Three Co-Owners of Real Property v Another Co-owner and a Trustee in Bankruptcy - [2020] NSWSC 42

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: Three Co-Owners of Real Property v Another Co-owner and a Trustee in Bankruptcy [2020] NSWSC 42
Hearing dates: 5 February 2020
Date of orders: 07 February 2020
Decision date: 07 February 2020
Jurisdiction: Equity
Before: Slattery J
Decision:
Orders made, permitting the funds in Court to be paid out to the plaintiffs and the second defendant. Orders stayed for 28 days.

Catchwords: PROCEDURE – payment out of court – a fund being the proceeds of sale of certain real property held in Court – claim against the funds by each of four co-owners – three of the co-owners of the plaintiffs and one is the first defendant – the first defendant has since become bankrupt – any estate of the bankrupt co-owner not held by that co-owners trustee in bankruptcy is subject to an order for financial management under the NSW Trustee and Guardian Act 2009 – various claims made by and against the bankrupt co-owner’s share of the fund are compromised by that co-owner’s trustee in bankruptcy to reach agreed sums for payment out to each of the co-owners – whether the funds in Court can be paid out of Court by proposed consent orders – whether a tutor should be appointed for the bankrupt co-owner before orders are made for the payment of the fund out of court.
Legislation Cited: Bankruptcy Act 1966 (Cth), s 58(1)(b)
NSW Trustee and Guardian Act 2009
Uniform Civil Procedure Rules 2005, rr 7.13, 7.14(1),
7.15(3), 7.16
Cases Cited: A v A [2015] NSWSC 1178
Category: Consequential orders
Parties: First plaintiff: [names not published]
Second plaintiff: [names not published]
Third plaintiff: [names not published]
First defendant [names not published]
Trustees: [names not published]
Trustee in Bankruptcy/Second Defendant: [names not published]
Representation:
Solicitors:
First Defendant: the first defendant in person, name not published, assisted by her son, name not published
Second Defendant: S. Nash
Third Plaintiff: M. Reid (mentioned on behalf of the second defendant)
Public Guardian: J. Brouwer

File Number(s): [file number not published]
Publication restriction: Yes. See Order 6.

Judgment

These proceedings concern the payment out of a fund in Court, which is the proceeds of sale of certain real property that was formerly held by four co-owners. One of the co-owners, the first defendant, was in occupation of the property when trustees for its sale (“the Trustees for Sale”) were appointed in September 2017. In 2018 the Court granted leave for the issue of a writ of possession of the property, which was executed and the property was subsequently sold with vacant possession. The sale proceeds were then paid into Court. But disputes broke out between the four parties, disputes which aligned three of the co-owners, the first, second and third plaintiffs, against the first defendant.
The disputes among the former co-owners concerned the proper apportionment of the proceeds of sale of the property as between the plaintiffs and the first defendant. These disputes were complicated by the fact that in November 2017, shortly after the appointment of the Trustees for Sale, the first defendant was made bankrupt and a trustee in bankruptcy appointed (“the Trustee in Bankruptcy”). Subsequently, the Trustee in Bankruptcy was joined as the second defendant in the proceedings.
These various disputes among the former co-owners, related to the following issues: whether the first defendant’s obstructive conduct was the principal cause of an escalation in the costs of the trustees for sale and should so be apportioned to the account of the first defendant; whether the first defendant should compensate the other co-owners for exclusive occupation of the property prior to execution of the writ of possession; and whether the first defendant is entitled to any compensation for making improvements to the property whilst the first defendant was in possession.
These various issues which have been referred to in the course of these proceedings as the “apportionment issues”, have for some time been set down for determination at hearing listed before me in early February 2020. During the vacation the Court was informed that the apportionment issues have been resolved as between the first defendant’s Trustee in Bankruptcy and the three plaintiffs. The Court was presented in chambers with proposed consent orders that would allow the funds presently in Court, in the sum of $1,775,477.87, to be divided and an agreed portion of it paid out to each of the plaintiffs and to the Trustee in Bankruptcy.
But the proposed consent orders were not signed by the first defendant. The Court indicated to the parties that it would not make the orders in chambers without first hearing whether the first defendant could propound any proper basis for opposing the making of the orders. The first defendant was offered the opportunity to put on any material upon which she sought to rely to oppose the payment out of funds in Court in accordance with the proposed consent orders. And the parties were informed that the matter would be listed to consider the making of the consent orders.
When the matter came before the Court the first defendant appeared in person assisted at times by her son. Ms S. Nash appeared for the second defendant, the Trustee in Bankruptcy, and mentioned the appearance of the third plaintiff, represented by Ms M. Reid. Ms J. Brouwer appeared for the NSW Trustee and Guardian. The other plaintiffs, who represented themselves did not appear.
In response to the correspondence with the Court, the first defendant advanced a written submission, which the Court has now marked as an exhibit in these proceedings (Exhibit A). It has been copied and distributed to the legal representatives of the other parties who attended Court. Exhibit A repeats at some length various allegations which the first defendant has made against the plaintiffs over many years. The plaintiffs have vigorously denied these allegations, which need not be repeated here. Suffice it to say that Exhibit A does not propound any legal argument to suggest that the first defendant has any standing to oppose the entry of the consent orders, or that the Trustee in Bankruptcy is not vested with the whole of her estate, which is dealt with by the consent orders.
The Court was informed at the hearing in that the NSW Trustee was appointed to manage the first defendant’s estate on 19 October 2019. Ms Brouwer, a representative of the NSW Trustee and Guardian (“the NSW Trustee”) appeared. The plaintiffs and the Trustee in Bankruptcy submitted that the proposed consent orders should be made now. The representative of the NSW Trustee, Ms Brouwer, raised the question of whether or not a tutor should be appointed in these proceedings before the Court considered whether the proposed consent orders should be made. The question now arises as to whether the Court can make the orders requested.
The orders proposed included orders that the Court should vacate the hearing listed later in February 2020. No party opposed those orders, which were made at the hearing. After hearing argument the Court indicated that it would consider the matter and make a decision today, Friday, 7 February 2020. The Court has decided that it can make the orders requested, although it will stay them for 28 days.
Through Ms Nash, the Trustee in Bankruptcy submitted that the first defendant had no basis on which she could oppose the making of the proposed consent orders. Ms Nash submitted that upon a bankruptcy order being made against the first defendant, in November 2017 that the whole of her estate, which included all her rights as a co-owner of the property and her various claims against her co-owners for compensation for her improvements to the property, all vested in her Trustee in Bankruptcy, who now has the sole authority to resolve these proceedings on behalf of her estate. As a result, the orders can be made on the authority of the Trustee in Bankruptcy without the consent of the first defendant and even over the opposition to the orders that she has articulated.
The Court accepts this submission. Given the nature of the identified issues in these proceedings, the Trustee in Bankruptcy is now vested with all of the first defendant’s estate that is the subject of contest in these proceedings.
In short, none of the matters in issue described by the Court relates to any of the first defendant’s estate that might not be vested in the Trustee in Bankruptcy.
There is of course the possibility that the first defendant undertook some repairs to the property after the date of her bankruptcy in November 2017, for which she now claims compensation, a claim which may perhaps fall into the category of “after-acquired property of the bankrupt”. But it is clear from Bankruptcy Act 1966 (Cth), s 58(1)(b) that where a debtor becomes bankrupt “after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or,…[the bankrupt’s] registered trustee”. Thus, any after-acquired property to which the first defendant may possibly lay claim in these proceedings (and none has been identified) is also vested in the Trustee Bankruptcy. The bankrupt, the first defendant, is not entitled to maintain a claim for any after-acquired property in these proceedings, whilst it is vested in the Trustee in Bankruptcy.
Ms Brouwer has raised the issue of whether or not a tutor should be appointed for the plaintiff before consent orders are made. But upon consideration of the issue I see no basis to appoint a tutor and the Court declines to do so, for the following reasons.
In October 2019, the NSW Civil and Administrative Tribunal (“NCAT”) ordered that:

“(1) The estate of [the first defendant] is subject to management under the NSW Trustee and Guardian Act 2009
(2) The management of the estate of [the first defendant] is committed to the NSW Trustee and Guardian.”

The Guardianship Division of NCAT gave reasons for its decision, in which the Tribunal explained that it had carefully considered the evidence and was satisfied that a financial management order should be made and that there was a need for a financial manager to step in and manage the first defendant’s financial affairs because of mental illness of the first defendant.
Under Uniform Civil Procedure Rules 2005 (“UCPR”), r 7.13 defines “a person under legal incapacity” as including a person who is “incapable of managing his or her affairs”. By reason of the NCAT orders, the first defendant now falls into that category.
Under UCPR, r 7.14(1) a person “under legal incapacity may not commence or carry on proceedings except by his or her tutor”.
In my view, the short answer to the issue raised is that because the whole of the first defendant’s estate that is involved in these proceedings is vested in the Trustee in Bankruptcy, she as a person under legal incapacity is not in any sense now seeking to “carry on proceedings” and therefore she does not need a tutor. Any complaints that she has about the conduct of the Trustee in Bankruptcy, and in particular to the Trustee in Bankruptcy’s decision to resolve these proceedings, would be conducted in the Federal Court of Australia. Were she to commence such proceedings she may need a tutor in that jurisdiction. But I do not see why she needs a tutor here in order for these proceedings now to be concluded.
The Court raised with Ms Brouwer whether the effect of UCPR, r 7.15 was that the NSW Trustee was indeed already the first defendant’s tutor. UCPR, r 7.15(3) provides as follows:

“(3) In the case of proceedings with respect to the estate of a person whose estate is subject to management under the NSW Trustee and Guardian Act 2009 , the tutor of that person is to be the person who has the management of the person's estate under that Act.”

As the first defendant’s estate is committed to the NSW Trustee, UCPR, r 7.15 commands that the NSW Trustee should be the first defendant’s tutor. It is certainly arguable under UCPR, r 7.15 that the NSW Trustee’s appointment as tutor is automatic. But Ms Brouwer submitted that the NSW Trustee could not act at this stage, as it had not formally given its consent to act under UCPR, r 7.16.
Ultimately, the Court does not have to decide the question of whether the consent of the NSW Trustee is required here. But as Lindsay J said in A v A [2015] NSWSC 1178 (at [20]), “for good practical reasons the Court does not ordinarily appoint the NSW Trustee as the tutor of a protected person…without allowing it an opportunity to object to its appointment”. Consistently with this approach the Court here would not have required the NSW Trustee to act as tutor for the first defendant without giving it an opportunity to familiarise itself with her affairs. But the need for that course does not arise here.
But in case any party wishes to question the making of these orders, a temporary stay will be imposed for 28 days to allow such party a reasonable opportunity to take such action as the party is advised.
Accordingly, the Court makes the following orders, directions and notations:

Order that the monies paid into court by [name not published], as trustees for Sale of [the property] being $1,764,702.88 paid on 13 June 2019 and a further $10,774.99 paid on 4 November 2019, the total of which is $1,775,477.87, may be paid out of Court and distributed to the following persons in the following amounts:

The first plaintiff, [name not published]       $470,000.00

The second plaintiff, [name not published]    $470,000.00

The third plaintiff, [name not published]       $655,477.87

The second defendant, [name not published]    $180,000.00

$1,775,477.87

That the interest accruing on the monies paid into court be paid to the third plaintiff, [name not published].

The Plaintiffs and the Second Defendant acknowledge and agree that Order 1 takes into account adjustments and costs ordered [in] September 2017 by his Honour Justice Emmett AJA and all adjustments with respect to [the property] and no Plaintiff will make a claim in the bankruptcy of [the first defendant] or against the First or Second Defendant, for any costs, remuneration, causes of action, improvements, adjustments including the costs ordered at Order 12 [in] September 2017, and on any matter relating to their respective claims to the nett proceeds of sale of [the property], and that real property which claims and/or causes of action and/or orders have all now been settled by Order 1 hereto.

Note that any costs ordered, costs incurred, remuneration and adjustments claimed by the Plaintiffs with respect to [the property] are finalised by the adjustments giving rise to Order 1.

Stay action upon these orders for a further period of 28 days that is until and including Friday, 6 March 2020.

Order that these reasons not be published other than to the parties to these proceedings and their legal representatives.

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Amendments

13 March 2020 - coversheet - removed file number

Decision last updated: 13 March 2020

Medium Neutral Citation:	Three Co-Owners of Real Property v Another Co-owner and a Trustee in Bankruptcy [2020] NSWSC 42
Hearing dates:	5 February 2020
Date of orders:	07 February 2020
Decision date:	07 February 2020
Jurisdiction:	Equity
Before:	Slattery J
Decision:	Orders made, permitting the funds in Court to be paid out to the plaintiffs and the second defendant. Orders stayed for 28 days.
Catchwords:	PROCEDURE – payment out of court – a fund being the proceeds of sale of certain real property held in Court – claim against the funds by each of four co-owners – three of the co-owners of the plaintiffs and one is the first defendant – the first defendant has since become bankrupt – any estate of the bankrupt co-owner not held by that co-owners trustee in bankruptcy is subject to an order for financial management under the NSW Trustee and Guardian Act 2009 – various claims made by and against the bankrupt co-owner’s share of the fund are compromised by that co-owner’s trustee in bankruptcy to reach agreed sums for payment out to each of the co-owners – whether the funds in Court can be paid out of Court by proposed consent orders – whether a tutor should be appointed for the bankrupt co-owner before orders are made for the payment of the fund out of court.
Legislation Cited:	Bankruptcy Act 1966 (Cth), s 58(1)(b) NSW Trustee and Guardian Act 2009 Uniform Civil Procedure Rules 2005, rr 7.13, 7.14(1), 7.15(3), 7.16
Cases Cited:	A v A [2015] NSWSC 1178
Category:	Consequential orders
Parties:	First plaintiff: [names not published] Second plaintiff: [names not published] Third plaintiff: [names not published] First defendant [names not published] Trustees: [names not published] Trustee in Bankruptcy/Second Defendant: [names not published]
Representation:	Solicitors: First Defendant: the first defendant in person, name not published, assisted by her son, name not published Second Defendant: S. Nash Third Plaintiff: M. Reid (mentioned on behalf of the second defendant) Public Guardian: J. Brouwer
File Number(s):	[file number not published]
Publication restriction:	Yes. See Order 6.