Zohar v Hicks
[2002] FMCA 308
•24 December 2002
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) Re Universal Distributing Company Ltd (in liquidation) [1932] 48 CLR 171 |
| 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 |
| 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 already accepted an offer for sale of 241B Scarborough Beach Road. The sale price was in accordance with the valuation obtained by the applicant Zohar and as controlling trustee he consented to the sale proceeding to settlement.
The respondent initially refused to discharge the mortgage over the property unless he received all funds after the amount required to pay out the first mortgage and rates and taxes. He maintained that the second mortgage secured all monies claimed by him and that he had priority over the real estate agents selling commission, vendor settlements fees and the applicant Zohar’s fees and disbursements as controlling trustee associated with selling the property.
As a result of negotiations between the respondent’s solicitors and the applicants’ solicitors, which took place on 9 July 2001, this dispute was resolved on the basis that surplus funds be paid into the trust account of the respondent’s solicitors. These funds amounted to $10,012.10 remaining after discharge of the first mortgage, payment of $22,745.00 to the respondent, real estate agents commission, part of vendor settlement costs and rates and taxes adjustments. The arrangement was that those monies would be paid out to the respondent unless an agreement was reached or some other party commenced proceedings before 31 August 2001 to claim the money. The present claim by the applicants is the claim envisaged by that agreement.
The applicant’s calculation of the equity remaining in the remaining property at 239 Scarborough Beach Road, Doubleview is approximately $58,000.00 after allowing for the amount owing under the first mortgage on that property and the selling agent’s commission.
Thus, there are two sums available to meet the claim of the applicants if they are successful — $58,000 plus $10,012.10 held in trust.
History of litigation between the bankrupts and the respondent
In June 1999 the respondent commenced an action in the District Court of Western Australia against the bankrupts. On 2 July 1999 a memorandum of appearance was entered by the bankrupts and on
9 November 1999 the bankrupts were given conditional leave to defend the action subject to the provision of security by the bankrupts within 30 days, the nature and extent of the security to be agreed between the bankrupts and the respondent.
The bankrupts failed to comply with the order as to the condition on which leave was granted and on 19 January 2000 judgment for part of the District Court action based upon the failure of the bankrupts to comply with their condition for security was entered (‘the First Judgment’). The judgment was for $21,385.22 plus costs to be taxed. Interest began to run.
On 31 January 2000 following a demand by the respondent to the bankrupts for judgment on the remaining part of the claim, the bankrupts made a further application seeking to set aside the judgment obtained and an extension of time to comply with the orders made on
9 November 1999. The respondent sought to have judgment entered for the balance of the claim as a result of the bankrupts’ default in other procedural orders and on 10 March 2000 a Deputy Registrar in the District Court directed that the parties attempt to resolve the issue of the provisional security pursuant to the orders of 9 November 1999 and indicated that he would be prepared to extend the time for compliance provided the parties could reach agreement on the nature, extent and terms of security.
Negotiations then took place between the solicitors in relation to the security. One of the major issues between them was the default judgment and whether a second judgment in respect of the failure to comply with procedural orders (the subject of a springing order) ought to be set aside at all, or that if set aside, as intimated by the Court it would do, whether such principal sum ought to be secured by the mortgage.
Agreement was reached and the bankrupts gave security by way of second mortgages over the properties referred to. The bankrupts agreed that in addition to the security sum, the mortgages would also principally secure all interest and legal costs.
On 5 May 2000, the bankrupts executed a mortgage in favour of the respondent over 241B Scarborough Beach Road, Doubleview and over 239 Scarborough Beach Road, Doubleview. The mortgages were stamped to secure $21,385 at that time. They were subsequently upstamped in May 2001.
The District Court action was not resolved, and as a result of the bankrupts failing to comply with a springing order made on 21 June 2001, the District Court granted judgment in favour of the respondent on 24 July 2001 for $82,783.99 (‘the Final Judgment’). On 9 August 2001 the District Court of Western Australia ordered that the bankrupts pay the respondent’s costs on a party/party basis up to and including
15 February 2001 and thereafter on an indemnity basis.
The applicants’ contentions
The applicants contend that the order made in the District Court in favour of the respondent against the bankrupts on 16 December 1999 provided that:
“Judgment be entered for the plaintiff against the defendant with costs unless within 30 days the defendant do provide security in the sum of $21,385.00 to the satisfaction of the plaintiff and default having been made this day it is the judgement that the defendant is to pay to the plaintiff the sum of $21,385.00 and costs to be taxed.”
The applicants contend that by virtue of that order the plaintiff was simply an unsecured creditor of the bankrupts for $21,385.00 and costs to be taxed.
The applicants claim under three separate bases:
i)The applicants contend that as a matter of construction the mortgages are limited to securing the sum of $21,385 plus interest on that sum.
ii)The applicants contend that in the alternative the mortgages are void under section 120 of the Act to the extent that they purport to secure more than the sum of $22,745 (which the respondent has already received).
iii)Alternatively, the applicants submit that in the event that the mortgage is held to be an “all monies mortgage” which is not void under section 120 of the Bankruptcy Act, they are entitled to an equitable charge or lien for all costs and disbursements (including legal fees) incurred by them in protecting, preserving and realising the property at 241B Scarborough Beach Road which was sold whilst one of the applicants was controlling trustee. In this respect they rely upon Re: Universal Distributing Company Ltd (in liquidation) [1932] 48 CLR 171 per Dixon J at 174-175.
The construction argument
The applicants contend that as a matter of construction the mortgages are limited to securing the sum of $21,385 plus interest on that sum. They contend that the principal sum secured on the front page of the mortgage states: “See clause A (v) on page 3.” Clause A (v) on page 3 of mortgages expressly limits the amount payable pursuant to the District Court action, which is $21,385, plus interest on that sum. The clause then goes on to provide that there is also to be secured “any interest accruing on such sum pursuant to any order or judgment of the District Court of Western Australia” and “all other costs or monies due and/or payable pursuant to this mortgage.”
Clause D (iii ) says as follows:
“Notwithstanding any other term of this mortgage, if the creditor receives or collects any money pursuant to this mortgage by exercise of any rights or powers or otherwise, the creditor may first apply such sums to any debt or other monies due by the debtors to the creditor on any account before applying any such money to any amount due to the creditor pursuant to the secured arrangement.”
The respondent contends that Clause D (iii) gives rise to an “all monies” mortgage to secure all money owing under the District Court action, for which judgment was ultimately entered, and the mortgage was upstamped to reflect that security. The applicants contend that the effect of Clause D (iii) is merely to allow the mortgagee to apply funds which come into his hands in payment of other unsecured debts which may exist before applying money to the secured debt. The clause does not convert what are otherwise unsecured debts into secured debts. They further contend that if it was the intention of the parties that there be “all monies” mortgage then the definition of “secured arrangement” in Clause A (v) would not have been included in the mortgage.
To the extent that there is any inconsistency between Clauses A (v) and D (iii), the applicants contend that the intention of the parties as expressed in Clause A (v) is to be preferred. The applicants contend that if they are correct then it follows that the respondent has already received the secured property and the respondent should therefore discharge the mortgages.
The respondent contends that it was agreed in discussions as to the terms of the mortgage that if further sums were found to be due upon judgment of the District Court, they would be included within the scope of Clause D (iii) of the mortgage. The respondent thus contends that the definition of “secured arrangement” on each mortgage covers the first judgment debt of $21,385.22, plus interest as provided in the final judgment and accruing on the final judgment debt and legal costs associated with the registration, administration, enforcement, preservation, maintenance and discharge of the mortgage. He further contends that the amount secured on 9 July 2001 when settlement of the sale of one of the mortgage properties took place, was a matter of empirical analysis.
Counsel for the respondent submitted that the construction point was irrelevant because the mortgage secures whatever it was agreed to secure, at the relevant time. In other words, whilst at the date of execution of the mortgage it secured the first judgment debt of $21,385.22 plus interest and costs, the bankrupts and the respondent subsequently agreed, once a final judgment had been obtained, that the mortgages should secure the whole amount of the final judgment including costs and interest and the mortgage was upstamped to reflect that.
From the initial stamping of the mortgages, the correspondence passing between the parties and the evidence of Mr Hicks and his solicitor Mr Williams, I find that when the mortgages were initially given it was to secure the First Judgment, namely $21,385 together with any interest accruing on such sum pursuant to any order or judgment of the District Court of Western Australia. That is the description of the “secured arrangement” in Clause A (v) of the mortgage; it is corroborated by correspondence passing between the solicitors for the bankrupts and the respondent and the amount of stamp duty on the mortgages is further corroboration of the sum secured. I reject the evidence of the respondent that if any further sums were found to be due upon judgment of the District Court they would be included within the scope of Clause D (iii) of the mortgages. At least that evidence is rejected insofar as it is asserted that such agreement was contemporaneous with the initial execution of the mortgage.
I further find that the mortgages were upstamped in May 2001. On
24 July 2001 the District Court granted judgment pursuant to the springing order made earlier for non-compliance with procedural orders. On 9 August 2001 a further order was made that the bankrupts pay the respondent’s costs of the District Court action on a party/party basis up to and including 15 February 2001 and thereafter upon an indemnity basis.
On 9 July 2001 settlement of sale of 241B Scarborough Beach Road, Doubleview was effected. No evidence was called from the bankrupts which would impugn the validity of the mortgages (for the upstamped amount) per se. The respondent in essence contends that the question is one of the market value of the amount secured pursuant to the mortgages and should be dealt with under a consideration of s.120 of the Act.
I accept the respondent’s contention and thus reject the construction argument of the applicant. I am not able to find on the evidence that the validity of the mortgages has been impugned and the question of the amount secured from time to time will be relevant to the consideration of the applicant’s claim under s.120 of the Act.
Claim under section 120
There was agreement that the granting of the mortgages which did not previously exist is a “transfer of property” for the purposes of s.120 of the Act.
Section 120 says as follows:
(1)A transfer of property by a person who later becomes a bankrupt (the ‘transferor’) to another person (the ‘transferee’) is void against the trustee in the transfer’s bankruptcy if:
(a)the transfer took place in the period beginning five years before the commencement of the bankruptcy and ending on the date of bankruptcy; and
(b)the transferee gave no consideration for the transfer or gave consideration of less than the market value of the property.
(3)Despite subsection (1) a transfer is not void against the trustee if:
(a) the transfer took place more than two years before the commencement of the bankruptcy; and
(b) the transferee proves that, at the time of the transfer, the transferor was solvent.
(4)The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
(6)This section does not affect the rights of a person who acquired property from the transferee in good faith and by giving consideration that was at least as valuable as the market value of the property.
(7)For the purposes of this section:
(c)“transfer of property” includes the payment of money; and
(d)a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(e)the “market value” of property transferred is its market value at the time of the transfer.
The Applicants contend that the consideration provided for the granting of the mortgages was constituted by the respondent’s forbearance to enforce the First Judgment for $21,385 plus costs and statutory interest. At best, they contend the value of the respondent’s consideration for the transfer of the mortgage interest in the bankrupt’s properties in May 2000 was the sum of $22,745, which sum has already been paid at settlement on the sale of 241B Scarborough Beach Road.
However, they contend that the market value of the property mortgaged to the respondent was well in excess of this, being $22,745 received by the respondent plus the $10,012.10 in the solicitor’s trust account, plus a further estimated $58,000 being the equity in the remaining property at 239 Scarborough Beach Road.
The applicants contend that the mortgages are void pursuant to s.120 of the Act subject to an order for payment of the money by the applicant to the respondent pursuant to s.120 (4) of the Act, which the applicant submits has already occurred as the respondent received the sum of $22,745.
The applicants concede that the respondent gave consideration for the transfer, which included a forbearance not to enforce. The forbearance, they contend, was in relation to the original requirement of security for part of the claim and conditional leave to defend. They contend that all of the correspondence supports the consideration being the amount of the First Judgment, no more, no less.
The second question required by s.120 is the question of what is the market value against which the consideration in s.120 (1)(b) must be measured. The applicants contend that the market value at the relevant time is to be discerned from the transfer of land pursuant to which the bankrupts acquired the property at 239 Scarborough Beach Road, on
24 December 1999 ($190,000) and the first mortgage which they then obtained and which was secured over the property ($142,000). This left an equity of approximately $50,000, which represents the “market value”. This is in addition to the value of the security given to the respondent in relation to 241B Scarborough Beach Road, Doubleview that also secured the First Judgment. Thus they contend the consideration given for the transfer which was the First Judgment plus interest and costs, was significantly less than the market value of the property.
The respondent contends that the “market value” of the mortgages was the total secured by them. He contends that the value given for the mortgages was the promise to release, upon payment of the amount secured, the First Judgment debt and the Final Judgment debt, or (upon merger of the First Judgment debt in the Final Judgment debt) the final debt pro tanto, costs and any interest accrued up to the time of payment, together with the forbearance (effectively imposed upon the parties by the Court) not to enforce payment of the First Judgment debt until the conclusion of the proceeding.
He contends that because the value of the amount secured is exactly the same as the value of the promise to release and the forbearance to enforce the first judgment, the respondent gave “full market value to the mortgages”.
Both parties referred me to the decision of Merkel J in Victorian Producers Co-Op Co Limited v AGGS in its capacity as trustee of the bankrupt estate of Heather (Re: Heather) – a judgment delivered
29 October 1999. Re: Heather dealt with the current provisions of s.120 of the Act and related to a dispute concerning a mortgage over livestock granted by the debtors to the co-operative. The trustee claimed the mortgage was void pursuant to s.120 of the Act on the ground that the value of the consideration given by the co-operative for the mortgage was less than the market value of the livestock, the subject of the mortgage. After referring to the relevant provisions of s.120, Merkel J said (at paragraph 11):
“The current form of section 120 is intended to overcome the decision in Barton v The Official Receiver (1986) 161CLR 75, that a transaction is not void under the section if the person who claims to be purchaser of property shows that the consideration given is real and substantial even if it is not fully adequate consideration. Unlike its predecessor, under the current form of section 120, the court is required to assess the value of the consideration given.”
Merkel J then considered paragraph 84.14 of the explanatory memorandum to the Bankruptcy Legislation Amendment Bill 1996 which enacted s.120 in its current form:
“Forbearance to sue has always been regarded at law as good consideration. Such forbearance will, under the Act as proposed to be amended by the Bill, have to be looked at in the light of the likely value of the chose-in-action.”
His Honour then considered the decision of Austin J, Sutherland v Bryan (1999) (NSWSC 155) in which His Honour considered s.120 in its current form. He referred with approval to the observations of Austin J on s.120 which were:
·property as broadly defined as s.5 of the Act includes personal property such as a chose-in-action;
·s.120(1)(b) requires the Court to identify the consideration actually given by the transferee, rather than the consideration which might have been given but which was not in fact given;
·the value of the property transferred is to be its ‘market value’ at the time of the transfer which is to be compared with the ‘value’ – not necessarily the market value – of the consideration given by the transferee;
·the consideration given by the transferee is to be assessed on an objective basis not dependent on any special value which the transferor may have subjectively have placed on the consideration."
In Re: Heather His Honour then concluded that the value to be determined by him was the value of the agreement by the co-operative to forbear from taking steps to recover the amount of the debtor’s indebtedness and of the continuing provision of credit to the debtors in accordance with the credit arrangement. In considering the value of an agreement to forbear from recovering a debtor’s indebtedness, he looked at the ‘value’ of the chose-in-action. He considered that the chose-in-action of the co-operative in respect of the existing indebtedness of the debtors of $78,878 “plainly had a value that was significantly less than that amount, as a result of the insolvency of the debtors at the time.” He further noted that even if the debtors were somehow able to pay that amount to the co-operative, the significant risk that the payment would be void under the Act by reason of the debtor’s insolvency would inevitably result in the value of the chose-in-action being significantly less than the amount due.
Accordingly he considered that at all material times the value of the consideration given by the co-operative remained significantly less than the market value of the livestock transferred to it from time to time under the mortgage. In relation to the argument (also put in this case by the respondent) that security ensured that the value of the chose-in-action was the amount realisable under the mortgage, which was equivalent to the indebtedness at the time, was an erroneous approach as it “does not value the consideration given by the transferee; rather, it values that consideration and the consideration given by the transferor.”
His Honour also considered whether he could make a finding of insufficiency of consideration under s.120(1)(b) without determining the precise amount of the insufficiency. His Honour held that the requirement under s.120(1)(b) is that the consideration given be less than the market value of the property transferred. The precise value of the consideration given may, but need not necessarily, be determined for the purposes of s.120(1)(b) even though it is a matter arising under s.120 (4).
I rely upon and adopt the decision of Merkel J in Re Heather as to the way in which the Court must assess the value of an agreement to forbear from recovering a debtor’s indebtedness. In this case however, the facts are not quite the same as in Re Heather. The difficulty with the respondent’s argument is that at the time the mortgage was originally stamped (on 5 May 2000) the secured amount was limited to “the sum of $21,385.22 ordered on 9 November 1999 by the District Court of Western Australia in Action No. 2374 of 1999 to be provided and secured by the debtors in favour of the creditor in relation to the creditor’s claim against the debtors in the action, together with any interest accruing on such sum pursuant to any order or judgment of the District Court of Western Australia." The respondent argues that the consideration was not so limited because of the forbearance to enforce the default judgment to which the respondent was entitled. However, the forbearance to enforce was given once the security was provided. It is clear that the security was limited by the mortgage document itself and the correspondence between the parties confirms that. The definition of “secured arrangement” itself in Clause A (v) envisages that judgment for a greater amount may later be obtained but nevertheless limits the security.
This is entirely consistent with the First Judgment obtained on
16 December 1999 by the respondent which said that judgment was entered: “Pursuant to the order of the Deputy Registrar dated
9 November 1999 whereby it was ordered that the defendants’ defence as to the plaintiff’s claim for the sum of $21,385.22 be struck out and judgment be entered for the plaintiff against the defendants with costs, unless within 30 days the defendants do provide security for the sum of $21,385.22 to the satisfaction of the plaintiff.”
Far from there being forbearance to sue for any further sum, it is clear that the basis upon which the security was to be provided was the judgment already entered. The security given was commensurate with the amount of the judgment then obtained. The forbearance to sue was forbearance to execute on that judgment in consideration of security for the amount of the judgment plus interest and costs.
The first issue that arises for determination is whether the security had a greater consideration (which would support the upstamped security) because of the forbearance to sue for the amount of the Final Judgment that came about as a result of the springing order in June 2000.
Letter 5 of the bundle of correspondence that was tendered is a letter dated 13 March 2000 from Ilbery Barblett the respondent’s solicitors to the mortgage broker who represented the first mortgagees. A portion of that letter read:
“In this regard it would be necessary for the mortgagees on the above properties to consent to the registration of second mortgages to secure the order of the Court in the sum stipulated or such other sums the Court may award in relation to that part of our client’s claim. Any additional sum ordered to be paid will be levied by way of separate and additional execution proceedings on such judgment or order.”
In my view these words make it clear that at least at that time what was sought to be secured was simply the amount secured by the first judgment and that it was clearly envisaged that any additional sum was not to be part of the secured sum.
On 31 March 2000, Ilbery Barblett wrote to the bankrupt’s solicitors, Williams & Co, and inter alia said:
“We confirm our instructions that whilst our client does not consent to the extension of time for compliance with the security order or the setting aside of any judgment obtained, should the same be ordered by the District Court of Western Australia upon your client’s application then the necessary terms of the mortgage have been agreed between the parties.”
The Deputy Registrar subsequently gave an extension of time. It was never asserted in correspondence that the consideration was higher than the amount of the judgment entered plus interest and costs because it included a forbearance to sue (or, in this case, forbearance to refrain from seeking to enter the draft judgment). The correspondence envisages that a judgment might later be entered for a greater amount but there is no forbearance on the part of the respondent arising from the limited security given. Indeed it is clear that there was no forbearance. The respondent was not consenting to an extension of time nor a setting aside of the judgment, and the litigation proceeded for some time after the security was provided.
Indeed, by 7 April 2000 the Deputy Registrar had made orders which provided for an extension of time for security and that judgment not be entered with respect to the springing order and the time for compliance with the springing order for discovery be extended. Thus, when the limited security was given in the mortgage dated 5 May 2000, leave had already been given to extend the time and judgment was not to be extracted on the springing order. This was a decision made by the Deputy Registrar and there was no voluntary forbearance by the respondent not to enter judgment prior to the springing order at the time the mortgage was entered into on 5 May 2000.
At the time the mortgage was given the order had been made and the litigation was again under way. The litigation between the bankrupts and the respondent continued until judgment was eventually obtained on 24 July 2001.
I cannot therefore find that there was any agreed element of forbearance to sue in the consideration provided by the respondent.
By the time the mortgage was upstamped to secure the totality of the Final Judgment debt on 5 May 2001, there was no consideration given because no question of forbearance arose. The final judgment according to the documents was unsecured and judgment was finally entered on 24 July 2001.
The further question raised by Re: Heather is whether there is sufficiency of consideration upon an examination of the actual financial circumstances of the mortgagee at the time the mortgage was granted. In Re: Heather Merkel J concluded that the financial circumstances of the debtors was such that it was unlikely that they could repay their indebtedness and thus the security had less value.
In this case, the financial circumstances of the parties do not lead me to conclude, on that ground at least, that the debtors were insolvent. At the time when security was first given the debtors had recently been able to purchase one of the properties which clearly had a significant equity of at least $40,000. There was no evidence of any other liabilities at that time.
When the mortgage was upstamped, I have already found that in the provision of that security no consideration was given and the question therefore does not arise. Accordingly, I am satisfied that the market value was greater than the consideration given and I find that the mortgages are void pursuant to s.120 as against the Trustees.
Equity charge or lien – Re: Universal argument
This argument was raised in the alternative by the applicant in the event that the mortgage was held to be “all monies mortgage” (which is not void under s.120 of the Bankruptcy Act).
The principle relied upon by the applicant derives from In Re: Universal Distributing Co Limited (in liquidation) [1932] CLR 171 per Dixon J at 174-175, who held that a liquidator was entitled to charge against a fund – such expenses reasonably incurred in the care, preservation and realisation of property, in priority to secured creditor. In Shirlaw v Taylor (1991) 31 FCR 222 at 228, the Full Federal Court referred to the Re: Universal principle as applying where “a party has by his efforts brought into Court a fund in the administration of which various parties are interested, his costs and expenses should be a first claim upon the fund.” The Full Federal Court accepted this applied to the benefit of the provisional liquidator. The applicant argues that there is no reason why the principle should not apply for the benefit of the controlling Trustee under Part X of the Bankruptcy Act.
In determining that the mortgage is void pursuant to s.120 it is not necessary for me to determine whether there is an equitable lien and particularly it is not necessary for me to determine whether the principle in Re: Universal should apply for the benefit of the controlling trustee under Part X of the Act.
Application of s.120 (4)
Section 120(4) requires the trustee to pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer void against the trustees. I have found that the market value of the property was greater than the consideration and that the consideration is the sum of $21,385.22 together with interest on that sum and costs awardable on a party/party basis up to 15 February 2001.
In the circumstances I am of the view that it is appropriate to regard the sum received by the respondent as the consideration under subsection (4) together with the costs which remain to be taxed and the trustee will be required to pay to the respondent the sum so ordered. It follows from the foregoing that:
b)the application of the applicant will succeed;
c)the trustee is entitled to a declaration that the transfer of property under the mortgage is void against the trustee;
d)the respondent is not obliged to repay to the trustee the proceeds received as a result of the sale of the secured property; and
e)the trustee must pay to the respondent the sum of its taxed costs.
I certify that the preceding sixty-two (62) paragraphs are a true copy of the reasons for judgment of Bryant CFM
Associate:
Date:
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