Whitby v Juratowitch as trustee for the Property of Herm
[2017] FCCA 2075
•11 August 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| WHITBY v JURATOWITCH AS TRUSTEE FOR THE PROPERTY OF HERM & ORS | [2017] FCCA 2075 |
| Catchwords: BANKRUPTCY – Application for vesting order under s.133(9) Bankruptcy Act 1966 (Cth) – former de facto partner of bankrupt claiming an interest in disclaimed property – where joint liability under mortgage and payments made to mortgagee by Applicant. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.133(1AA), 133(1), 133(2), 133(9) Bankruptcy Regulations 1996 (Cth), reg.6.10 |
| Cases cited: Commonwealth Bank v State of Queensland, in the matter of Ginn [2016] FCA 1337 McMillan v Bidmonta Pty Ltd [2013] FCA 865 McVey v State of New South Wales, in the matter of McVey (Bankrupt) [2012] FCA 455 Westpac Banking Corp v State of Queensland [2016] FCA 269 |
| Applicant: | LESLEY JOY WHITBY |
| First Respondent: | DAVID PETER JURATOWITCH AS TRUSTEE FOR THE PROPERTY OF JOHN ANDREW HERM & ORS |
| Second Respondent: | AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED |
| Third Respondent: | STATE OF NEW SOUTH WALES |
| File Number: | SYG 3457 of 2015 |
| Judgment of: | Judge Barnes |
| Hearing date: | 11 August 2017 |
| Delivered at: | Sydney |
| Delivered on: | 11 August 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr Johnson |
| Solicitors for the Applicant: | Hennikers Lawyers |
| First Respondent: | No appearance |
| Counsel for the Second Respondent: | Mr Collins |
| Solicitors for the Second Respondent: | Dentons Australia |
Third Respondent: | Crown’s Solicitor Office (Submitting Appearance) |
ORDERS
The name of Daniel Peter Juratowitch be substituted for the name of Andrew Barnden as trustee for the property of John Andrew Herm, a bankrupt, as the First Respondent in these proceedings.
The estate in fee simple in the land described in Folio Identifier 2/12/111201 being land that was the subject of the disclaimer of onerous property executed on 11 September 2012 by Daniel Peter Juratowitch as trustee of the property of John Andrew Herm, and being an interest as tenant in common in equal share with the Applicant, Lesley Joy Whitby, vest pursuant to section 133(9) of Bankruptcy Act 1966 (Cth) in the Applicant with the effect that the Applicant shall become the sole registered proprietor of the said property, subject to the interests of the Australia and New Zealand Banking Group Limited under mortgage number AC286816.
There be no order as to costs.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3457 of 2015
| LESLEY JOY WHITBY |
Applicant
And
| DAVID PETER JURATOWITCH AS TRUSTEE FOR THE PROPERTY OF JOHN ANDREW HERM |
First Respondent
| AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED |
Second Respondent
| STATE OF NEW SOUTH WALES |
Third Respondent
REASONS FOR JUDGMENT
(revised from transcript)
The Applicant, Lesley Joy Whitby, moves on an amended application filed on 22 June 2017. She seeks an order pursuant to s.133(9) of the Bankruptcy Act 1966 (Cth) (the Act) which provides that:
The Court may, on application by a person either claiming an interest in, or being under a liability not discharged by this Act in respect of, disclaimed property, and after hearing such persons as it thinks fit, make an order, on such terms as the Court considers just and equitable, for the vesting of the property in, or delivery of the property to, a person entitled to it or a person in whom, or to whom, it seems to the Court to be just and equitable that it should be vested or delivered, or a trustee for that person.
Relevantly, Ms Whitby and her former de facto partner, John Andrew Herm, purchased the land in Folio Identifier 2/12/111201 (the property) as joint tenants in 2006. Mr Herm presented a debtor’s petition and became bankrupt on 3 March 2008. He was discharged from bankruptcy by operation of law under s.149 of the Act on 4 March 2011.
The Official Trustee in Bankruptcy was the initial trustee of Mr Herm’s bankrupt estate. Subsequently Andrew Barnden (originally named as the First Respondent in these proceedings) became trustee of Mr Herm’s property. He was replaced by David Peter Juratowitch in 2012. Mr Juratowitch was notified of these proceedings by the solicitor for the Applicant. A copy of Mr Juratowitch’s reply to the notification was tendered by the Applicant. He stated that he neither consented to nor opposed the orders sought, that he did not intend to participate in the proceedings and that he did not oppose being joined as a party to the proceedings.
Consistent with Mr Juratowitch’s lack of opposition to being joined as a party, I ordered that he be substituted for Mr Barnden as First Respondent. The proceedings against the original second respondent were discontinued. In addition to Mr Juratowitch, the Australia & New Zealand Banking Group Limited (the ANZ Bank) and the State of New South Wales are now the respondents. The ANZ Bank is the registered mortgagee under mortgage number AC286816 over the property. The mortgage was entered into at the time of the purchase of the property by Ms Whitby and Mr Herm. The State of New South Wales entered a submitting appearance.
The evidence before the Court includes affidavits of Ms Whitby and her solicitor and a copy of a letter dated 11 September 2012 signed by Mr Juratowitch addressed to the ANZ Bank. The letter identified the property by its folio reference; referred to the fact that Mr Herm was declared bankrupt as a result of lodging a debtor’s petition on 3 March 2008; stated that Mr Juratowitch had been appointed as trustee pursuant to s.181A of the Act on 30 July 2012; and noted that Mr Herm was listed as a joint owner of the property with Lesley Whitby (the Applicant) and that the ANZ Bank held a mortgage. The letter was said “to serve as [the trustee’s] notice pursuant to s.133(1) of the Act that [he] disclaim[ed] the bankrupt estates (sic) interest” in the property. It noted that the disclaimer was in relation to the estate’s interest in the property only and did not seek to affect the rights of the joint owner, Ms Whitby. A copy of a withdrawal of a caveat on the property in favour of the Official Trustee in Bankruptcy is also in evidence.
In addition, in a letter of 11 September 2012 to Ms Whitby’s former solicitor, Mr Juratowitch stated that he had disclaimed the estate’s interest in the property. He explained that the property was a vacant parcel of land for which no rental income was being derived to meet the mortgage. He stated that he had had regard to the solicitor’s explanation that Ms Whitby was the only party who had been meeting the mortgage repayments on the property for some time and to her solicitor’s advice that the balance due under the mortgage to the ANZ Bank at 16 April 2012 was $173,247.37. Mr Juratowitch stated in this letter that based on three market appraisals provided by Ms Whitby’s solicitor, the average value of the property may be fairly assessed to be approximately $170,000, that there was no equity in the property based on the information available and that in light of this, he had disclaimed the estate’s interest in the property.
It is in these circumstances that the present proceedings have been brought by Ms Whitby. I note that Mr Herm and Ms Whitby remain the registered proprietors of the property as confirmed in a Land and Property Information title search of 9 August 2017, which also records the mortgage to the ANZ Bank and the caveat (as the withdrawal has not yet been lodged).
However, the effect of Mr Herm’s bankruptcy was to sever the joint tenancy with Ms Whitby and impose an obligation on Ms Whitby and Mr Herm to hold the land in trust for the trustee in bankruptcy and Ms Whitby as tenants in common in equal shares (as described in McMillan v Bidmonta Pty Ltd [2013] FCA 865 at [4] and see s.58 of the Act).
Ms Whitby now seeks an order under s.133(9) of the Act on the basis of her interest as a co-owner of the property and having regard to her financial contributions to the mortgage and towards the maintenance of the property and payment of rates.
Her evidence is that she and Mr Herm were a de facto couple. They separated, resumed cohabitation and then separated again in circumstances where she had obtained an apprehended violence order against Mr Herm. He breached the order in January 2007 and was jailed for eight months. Ms Whitby and Mr Herm entered a property termination or separation agreement under the Property (Relationships) Act 1984 (NSW) on 30 November 2006, a copy of which is in evidence before the Court. Under that agreement, she was to transfer the property to Mr Herm. He was to be responsible for all mortgage repayments, including arrears, and to meet other liabilities. Ms Whitby’s evidence is that he did not meet his liabilities. It appears that there was a repudiation of that agreement.
In any event, Mr Herm did not make any payments under the mortgage after his bankruptcy. Ms Whitby made the only such payments. She provided bank statements evidencing payments up to October 2014. Ms Whitby explained how she made repayments, but also gave evidence of difficulties, which led to her falling behind in repayments. She is now seeking to make arrangements with the ANZ Bank to satisfy the outstanding liability to the bank “by payment or refinance”.
Under s.133(1AA) of the Act, where a part of the property of the bankrupt consists of land of any tenure burdened with onerous covenants or property (including land) that is unsaleable or is not readily saleable, s.133(1) applies. This is the provision referred to by Mr Juratowitch in his notice of disclaimer. It is as follows:
Subject to this section, the trustee may, notwithstanding that he or she has endeavoured to sell or has taken possession of the property or exercised any act of ownership in relation to it and notwithstanding, in the case of property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered, that he or she has not become the registered owner of that property, by writing signed by him or her, at any time disclaim the property.
Counsel for the Applicant acknowledged that the “usual” form of disclaimer of property was not used in this case. However the evidence before the Court meets the requirement that there be a disclaimer in writing signed by the trustee, Mr Juratowitch. Regulation 6.10 of the Bankruptcy Regulations 1996 (Cth) provides that a notice of disclaimer must adequately identify the bankrupt to whom the notice relates and the property or contract being disclaimed. The letter to the ANZ Bank does that. It identifies the bankrupt as Mr Herm and identifies the property by reference to the folio identifier number. It is also apparent that, as required under reg.6.10(2), the trustee gave notice to each person who to his knowledge had an interest in the property, in particular the ANZ Bank (the mortgagee) and the solicitor for Ms Whitby, the co-owner of the property.
In addition to the letter to the ANZ Bank of 11 September 2012 and the accompanying letter to Ms Whitby’s former solicitor giving reasons for the disclaimer, in his recent letter of 9 August 2017 Mr Juratowitch acknowledged that the interest in the property was disclaimed in 2012.
I am satisfied with the evidence of disclaimer of property in accordance with s.133(1) of the Act.
Under s.133(2) of the Act such disclaimer operates to determine forthwith the rights, interests and liabilities of the bankrupt and his or her property in or in respect of the property disclaimed and discharges the trustee from all personal liability in respect of the property disclaimed as from the date when the property vested in him or her, but does not, except so far as is necessary for the purpose of releasing the bankrupt and his or her property and the trustee from liability, affect the rights or liabilities of any other person.
It is generally suggested that on such disclaimer the disclaimed property escheats to the Crown (in this instance in right of the State of New South Wales) subject to any charges (see McMillan v Bidmonta at [13] and McVey v State of New South Wales, in the matter of McVey (Bankrupt) [2012] FCA 455 at [4]). I note the discussion of this interesting issue by Rares J in National Australia Bank Limited v State of New South Wales [2009] FCA 1066, and Edelman J in Westpac Banking Corp v State of Queensland [2016] FCA 269 and Commonwealth Bank v State of Queensland, in the matter of Ginn [2016] FCA 1337. It is not necessary to consider this issue further in this case, as s.133(9) comes into play and the State of New South Wales has entered a submitting appearance.
I accept the evidence of Ms Whitby that she made contributions to the purchase of the property and also that she has made mortgage payments to the bank and paid rates in relation to the property in circumstances where Mr Herm has made no financial contribution to the property or the mortgage since the date of his bankruptcy.
While Ms Whitby and Mr Herm entered a separation agreement on 30 November 2006 under which the property in question was to be transferred to Mr Herm, he did not, and apparently could not, comply with his obligations and the terms of the agreement were not satisfied. Ms Whitby remains liable under the mortgage. She is a co-owner of the property under a liability in respect of the disclaimed property by reason of the mortgage that was not discharged by the Act. She has standing to seek an order under s.133(9) of the Act (see McVey and also McMillan).
I am satisfied on the evidence before me that it is just and equitable that the disclaimed property be vested in Ms Whitby. She contributed to the purchase of the property and was solely responsible for mortgage repayments, at least since Mr Herm became bankrupt.
The State of New South Wales has entered a submitting appearance. The ANZ Bank has no difficulty with the orders sought, which recognise its interests under the mortgage.
I am satisfied that this is an appropriate case in which to make the vesting order sought by Ms Whitby.
I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Judge Barnes
Date: 30 August 2017
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