Bartrop v Nilant (Trustee), in the matter of Bartrop [2003] FCAFC 306 (18 December 2003)

BANKRUPTCY – appeal from decision of Federal Magistrates Court – whether property held by appellant and the deceased as tenants in common in equal shares – whether appellant entitled to a beneficial interest free from indebtedness to bank secured by mortgage – where Magistrate found that appellant agreed to apply proceeds of sale of another property in reduction of indebtedness to bank – method of distribution of balance of the proceeds of sale of the property

Bankruptcy Act 1966 (Cth) ss120, 178

Bartrop v Nilant [2003] FMCA 23 overruled
Bartrop v Nilant (No 2) [2003] FMCA 115 overruled

MARIANNE ELIZABETH BARTROP v CHARLES PHILLIP LOUIS NILANT & OREN ZOHAR AS TRUSTEES OF THE BANKRUPT ESTATE OF THE LATE ANTHONY WILLIAM BARTROP

W46 OF 2003

LEE, TAMBERLIN & EMMETT JJ
18 DECEMBER 2003
PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W46 OF 2003

BETWEEN:	MARIANNE ELIZABETH BARTROP APPELLANT
AND:	CHARLES PHILLIP LOUIS NILANT & OREN ZOHAR AS TRUSTEES OF THE BANKRUPT ESTATE OF THE LATE ANTHONY WILLIAM BARTROP RESPONDENTS
JUDGES:	LEE, TAMBERLIN & EMMETT JJ
DATE OF ORDER:	18 DECEMBER 2003
WHERE MADE:	PERTH

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W46 OF 2003

BETWEEN:	MARIANNE ELIZABETH BARTROP APPELLANT
AND:	CHARLES PHILLIP LOUIS NILANT & OREN ZOHAR AS TRUSTEES OF THE BANKRUPT ESTATE OF THE LATE ANTHONY WILLIAM BARTROP RESPONDENTS

JUDGES:	LEE, TAMBERLIN & EMMETT JJ
DATE:	18 DECEMBER 2003
PLACE:	PERTH

1 This appeal from the Federal Magistrates Court concerns the beneficial ownership of the property known as 1A Alston Avenue, Como, Western Australia (‘the Alston Property’). Prior to its sale pursuant to orders made by McInnis FM (‘the Magistrate’), the Alston Property was registered in the names of the appellant, Marianne Elizabeth Bartrop (‘Mrs Bartrop’), and her late husband, William Anthony Bartrop (‘the Deceased’), as tenants in common in equal shares. The Deceased died on 28 November 1998. The dispute is between Mrs Bartrop and the respondents, Charles Phillip Louis Nilant and Oren Zohar (‘the Trustees’), who were appointed as trustees of the bankrupt estate of the Deceased on 11 September 2001.

2 Both Mrs Bartrop and the Trustees sought orders for the sale of the Alston Property. The dispute between them centred on how the proceeds of sale should be distributed. Mrs Bartrop claimed that one half of the proceeds should be paid to her, free of the indebtedness of the Deceased to National Australia Bank Limited (‘NAB’). That indebtedness was secured by a mortgage of the Alston Property (‘the NAB Mortgage’). The Trustees claimed that the indebtedness to NAB should be paid from the proceeds of sale and that the whole of the balance of the proceeds, after satisfaction of the indebtedness to NAB, should be paid to them as an asset of the bankrupt estate of the Deceased.

3 The general effect of orders and declarations made by the Magistrate on 7 February 2003 was that the Alston Property be sold and that the proceeds be distributed on the basis that the Deceased was, at the time of his death, the sole beneficial owner of the Alston Property, subject to the NAB Mortgage: see Bartrop v Nilant [2003] FMCA 23. Mrs Bartrop appeals from those orders and declarations and claims that the Alston Property was owned beneficially by the Deceased and herself as tenants in common in equal shares and that she was entitled to her beneficial interest free from the indebtedness of the Deceased to NAB secured by the NAB Mortgage.

4 The manner in which the dispute came before the Federal Magistrates Court is somewhat unsatisfactory. Mrs Bartrop purported to bring an application pursuant to s 178 of the Bankruptcy Act 1966 (Cth) (‘the Bankruptcy Act’). Under s 178(1), if any person is affected by ‘any act, omission or decision’ of the trustee in bankruptcy of a bankrupt estate, that person may apply to the Court and the Court may ‘make such order in the matter as it thinks just and equitable’. The act, omission or decision of the Trustees complained of by Mrs Bartrop was their refusal to acknowledge that, on sale of the Alston Property, the indebtedness of the Deceased to NAB should be borne in its entirety by the share of the proceeds that would form part of the bankrupt estate of the Deceased.

6 Pursuant to directions given by the Federal Magistrates Court, Points of Claim and Points of Counter-Claim were filed on behalf of the parties. In her Points of Claim, Mrs Bartrop confirmed her claim for a declaration, pursuant to s 178 of the Bankruptcy Act, that, upon the sale of the Alston Property, she was entitled ‘to be exonerated’, by having the amount of the indebtedness of the Deceased to NAB paid from the half of the proceeds of sale that belonged to the Deceased. She claimed that she was entitled to an undivided one half share in the Alston Property free of any amount secured by the NAB Mortgage.

7 In their Points of Counter-Claim, the Trustees referred to the fact that, at the time of their marriage on 30 October 1994, Mrs Bartrop owned a property known as 68 Ryrie Avenue, Como, Western Australia (‘the Ryrie Property’) and the Deceased was the owner of a property known as 128 Labouchere Road, South Perth, Western Australia (‘the Labouchere Property’). Each property was acquired by its respective owner from that owner’s own funds and neither contributed in any way to the other’s acquisition of their respective properties.

8 The Trustees alleged that the Deceased and Mrs Bartrop had agreed, on or about 15 October 1998, to purchase the Alston Property as tenants in common in equal shares upon conditions that:

9 The Points of Counter-Claim went on to allege that, after the Deceased and Mrs Bartrop became registered as co-owners of the Alston Property and the NAB Mortgage was registered, Mrs Bartrop sold her interest in the Ryrie Property but has failed to apply the proceeds of sale towards the reduction or discharge of the NAB indebtedness. The Trustees alleged that, since Mrs Bartrop had failed to perform her obligations under the alleged agreement or to furnish any valuable consideration for her interest in the Alston Property, she was not entitled to remain registered as a joint proprietor of the Alston Property ‘in point of law, or alternatively equity’.

10 The Trustees claimed that, in those circumstances, they were entitled to a declaration that they were the sole beneficial owners of the Alston Property by reason of the Deceased ‘having advanced all of the money used for the purchase’ of the Alston Property. Alternatively, they claimed a declaration that the Trustees and Mrs Bartrop are the beneficial owners of the Alston Property as tenants in common in equal shares and that the burden of the NAB indebtedness secured on the Alston Property by the NAB Mortgage should be borne by them equally.

11 Before the Magistrate, Mrs Bartrop denied the agreement alleged by the Trustees. She made no mention in her Points of Claim of any obligation to apply the proceeds of sale of the Ryrie Property in satisfaction or reduction of the NAB indebtedness. The Trustees, on the other hand, while they alleged the agreement between the Deceased and Mrs Bartrop, and relied on the agreement as an answer to Mrs Bartrop’s claims, appear to have contended that the failure to apply the proceeds of the sale of the Ryrie Property towards reduction or discharge of the NAB indebtedness deprived Mrs Bartrop of any interest at all in the Alston Property.

12 The proceeding appears to have been conducted before the Magistrate on a basis that is not entirely clear, having regard to the Points of Claim and Points of Counter-Claim. In a sense, there was no proper joinder of issue as a result of the Points of Claim and Points of Counter-Claim. That is to say, the issue before the Magistrate appears to have been whether, assuming no consideration was provided by Mrs Bartrop to acquire an undivided one half share in the Alston Property, there should be a presumption of advancement in respect of the undivided one half share vested in her.

13 However, it is clear that, even on the case mounted by the Trustees, they could not succeed in showing that Mrs Bartrop had provided no consideration. They asserted that she entered into a guarantee in respect of the indebtedness of the Deceased to NAB, whereby she became personally liable for the whole of that indebtedness. The Trustees also asserted that there was an agreement that she would apply the proceeds of the sale of the Ryrie Property in reduction or discharge of the NAB indebtedness.

14 Apart from the alleged agreement between Miss Bartrop and the Deceased, the facts were generally undisputed before the Magistrate. On appeal, Mrs Bartrop did not challenge the findings of fact made by the Magistrate. It is convenient, therefore, to summarise the facts briefly.

15 At the time of the marriage, the Deceased was the sole owner of a retail liquor business known as ‘the Como liquor Store’ (‘the Como Store’). On 1 August 1996, the Deceased borrowed the sum of $170,000 from NAB for the purposes of the Como Store. The indebtedness of the Deceased to NAB was secured by a mortgage of the Labouchere Property granted in August 1996. On 19 August 1998, the Deceased entered into a conditional contract to sell the Labouchere Property for $425,000.

16 On 13 October 1998, the Deceased was diagnosed as having terminal cancer. On 15 October 1998 a discussion took place between Mrs Bartrop and the Deceased. There was a dispute as to the terms of the discussion. However, the Magistrate found that the discussion ‘clearly evinced’ ‘either an agreement or at the very least an intention by the [D]eceased’ as follows:

17 The Trustees, in their Points of Counter-Claim, had alleged an agreement in much the same terms as those found by the Magistrate. Indeed, the Trustees relied on an affidavit sworn by a branch manager of NAB asserting an agreement in precisely the terms found by the Magistrate and the Magistrate expressly accepted that evidence. While the Magistrate also referred in the alternative to ‘an intention’ on the part of the Deceased, the parties appear to have accepted that the appeal should proceed on the basis that the Magistrate’s reasons should be construed as a finding of an agreement in those terms.

18 On 16 October 1998, the Deceased and Mrs Bartrop entered into a contract for the purchase of the Alston Property for the price of $373,000. Condition 8 of the contract was in the following terms:

19 On 12 November 1998, Mrs Bartrop executed a guarantee in favour of NAB, whereby she guaranteed all of the indebtedness of the Deceased to NAB, including the amount of the loan of $170,000. On the same day, in anticipation of completion of the purchase of the Alston Property, the Deceased and Mrs Bartrop executed the NAB Mortgage.

20 On 17 November 1998, the Deceased completed the sale of the Labouchere Property. On the same day, the Deceased and Mrs Bartrop completed the purchase of the Alston Property and they became proprietors of the Alston property as tenants in common in equal shares subject to the NAB Mortgage. The purchase price for the Alston Property was paid from the proceeds of the sale of the Labouchere Property, except for the deposit of $5000, which was provided from a joint account of the Deceased and Mrs Bartrop operated in connection with the Como Store. The indebtedness to NAB was not paid from the proceeds of sale of the Labouchere Property. Rather, the NAB Mortgage was registered to secure the continuing indebtedness of the Deceased and Mrs Bartrop to NAB. Thus, in effect, the Deceased contributed to the purchase price of the Alston Property the sum of $255,000, being $425,000 less the amount of his indebtedness to NAB of $170,000, the payment of which had been guaranteed by Mrs Bartrop.

21 Mrs Bartrop completed the sale of the Ryrie Property for $163,000 on 16 January 1999. The net proceeds, after selling costs, amounted to $156,881.16. It appears that, following the death of the Deceased, Mrs Bartrop received no income from the Como Store and a dispute erupted within the family, still current in the Supreme Court of Western Australia. In any event, Mrs Bartrop did not apply the proceeds of the sale of the Ryrie Property towards the reduction or satisfaction of the indebtedness to NAB.

22 Following the hearing before the Magistrate, the Alston Property was sold in accordance with the orders made by the Magistrate. The net proceeds of the sale after selling costs were $440,408.98. The indebtedness to NAB at the time of sale was $219,740.99, leaving a balance of $220,667.99. In essence, the issue now before the Full Court is how that balance should be distributed between the Trustees and Mrs Bartrop.

23 The Magistrate found that it was the intention of the Deceased that the Alston Property would be held by himself and Mrs Bartrop as tenants in common in equal shares, provided they both disposed of the properties that they owned at that stage and applied the proceeds of sale to the acquisition of the Alston Property and extinguishment of the indebtedness to NAB. His Honour concluded that any presumption of advancement in favour of Mrs Bartrop had been rebutted and that there was a resulting trust, in favour of the Deceased, in respect of the undivided one half share in the Alston Property vested in Mrs Bartrop. His Honour reached that conclusion because Mrs Bartrop had not applied the proceeds of sale of the Ryrie Property in reduction or satisfaction of the NAB indebtedness of the deceased to NAB.

25 Having concluded that the Alston Property was held beneficially as to its entirety by the Deceased, it is difficult to see what transaction was avoided by s 120 of the Bankruptcy Act. If there had been a gift by the Deceased to Mrs Bartrop, by causing the Alston Property to be vested in the two of them beneficially as tenants in common in equal shares, without consideration passing from Mrs Bartrop, then there may have been a disposition of property upon which s 120 could operate. However, no such finding was made.

26 In their cross-application, the Trustees had claimed an order or declaration that:

The Trustees also sought orders that Mrs Bartrop pay to the Trustees the sum of $186,500 and pay interest on that sum. That sum is equal to half the price paid for the Alston property. Such declarations and orders would make sense if the claim under s 120 of the Bankruptcy Act were to be made out. However, the Trustees abandoned their claim under s 120 of the Bankruptcy Act. Accordingly, the Trustees concede that the declaration referred to above should be set aside in any event.

That declaration was challenged by Mrs Bartrop on appeal on the basis that it could not be supported in the light of the findings by the Magistrate that the Deceased either agreed or at least intended that Mrs Bartrop would acquire an interest in the Alston Property, in consideration of her giving a guarantee to NAB and applying the proceeds of the sale of the Ryrie Property in reduction of the NAB indebtedness.

28 Having regard to the findings made by the Magistrate, a conclusion that there was a resulting trust in the terms found cannot be justified. In accordance with the agreement between the Deceased and Mrs Bartrop, the Alston Property was transferred to them to be held by them beneficially as tenants in common in equal shares, in consideration of the promise on the part of Mrs Bartrop to apply the proceeds of the sale of the Ryrie Property in reduction or satisfaction of the indebtedness of the Deceased to NAB. Thus, the promise to do so, coupled with the guarantee to NAB, was the consideration for the acquisition of an undivided one half share in the Alston Property. Mrs Bartrop has a legal interest by reason of the registration of the transfer to her and the Deceased as tenants in common. Having regard to the consideration provided pursuant to the agreement, she held both a legal and beneficial interest in the Alston Property and no question arose of rebuttal of a presumption of advancement or of creation of a resulting trust.

29 Even if the Magistrate did not, on the true construction of his Honour’s reasons, find that there was a binding agreement between Mrs Bartrop and the Deceased but that it was merely their common intention, any presumption of a resulting trust would clearly be rebutted. Mrs Bartrop committed herself to a personal liability for the whole of the indebtedness of the Deceased to NAB. There was a common intention, on the findings made, that Mrs Bartrop would sell the Ryrie Property and apply the proceeds in satisfaction of, or in reduction of, the indebtedness to NAB. The Deceased provided, towards the purchase of the Alston Property, only the difference between the sale proceeds of the Labouchere Property and the amount secured by the NAB Mortgage. That is to say, as indicated above, the Deceased provided $255,000, being $425,000 less $170,000. The difference of $170,000 represents the amount of the consideration in effect contributed by Mrs Bartrop, at least in part, by undertaking a personal obligation to NAB for that sum and promising to apply the proceeds of the Ryrie Property in reduction of that sum. The conclusion of a resulting trust cannot stand.

30 The net proceeds of sale of the Ryrie Property, after deducting the costs of sale, namely, $156,881.16, should have been paid by Mrs Bartrop to NAB pursuant to the agreement or common intention that the Magistrate found. While the failure to do so was alleged by the Trustees in their Points of Cross-Claim to be a breach of the agreement made between Mrs Bartrop and the Deceased, there was no finding to that effect by the Magistrate. Nor was there any evidence as to any loss or damage flowing from any such alleged breach.

31 There is nothing to suggest that the liability of Mrs Bartrop under the guarantee to NAB was anything other than as a surety. To the extent that her interest in the Alston Property was encumbered with the NAB Mortgage, after the proceeds of the Ryrie Property had been applied in reduction of the indebtedness to NAB, she would be entitled to exoneration of her interest.

32 However, on completion of the sale of the Alston Property pursuant to the orders of the Magistrate, the indebtedness to NAB was satisfied in full from the proceeds of sale and the NAB Mortgage was discharged. Accordingly, as indicated, the only question left is as to the distribution of the balance of the sale proceeds.

33 In the course of replying to the oral submissions of the Trustees, counsel for Mrs Bartrop contended that, if the agreement or intention found by the Magistrate is to be given effect, she is entitled to the benefit of the promise of residence in the Alston Property for life. The equitable doctrine of conversion would give Mrs Bartrop a life interest in that part of the proceeds of the sale of the Alston Property that would have belonged to the Deceased. That question was not raised in Mrs Bartrop’s amended notice of appeal. However, it would appear to follow, if the agreement or intention found by the Magistrate is to be given effect according to its terms, that she would be entitled to the income from the share of the proceeds that would have gone to the Trustees.

34 It might be said that, by seeking the sale of the Alston Property, Mrs Bartrop abandoned any entitlement to reside in the Alston Property during her life. On the other hand, her application to the Court for orders under s 178 of the Bankruptcy Act was prompted by the stance taken by the Trustees that the Deceased was, at the time of his death, entitled to a beneficial estate in the whole of the Alston Property to the exclusion of any interest on the part of Mrs Bartrop.

35 Certainly, Mrs Bartrop denied the agreement or common intention found by the Magistrate. However, the question is whether, in all the circumstances, it would be unconscionable for the Trustees, standing, as they do, in the shoes of the Deceased, to deny her a life interest in the fund into which the Alston Property had been converted. In the light of the finding made by the Magistrate, Mrs Bartrop is entitled to a life estate in the share of the proceeds of the sale of the Alston Property that would otherwise vest in the Trustees, following the order for administration of the estate of the Deceased in bankruptcy.

36 To give effect to the agreement or intention found by the Magistrate, the distribution would be as follows:

37 The Magistrate made an order on 4 April 2003 to the effect Mrs Bartrop pay the costs of the Trustees and that the costs on and from 1 September 2002 be paid on an indemnity basis: see Bartrop v Nilant (No 2) [2003] FMCA 115. That order was made because of an offer of compromise made on that day on behalf of the Trustees that the proceeds of the sale of the Alston Property be applied as follows:

38 In the events that have happened, that would have resulted in a payment to Mrs Bartrop of $110,554.66, being 50.1 per cent of the sum of $220,667.99. That exceeds the amount to which she would be entitled on the basis outlined above.

39 However, at the time of the making of that offer, the Alston Property had not been sold. In their cross-application, the Trustees, in seeking orders for sale of the Alston Property, asked for a reserve price on sale by auction of $373,000, that being the price paid for the Alston Property. There does not appear to be any material before the Court to indicate that the parties expected that the Alston Property would realise more than the reserve price. On the other hand, the Ryrie Property had been sold by the time of the compromise offer and the parties must be taken to have been aware that the net proceeds of sale of the Ryrie Property was $156,881.16. It is not clear whether the parties knew the balance of the indebtedness to NAB at the time of the offer. However, they might be expected to have understood that it was in the vicinity of the amount of the original loan, namely, $170,000.

40 On that basis, the parties could reasonably have expected that the net proceeds from the sale of the Alston Property, after deducting the indebtedness to NAB, would be in the vicinity of $190,000 to $200,000. 50.1 per cent of that sum, that would be payable under the compromise offer, would be significantly in excess of the amount payable to Mrs Bartrop on the basis for distribution outlined above (at [36]).

41 The formula that constituted the basis of the compromise offer is inconsistent with the basis for distribution outlined above (at [36]). The compromise involved charging half of the indebtedness to NAB on Mrs Bartrop’s undivided one half interest in the Alston Property. On the other hand, it did not require her to bring to account the proceeds of the sale of the Ryrie Property. In the circumstances, it is not appropriate that the result should be treated as giving Mrs Bartrop a less favourable result than the offer. Accordingly, there is no basis for indemnity costs.

42 The appeal should be allowed. Orders 1, 12, 13 and 14 made on 7 February 2003 and the order made on 4 April 2003 should be set aside. In lieu thereof, there should be an order that the proceeds of sale of the Alston Property be distributed as set out above (at [36]).

43 The result reached on appeal does not appear to have been contended for in express terms by either party before the Magistrate. The Trustees were successful on the substantial factual issue litigated before the Magistrate, namely, whether or not there was an agreement between Mrs Bartrop and the Deceased. On the other hand, the Magistrate should not have made the declaration contended for by the Trustees, namely, that the undivided one half share in the Alston Property registered in the name of Mrs Bartrop was held by her on a resulting trust for the Deceased. The appropriate course is to make no order as to the costs of the proceeding before the Magistrate. On the other hand, Mrs Bartrop has been substantially successful on appeal and the Trustees should pay her costs of the appeal.

I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Lee, Tamberlin and Emmett.

Counsel for the Appellant:	D H Solomon

Solicitors for the Appellant:	Solomon Brothers

Counsel for the Respondents:	A J Aristei

Solicitors for the Respondents:	Carles Solicitors

Date of Hearing:	17 November 2003

Date of Judgment:	18 December 2003

(a)	the proceeds of sale of the property known as 1A Alston Avenue, Como, Western Australia (‘the Alston Property’) of $440,408.98 be divided into two halves of $220,204.99;
(b)	a sum equal to the amount of the proceeds of sale of the property known as 68 Ryrie Avenue, Como, Western Australia (‘the Ryrie Property’) of $156,881.16 be deducted from one half, and the balance of that half, being $63,323.83, be paid to the appellant;
(c)	a sum equal to the amount of the indebtedness to the National Australia Bank Ltd at the time of sale, being $219,740.00, less the sum equal to the amount of the proceeds of sale of the Ryrie Property of $156,881.16, namely $62,859.83, be deducted from the other half and the balance of that half, being $157,345.16, be held on trust to pay the income to the appellant for life, and thereafter, upon trust for the respondents;

Federal Court of Australia - Full Court Decisions

Bartrop v Nilant (Trustee), in the matter of Bartrop [2003] FCAFC 306 (18 December 2003)