Farrow Mortgage Services Pty Ltd v Winfield [1991] QSC 105 [1992] 2 Qd R 282

n C) IN THE SUPREME COURT OF QUEENSLAND BETWEEN: No. 143 of 1991 FARROW MORTGAGE SERVICES PTY. LTD. Plaintiff AND: MARK JEFFREY WINFIELD and LYNETTE WINFIELD Defendants REASONS FOR JUDGMENT - MASTER WHITE Delivered the Sixteenth day of April, 1991 CATCHWORDS: COUNSEL: SOLICITORS: HEARING DATE: 0.18 R.S.C. application for summary judgment; locus of bankrupt to defend action for recovery of possession of land; s. 58 and s. 116 Bankruptcy Act 1966; failure of trustee to register transmission of land pursuant to s.86 Real Property Act 1861; whether trustee can authorise or empower defendants to defend action. P. Roney for Applicant/Plaintiff Nicol Robinson & Kidd for Applicant/Plaint~ff Mark Winfield in person for himself and Lynette Winfield 4th April, 1991 -- 1 of 11 -- () () (~) () IN THE SUPREME COURT OF QUEENSLAND No. 143 of 1991 BETWEEN: AND: FARROW MORTGAGE SERVICES PTY. LTD. MARK JEFFREY WINFIELD and LYNETTE WINFIELD REASONS FOR JUDGMENT - MASTER WHITE Delivered the Sixteenth day of April, 1991 Plaintiff Defendants This is an application for summary judgment pursuant to o. 18 of the Rules whereby the plaintiff seeks recovery of possession of land from the defendants pursuant to a Bill of Mortgage. The specially endorsed writ is dated the 25th January, 1991. The defendants entered an appearance on the 6th February, 1991. A defence on behalf of both of the defendants was filed in the Court on the 8th February, 1991. The defendants presented their own petitions for bankruptcy and were made bankrupt on the 11 th February, 1991. Maxwell William Prentice, a chartered accountant of the national firm Prentice Parbery Barilla of Sydney was made trustee of the estate of both defendants and certificates of trusteeship are before me. The application first came on for hearing before Senior Master Horton Q.C. on the 28th March, 1991 and Mr. Cole, the trustee's representative appeared as did Mark Winfield, one of the named defendants on behalf of himself and his wife. I was informed that Mr. Cole indicated to the Court that the trustee -- 2 of 11 -- had no interest in defending the action. That is further borne out by the letter from the trustee to the solicitors for the applicant dated the 6th March, 1991 (Exhibit "D" to the affidavit of Fraser Drummond Perrin filed 4th April, 1991). That letter provided as follows: "We further advise that we have the capacity to continueor discontinue any action or defence regarding the bankrupts' property. Accordingly, we have the capacityto consent to an order that possession for the subject property be obtained. As• we have no funds in this estate and the chance of Q there being any equity in the sale is diminishing daily, · we do not see ourselves as being in a position to continue to defend the action especially now that the bankruptcy of the Winfields is alleged as a further default. () We would ask that you keep us fully informed of the marketing of the property and account to us fully for the disbursement of the proceeds. Any egui ty above your client's debt would, of course, be forwarded to the bankrupt estate care of this office." A preliminary point was taken before the Senior Master that Mr. Winfield had no standing to defend the action personally. Senior Master Horton adjourned the application for further submissions on this point to the 4th April, 1991. 0 When the application came on again the -locus submission was () renewed by Mr. Roney of counsel who appears for the plaintiff. An amended summons seeking to amend the statement of claim to allege as a further default against the defendants their bankruptcy had been served on the trustee on the 2nd April, 1991. Mr. Winfield sought an adjournment in order to consider further the amendment to the statement of claim and to have an opportunity: t_o put to the C_ourt an amendment to the defendants' defence. The course which I took was to hear the submissions on the question of locus and then to adjourn the -- 3 of 11 -- CJ 0 J. application to the 16th April, 1991 when I would next be in Chambers and to reserve the question of the locus of Mr. Winfield to oppose the application for consideration which decision I would give on that day. He tendered an affidavit going to the merits of the application and tendered a letter to him purporting to be from his trustee, Mr. Prentice, dated the 3rd April, 1991. It stated inter alia:- "We understand the matter will be before the Court tomorrow, 4 April, 1991, and that you will be appearing and seeking leave to amend your defence, a speedy trial and directions ... We will not be in a position to appear tomorrow but have no objection to you appearing on your own behalf." Section 58 of The Bankruptcy Act 1966 (C/th) provides:- "(1) Subject to this Act, where a debtor becomes a bankrupt - (a) the property of the bankrupt, not being after- acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in the registered trustee; and (b) (2) Where a law of the Commonwealth or State orTerritory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property, notwi~hstanding that it vests in equity in the trustee by virtue of this section, does not so vest at law until the requirements of that law have been complied with. ( 3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor - (a) (b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any -- 4 of 11 -- ! legal proceedings in respect of a provable debt or take any fresh steps in such a proceeding." It is submitted that the action to recover possession of land, not being to recover a provable debt does not require the plaintiff to obtain the leave of the Court to proceed, see also s.82 of the Bankruptcy Act. That seems to follow from a reading of the sections. The defendants are registered proprietors of the land, the subject of the action to recover possession. The expression "the property of the bankrupt" is defined in s. 5 as: "(a) except in subs. 58(3) and (4): ( i ) (ii) the property divisible creditors; and any rights and powers property that would have the bankrupt if he or bankrupt; and (b) in subs. 58(3) and (4): among the bankrupt's in relation to that been exercisable by she had not become 0 (i) the property, rights and powers referred to in Q paragraph (a) of this definition; and (ii) any other property of the bankrupt." "Property" is defined in s.5 to mean: " .. real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property." Accordingly, the land, the subject of the action, vested in the trustee on the 11 th February, 1991. Nothing appears in the material to suggest that the trustee has taken any step to have the subject land registered in the name of the trustee as required by s.86 of the Real Property Act 1861 and therefore I will assume that that has not occurred. -- 5 of 11 -- n Cl C) 0 Section 86 of The Real Property Act 1861, as amended in 1986 by the Real Property Acts and Other . Acts Amendment Act 1986 by s.57 provides:- "86. Transmission on Bankruptcy etc. Save where otherwise expressly provided in any Act, before the transmission or vesting or revesting of land or of any estate or interest in land consequent uponbankruptcy or upon the annulling of an adjudication of bankruptcy shall be recorded in the register a request in the prescribed form, together with such other evidence as the Registrar of Titles shall require, shall be lodged with the Register." Section 116 of the Bankruptcy Act provides: "(1) Subject to this Act - (a) All property that belonged to, or was vestedin, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him, or has devolved or devolves on him, after the commencement of the bankruptcy and before his discharge; (b) the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his discharge; is property divisible among the creditors of the bankrupt." Does anything turn upon the consequence that the equitable interest in the estate vests in the trustee on bankruptcy but the legal estate does not? It has been held that "requires" where it appears in s.58(2) (and also s.132(3)) of the Bankruptcy Act means "renders it essential", see Dixon v. Chief Commissioner of Stamp Duties (unreported decision of Hunt J. in the New South Wales Supreme Court of 22nd November, 1985 at p.6 on the N.S.W. equivalent of s.86). His Honour was there following -- 6 of 11 -- Re: Bermingham (deed); Ex parte Official Receiver (1936) 9ABC6 at pp.10-11. The consequence is that no dealing by the trustee is effective to pass any estate or interest in the land until the transmission is registered. His Honour found that such registration is a condition precedent to the vesting of the legal estate of the bankrupt as registered proprietor in the trustee but that the entirety of the beneficial interests vests in the trustee irrespective of compliance with the law as to registration. He held further that it is s.58 Q of the Bankruptcy Act which conveys both the equitable and legal estate in the trustee and that the vesting of the legal estate occurs as soon as the registration requirement has been effected. It follows that the bare legal interest, supposing that it still vests in the defendants, can have no value but that if it does, the registered proprietor holds that interest for the benefit of the trustee of the bankrupt's estate pending the fact of registration. Accordingly, it seems to me that the defendants have no interest in the current proceedings, see s. 116 of the Bankruptcy Act and Camfield Pastoral Company v. Dixon [1972] Qd.R. 289. The letter from the trustee to Mr. Winfield to which I have referred dated the 3rd April, 1991 does not have the effect contended for by Mr. Winfield of "authorising" him to appear for the trustee. Alternatively, the trustee may not empower the defendants, to defend the action on their "own behalf". That would be contrary to the provisions of the Bankruptcy Act. If the trustee declines to seek to defend as trustee (which is the case) there is no one else who may. 0 0 -- 7 of 11 -- n 1. What the defendants seek to argue by way of defence is a right to retain their house property until September 1991, see paragraph 3 of the defence but that right of residence, if established, is a beneficial interest in the land and vests in the trustee for the benefit of the creditors of the estate, see Smith v. Coffin (1795) 2H.Bl.444; 126 E.R. 641, at p.650, per Eyre Lord Ch.J. where he observed: " ... every beneficial interest which the bankrupt has and everything that can be turned into a profit should be taken from the bankrupt and given to the trustee to be disposed for the benefit of his creditors ... " It was submitted by Mr. Winfield that had the trustee (~) disclaimed the land pursuant to s .133 of the Bankruptcy Act ',, / C) because of the onerous mortgage, he would be entitled to defend the property in the action. Because the trustee has not disclaimed, it is not necessary to consider the point, but I should observe for the benefit of Mr. Winfield that s.133(2) operates to extinguish forthwith "the rights, interests and liabilities of the bankrupt .... in respect of the property disclaimed". Accordingly, had that happened he would have.no () right to defend. Mr. Roney of counsel had been able to find a reference to only two authorities directly on the issue of the right of a bankrupt to defend the action. One, an Indian decision is noted in the Digest but is not available in the Supreme Court Library: Tribhovandas Narotamdas v. Abdulally Hakimi i Paghdivala & Ors. (1914) Indian L.R. 39(Bomb) 568. I have been able to obtain a copy of that report. That action was a suit by the lessor against the lessee bankrupt for forfeiture of a lease by reason of breaches of covenant. The Official -- 8 of 11 -- Assignee refused to defend the suit and the first defendant appeared represented by two counsel. p.571 :- Beaman J. held at " ... it appears to me very clear, not only on principle but under the express words of our Statute, that no cause of action at present survives against the first defendant [the bankrupt], and that the suit against him ought to be dismissed at once. It is a clear case of his interest in the property having devolved upon the Official Assignee. The Official Assignee has been made a party to this suit with the leave of the Court. It is obvious, then, that he and the first defendant from whom the said interest has devolved upon him, cannot, in reason, both stand together on the array. The only person at present who Q possesses any interest whatever in this property from the point of view of the plaint in the present suit is not the first defendant but the Official Assignee." The other case is Re: Alston. Ex parte Alston (1899) 26 Q W.N. (N.S.W.). That was an action for damage against the defendant who became bankrupt in the course of the action for breach of promise of marriage. No defence was filed. At the hearing to assess damages objection was taken by the plaintiff that the bankrupt defendant had no standing to defend. The plaintiff had earlier applied for leave to proceed with the 0 action as required by the relevant legislation because of the defendant's bankruptcy. The relevant section appears to have been similar to s.58(3) (b) of the Bankruptcy Act including "upon such terms as the Court may impose. " In the presence of, and with the consent of, the official assignee leave was given to proceed to the plaintiff. Walker J. made that order and also heard the assessment. question his Honour held at p.22: With respect to the locus 11 .Tbe ___ f_or_me_:r: order_.H"_g,S __ _gbt.ain~d _ _g,_$ _ an_ indulgence, ____ Q,ng _it is somewhat astonishing to find that having obtained it, the plaintiff took an objection which would turn the order, which I made in the furtherance of justice, into what, it seems to me, would be an instrument of the ( ~) j -- 9 of 11 -- greatest injustice. The effect of the objection, if acceded to, would be to compel the assessment of damages to be taken ex parte - a travesty of justice. It was my understanding, when I made the former order, that the case would proceed in the ordinary way, the bankrupt, by his counsel, conducting his case just as if there hadbeen no bankruptcy; and that, in my opinion, the bankrupt was entitled to do under that order. I do not mean to say he would have power to compromise the action or agreeto a verdict without the consent of his official assignee; ... " It seems clear that it was the order granting leave that his Honour considered was the source of the bankrupt's right n to conduct the defence, those being "the terms" upon which the leave was granted. CJ Hi,s Honour also formed the view that the bankrupt had an interest independent of the official assignee because ss. 39 and 40 of the relevant bankruptcy act which dealt with an application by a bankrupt for a certificate of discharge provided that a factor which might be taken into account in causing a court to refuse to discharge the bankrupt was "an (-) unsatisfied judgment against the bankrupt in an action "--· 0 for ... breach of promise .... " He held at p.23 that:- "The bankrupt's assets being admittedly inadequate to satisfy any judgment which the plaintiff may obtain, it follows that the bankrupt, when he comes for his certificate, will have an unsatisfied judgment against him for breach of promise, and that the Court must take into account in· dealing with his application. It is obvious therefore, that the reduction of damages is a matter in which the bankrupt has a personal interest quite apart from his official assignee, as the magnitude of the verdict against him must effect the order of the Court will make when he applies for his certificate." That decision is, when examined, clearly different from the facts which prevail here. -- 10 of 11 -- Accordingly, I find that the defendants, being bankrupts, have no standing to be heard on the application brought by the plaintiff for summary judgment. 0 0 0 -- 11 of 11 --