Zohar v Hicks - [2002] FMCA 308

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ZOHAR & ORS v HICKS

[2002] FMCA 308

BANKRUPTCY – Whether mortgage is void against the trustee pursuant to s.120; whether value of forbearance to sue and/or execute on judgment is less than market value of the security given.

Bankruptcy Act1966, ss.5, 118, 120, 120(1)(b), 120(4)
Bankruptcy Legislation Amendment Bill 1996

Re Universal Distributing Company Ltd (in liquidation) [1932] 48 CLR 171
Victorian Producers Co-op Co Limited v AGGS in its capacity as trustee of the bankrupt estate of Heather (Re: Heather) delivered on 29 October 1999
Sutherland v Bryan (1999) NSWSC 155
Shirlaw v Taylor (1991) 31 FCR 222

Applicants:

OLIN ZOHAR AND CHARLES PHILIPPE LOUIS NILANT as Trustees of the property of Connor Joseph McGrath & Martina Elizabeth McGrath, Bankrupts

Respondent:

DAVID FREDERICK HICKS

File No:

WZ 79 of 2001

Delivered on:

24 December 2002

Delivered at:

Perth

Hearing Date:

18 December 2001

Judgment of:

Bryant CFM

REPRESENTATION

Counsel for the Applicant:

Mr Ar~~astidei~~istdei

Solicitors for the Applicant:

Carles Solicitors

Counsel for the Respondent:

Mr Bigmore

Solicitors for the Respondent:

BJW Ashdown

~~(1)~~

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

WZ 79 of 2001

OLIN ZOHAR & CHARLES PHILIPPE LOUIS NILANT
(as trustees of the property of Connor Joseph McGrath
& Martina Elizabeth McGrath, bankrupts)

Applicants

And

DAVID FREDERICK HICKS

Respondent

REASONS FOR JUDGMENT

Introduction

This matter is a dispute concerning the respondent’s interest pursuant to a mortgage secured over two properties at 241B Scarborough Beach Road, Doubleview and 239 Scarborough Beach Road, Doubleview in the state of Western Australia. The applicants claim that two mortgages over each of the properties referred to, given by the bankrupts Connor Joseph McGrath and Martina Elizabeth McGrath, to the respondent David Frederick Hicks are void against the trustees pursuant to section 120 of the Bankruptcy Act 1966 (Cth) (“the Act”) on the grounds that the value of the consideration given by the respondent was less than the market value of the interest secured by the mortgage.

Background

On 6 June 2001 the bankrupts signed an authority under section 188 of the Bankruptcy Act 1966 appointing Olin Zohar as the controlling trustee under Part X of the Act. A meeting of creditors of the bankrupts was held on 10 July 2001 but the creditors did not accept the deed of assignment. The creditors instead resolved that the bankrupts should lodge their debtors petition in bankruptcy and they did so on

13 August 2001. The applicants consented to act as their trustee in bankruptcy.
At the date of signing the authorities under s.118 of the Act, (“the authorities”) the bankrupts were the joint registered proprietors of two properties being 241B Scarborough Beach Road, Doubleview (CT Volume 1280 Folio 984) and 239 Scarborough Beach Road, Doubleview (CT Volume 1305 Folio 984).
On 5 May 2000, the bankrupts had executed second mortgages to the respondent, which were registered over both of the properties.
Prior to signing the authorities, the bankrupts had…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2002] FMCA 308
Decision Date: 24 December 2002

CaseChat Overview and Summary

This case concerned the validity of two mortgages granted by bankrupts to a creditor, David Frederick Hicks, in the context of a dispute over whether the mortgages were void under section 120 of the Bankruptcy Act 1966 (Cth). The applicants, Olin Zohar and Charles Philippe Louis Nilant as Trustees of the property of Connor Joseph McGrath and Martina Elizabeth McGrath, sought to have the mortgages declared void, arguing that the consideration provided by Hicks was less than the market value of the properties. Hicks contended that the mortgages were valid and that he had provided sufficient consideration in the form of forbearance to sue.

The Federal Magistrates Court considered the construction of the mortgages and whether they were limited to securing the original judgment debt or if they constituted an "all monies mortgage." The Court rejected the applicants' construction argument, finding that the mortgages were intended to secure the full amount of the final judgment debt, including interest and costs. The Court further found that the mortgages were void under section 120 of the Act because the consideration provided by Hicks was less than the market value of the properties. The Court ordered that the trustee pay Hicks the value of the consideration given for the mortgages, which included the amount received by Hicks at the sale of one of the properties plus costs.

The Court did not need to determine the alternative claim for an equitable charge or lien, as the finding that the mortgages were void under section 120 was sufficient to resolve the matter. The Court also did not need to consider whether the principle in Re: Universal Distributing Co Limited (in liquidation) should apply in favor of the controlling trustee. The final orders included a declaration that the transfer of property under the mortgages was void against the trustee and an order that the trustee pay Hicks the sum of the consideration given for the mortgages, including taxed costs.

Orders