Sheahan v O'Brien & Anor [2002] FMCA 25 (20 March 2002)

Last Updated: 16 April 2002

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SHEAHAN v O'BRIEN & ANOR

[2002] FMCA 25

BANKRUPTCY - Property vested in Trustee - estoppel by representation - no representation that bankrupts could retain property if no equity in it - payment of mortgage by bankrupts - creation of equity in property by its preservation - trustee's acquiescence in payments - inability to ascertain if payments made from exempt after acquired income - no finding - equity derived from such payments becomes after acquired property and divisible - payments since bankruptcy terminated - reference to Registrar.

Bankruptcy Act ss 58, 116, Part V1Division 4B

Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406

Morris v Morris (1982) 1 NSWLR 61

Luke v Chamberlain (2000) NSWSC 626

Musgrave v Musgrave (2001) ACL Rep 430 NSW 5

Cadorange Pty Limited v Tanga Holdings Pty Limited (1990) 20 NSWLR 26

Clancy & Anor v Salienta Pty Limited [2000] NSWCA 248

Fensom v Cootamundra Racecourse Reserve Trust [2000] NSWSC 1072

Re Gillies; Ex parte Official Trustee in Bankruptcy [1993] FCA 289; (1993) 115 ALR 631

Paul John Cook v Vera Tagamalitsky (2001) FMCA 117

Muschinski v Dodds [1985] HCA 78; (1986) 160 CLR 583

Cooke and Oughton, The Common Law of Obligations, Butterworths, London, (1989)

Applicant:

JOHN SHEAHAN

Respondents:

CHRISTOPHER O'BRIEN and DEBORAH O'BRIEN

File Nos:

AZ 204 of 2001, AZ 242 of 2001

Delivered on:

20 March 2002

Delivered at:

Adelaide

Hearing Dates:

5 December 2000, 13 December 2001, 4 February 2002, 5 February 2002

Judgment of:

Raphael FM

REPRESENTATION

Solicitors for the Applicant:

Mr William Christie

Counsel for the Respondents:

Mr Roger Sallis

Solicitors for the Respondents:

Gretsas Chrzaszcz

ORDERS

1. In Matter AZ 204 of 2001:

(i) I order that the respondents within twenty-eight days vacate the premises occupied by them namely, those premises at 54 Dutton Terrace, Medindie, SA, 5081 being the property referred to in Certificate of Title Registered Book Volume 5315, Folio 513.

2. In Matter AZ 242 of 2001:

(i) I declare that Deborah O'Brien has established an equitable interest in the property at 54 Dutton Terrace, Medindie, SA, 5081 arising out of any payments made by her to Bank SA in respect of the payment of mortgage interest or capital repayments of the mortgage on the property since the date upon which she ceased to be bankrupt.

(ii) Pursuant to Part 18 of the Federal Magistrates Court Rules I order that there be referred to the Registrar of this Court in Adelaide the assessment of a net amount to which Mrs O'Brien should be entitled pursuant to this judgment.

That amount is to be calculated utilising the following equation E = (G - R) _÷ 2 + I _÷ 2 where:

E equals equity;

G equals gross amount paid;

R equals assessed value of rental on property from date of termination of bankruptcy to date of assessment;

I equals interest on the excess of payments over rent at Federal Court of Australia rates (Adelaide Registry).

(iii) That the respondent Christopher John Sheahan pay to Mrs Deborah O'Brien the amount so calculated from the proceeds of sale of the Medindie property.

(iv) In the event that the Medindie property is sold prior to the calculation being concluded that the respondent John Sheahan retain the sum of $5,000.00 on account of such assessment from the net proceeds of sale.

(v) Otherwise the applications in Matter AZ 242 of 2001 be dismissed.

Costs

3. In Matter AZ 204 of 2001 the respondents should pay the applicant's costs in accordance with Part 21.10 of the Federal Magistrates Court Rules. In Matter AZ 242 of 2001 the applicants shall pay the respondent's costs save for a credit of $2,000.00 in respect of Mrs O'Brien's costs. I certify that in both matters it was reasonable for the trustee to employ an advocate pursuant to Federal Magistrates Court Rules Part 21.15.

4. The orders in relation to costs shall be made orders of this court unless within seven days of delivery of judgment application is made to me to argue the question of costs.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE

AZ 204 of 2001

JOHN SHEAHAN

Applicant

And

CHRISTOPHER O'BRIEN AND DEBORAH O'BRIEN

Respondents

AZ 242 of 2001

CHRISTOPHER O'BRIEN and DEBORAH O'BRIEN

Applicants

And

JOHN SHEAHAN

Respondent

REASONS FOR JUDGMENT

Introduction

1. These two matters were heard by me together. AZ 204 of 2001 is an application by John Sheahan, the Trustee of the bankrupt estates of Christopher John O'Brien and Deborah Anne O'Brien for:

i) An order that the respondents vacate the premises occupied by them namely, those premises at 54 Dutton Terrace, Medindie, SA, 5081 being the property referred to in Certificate of Title Registered Book Volume 5315, Folio 513 ("the Medindie property").

2. Application AZ 242 of 2001 was made by Mr and Mrs O'Brien as applicants against Mr Sheahan the Trustee as respondent seeking the following orders:

i) That no order be made in the application for vacant possession against the applicants made by the applicant, John Sheahan ("the respondent") in an action filed in this Honourable Court bearing Number AZ 204 of 2001;

ii) That the respondent and his agents be restrained from disposing of or otherwise dealing with the property at 54 Dutton Terrace, Medindie, SA, 5081 ("the Medindie Property");

iii) That a declaration be made that any equity in the Medindie property is not property that vests in the respondent as Trustee of the estates of the applicants within the meaning of s.58 of the Bankruptcy Act 1966;

iv) That the respondent account to the applicants for their equitable interest in the Medindie property;

v) That a declaration be made that the Official Receiver of the estates of the applicants by its conduct had disclaimed any interest in the property.

This application was sought to be amended to one in the following form (which amendment I allow):

(i) An order that the applicant, Johnson (the cross-respondent) in Federal Magistrates Court Action No AZ 204 of 2001 transfer title of the property at 54 Dutton Terrace, Medindie SA 5081 being the property referred to in Certificate of Title Register Book Volume 5315 Folio 513 (the property) to the respondents as joint tenants (the cross-applicants).

(ii) In the alternative to paragraph 1, that the court make no order for vacant possession against the cross-applicants in Federal Magistrates Court Action No. AZ 204 of 2001.

(iii) A declaration that any equity arising in the property after the date of bankruptcy of the cross-applicants, being the 5^th day of November 1996, is not property that vests in the cross-respondent as trustee of the estates of the cross-applicants pursuant to section 58 of the Bankruptcy Act 1986.

(iv) A declaration that the cross-respondent account to the cross-applicants or either of them for their equitable interest in property.

(v) In the alternative to paragraph 1, a declaration that the cross-applicants be given a period of 28 days to purchase the property from the cross-respondent and a declaration that the cross-respondent be restrained from disposing or otherwise dealing with the property throughout the said period.

(vi) In the alternative to paragraph 1 and 5, a declaration that the cross-applicants be granted an equitable lien or charge over the property as security for their equitable interest.

(vii) In the alternative to paragraph 1, 5 and 6, a declaration that the cross-respondent hold the property on constructive trust for the cross-applicants or either of them.

(viii) Costs.

(ix) Such further or other order as this court thinks fit.

3. Action AZ 242 can be seen to comprise both a defence to action 204 of 2001 and claims for substantive relief.

4. It was agreed between the parties and myself that, for reasons which are not relevant, Mr Sallis who appeared for Mr and Mrs O'Brien, ("the O'Briens") would call his witnesses first and then Mr Christie who appeared for the Trustee, would call his evidence. However, at the end of the proceedings the matter reverted to the normal form by which Mr Christie made his submissions to which Mr Sallis responded and Mr Christie replied.

5. The case, as it unfolded, raised the following issues:

i) Was there an estoppel by conduct, representation/silence or otherwise raised against the Trustee in bankruptcy of the O'Briens which would require the Trustee to reconvey to them the Medindie property?

ii) In the event that such a reconveyance was ordered what would be the terms of such reconveyance and what equities would have arisen in favour of the Trustee against the property?

iii) If there was no estoppel found to have been raised against the Trustee did the action of the O'Briens in paying moneys off the mortgage of the property and thereby maintaining it as an asset of the estate entitle the O'Briens to some equity in the property to be paid to them on the realisation of the property by the Trustee?

6. These matters are at the core of the dispute. There are also ancillary matters which arise and which go to the value of the payments made. These include whether the payments were made totally or partially with "exempt after required income" and whether any credit should be given for some "rental" element in the payments made to the benefit of the Trustee. These are not the exclusive issues in the proceedings but they represent those most germane.

History

7. The O' Briens were made bankrupt by Order of Maxwell J in the Federal Court of Australia on 5 November 1996 on the petition of Deputy Commissioner of Taxation. The O'Briens had previously filed debtors' petitions dated 25 October 1996 which were referred to the court pursuant to s.55(3A) of the Bankruptcy Act. The Official Trustee was appointed Trustee of the O'Briens' bankrupt estate.

8. At the time of their bankruptcy the O'Briens were living in the Medindie property which was mortgaged by way of first mortgage to the Bank SA (now known as Bank SA) and by way of second mortgage to Mrs L Findlay, the mother of Mr O'Brien. The amount outstanding on the mortgage to the Bank SA at the time of the sequestration order was approximately $198,832.92 and the amount outstanding on the Findlay mortgage was $50,000.00. The value of the property assessed by the bankrupts in their statement of affairs attached to their debtors' petitions was $260,000.00.

9. Medindie is one of Adelaide's most sought after suburbs. The property was described by the witnesses Mr Denman, a real estate agent, as:

"Its what they would, I think, described as a contempory [sic] house, or they would have done when it was built-out of character with the rest of the building - houses, in Dutton Terrace, which are mostly from the 1920s except for a few grand mansions which were the turn of the century".

10. The property is set upon a site of approximately 1000 square metres. The O'Briens lived there with their three teenage sons.

11. The O'Briens were in arrears of their mortgage to the Bank SA in the sum of approximately $2,000.00 at the time of the bankruptcy.

12. Mr O'Brien is an engineer by profession and was involved with a number of companies which he ran through the use of family trading trusts. Several of the companies failed. Mrs O'Brien is a relief teacher.

13. On the morning of 6 December 1996 following a telephone conversation with a Mr Peel from ITSA Mr O'Brien presented himself at the ITSA offices together with a statement of affairs. He saw Mr Peel and Mr Peel queried a number of matters in the statement of affairs. Mr O'Brien agreed to return that afternoon with his wife for a longer interview with Mr Peel. Mr Peel was the case officer for the O'Briens and remained so for a period of approximately six months. He continued in employment with ITSA and at one stage conducted a review of the O'Briens' files but did not have any other contact with them after he ceased to be the case officer.

14. The meeting between Mr and Mrs O'Brien and Mr Peel covered a number of matters directly relevant to their bankruptcy and their financial position. The Medindie property was discussed and it is alleged by the O'Briens that during the course of that discussion after they had intimated to Mr Peel that there was, at that time, probably no equity in the property, that Mr Peel said words to the effect:

"If there is no equity in the house you can keep it."

Mr Peel denies that he made this statement.

15. Thereafter the O'Briens made sporadic payments in reduction of the mortgage debt and interest. A table provided to me by Mr Sallis indicates that between the date of bankruptcy and the first anniversary of that date $14,000.00 was paid, some $23,240.00 was paid in the following year, some $15,000.00 in the year after that and some $13,000.00 in the year ended 5 December 2000. A further $4,000.00 was paid in the year ended 5 November 2001. The effect of these payments was that the Bank SA did not exercise its power of sale over the property. It is accepted that for a period commencing with the date of bankruptcy and for approximately eighteen months thereafter the Bank SA did commence steps to sell the property but did not press this course of action in the face of payments.

16. Mr Peel and his successors as case officers were in communication with the Bank SA and were kept aware of the situation with regard to enforcement proceedings against the property.

17. Mr Peel had made it clear to Mr O'Brien that he had concerns about the validity of the second mortgage to Mr O'Brien's mother. He requested information about the mortgage and was provided with a copy of the relevant document which he confirmed had been stamped. He asked Mr O'Brien for particulars of the use to which the moneys had been put. Mr O'Brien indicated that the moneys had been used in one of his business ventures but did not provide any documentation. It is not alleged that any money was repaid on that mortgage.

18. Mrs Findlay has now died but on 19 January 1997 prior to her death Mr O'Brien signed a Deed by which he disclaimed any interest in her estate.

19. On 23 January 1997 Mr Peel wrote to the O'Briens in the following form:

"I refer to your interview with me on December 1996. At that interview I advised you that I have to determine the current equity, if any, in the house property at Dutton Terrace.

To assist me in this matter, I require you to organise two market appraisals of the property by local agents and to send their reports to this office. I believe there is usually no charge for this service.

Please attend to this matter within the next twenty-eight days."

20. At the bottom of the copy of that letter which forms part of Exhibit 7 there is a handwritten note by Mr Peel which states:

"Get appraisals - Adelaide Bank SA debt - if any equity then look at validity of Findlay mortgage - note - she was settlor of Celmesia Trust".

21. There was no response to the letter of 23 January, so a further letter was written on 5 March 1997. Shortly thereafter the appraisals were provided by Messrs Ambrose Baker & Partners in a letter dated 2 April 1997. The appraisals indicated an average value of $230,000.00 for the property and it was submitted by Ambrose Baker that after deduction of the mortgages to the Bank SA and Mrs Findlay there would be a shortfall of $21,116.66 (Exhibit L).

22. The letter of 5 March also asked for information concerning the current status of the company Architectural Engineering Pty Limited.

23. On 30 Janaury 1998 Ms Verrusio, who had taken over conduct of the file, wrote to Mr O'Brien requiring details of his income for the twelve months ended 5 November 1996 and the twelve months thereafter as a preliminary to the assessment of any contribution to be paid by him under Part 4B of the Bankruptcy Act 1996. The letter also requested copies of income tax returns for the years ended 30 June 1996 and 1997 and any relevant group certificates. This information had not been provided by 27 May 1998 when another letter was sent. There was no evidence of any response to that letter.

24. On 13 May 1999 a further letter in similar form was written to Mr O'Brien, this time by Ms Oldfield. That letter asked for tax returns for financial years 1996 to 1998 as well as details of current earnings. It also asked for details of financial statements relating to the Celmesia Trust for the same period. This information was also requested from Mr Frost of Ambrose Baker in respect of Celmesia. Mr Frost later replied that he was unable to provide such information as he did not have any particulars.

25. Requests relating to Mrs O'Brien's financial position were also made but they were responded to by Mrs O'Brien. In her case a "nil assessment" was made in respect of contributions. In the case of Mr O'Brien no assessment has been made.

26. On 4 August 1999 a further letter was written to Mr O'Brien pointing out that requests had been made for details of his income and tax returns. The letter contained the following notice:

"Please note that you have an obligation to co-operate in the administration of your estate. Failure to do so may leave me with no option but to lodge an objection against your estate extending the term of your bankruptcy for up to eight years."

27. No reply was received to this letter. (Exhibit 4).

28. Later in 1999 the Official Trustee contacted Sheahan Coope Lock and asked whether that firm would be interested in taking over the trusteeship of Mr O'Brien. The firm agreed to do this and Mr Sheahan became Mr O'Brien's Trustee. In December 1999 Mr Sheahan objected to Mr O'Brien's discharge from bankruptcy and sought an extension of that bankruptcy claiming, inter alia, that Mr O'Brien had not been of assistance to his Trustees in relation to the bankruptcy. Mr O'Brien's bankuptcy has been extended.

29. Mr and Mrs O'Brien continue to live in the Medindie property. The property has now increased in value considerably and there is a substantial equity in it even if the Findlay mortgage is taken into account. The property which was never previously registered in the name of the Official Trustee has now been registered in the name of Mr Sheahan. Mrs O'Brien has had her discharge. No assessment of contribution by Mr O'Brien has been made. The Trustees do not appear to have obtained very much further information about Mr O'Brien's financial affairs.

The evidence

30. This matter was heard over three and a half days and evidence was given in chief through affidavits upon which the deponents were cross-examined. Mr and Mrs O'Brien gave evidence on their own behalf and Mr Peel and Mr Lock, a partner in Sheahan Coope Lock were also called.

31. Mrs O'Brien swore two affidavits, one dated 23 October 2001 in Matter No 204 and one dated 31 October 2001 in Matter No 242. In neither of those affidavits does she independently depose to what occurred at the meeting with Mr Peel. She adopts the version of events deposed to by her husband. In her cross-examination by Mr Christie which is very short the following exchanges appear:

Christie: "You know there's an official order of this court that indicates on the face of it that Mansfield J in fact made the order bankrupting you. I am not suggesting you were there, but your understanding is you sought your own, is it?

O'B: "We put ourselves into bankruptcy."

Christie: "Did you get official bankruptcy court documents from the tax documents, bankruptcy notices, bankruptcy petitions, things like that?"

O'B: "I honestly don't know I'm sorry."

Christie: "You can't remember?"

O'B: "I can't remember."

Christie: "Now, your husband has said in his affidavit, which you've adopted, that in an interview you had with Mr Peel back in December 1996 he said to you "if there is no equity in the house, you can keep it", do you recall that affidavit?"

O'B: "Yes I do."

Christie: "Do you recall him saying that, do you?"

O'B: "Words to those effects - to that effect, yes."

Christie: "Well, I put it to you that he didn't say anything like that at all?

O'B: "He did. He said in essence that we would only lose the house if there was found to be equity in it."

Christie: "So you don't recall him talking about any vesting of your home in the official trustee?"

O'B: "I am not familiar with those terms, no."

Christie: "Or any terms like that, the official trustee owned it or anything to indicate that ownership of some type passed from you to them - control?"

O'B: "I really can't say that - no, I don't ---"

Christie: "You can't remember?"

O'B: "No, I don't remember being aware of those exact words."

32. I observed Mrs O'Brien in the witness box. I noticed that she appeared to be of nervous disposition and was most unhappy with having to give evidence. The transcripts indicate an ability to remember one very important part of a lengthy conversation but an inability to remember many other matters. In coming to the views which I later express concerning the discussion with Mr Peel I have taken these matters into account. The only other matter of importance in the testimony of Mrs O'Brien is that she deposes to having made some of the mortgage payments herself out of her teacher's salary. These payments would presumably have come in the later years as during the early years of her bankruptcy her earnings were very small and she appeared to be only working part time.

33. Mr O'Brien swore a more detailed and lengthy affidavit in Matter No 242. Exhibited to that affidavit were documents showing the status of the mortgage with Bank SA as at the date of the bankruptcy and from 31 August 1999. Mr O'Brien deposed to the fact that the family were offered support from his sister in the form of accommodation at her farm in Ivanhoe in New South Wales. He was offered further support by another sister and her husband Tony Vanstone. They offered to put the family up in their house in North Adelaide which comprised about twenty main rooms over some 800 square metres. He also looked at the opportunity of renting a flat for approximately $85.00 per week.

34. The affidavit then goes on to depose the conversation with Mr Peel. He confirms that Mr Peel asked questions about the family home and that he told Mr Peel that whatever equity there was would have been eroded by fees and other charges on the sale of the property.

"I asked what it would take in order for us to remain in our family home as the mortgage repayments was causing financial strain on the family and that we were in a fork in the road as to what we should do. I said it was important for me to know what he was going to do about the family home. Mr Peel said words to the effect that he would have to investigate but "... if there is no equity in the house you can keep it." I felt certain that there was very little value in the property."

35. Mr Christie cross-examined Mr O'Brien on that affidavit:

Christie: "You say in there that Mr Peel said words to the effect that he would investigate but that if there is no equity in the house you can keep it?"

O'B: "Yes".

Christie: "So what did you take that to mean exactly?"

O'B: "What my wife and I both understood was that if there wasn't any money left over from the sale of the house which could be put towards the creditors, and that if we wanted to keep paying the mortgage - I don't know if we can afford it - well, then we could keep the house. That was my clear understanding. If it had had been any different, there was no way in the world, your Honour, that I would have kept paying $360 something Dollars a week to live in that house."

.....

Christie: "Mr O'Brien, in that meeting that you have referred to in your affidavit that we've just been referring to, Mr Peel told you and Mrs O'Brien that your home vested in the Official Trustee in Bankruptcy, didn't he?"

O'B: "He may have, I don't recall."

Christie: "Do you dispute it?"

O'B: I don't dispute it, because we were, could I say, traumatised at the time."

36. I observed Mr O'Brien in the witness box. I was not impressed with the way he gave his evidence. He seemed anxious to indicate that he had been responsive to requests for information from both the Official Trustee and Sheahan Coope Lock. His recall was selective, he appeared uncomfortable in the witness box. Because of my concern I have looked carefully at his affidavit. I note that at paragraph 24 he refers to himself as "a welder by trade". That is an odd description of a businessman and engineer. He says in the same paragraph:

"Although I had lost my business earlier I found paid employment in order to meet the regular monthly mortgage repayments and to keep my mind fully occupied from my problems. At the time I was employed and undertook paid employment with a company called Architectural Engineering and was earning on jobs about $700.00 per week."

The fact is that Architectural Engineering is a company which Mr O'Brien owned and operated through a family trust.

37. In paragraph 25 of his affidavit Mr O'Brien says:

"25. Eventually, during my discussion with Mr Peel we agreed to a joint interview with my wife and I with Mr Peel to be held about one month after our bankruptcies in or about early December 1996.

26. In or about early December 1996, which I recall was a Friday, at about 4.00p.m. my wife and I attended at the office of the Official Receiver for our meeting with Mr Peel."

Mr O'Brien makes no reference in those paragraphs to the meeting with Mr Peel which took place in the morning of 6 December.

38. In paragraph 27 of his affidavit Mr O'Brien says:

"27. We left the interviews still quite ambivalent about our position in respect of the family home and were not sure what to do. In spite of this I continued to meet out of my earnings all of the regular monthly repayments to Bank SA."

39. This is clearly not the case from the documents annexed to the affidavit itself and the table of payments provided to me. There is no doubt that Mr O'Brien did make payments to Bank SA (although Mrs O'Brien says she made some too) and that those payments have reduced the mortgage but he did not make regular monthly payments to the Bank which is what his affidavit says he did.

40. At paragraph 38 Mr O'Brien says:

"38. During my bankruptcy at no stage has either the Official Receiver or Mr Sheahan made an assessment of my income."

41. There is nothing untrue in this statement which carries implicit criticism of the trustees. However, nowhere does Mr O'Brien volunteer the fact that he has not filed a tax return since 1994 nor did he respond to any of the letters requesting information from him and has still not provided that information.

42. I have taken all these matters into account in to coming to the view which I later express as to the content and meaning of the conversation between Mr O'Brien and Mr Peel on 6 December 1996.

43. Mr Peel gave evidence from his affidavit of 21 November 2001. He stated that at the time of the meeting on 6 December 1996 with Mr and Mrs O'Brien he was an assistant Official Receiver with ITSA. He had commenced working for ITSA in 1969. Although his position was an assistant Official Receiver his job was described as a Realisations Officer or Case Manager.

44. Mr Peel denied making the representations alleged by Mr and Mrs O'Brien:

"2. I deny I said to either Mr O'Brien or Mrs O'Brien words to the effect, "If there is no equity in the house you can keep it." I did not say the Official Receiver would not sell their family home or that any increase in the equity by them paying the mortgage instalments or any natural increase in value would belong to them."

45. Mr Peel went on to rely upon his practice to reconstruct what he did tell Mr and Mrs O'Brien:

"3. My practice, which I followed in this case and which is the practice of the Official Receiver's office, was that I told Mr and Mrs O'Brien that their family home had vested in the Official Receiver by operation of the Bankruptcy Act and that as they were alleging there was no or very little equity in it, it would be necessary for them to obtain two market assessments to enable me to determine the current equity... I also told them that so long as they were living in the family home it was their responsibility to deal with any mortgage commitment as bankruptcy itself did not affect valid mortgages."

46. The thrust of Mr Sallis' detailed cross-examination was to establish that Mr Peel had no real recollection of what he said concerning the house and that in the circumstances of this particular interview he might well have made the statement attributed to him by the O'Briens, or left them with that impression. As the cross-examination proceeded Mr Peel began to have a vague recollection of the discussion and became clearer in his mind that he had told the O'Briens that the property vested in the Official Receiver and that he did not say that if there was no equity in the house the debtors could keep it. On the other hand he gave the following responses to questions from Mr Sallis:

Peel: "Part of the standard process of advising people about real estate is to say words to the effect that if there currently no equity in the property that if they continue to make payments to the secured creditor, and the secured creditor does not exercise any sale rights then the Trustee will not sell it, because obviously there is no equity, then as long as they continue to make those mortgage payments they can remain in the property."

He then confirmed that he would have said those words to Mr and Mrs O'Brien at the interview and continued:

Peel: "I would advise them if there was no equity in the property and the Trustee was not in a position to sell it and they continued to make mortgage payments, they could remain in the property. However, if they did so and the property acquired an equity at a future time, as a result of those payments, the Trustee's interest could still be realised. I also would have explained to them that they could, if they wanted to, in the situation where there was no equity, perhaps find somebody who could make an offer to purchase the Trustee's interest for a nominal figure."

47. The cross-examination also assisted in clarifying the situation with regard to Bank SA. The Trustee took the position that in a situation where there appeared to be little equity in the property and the secured creditor was indicating a wish to sell that the trustee would merely monitor the actions of the secured creditor and make sure that he was kept advised of the position. In this case there was the added complication of the Findlay mortgage. Mr Peel made it quite clear to the O'Briens that he doubted the validity of that mortgage and that when the time came he may well have to investigate it further. In response to questions from Mr Sallis he explained that the trustee did not wish to spend money on a challenge to the Findlay mortgage if it was not a financially viable proposition.

47. Mr Peel made some notes of his meetings with Mr O'Brien and Mr O'Brien and Mrs O'Brien on 6 December. These notes formed Exhibits 13(a) and 13(b). In a case where there is a dispute as to what may or may not have been said at a meeting which took place some five and a half years prior to the court proceedings these notes which were made contemporaneously with the discussions take on significant importance. Mr Sallis sought to make much of the fact that there is no reference in them to the advice which Mr Peel says he gave to the O'Briens that the Medindie property vested in the Trustee and that the Trustee would be entitled to any increase in its value upon the sale. Mr Peel sought to explain this by saying that he always gave debtors this advice, it was standard procedure. There was no need to record it. Secondly, the property was discussed, in the note of the afternoon appointment there appears the following:

"They confirmed the possible equity in the house property at Dutton Terrace and I pointed out that the mortgage to their mother would have to be investigated. They said they are struggling with the mortgage payments to Bank of Adelaide and are currently $2,000.00 in arrears. The rates are up to date."

And later:

"I told the bankrupts we would be looking into the sale of the house property if there was equity. We would also be looking into the validity of the mortgage to the mother..."

48. Another area of dispute which was dealt with in the cross-examination of Mr Peel related to the assistance or lack of it given by the bankrupts to their Trustees. The first file note Exhibit 13(a) reveals that Mr Peel had a very poor impression of the statement of affairs submitted by Mr O'Brien and to lesser extent that submitted by Mrs O'Brien. Some of his concerns were put to rest in the second interview. In his notes of that meeting he states:

"It appears that the omissions were not major and that no prosecution action is warranted."

49. Mr Sallis sought to utilise this phraseology to support a contention that the O'Briens had indeed been forthcoming and helpful to their trustees. Mr O'Brien certainly thought that he had been, but he appears to have based this submission on the assumption that he would not have to provide much more than the information provided in the statement of affairs and in the interviews. In fact the evidence reveals that very little further information was obtained either about Mr O'Brien's companies or his trusts or his earnings. This was variously blamed upon his accountants and the liquidators of the entities through which he conducted his businesses.

50. The case of Mrs O'Brien is somewhat different. It is clear from the evidence which includes the exhibited documents that she co-operated fully with the Trustee, provided him with regularly sought information about her earnings including her tax returns. As a result she was discharged from her bankruptcy in 1999.

51. Mr Sallis also discussed with Mr Peel a file note of 22 January 1997 which became Exhibit "K". The file note was described as an updating note of matters which required attention and in respect of the Medindie property it noted that the Bank SA indicated they were going to sell and then under a heading "Action" stated:

"ACTION - CONTACT BANK - FIND OUT LIKELY SALE PRICE AND IF THERE IS ANY LIKELIHOOD OF A PAYMENT TO FINLAY (sic) - IF NO LIKELIHOOD THEN NFA - IF THERE IS A LIKELIHOOD THEN NEED TO GET LINSAY TO PROVE THAT ADVANCES WERE MADE AND THAT MORTGAGE IS VALID..."

52. Mr Sallis sought to establish that the initials "NFA" which it was accepted meant "no further action" related to the sale of the Medindie property but Mr Peel made it clear he felt that the initials related to the investigation of the Findlay mortgage.

53. Mr Sallis tried again:

Sallis: "I want to suggest to you that from the file note of 6 December 1996 and 23 January 1997 letter I have placed before you, that it is a fair conclusion to arrive at that if there wasn't equity in the house property, the Trustee wouldn't seek to realise or wouldn't seek to sell the same?"

Peel: "No the letter doesn't say that at all and nor does the file note."

Sallis: "It's a fair conclusion, as well, isn't it, to say that the interview notes or file notes and the letter do not contemplate a situation where, in the future, equity becomes available in the Dutton Street premises?"

Peel: "Neither deals with that situation but they weren't intended to ... they had already been advised fully as to the effect of their bankruptcy on the house property."

54. I paid careful attention to the demeanour of Mr Peel in the witness box and the manner in which he gave his evidence. Mr Sallis submitted that Mr Peel was unsympathetic to the O'Briens and would use very opportunity to say something advserse to them. My observation of the witness and reading of the transcript leads me to the conclusion that Mr Peel was not favourably disposed to the O'Briens and did hope to bolster his evidence at their expense. I have taken this into account in considering the truthfulness of his recollections and particularly where those recollections are at odds with those of the O'Briens.

55. Mr Lock also gave evidence. He was the partner at Sheahan Coope Lock who undertook responsibility for the work of the Trustee Mr Sheahan. A Mr Lehmann worked under him. He confirmed that when the file was taken over from the Official Receiver it did not reveal an outpouring of correspondence or file notes of telephone conversations with the bankrupts requesting further information about the second mortgage.

Sallis: "It appeared to you, didn't it, that the Official Receiver was happy to sit back and monitor the situation in terms of mortgage payments during that three year period, and the bank's activities over the Medindie property?

Lock: "Yes I mean that would be the normal thing to do in a circumstance such as that."

Sallis: "Wouldn't you think it would have been appropriate, given that advice had been given by Mr Peel, or assuming that advice had been given by Mr Peel to the bankrupts, for the Official Receiver to contact the bankrupts and indicate to them that in the event equity did arise in the property it would be sold and realised for the benefit of creditors?"

Lock: "I can't comment on the Official Receiver's practice, I mean, we don't do that."

56. Mr Lock supported the Official Receiver's inactivity in regard to the Medindie property on the basis that there would be little benefit to creditors in either selling the property whilst it had no equity or using funds to try and set aside the Findlay mortgage when the net result might be very small indeed and the downside risk larger.

57. Mr Lock was questioned about some file notes made by Mr Lehmann on his file and on a proposition put up during the course of the bankruptcy of a composition. His starting point was the evidence of Mr O'Brien that the Sheahan Coope people would be sympathetic to a composition in which approximately $20,000.00 was put to the creditors. Mr Lock did not recall that. The figure came from his office and the cross-examination continued ...

Sallis: [Reading from the transcript]. "Mr Lock said definitely that the last thing he wanted to see me do was lose my family home. I think he said it in front of you to Mr Christie?"

Lock: "Yes."

Sallis: "Do you recall saying that too?"

Lock: "I certainly said words to that effect. It is not a Trustee's wish to see people lose their homes and what I would have said is "There is equity in the property; we do not want you to lose your house. If you can find a third party - because obviously it can't come from himself because that would make it his property again - to put up money to represent the equity, or even part of that equity that's acceptable to the creditors, then you would be able to remain in the house."

Sallis: "So you don't dispute that you may have said something along those lines to Mr O'Brien at that meeting?"

Lock: "No."

58. Mr Lock's evidence was that shortly after Mr Sheahan became the Trustee he arranged for the Medindie property to be transferred into his name. At some stage an examination of Mr O'Brien was organised but this did not proceed very far. No steps have been taken to set aside the Findlay mortgage but a valuation of the property had been made (Exhibit "U") as at 26 February 2001 indicating the property had a value of $370,000.00. This value was a land value only. The valuer did not consider that the improvements on the property were of any value. The house had been placed on the market and an offer had been received of $390,000.00 in November 2001 but the purchaser was not proceeding.

59. No criticism of Mr Lock as a witness was made and I have no reason to doubt any of his evidence.

Conclusions from the evidence

60. The first conclusion to which I have come is that Mr Peel in the meeting which took place on 6 December 1996 with the O'Briens told them that the Medindie property vested in the Trustee. Mr Peel struck me as a conscientious public servant. At the time he was a man of considerable experience in his position with ITSA. I felt confident that when he advised that his "usual practice" was to say or do something that that practice was followed in this case. I do not find the absence of a reference in the file notes to what is really a clear statement of well known law, supportive of a submission that the matter was not discussed.

61. I do not accept that Mr Peel said the words deposed to by Mr and Mrs O'Brien "if there is no equity in the property you can keep it." At the time in question the property was mortgaged to the Bank of South Australia and to Mrs Findlay. Contact had been made with the Bank who indicated that the mortgage was in arrears and it was looking to sell the property. The O'Briens are representing there was negative equity in the property (later confirmed in the letter from Ambrose Baker) so one has to ask oneself what benefit the O'Briens possibly thought they could be obtaining by keeping the property. On Mr O'Brien's own evidence he was at a fork in the road. It was difficult for him to make the mortgage payments and it is hard to believe that he was looking at any long term situation. It is much more likely that any discussion revolved around remaining in the property until a decision to sell was made. That decision being one to be taken either by the Bank SA or (and very unlikely because of the negative value) by the Trustee. There is no dispute that the O'Briens were led to believe that they could remain whilst they continued to pay the mortgage. I do not believe the conversation went any further than this.

62. I find that it was perfectly reasonable for the Official Trustee to stand behind the secured creditor in relation to the Medindie property. It is notorious that insolvency administrators do not have funds readily available to pursue every avenue of enquiry or action. The O'Briens had provided Mr Peel with appraisals of the value of their property that their accountant submitted showed a shortfall of approximately $20,000.00. There was a mortgage to Mr O'Brien's mother that may or may not have been avoidable. There would have been a significant cost in bringing the necessary proceedings to obtain a finding in this regard. The O'Briens by their own admission were having difficulty in paying the mortgage and it was likely that the property would be sold by the secured creditor. Even when this did not happen because of the sporadic (but substantial) payments being made by or on behalf of the O'Briens there was little value in forcing the issue, at least as long as the Official Trustee was a Trustee of the estate.

63. In 1999, perhaps sensing that there ought to be more action on this file it was transferred to a private Trustee Mr Sheahan. Even at that time there did not appear to be much equity in the property, almost certainly not enough to justify proceedings to set aside the Findlay mortgage. The new Trustee was suspicious of some of Mr O'Brien's dealings and frustrated by his inability to obtain information. However, he was also without funds and having secured an extension of Mr O'Brien's bankruptcy let the matter drift, save for one attempt to examine Mr O'Brien.

64. If there was a failing by the Trustees, it was not to assess Mr O'Brien for a contribution under Division 4B - Section 139W of the Bankruptcy Act. This was done in the case of Mrs O'Brien. This has allowed a situation to arise where payments have been made out of income which might have been assessable or which might have represented post assessment income. Mr O'Brien has not filed any tax returns for the relevant periods but he claims that all his earnings were used to pay the mortgage. As pointed out previously this is disputed by Mrs O'Brien but the extent of her contributions is not in evidence.

65. A large amount of time in cross-examination of Mr Peel and Mr Lock was spent in dealing with disclosure by Mr O'Brien. The purpose of this may well have been to secure a finding that Mr O'Brien had done all that he was required to do to enable the Trustees to have assessed him. I would not put so generous an interpretation upon the provision of information by Mr O'Brien. In my view he was less than forthcoming and it is unfortunate that the Trustees did not utilise the coercive powers given to them (see section 139(U)).

66. The Trustees were at all times aware that the O'Briens were making sufficient payments to the first mortgagee to ensure that the premises were not sold and this situation continued until the current application by the Trustee in Matter 204 of 2001.

67. Although the O'Briens were told in the interview of 6 December that the property vested in the Trustee and the Trustee was entitled to the proceeds of sale after deduction of the balance outstanding on the mortgages there was no discussion at any time about the effect of the payment of sufficient moneys to the first mortgagee to prevent the sale and to allow the O'Briens to continue to reside in the premises. By the same token there was no representation made that by doing this the O'Briens would earn themselves an equity in the property.

68. I do not consider that the lengthy period that elapsed in relative silence supports a submission that the O'Briens were told that they could keep the property if there was no equity in it.

Findings of law

69. Having come to the conclusion on the facts that there is no estoppel available to the O'Briens arising out of a specific representation that the Official Trustee would allow them to keep the property if there was no equity in, it I am obliged to consider whether or not any other equities arise out of the payment by the O'Briens of sufficient sums to preserve the Medindie property, vested in the Official Trustee and now Mr Sheahan, to a stage where the current Trustee is in a position to sell it for the benefit of the bankrupt estate of the O'Briens. However, before I do that I would comment that I could not, in any event, see an estoppel arising out of the words allegedly used by Mr Peel. Apart from the enormous inconsistency between the alleged representation and s.58 of the Bankruptcy Act it seems to me that the representation itself was so uncertain as to be unenforceable (see Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 and in particular the Judgment of Mason and Deane JJ at 435 to 437). When I asked Mr Sallis whether, hypothetically, the O'Briens could call for a revesting of the property in them a month after the statement had been made provided they had acted to their detriment by making a mortgage payment, he responded that he did not believe they could. One is drawn to ask when could this representation be enforced? It is in the nature of residential real property for its value to rise. Eventually any property in a prominent Adelaide suburb will increase in value. Does the lack of equity have to last until the bankruptcy ends before the house is retransferred or when the bankrupt makes an application or does the right to reconveyance crystallise the moment the bankrupts act to their detriment?

70. The factual matrix which would support an argument for the creation of some equity in the form of a restitutional right in favour of the O'Briens is that the Trustee knew full well that they were making payments to the first mortgagee which had the effect of preserving the property that now belonged to the Trustee. And the payments which were being made were not just of interest. Some reduction in the capital debt was also achieved. The Trustee may not have known this but he could have found out. The Trustee was content to sit back and allow this to occur so that, by virtue of the almost immutable law of increase in property value and the repayment of capital sums, value was restored to the Medindie property for the benefit of the creditors.

71. The cases which bear the closest resemblance to the facts and principles to be considered here are those where party A has made payments to party B in respect of land held by part B. Thus in Morris v Morris (1982) 1 NSWLR 61 the payment was of a sum of $28,000.00 towards an extension of a home unit in which the plaintiff was promised to reside. McLelland J said at page 63:

"I do not think on the facts as I have found them there is room for inferring the existence at any material time of an actual intention on the part of the plaintiff or the defendants that a trust of the property or any share therein was to be created in favour of the plaintiff... however, in my view wider equitable principles operate in the present case... it would be unconscionable and inequitable that the defendants should now retain the benefit of the expenditure by the plaintiff of his money on the property free of any obligation of recoupment to him."

72. This approach was followed in Luke v Chamberlain (2000) NSWSC 626 and Musgrave v Musgrave (2001) ACL Rep 430 NSW 5. Morris was approved of by Young J in Cadorange Pty Limited v Tanga Holdings Pty Limited (1990) 20 NSWLR 26 where his Honour set out the history of this type of claim and discussed it with reference to the three tests posited in Cooke and Oughton, Common Law of Obligations (1989) at 102-103. Although critical of the third test ("where on an objective valuation of the benefit conferred by the plaintiff it is conscionable that the defendant should have to pay for it") his Honour does recognise that the court can impose a liability where the person benefited has adopted the payments. Young J came to the conclusion:

"It seems to me that as the matter is really one of conscionability and as there are some precedents on which the claimant can rely, I am justified in holding that it is in this case unconscionable for the liquidator to hold onto the proceeds of sale... without compensating the claimant."

73. Cadorange was an "equitable lien" case where improvements had been made to a property. Although it is claimed that the O'Briens made improvements to their property, these are not to my mind relevant as the valuation made it clear that the house itself was of no value. Nonetheless the concept of preserving a property is not that far from making improvements to it. If the payments had not been made the land would have been sold by the mortgagee within a short space of time and the creditors would have got nothing. Cadorange was considered by the New South Wales Court of Appeal in Clancy & Anor. v Salienta Pty Limited [2000] NSWCA 248. Both Beazley J at 61 and Giles JA at 190 et seq approve of this decision although distinguishing Clancy from the facts in Cadorange.

74. I am satisfied that in this case it would be unconscionable for the Trustee to retain the benefit of the expenditure by the O'Briens on preserving the property.

75. Having decided that the O'Briens are entitled to some form of restitutionary order the question is, how is that to be calculated? The cases to which I have previously referred and also Fensom v Cootamundra Racecourse Reserve Trust [2000] NSWSC 1072 appear to be unanimous in basing the amount of the restitution upon the amount paid by the claimant. In other words, the claimant does not participate in any increase in the value of the property but only receives back what he put into it. What the O'Briens put into the Medindie property were two things. They were, interest on the loan moneys and capital repayments of the loan moneys. There can be no dispute, subject to what is said below concerning after acquired property and s.58(6) of the Bankruptcy Act, that the O'Briens are entitled to any amount which constituted a reduction in the principal debt.

76. I would also be inclined to the view that interest payments, being necessary for the preservation of the property, were also claimable. However, against both this and the capital payments must be put the benefit received by the O'Briens in actually living in the house. Mr Sallis argues that this is not an appropriate deduction. He says that evidence has been produced which indicates that the O'Briens could have lived rent free with relatives or possibly have rented a flat for approximately $85.00 a week. This sum of money, he says, is the maximum I could possibly hold as being a rental deduction. I am not sure of that. Moving to your relative's home may only be a short term option although the evidence indicated that so far as Mr O'Brien's sister was concerned he could have used the property on their station for some years. Living in a small flat in a different part of Adelaide would also be less advantageous than remaining living in your own home in the most prestigious suburb of that city. I am of the view that if one does live in a property which is not one's own then the owner is entitled to a reasonable rental, and the fact that you might have decided not to live there if you had not misunderstood something which the owner said to you, does not allow you to reduce the value of that rental.

77. The only evidence which I had before me as to the proper rental value of the Medindie property was given by the real estate agent Mr Denman. He was most reluctant to provide a figure and Mr Sallis urged me not to accept the one of $250.00 which was eventually dragged out of him. I think this is an important matter and I am not prepared to use that figure nor to substitute one of my own. To the extent to which it is required I would refer this matter to the Registrar for assessment.

78. In Morris the defendant was also ordered to pay the plaintiff interest upon the money which he had provided to the defendant from the date that the proceedings issued. In this case the payments were not made in one lump sum but in a series of lump sums comprising both interest and capital over a period of time. It would be possible, after the amount for rental has been decided to calculate interest on the balance of each of those lump sums from the date of payment to the date of judgment and I would refer that matter to the Registrar for calculation as well. I think the rate of interest should be that applying to pre-judgment debts in the Federal Court of Australia. (Adelaide Registry).

79. Having decided that an equity has been created by the preservation of the property, I must now consider whether or not in the hands of the O'Briens that equity is defeated. The equity would be defeated in either of the following situations:

i) if the equity itself was acquired from after-acquired property of the bankrupt, which would normally vest in the trustee pursuant to s 58(1)(b) of the Bankruptcy Act;

ii) if the equity becomes after acquired property even if it has been acquired from exempt income.

Was the equity acquired from after-acquired property or did it become after-acquired property?

80. It is common ground that the contributions made by the O'Briens were made from income. In Re Gillies; Ex parte Official Trustee in Bankruptcy [1993] FCA 289; (1993) 115 ALR 631, French J determined that Div 4B of the Bankruptcy Act:

"Approaches a code for dealing with after-acquired income of the bankrupt. There is nothing in the extrinsic material to support a change in the approach to after-acquired income which would bring it within after-acquired property vesting in the trustee. In my opinion, such income does not vest in the trustee."

81. Part VI Div 4B of the Bankruptcy Act makes provision for the assessment of income contributions from a bankrupt. There are also provisions to assist a trustee to make such an assessment and to require the bankrupt to provide the trustee with assistance in doing so. There are penal provisions for not providing information and an ability to examine the bankrupt. In the case of Mrs O'Brien, all the required procedures were complied with and a nil assessment was made. Therefore, to the extent that she can establish she had income left over which was applied to maintain and reduce the mortgage, then that income is not after-acquired property pursuant to s 58(1)(b) of the Bankruptcy Act.

82. The case of Mr O'Brien is different. No assessment of his income was made. The trustee made an effort to find out what his income might be but Mr O'Brien was of little assistance. He was not examined on the matter nor were any other sanctions taken out against him. In these circumstances and in the circumstances of a submission by his counsel that his earnings were at all times below the threshold for an assessment are his payments to be considered to be excluded from the provisions of s 58(1)(b)?

83. The first point I would make in this regard is that I am not prepared to accept on the evidence before me that the income of Mr O'Brien applied to the mortgage was his sole income. Mr O'Brien has not provided any details of his income to his trustee and has not completed tax returns. I have not found him a particularly satisfactory witness and I see no reason why I should make such a finding in proceedings in which these matters were only tangentially in issue. It follows from this that I cannot accept Mr O'Brien's submission that even if the trustee were to make an assessment, it would be a nil assessment, so that all the money paid to Bank SA would effectively be exempt income.

84. As no contribution has been assessed upon Mr O'Brien, whether because of the failure of the trustees to act in accordance with the requirements of s 139W or the failure of Mr O'Brien to comply with terms of s 139Q, the Court is unable to make a finding as to the nature of the moneys used to make payments to Bank SA. It is suggested by the O'Briens that this should all be dealt with by way of "a taking of account". I do not think this is appropriate. I think the situation is that Mr O'Brien has simply failed to prove that the payments were made from exempt income. In the case of Mrs O'Brien, although she has not shown the amount which she alleges she paid, I would, but for what is said below in paragraph 87 have ordered a reference to the Registrar.

85. Mrs O'Brien is also alleging that one half of the payments made by Mr O'Brien were payments which "as a matter of law were to be applied to the benefit of, and on behalf of, both registered owners in equal shares". This is an argument that could have been advanced if it was established that the moneys used were available to be used. But that has not been established. It will also apply to payments made by Mrs O'Brien. It is correct to say, in regard to Mrs O'Brien, that she is entitled to half of the equity in respect of the payments which she made after her discharge from bankruptcy. No details of these payments were provided in these proceedings but in order avoid the necessity of a future claim, I would be prepared to order an account be taken in respect of such payments. These are to be subject to the deduction for one half of the rental and the addition of one half of any interest.

86. But there is another proviso. That is one raised by French J in Re Gillies as to whether or not property acquired with exempt moneys becomes after-acquired property. In that case, his Honour said:

I am inclined to the view that assets purchased by a bankrupt with after-acquired income will, if not within any of the excluded categories in s 116(2), constitute property divisible among the creditors and vest in the trustee. In my opinion, however, no final decision should be given on this point which is still rather hypothetical

87. His Honour did not provide any clues as to how he came to this view. It seems most probable that he was of the opinion that s 116 of the Bankruptcy Act was the guiding section on what property was divisible among creditors and that if property which was not specifically exempted under subs (2) came into the hands of a bankrupt, it could be divisible. The Pt VI Div 4B codification related purely to the income. Provided that income was kept in specie or used for the purposes of purchasing assets which fall within s 116(2), then it is not divisible but otherwise it would be. While I am not bound by the decisions of a single judge of the Federal Court, I must regard them, even their obiter dicta, as persuasive. I would therefore support the view put forward by French J and find that the translation of this exempt income into an equity in the Medindie property constitutes an after-acquired property which vests in the trustee pursuant to s 58(1)(b) of the Bankruptcy Act and is divisible among the creditors of the bankrupt under s 116(1)(a).

88. The effect of this finding is therefore that Mrs O'Brien can only set up her equity out of moneys paid by her after she ceased to be bankrupt. And it is only one half of these moneys which represent her equity. This is because one half of the money was paid on behalf of her joint debtor, the bankrupt Mr O'Brien, and the equity that it was used to acquire forms part of his after acquired property: Muschinski v Dodds [1985] HCA 78; (1986) 160 CLR 583 at 596-97.

89. I am not aware of any challenge by the O'Briens to the power of the trustee to obtain an order requiring the debtors to vacate possession of the property. I considered this matter in Paul John Cook v Vera Tagamalitsky (2001) FMCA 117 where at paragraph 9 I said:

"It is interesting that although recovery of the assets of a debtor frequently involves the sale of a debtor's property and therefore the necessity to require a debtor to vacate possession of that property, there is no specific section in the Bankruptcy Act dealing with this matter in a codified form. Reference has to be made to a number sections of the Act. However, it is obvious from cases such as Dixon v Ly Ty Tran Cao & Ors, a decision of Beazley J as she then was, unreported 23 June 1995 FCA and White (as trustee of the bankrupt estate of Lyn) v Lyn [1999] FCA 841 a decision of Finkelstein J, that the Court has power to make such orders and indeed to stay those orders on terms."

Declarations and Orders

90. In Matter AZ 204 of 2001:

(ii) I order that the respondents within twenty-eight days vacate the premises occupied by them namely, those premises at 54 Dutton Terrace, Medindie, SA, 5081 being the property referred to in Certificate of Title Registered Book Volume 5315, Folio 513.

91. In Matter AZ 242 of 2001:

(i) I declare that Deborah O'Brien has established an equitable interest in the property at 54 Dutton Terrace, Medindie, SA, 5081 arising out of any payments made by her to Bank SA in respect of the payment of mortgage interest or capital repayments of the mortgage on the property since the date upon which she ceased to be bankrupt.

(ii) Pursuant to Part 18 of the Federal Magistrates Court Rules I order that there be referred to the Registrar of this Court in Adelaide the assessment of a net amount to which Mrs O'Brien should be entitled pursuant to this judgment.

That amount is to be calculated utilising the following equation E = (G - R) _÷ 2 + I _÷ 2 where:

E equals equity;

G equals gross amount paid;

R equals assessed value of rental on property from date of termination of bankruptcy to date of assessment;

I equals interest on the excess of payments over rent at Federal Court of Australia rates (Adelaide Registry).

(iii) That the respondent Christopher John Sheahan pay to Mrs Deborah O'Brien the amount so calculated from the proceeds of sale of the Medindie property.

(iv) In the event that the Medindie property is sold prior to the calculation being concluded that the respondent John Sheahan retain the sum of $5,000.00 on account of such assessment from the net proceeds of sale.

(v) Otherwise the applications in Matter AZ 242 of 2001 be dismissed.

Costs

92. The trustee has succeeded in his application under Matter AZ 204 of 2001 and the respondents should pay his costs in accordance with Part 21.10 of the Federal Magistrates Court Rules. Mr O'Brien has not succeeded in any part of his claim and Mrs O'Brien has succeeded in a very small part of hers in Matter AZ 242 of 2001. The respondent shall have his costs of that matter against the applicants save for a credit of $2,000.00 in respect of Mrs O'Brien's costs. I certify that it was reasonable for the respondent to employ an advocate pursuant to Federal Magistrates Court Rules Part 21.15.

93. The orders in relation to costs shall be made orders of this court unless within seven days of delivery of judgment application is made to me to argue the question of costs.

I certify that the preceding ninety-three (93) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: