Scott, the Trustee of the Property of Hurst, a Bankrupt v Hurst
[2021] FCCA 1749
•30 July 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Scott, the Trustee of the Property of Hurst, a Bankrupt v Hurst [2021] FCCA 1749
File number(s): SYG 1242 of 2021 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 30 July 2021 Catchwords: BANKRUPTCY – application by trustee in bankruptcy for an order under s 66G of the Conveyancing Act 1919 (NSW) for the appointment of trustees for sale of property of which the bankrupt is the registered proprietor as joint tenant – orders made Legislation: Federal Circuit Court Rules 2001 (Cth), rr 13.03C(1)(e), 16.05(2)(a), 21.02(1), 21.02(2)(a), 21.02(2)(e)
Federal Court Rules 2011 (Cth), Pt 40
Judiciary Act 1903 (Cth), s 79
Conveyancing Act 1919 (NSW), Div 6 Pt 4, ss 7, 66F, 66G, 66I
Cases cited: Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1
Coshott v Prentice [2014] FCAFC 88
Goldberg v Goldberg [2000] NSWSC 399
Leroy v Koutavas, in the matter of Koutavas (No 2) [2017] FCA 912
Pascoe v Dyason [2011] NSWSC 1217
Rizeq v Western Australia [2017] HCA 23
Shaw as Trustee of the Bankrupt Estate of Nguyen v Vu & Anor [2019] FCCA 1451
Number of paragraphs: 28 Date of hearing: 27 July 2021 Place: Sydney Solicitor for the Applicant: Mr A Edmonds of CLH Lawyers, by telephone The Respondent: No appearance by, or on behalf of, the respondent ORDERS
SYG 1242 of 2021 IN THE MATTER OF THE BANKRUPT ESTATE OF MICHAEL JOHN HURST
BETWEEN: ANDREW JOHN SCOTT, THE TRUSTEE OF THE PROPERTY OF MICHAEL JOHN HURST, A BANKRUPT
Applicant
AND: RHONDA CAROLINE HURST
Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
30 JULY 2021
THE COURT ORDERS THAT:
1.Pursuant to s 66G(1) of the Conveyancing Act 1919 (NSW), Andrew John Scott and Daniel Austin Walley (Trustees) are appointed trustees for the sale of the land identified in folio identifier 4/11466, being the land known as 45 Armidale Street, South Grafton, in the State of New South Wales (Property).
2.The Property is vested in the Trustees subject to any encumbrances affecting the entirety of the Property, but free from encumbrances, if any, affecting any undivided share or shares in the Property, to be held by the Trustees on statutory trust for sale under Division 6 of Part 4 of the Conveyancing Act 1919 (NSW).
3.The Trustees have the sole conduct of the sale of the Property, and are authorised to instruct an agent or auctioneer or both for that purpose.
4.The Trustees have power to offer the Property for sale and to sell the Property by public auction with power to fix a reserve price, or alternatively, have power to sell the Property by private treaty at the best available price.
5.The respondent is entitled to purchase the Property, whether at auction or otherwise, without the payment of a deposit, pursuant to s 66I of the Conveyancing Act 1919 (NSW).
6.The proceeds of the sale of the Property be paid in the following priority:
a.council rates, water rates, vendor’s duty, land tax, and any other statutory duties or charges, if any, as required on settlement of the sale of the Property;
b.sale agent’s commission and expenses;
c.amounts necessary to discharge the mortgage registered on the title of the Property;
d.the costs and disbursements of the conveyancer or solicitor acting on the sale;
e.the Trustees’ remuneration and expenses of acting on the sale;
f.the applicant’s legal costs of these proceedings as determined pursuant to orders 8 and 9;
g.from the respondent’s share of the balance remaining after payment of the amounts referred to in paragraphs 6a-6f of these orders:
i.the costs of disposal (if any) of any personal property remaining at the Property after the time has expired by which the respondent is required to deliver up vacant possession of the Property in accordance with order 10;
ii.storage fees (if any) of any personal property remaining at the Property after the time has expired by which the respondent is required to deliver up vacant possession of the Property in accordance with order 10.
7.The Trustees are authorised to charge remuneration for work done at the rates disclosed in their consents to act filed in these proceedings not exceeding $792.00 per hour inclusive of GST.
8.The applicant may apply pursuant to r 21.02(1) of the Federal Circuit Court Rules 2001 (Cth) (FCC Rules) for an order pursuant to r 21.02(2)(a) of the FCC Rules that the Court set the amount of the applicant’s costs of this proceeding, such application to be made by the applicant filing and serving, by no later than 13 August 2021, an affidavit on which the applicant relies for such order.
9.If by 27 August 2021 the respondent does not file any affidavit in relation to costs in response to any affidavit the applicant may file pursuant to order 8, Judge Manousaridis will be at liberty to set the applicant’s costs pursuant to r 21.02(2)(a) of the FCC Rules, or in the alternative make an order under r 21.02(2)(c) of the FCC Rules referring the costs for taxation under Part 40 of the Federal Court Rules 2011 (Cth).
10.The respondent deliver up vacant possession of the Property, together with all keys and security codes for all buildings and improvements on the Property, to the Trustees within fifty six (56) days after the day on which these orders are made.
11.Leave be granted for the issue forthwith of a writ of possession of the Property.
12.The execution of the writ referred to in order 11 be stayed for a period of fifty six (56) days after the day on which these orders are made.
13.The respondent must remove from the Property all vehicles, rubbish, and chattels that have not vested in the applicant (Personal Property) within fifty six (56) days after the day on which these orders are made.
14.If the respondent fails to comply with order 13 the Trustees may remove and dispose of the Personal Property as they see fit within 28 days after the Trustees gain possession of the Property.
15.The applicant has liberty to apply on such notice as the circumstances warrant in relation to any question that may arise in connection with the interpretation, implementation, or variation of these orders.
16.The respondent has liberty to apply on such notice as the circumstances warrant to vary or discharge all or any of these orders.
17.By 6 August 2021 the applicant serve on the respondent a sealed copy of these orders together with the reasons for judgment on the basis of which the orders have been made.
18.There be included in the sealed copy of these orders the following notice:
TO THE RESPONDENT, RHONDA CAROLINE HURST
These orders were pronounced in your absence on 30 July 2021 after a hearing that occurred on 27 July 2021 in your absence.
Order 16 provides that you may apply to the Court to vary or discharge all or any of the orders.
You also have a right under r 16.05(2)(a) of the Federal Circuit Court Rules 2001 (Cth) to apply to set aside these orders.
REASONS FOR JUDGMENT
INTRODUCTION
The applicant, the trustee in bankruptcy of the estate of Michael John Hurst (Bankrupt), applies for, among other things, an order under s 66G(1) of the Conveyancing Act 1919 (NSW) (Conveyancing Act) that he and another person be appointed trustees for the sale of land of which the Bankrupt is the registered proprietor as tenant in common with the respondent.
BACKGROUND
On 20 August 2018 a sequestration order was made against the estate of the Bankrupt, and the applicant was appointed trustee in bankruptcy (Trustee).
At the time the sequestration order was made the Bankrupt and the respondent were the registered proprietors of land identified in folio identifier 4/11466, being land situated in Grafton (Property). The Bankrupt was recorded as holding his interest in the Property as a joint tenant with the respondent. The folio identifier recorded the Property is subject to a mortgage (Mortgage) granted to Members Equity Bank Limited (ME Bank).
On 27 April 2021 the Trustee obtained a market appraisal of the Property which suggested the Property could sell for a price in the vicinity of $280,000. As at 21 April 2021, $58,226.15 was owing to ME Bank, and the repayment of that amount was secured by the Mortgage.
On 12 October 2018 ME Bank had commenced proceeding in the Supreme Court of New South Wales for possession of the Property. On 23 September 2019 ME Bank informed the Trustee’s office that it had ceased action to recover possession of the Property because the Bankrupt and the respondent had cleared all arrears secured by the Mortgage.
By letter dated 4 October 2019 the Trustee informed the respondent of his appointment as trustee in bankruptcy of the estate of the Bankrupt. The Trustee stated that the Bankrupt’s interest in the Property is an asset of the Bankrupt’s estate. The Trustee then identified three options that were available to the respondent: make an offer based on market value to purchase from the Trustee the Bankrupt’s share of the Property; join with the Trustee in selling and dividing the net proceeds of sale of the Property; or do nothing, in which case the Trustee could start legal proceedings for the appointment of trustees to sell the property.
It appears the respondent responded by making inquiries about the amount that would need to be paid to annul the bankruptcy. The Trustee replied by letter dated 28 November 2019 in which he said he was unable to specify that amount because the Bankrupt had not yet submitted a statement of affairs. The Trustee repeated the options he had identified in his letter dated 4 October 2019.
By letter dated 11 December 2019 the Trustee informed the Bankrupt that he was required to submit a statement of affairs, and that the Trustee intended to take the necessary steps to sell the Property, noting that if the respondent does not offer to purchase the Bankrupt estate’s share in the Property or join with the Trustee to sell the Property and divide the joint proceeds, the Trustee will have no option but to apply to this Court for partition, possession, and sale orders under s 66G of the Conveyancing Act. The Trustee sent a copy of this letter to the respondent. The respondent, however, did not reply.
By letter dated 22 April 2020 the Trustee, through his lawyers, again informed the respondent of the options available to her in relation to the Trustee’s interest in the Property. The respondent did not reply. The Trustee sent another letter to the respondent on 5 February 2021 but, again, the respondent did not reply.
PROCEDURAL HISTORY
On 2 July 2021 the Trustee filed an application in this Court for orders, including an order under s 66G(1) of the Conveyancing Act. On 19 July 2021, at my direction, my associate sent an email to the Trustee’s solicitor noting that the application was listed for a first court date at 9:30 am on 27 July 2021, and that the hearing would proceed by telephone. The email provided dial-in details, and requested the Trustee’s lawyer notify the respondent of the time and date of the hearing, as well as the dial-in details.
The matter came before me on 27 July 2021. Mr Edmonds, solicitor, appeared for the Trustee; but there was no appearance by or on behalf of the respondent. In those circumstances I invited Mr Edmonds to proceed with the application. I did so pursuant to r 13.03C(1)(e) of the Federal Circuit Court Rules 2001 (Cth) (FCC Rules) which provides that if “a party to a proceeding is absent from the hearing (including a first court date), the Court . . . may . . . proceed with the hearing generally or in relation to any claim for relief in the proceeding”. I decided to proceed with the hearing in the expectation that if I were to make any or all of the orders the Trustee seeks I would include orders that would expressly reserve to the respondent the right to apply to set aside or vary any orders I might make.
Mr Edmonds read an affidavit of service of the application, an affidavit of service of notice to the occupier, and an affidavit confirming that on 20 July 2021 Mr Korakis, a solicitor employed by the Trustee’s solicitors, caused to be sent to the respondent by prepaid post and by email a letter attaching the email my associate sent to the Trustee’s solicitor on 19 July 2021. Mr Edmonds also read the affidavit of the Trustee made on 2 July 2021. In that affidavit the Trustee deposes to the efforts he had made to offer to the respondent the opportunity for her to purchase the Bankrupt’s estate’s interest in the Property, or to join the Trustee in selling the Property and dividing the net proceeds of sale.
The Trustee also deposed to matters that are relevant to showing that the Trustee’s application under s 66G of the Conveyancing Act would produce a benefit to the unsecured creditors of the Bankrupt estate. The Trustee deposes, and I accept, that the Property has been appraised to have a sale price in the vicinity of $280,000; the debt owed to ME Bank under the Mortgage is $58,226.15, and the debts owed to the unsecured creditors known to the Trustee total $36,723.07. On the basis of these amounts, the sale of the Property at around $280,000 will make available to the Bankrupt’s estate 50% of the proceeds of sale after the discharge of the Mortgage. That should comfortably exceed $100,000, which may well be sufficient to pay in full all of the unsecured creditors and the costs of administering the Bankrupt’s estate.
After reading the affidavits I informed Mr Edmonds that I proposed to list the matter for judgment at 9.30 am on 30 July 2021. Mr Edmonds offered to provide my associate written submission later in the day. I informed Mr Edmonds that he was at liberty to provide written submissions, which he did.
PRINCIPLES
The principal relief the Trustee claims is an order under s 66G(1) of the Conveyancing Act, which provides:[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.
[1] I here repeat most of what I stated in Shaw as Trustee of the Bankrupt Estate of Nguyen v Vu & Anor [2019] FCCA 1451, at [32]-[36]
The expression “co-ownership” is defined in s 66F(1) of the Conveyancing Act to mean “ownership whether at law or in equity in possession by two or more persons as joint tenants or as tenants in common”; and the expression “held on statutory trust” in relation to property is defined in s 66F(2) to mean a “trust to sell the same and to stand possessed of the net proceeds of sale, after payment of costs and expenses, and of the net income until sale after payment of costs, expenses, and outgoings, and in the case of land of rates, taxes, costs of insurance, repairs properly payable out of income, and other outgoings upon such trusts, and subject to such powers and provisions as may be requisite for giving effect to the rights of the co-owners”. Also relevant is s 66G(3) of the Conveyancing Act which, in effect, provides that unless the trustee that is to be appointed is a “trustee corporation”, at least two individuals must be appointed as trustees.[2]
[2] Coshott v Prentice [2014] FCAFC 88, at [20]: “[W]e consider that the appellants correctly contended that s 66G requires that, where a corporation is not appointed trustee for sale, there must be at least two trustees. It follows that the appeal against the orders for sale must be allowed in part.” See also Leroy v Koutavas, in the matter of Koutavas (No 2) [2017] FCA 912, at [11]-[16] (Robertson J)
The Conveyancing Act is a statute of the Parliament of New South Wales. It has been held,[3] however, that s 66G of the Conveyancing Act is a law that is capable of being “picked up” by s 79 of the Judiciary Act 1903 (Cth) (Judiciary Act). That section provides:
The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.
[3] Coshott v Prentice [2014] FCAFC 88
Subsection 79(1) of the Judiciary Act is capable of “picking up” s 66G as a law of the Commonwealth even though s 66G(1) of the Conveyancing Act confers the power to appoint trustees on “the court” which is defined in s 7 of the Conveyancing Act as the “Supreme Court”. That is so because s 79(1) of the Judiciary Act operates to apply a law of a State or Territory (such as s 66G of the Conveyancing Act) “as a source of rights and remedies in federal jurisdiction even though, on its own terms, that law identifies only the courts of the enacting State as the courts to provide those remedies”.[4]
[4] Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1, at [68] (Gleeson CJ, Gaudron and Gummow JJ); and see generally Rizeq v Western Australia [2017] HCA 23
This Court, therefore, in the exercise of its jurisdiction in bankruptcy has power under s 79(1) of the Judiciary Act to treat s 66G of the Conveyancing Act as a law of the Commonwealth, and to consider itself as “the court” referred to in s 66G of that Act.
Next, I identify the principles that govern the exercise of the power conferred by s 66G(1). These have been conveniently stated by Black J in Pascoe v Dyason:[5]
[5] Pascoe v Dyason [2011] NSWSC 1217, [5]-[8]
The purpose of this section 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’ . . . . In Callahan v O'Neill [2002] NSWSC 877, Young CJ in Eq observed:
‘It is fairly clear that, as a general rule, any co-owner holding at least 50% of a parcel of real property is entitled almost as of right to an order for partition or sale under s 66G of the Conveyancing Act. It is only in situations where it would, under settled principles, be inequitable to permit such an application, including cases where there has been a contract not to make an application that the order may be refused. This appears from cases such as Ngatoa v Ford (1990) 19 NSWLR 72 and Williams v Legg (1993) 29 NSWLR 687.’
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.' His Honour also noted that:
‘[I]n the unhappy event that the parties are unable to settle their differences then the making of an order appointing trustees for sale seems inevitable unless the respondent could establish a legally binding agreement not to put her out of occupation of her home, or circumstances that would ground some estoppel to similar effect’ (at [59]).
In Chalhoub v Chalhoub [2005] NSWSC 572 at [17]-[18], McLaughlin AsJ observed that, where a plaintiff and defendant are registered as tenants in common in equal shares, then prima facie the plaintiff is entitled to relief by way of an order under s 66G of the Conveyancing Act for sale of the relevant property and for the division of the net proceeds of such sale between the plaintiff and the defendant in equal shares. It was for the defendant, who denied the plaintiff's entitlement to such relief, to establish that the legal rights of the parties consequent upon their status as registered proprietors as tenants in common in equal shares were in some way altered by the invocation of equitable rights recognised by a Court of Equity or that there was some other reason why the Court should, in the exercise of the limited discretion reposed in it by s 66G of the Conveyancing Act, decline to make an appointment of statutory trustees for sale of the subject property.
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].
There is nothing in the material before me that could reasonably suggest that an order under s 66G(1) of the Conveyancing Act should not be made; and, given the unsecured creditors of Bankrupt’s estate will benefit from the sale of the Property, I am satisfied it is appropriate that an order be made under s 66G(1) of that Act.
There is the question of the identity of the persons who should be appointed as trustees for sale. The Trustee applies that he and Mr Daniel Austin Walley be appointed trustees. The Trustee is a registered trustee in bankruptcy, a registered liquidator, a chartered accountant, and a partner of PricewaterhouseCoopers (PwC). Mr Walley is a registered liquidator and has been since 2011. He, too, is a partner of PwC.[6] Both the Trustee and Mr Walley, therefore, are persons in whom I can repose confidence to properly discharge their duties as trustees for sale.
[6] Affidavit of Daniel Austin Walley made on 1 July 2021
In Coshott v Prentice it was submitted that a conflict or potential conflict might arise if a trustee in bankruptcy of the estate of one of the co-owners is also appointed one of the trustees for sale. The Full Federal Court did not decide whether the trustee in bankruptcy in that case would have a conflict if appointed; but the Full Federal Court observed that “[n]o conflict of interest was identified by the appellants with any specificity”.[7] That suggests the Full Court was of the view that a trustee in bankruptcy of the estate of one of the co-owners is not to be presumed to have any conflict or potential conflict of interest only because he is the co-owner’s trustee in bankruptcy. There is nothing before me that could reasonably suggest that the Trustee would have any conflict or potential conflict between his duties to administer the Bankrupt’s estate and the duties he would have if appointed one of the trustees for the sale of the Property. There is also nothing in the material before me that could suggest any potential conflict that might arise out of Mr Walley being a partner of the firm of which the Trustee is a partner.
[7] Coshott v Prentice [2014] FCAFC 88
I propose, therefore, to make an order under s 66G(1) of the Conveyancing Act substantially in terms of order 1 of the application appointing the Trustee and Mr Walley as trustees for sale of the Property.
DISPOSITION
The application seeks a number of orders ancillary to an order under s 66G(1) of the Conveyancing Act. It is appropriate, and I propose to make, orders substantially in terms of the orders claimed in paragraphs 2, 3, 4, 5, 6 (other than subparagraph (g)(iii) because it duplicates paragraph 6(f) of the application), 7, 9, 12, and 13 of the application. I also propose to make an order to the effect claimed in paragraphs 10 and 11 of the application, except I propose the respondent be allowed 56 days to deliver up possession of the Property and, consequently, that the issue of any writ for possession be stayed for 56 days.
That leaves paragraph 8 of the application, which deals with the assessment of the Trustee’s costs of this proceeding. The usual order as to costs in an application under s 66G of the Conveyancing Act is that the costs of each party on a party and party basis be paid out of the proceeds of sale of the jointly owned property.[8] There is no reason why this Court cannot assess those costs. I have accordingly replaced the order claimed in paragraph 8 of the application with two orders (which will be orders 8 and 9 of the orders I will pronounce) which will provide for the Trustee to apply to this Court for an order under r 21.02(2)(a) of the Federal Circuit Court Rules 2001 (Cth) that the Trustee’s costs be set, reserving to the Court, however, the option of not setting those costs but instead making an order under r 21.02(2)(c) referring the Trustee’s costs to be taxed under the Federal Court Rules 2011 (Cth).
[8] Goldberg v Goldberg [2000] NSWSC 399, at [9]: “[T]he court takes the view that when parties have entered into a co-venture, even an involuntary co-venture such as being joint beneficiaries under a will, the costs of winding up the co-venture should be borne equally. Accordingly . . . the costs of both parties should come out of the proceeds of sale of the property.”
I propose to grant the Trustee liberty to apply in relation to any question that may arise in connection with the interpretation, implementation, or variation of the orders I propose to make, and to grant the respondent liberty to apply to vary or discharge any of the orders I propose to make.
I will order that within seven days from the day on which I pronounce the orders the Trustee serve on the respondent a sealed copy of the orders I will make together with these reasons for judgment. I will also order that the following notice be included in the orders:
TO THE RESPONDENT, RHONDA CAROLINE HURST
These orders were pronounced in your absence on 30 July 2021 after a hearing that occurred on 27 July 2021 in your absence.
Order 16 provides that you may apply to the Court to vary or discharge all or any of the orders.
You also have a right under r 16.05(2)(a) of the Federal Circuit Court Rules 2001 (Cth) to apply to set aside the orders.
I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 30 July 2021
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