Re Teunis Holland and Patricia Ann Holland Ex Parte: Official Trustee In Bankruptcy [1985] FCA 32; 1982 Bankruptcy 5 FCR 165 (15 February 1985)

FEDERAL COURT OF AUSTRALIA

Re: TEUNIS HOLLAND and PATRICIA ANN HOLLAND
Ex Parte: OFFICIAL TRUSTEE IN BANKRUPTCY
Nos. 462,496 of 1982
Bankruptcy
5 FCR 165

COURT

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
Fisher J.(1)

CATCHWORDS

Bankruptcy - application to court for directions - manner in which Trustee is to treat joint property of bankrupt husband and wife - husband made bankrupt first - joint or separate estates - when severance of a joint tenancy occurs - effect of failure to register transmission of interest of husband's estate until transmission of wife's estate - effect of registration under Real Property Act (S.A.).

Bankruptcy Act 1966 ss.58(1) and (2), 110, 134(4)

Real Property Act (S.A.) 1886-1975 ss.170, 171, 180

Bankruptcy - Whether bankruptcy of a joint tenant severs the joint tenancy - Bankruptcy Act 1966 (Cth) - Real Property Act 1886 (SA). Held: (1) The bankruptcy of a joint tenant constitutes a disposition of his interest and severs the joint tenancy.

(2) The Bankruptcy Act 1966, s 58(2) which provides that property does not vest in law in a trustee of a bankrupt estate until the requirements of registration have been complied with does not affect this result, even in the context of the provisions of the Real Property Act 1886 (SA), ss 170, 171 and 180 which set out procedures by which the transmission is registered.

HEARING

Adelaide, 1984, December 19; 1985, February 15. 15:2:1985
APPLICATION

Application for directions.

S. M. Adams, for the applicant.
Cur adv vult

Solicitors for the applicant: Adams Gilbertson & Co.
GFV

ORDER

The applicant treat the bankrupts' interests in the property, being the land comprised and described in Certificate of Title Register Book Volume 4027 Folio 200 as separate estates.

Orders accordingly

DECISION

This is an application by the Official Trustee in Bankruptcy for directions pursuant to s.134(4) of the Bankruptcy Act 1966 ("the Act"). The Official Trustee seeks a direction whether he should treat certain property of the bankrupts as part of their joint estate or alternatively their separate estates. The hearing of the matter proceeded ex parte as none of the creditors was prepared to participate.

2. The bankrupts are husband and wife who in the course of their activities incurred both joint and separate debts. They were made bankrupt on different petitions and at different times. The husband was made bankrupt on 27 July 1982 and the wife on 6 August 1982. The property which gave rise to the current problem was a dwellinghouse ("the property") owned by the bankrupts as joint tenants.

3. The Act provides the manner in which the trustee is to deal with joint and separate debts and joint and separate estates. Section 110 is the relevant section and is as follows:

"110 (1) In the case of joint debtors, whether partners
or not, the joint estate shall be applied in
the first instance in payment of their joint
debts, and the separate estate of each joint
debtor shall be applied in the first instance
in payment of his separate estates.

(2) If there is a surplus in the case of any of
the separate estates, it shall be dealt with
as part of the joint estate and if there is a
surplus in the case of the joint estate it
shall be dealt with as part of the respective
separate estates in proportion to the right
and interest of each joint debtor in the joint
estate."

4. The question which arises in the administration of each of these estates is whether the property was for the purposes of s.110 joint property or formed part of each bankrupt's separate estate. The answer to this question depends upon whether there has been a severance of the joint tenancy,in consequence of which the parties would hold their respective interests as tenants in common. Williams The Law of Real Property 17th Edition p.134 sets out the common law position with respect to a joint tenancy;

"The incidents of a joint tenancy,... last only so long
as the joint tenancy exists. It is in the power of and
one of the joint tenants to sever the tenancy; for each
joint tenant possesses an absolute power to dispose, in
his lifetime, of his own share of the lands, by which
means he destroys the joint tenancy. From the moment
of severance, the unity of interest and title is
destroyed, and nothing is left but the unity of
possession; the share which has been disposed of is at
once discharged from the rights and incidents of joint
tenancy and becomes the subject of a tenancy in
common."

5. The question for determination is whether when Teunis Holland, the husband, became a bankrupt and his property vested in the Official Trustee, the vesting constituted a disposal of his share in the joint tenancy and thus a severance of the joint tenancy.

6. It is always open to a joint tenant to destroy the joint tenancy by severance, thereby converting the estate into a tenancy in common. Severance is achieved in a number of ways, and in particular by alienation, wholly or partially and whether such alienation be voluntary or involuntary. An example of an involuntary alienation is the bankruptcy of one of the joint tenants and the consequent vesting of his interest in his trustee - See Megarry & Wade the Law of Real Property 4th Edition pages 404-5, Morgan v Marquis [1853] EngR 887; (1853) 9 Exch 145 at pages 147,148; [1853] EngR 887; 156 ER 62 at page 63. Re Butlers Trusts (1888) 38 ChD 286. It follows that at least in equity the joint tenancy in Torrens System Land (i.e. land under the Real Property Act) is severed as between the bankrupt and the other joint tenant or joint tenants; Kerr Australian Lands Titles (Torrens) System p.463. As Rich J. said in Wright v Gibbons [1949] HCA 3; (1949) 78 C.L.R. 313 at p.327 when speaking of a document incapable of registration under the Real Property Act

"... it would operate in equity to sever the joint
tenancy and create equitable interests as tenants in
common."

7. The difficulty here arises from the provisions of the Real Property Act (S.A.) 1886-1975 and the fact that the Official Trustee did not register the transmission to himself of the husband's interest prior to the wife's bankruptcy. He registered it simultaneously with the transmission of the wife's interest. If the joint estate was not severed at the date of the husband's bankruptcy, it could be said that the property would remain and be joint property at the time of the wife's bankruptcy. Section 58 of the Act provides for the vesting of the property of a bankrupt in the Official Trustee, or, if appropriate in the registered trustee. Seb-sections (1) and (2) of that section are relevant and are as follows:

"58 (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
that registered trustee; and

(b) after-acquired property of the bankrupt vests,
as soon as it is acquired by, or devolves on,
the bankrupt, in the Official Trustee or, if a
registered trustee is the trustee of the
estate of the bankrupt, in that registered
trustee.

58(2) Where a law of the Commonwealth or of a State or
Territory 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, notwithstanding 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.

8. There are two grounds upon which in my opinion the bankrupt's interest in the property should not be treated as part of his joint estate. The first is that any failure of a trustee to register promptly his interest should not in the ordinary course dictate the nature of his estate and the entitlements of creditors. The answer to a question of law, such as this, should not turn upon the speed or otherwise with which the trustee registers the fact that the estate of the bankrupt has vested in him.

9. The second and more significant ground is that the joint tenancy was severed on the "disposal" of the husband's share of the property and this disposal occurred when he was declared bankrupt and his interest vested in his trustee in equity. The Real Property Act, does not deny the "disposal" - it merely prescribes the procedures under which the trustee becomes the registered proprietor of the estate of the bankrupt. In the case of Wright v Gibbons supra, Latham C.J. made these comments at p.324;

"The Real Property Act does not alter the law with
respect to joint tenancy. It leaves the incidents of
joint tenancy standing as they are determined by the
common law and other relevant statute. But it requires
that documents transferring interest in the land under
the Act should be in a particular form and should be
registered: ss.42,39."

although the Chief Justice was there dealing with the provisions of the Tasmanian Act, that the proposition is generally true, is clear from the three sections of the Real Property Act S.A. dealing with this matter:

"s.170 Upon the registered proprietor of any estate or
interest in land becoming bankrupt or making a
statutory assignment, the Official Receiver (if
no trustee has been appointed) or the trustee
of such bankrupt or assignor shall be entitled
to be registered as proprietor of such estate
or interest.

s.171 The Registrar-General shall in any such case,
upon being furnished with evidence of the
bankruptcy and the non-appointment of a
trustee, or of the appointment of or assignment
to the trustee, accompanied by an application
in writing, under the hand of the Official
Receiver or Trustee, to be registered as
proprietor of the estate or interest therein
specified and described, shall enter in the
Register Book a memorandum notifying the
bankruptcy or the appointment of or assignment
to the trustee, as the case may require, and
upon such entry the Official Receiver or
Trustee shall be the registered proprietor of
the estate or interest of the bankrupt or
assignor in such land.

...

s.180 Any person registered in place of a deceased
registered proprietor, or as Official Receiver
or as trustee of a registered proprietor
becoming bankrupt or making a statutory
assignment, shall hold the land in respect of
which he is so registered upon the trusts, and
for the purposes for which the same is
applicable by law; but shall, for the purpose
of any dealing with such land, be deemed to be
the absolute proprietor thereof."

10. As can be seen from these provisions, they indicate the procedures by which the Real Property Act registers the transmission and the "vesting" of an interest in the property of a bankrupt. They in themselves do not affect the validity or otherwise of the disposal of the equitable interest in the property and the consequential severance as they are simply the means by which the Act seeks to recognise and note on the register pre-existing rights. It is significant that s.l80 directs that the trustee shall hold the land "upon the trusts" applicable thereto. Thus it would seem that the severance which took place in equity was binding upon the trustee when he registered the transmission of the bankrupt's interest in the property. At the time of her bankruptcy the wife was thus in equity the proprietor of an estate as a tenant in common, i.e. an undivided moiety, in the property, as was the Official Trustee as trustee of the estate of Teunis Holland. It follows that the property and the net proceeds of sale thereof must be treated as portion of the separate estate of each bankrupt and dealt with as such under the provisions of s.110 of the Act.

11. I direct the applicant to treat the bankrupts' interests in the property, being the land comprised and described in Certificate of Title Register Book Volume 4027 Folio 700 as separate estates for the purposes of s.110 of the Bankruptcy Act 1966.