.

Mr Davey relied upon conditions 8 & 9 of the loan agreement to establish the applicant's claim that it was a secured creditor. He submitted that the applicant's right to specifically enforce condition 8 created an equity in its favour over Mr Robert's interest in the property which was binding upon the trustee.

A reading of the loan agreement makes it plain that it was not intended by the parties that there should be an unsecured loan. On the contrary, their intention is shown to be that the applicant should have security for its loan over Mr Robert's interest as joint proprietor of the property, and that the security should take the form of an equitable charge.

The inclusion of the words "such equitable charge to contain such covenants and conditions as the Society shall require" did not, in my opinion, give rise to uncertainty, but merely entitled the applicant to determine the form which any such charge should take, always provided that it related to Mr Roberts' interest in the named property and was in respect of the loan made under the agreement and interest thereon.

When Mr Roberts executed the agreement and accepted the loan pursuant to it, he had done everything needed to entitle the applicant to require him to execute an equitable charge in a form chosen by the applicant. In Montagu v Earl of Sandwich (1885) 32 Ch. D525 at p538 Cotton L.J. said:

"To my mind this instrument clearly contemplates that either the Earl or his heir should execute another instrument in order to give Victor, the son, the security which he intends him to have. It is not that this deed is to be the only security, but he covenants that he or his heirs shall execute the charge, and that is to be a charge, not upon the whole of the real estate of which he dies seised, but on a sufficient part thereof. I think it is an established rule, that where the covenant is to charge real estate, which can be ascertained by existing facts and circumstances, for example if there is a convenant to charge all the real estate which a man has at a particular time, that covenant will itself make a charge."

In my opinion the loan agreement itself constituted a charge over the interest of Mr Roberts in the property named.

Mr Ottaway rightly conceded that the respondent merely stepped into the shoes of Mr Roberts upon the assignment of the debtor's property to him. Accordingly, he took the debtor's interest in the property subject to the charge created under the loan agreement.

The holder of such a charge is a secured creditor within the meaning of the Act. S5(1) of the Act provides:-

"5(1): In this Act, unless the contrary intention appears:- "secured creditor" in relation to a debtor, means a person holding a mortgage, charge or lien on property of the debtor as a security for a debt due to him from the debtor."

In light of the conclusions which I have reached upon the present application it is not necessary to deal with the application for directions of the respondent dated 8 February 1982. However I am satisfied that the respondent was justified in making it, and should recover his costs in relation to it from the estates of the debtors. The applicant, who was the respondent to the trustee's application, is entitled to recover its taxed costs of and incidental to that application from the estates of the debtors, as it was made respondent to that application brought by the trustee in his capacity as trustee of those estates.

The applicant in the present application, has succeeded in its claim to be a secured creditor in respect of half of the proceeds of the sale of the property and the respondent has succeeded in its opposition to the claim in respect of the remaining half. By the time that the applicant conceded that it could not succeed in its claim in respect of the whole of the proceeds, the respondent's costs had been incurred. Accordingly there should be no order for costs in relation to the present application, other than an order that the respondent's costs, including reserved costs, of and incidental to the present application should be taxed and paid out of the estates of the debtors.

The Court:

1. declares that the applicant is a secured creditor of the estate of the debtor David John Roberts, as the holder of an equitable charge over the sum of $3,948.73, being half of the proceeds of the sale by the respondent of the house property at 50 Leawarra Parade, Frankston in the State of Victoria, and being the whole of the land more particularly described in Certificate of Title, Volume 8908 Folio 501.

2. orders that the costs, including reserved costs, of the applicant in its capacity as respondent to the application dated 8 February 1982 of and incidental to that application be taxed and paid out of the estates of the debtors.

3. orders that the costs, including reserved costs, of the respondent of and incidental to both the application dated 8 February 1982 and the application dated 12 March 1982 be taxed and paid out of the estates of the debtors.

4. reserves liberty to either party to apply in relation to the question as to how the orders for costs herein should be borne as between the joint and separate estates of the debtors, and generally, both as to the application dated 8 February 1982 and as to that dated 12 March 1982.