Official Trustee In Bankruptcy v Brown & Anor [2011] FMCA 88 (20 May 2011)

Last Updated: 25 May 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

OFFICIAL TRUSTEE IN BANKRUPTCY v BROWN & ANOR

[2011] FMCA 88

BANKRUPTCY – Determination of interests in real estate between the trustee in bankruptcy and the spouse of the former bankrupt – property in the name of the spouse alone – equitable interest of the former bankrupt.

Bankruptcy Act 1966 (Cth), ss.5, 58, 106A, 115, 116, 121, 127, 129AA Bankruptcy and Family Law Legislation (Amendment) Act 2005 (Cth) Family Law Act 1975 (Cth), ss.79, 81 Federal Magistrates Court Rules 2001 (Cth)

Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 Daevys v Official Trustee in Bankruptcy; In the Matter of Daevys [2011] FCA 397 Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 The Trustees of the Property of John Daniel Cummins v Cummins [2006] HCA 6; (2006) 224 ALR 280

Applicant:

OFFICIAL TRUSTEE IN BANKRUPTCY

First Respondent:

MICHELLE BROWN

Second Respondent:

STUART DAEVYS

File Number:

SYG 2120 of 2010

Judgment of:

Driver FM

Hearing date:

21 February 2011

Date of last submissions:

13 May 2011

Delivered at:

Sydney

Delivered on:

20 May 2011

REPRESENTATION

Counsel for the Applicant:

Mr A Combe

Solicitors for the Applicant:

Sally Nash & Co

Counsel for the First Respondent:

Mr M Roset

Solicitors for the First Respondent:	Manion McCosker
The Second Respondent appeared in person

ORDERS

(1) Pursuant to rule 16.05 of the Federal Magistrates Court Rules 2001 (Cth), order 3 of the orders made on 5 October 2010 be amended to read as follows:

• 3. There be a declaration that Stuart Daevys had a property interest in 191 Pacific Highway, Mount White, NSW being folio identifier 11/873234 (“the Property”) as at the date of his bankruptcy being 2 March 2004.”

(2) The Court declares that the interest of Mr Daevys in 191 Pacific Highway, Mount White, NSW being folio identifier 11/873234 (“the Property”) vested in the Official Trustee as at the date of the bankruptcy, being 2 March 2004.
(3) The Court declares that the Official Trustee and Michelle Brown hold interests in the Property as tenants in common in shares as follows:

• (a) 67% to Ms Brown.
• (b) 33% to the Official Trustee.

(4) Pursuant to rule 16.05 of the Federal Magistrates Court Rules, order 11 of the orders made on 5 October 2010 be amended to include the following paragraphs (g) and (h):

• (g) 67% of the proceeds of sale to be paid to Michelle Brown.
• (h) 33% of the proceeds of sale to be paid to the Official Trustee.

For the avoidance of doubt, order 11(g) as made on 5 October 2010 is amended as above, otherwise the Court confirms the orders made on
5 October 2010 and 18 November 2010 in these proceedings.

(5) That other than as herein provided, and for the purposes of s.81 of the Family Law Act 1975 (Cth), Michelle Brown and Stuart Daevys each be declared the sole legal and beneficial owners of all items of personal property presently in their respective possession or control including motor vehicles, entitlements to superannuation, furniture, furnishings and personal effects to which Mr Daevys is entitled to retain under s.116(2) of the Bankruptcy Act 1966 (Cth).
(6) The parties shall execute all documents and do all things necessary to give effect to these orders.
(7) That in the event that any party refuses or neglects to execute any deed or instrument, the Registrar of the Court be appointed to execute such deed or instrument in the name of such party and to do all acts and things necessary to give validity to the operation of the deed or instrument.
(8) Mr Daevys is to pay Ms Brown’s costs in proceedings SYG 2029 of 2010 fixed in the sum of $3,080.
(9) Each party to otherwise pay their own costs.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

SYG 2120 of 2010

OFFICIAL TRUSTEE IN BANKRUPTCY

Applicant

And

MICHELLE BROWN

First Respondent

STUART DAEVYS

Second Respondent

REASONS FOR JUDGMENT

Introduction and background

1. This case concerns applications under the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) and the Family Law Act 1975 (Cth) (“the Family Law Act”) for a division of property between the Official Trustee, Mr Daevys and Ms Brown. The proceedings under the Bankruptcy Act are for a division of the respective interests of the Official Trustee and Ms Brown in certain real estate. Proceedings under the Family Law Act are for a division of personal property[1].
2. The bankruptcy proceedings were commenced by the Official Trustee in Bankruptcy (the applicant) after Stuart Daevys (the former bankrupt and second respondent) commenced family law proceedings in this Court at Newcastle claiming a 50 per cent interest in real property at Lot 11, DP 873234, situated at 191 Pacific Highway, Mount White (“the Property”). Ms Brown, the first respondent in the bankruptcy proceedings, is the former wife of Mr Daevys and the registered proprietor and mortgagor of the Property.
3. The Newcastle family law proceedings were allocated proceedings number SYC 1790 of 2009 and were transferred to Sydney. Those proceedings in this Court are now numbered SYG 2029 of 2010. There is no jurisdiction to hear the matter under s.79 of the Family Law Act in relation to vested bankruptcy property because the bankruptcy occurred prior to the commencement of the Bankruptcy and Family Law Legislation (Amendment) Act 2005 (Cth): see Zachary & Zachary & Ors [2008] FMCAfam 1209; Townend v Townend & Anor (No.2) [2008] FMCA 1612; Etrard & Etrard and Ors [2009] FMCA 167. The proceedings under the Family Law Act are limited to the division of personal property not vested in the Official Trustee, and costs.
4. The Official Trustee’s claim is by way of a constructive and/or resulting trust. It is asserted by Mr Daevys that he substantially assisted
   Ms Brown with the acquisition of the Property and the payment of its mortgage and construction of improvements on the Property.
5. The remaining property is to be divided between Mr Daevys and
   Ms Brown in accordance with s.79 of the Family Law Act.
6. Mr Daevys and Ms Brown started living together in December 1996 and were married on 23 November 1997. They separated on
   13 July 2007. A divorce order was made on 7 May 2009 and came into effect on 8 June 2009. Prior to the marriage, Ms Brown contracted for the purchase of the Property on 9 June 1997 for a price of $125,000 and stamp duty was paid on the transaction in July that year.
   Ms Brown obtained a loan of $100,000 from the Advance Bank shortly after her marriage to Mr Daevys. A development application for the Property was lodged by Ms Brown with the Gosford City Council on
   8 April 1998. That development application also identified Mr Daevys as an owner of the Property. The Gosford City Council approved the development on 8 July 1998. On 28 June 1999 Ms Brown borrowed a further $10,000 from the Advance Bank.
7. Mr Daevys filed his debtor’s petition, which was accepted by the Official Receiver, on 2 March 2004. A statement of affairs completed by Mr Brown made no reference to the Property. On 23 February 2006 Thelma Louise Pritchard died. On 16 June 2006 Mr Daevys received a distribution from the deceased estate of $70,000. A further distribution of $73,000 from the estate passed to Mr Daevys on 1 August 2006. There was a third distribution from the estate to Mr Daevys of $50,000 on 7 June 2007. Mr Daevys’ bankruptcy was discharged by operation of law on 3 March 2007.
8. On 4 January 2008 the Official Trustee notified the executors of the estate of Ms Pritchard that Mr Daevys’ entitlement to proceeds of that deceased estate had vested in the Official Trustee as after acquired property in accordance with ss.58(1) and 116 of the Bankruptcy Act. The executors provided $8,106.36 from the estate to the Official Trustee on 27 October 2008.
9. During 2009 Mr Daevys made several offers to Ms Brown to settle the division of the Property in equal shares. Correspondence from
   Ms Brown’s solicitors to the solicitors for Mr Daevys dated
   19 October 2009 acknowledged that Mr Daevys had contributed $200,000 from the estate of Ms Pritchard to the assets of the marriage. Mr Daevys lodged a caveat over the Property on 17 November 2009 and on 23 November 2009 commenced proceedings for family law property orders in this Court at Newcastle.

The evidence and submissions

10. The Official Trustee relies upon Mr Daevys’ affidavit made on
    17 November 2009 in the family law proceedings instituted against his former wife. The Official Trustee relies on further affidavits made by Mr Daevys in those proceedings on 11 February 2010 and
    25 March 2010. I also received the following exhibits:
    • Exhibit A1 – Statement of Environmental Effects for Proposed Residence
    • Exhibit A2 – Contract for sale of land
    • Exhibit A3 – Family law initiating application
11. Ms Brown relies upon her own affidavit made on 11 December 2009, filed in the family law proceedings on 14 December 2009. Mr Daevys did not have standing in relation to the contest over the division of the Property (although he said that he supported the 50/50 division sought by the Official Trustee) but sought an adjournment or stay in relation to that matter pending the outcome of his appeal against my decision on his annulment application made last year[2]. I elected to reserve judgment until the outcome of that appeal was known[3]. Mr Daevys did not present any evidence in relation to the division of personal property.
12. Ms Brown seeks that she and Mr Daevys should each keep what personal property they hold. In relation to the Property, she seeks a
    75 per cent interest but would accept 70 per cent. There have been discussions between the parties as to a division of the Property somewhat more in favour of the Official Trustee.
13. The Official Trustee seeks the division of the Property on a 50/50 basis but argued in the alternative for a division of 67 per cent to Ms Brown and 33 per cent to the Official Trustee based on an assessment of the respective contributions of Ms Brown and Mr Daevys.
14. The parties also sought the amendment of earlier orders made by me and the vacation of a costs order in the family law proceedings made by Federal Magistrate Cassidy at Newcastle on 29 April 2010.
15. On 13 May 2011 the solicitors for Ms Brown presented further submissions in the light of proceedings instituted in the Local Court at Balmain by Mr Daevys against Ms Brown. In those proceedings
    Mr Daevys claims the sum of $22,029.17 in respect of an alleged unpaid loan, interest and costs. It appears that a default judgment was entered on 21 March 2011. Ms Brown filed a defence on
    28 March 2011 which alleges an abuse of process. She has also filed a notice of motion to set aside the judgment, noting the family law proceedings between the parties.

Consideration

16. “Property” is defined broadly and, under s.5 of the Bankruptcy Act, includes an interest in real estate held on trust.
17. A debtor’s petition was filed by Mr Daevys on 2 March 2004. At that time the interest he had in the Property vested in the Official Trustee pursuant to ss.58, 115 and 116 of the Bankruptcy Act. Discharge from bankruptcy occurred by operation of law on 3 March 2007.
    Mr Daevys’ interest in the Property was not disclosed by him in his statement of affairs. His interest has not “re-vested” as it was not disclosed in the statement of affairs. Section 129AA of the Bankruptcy Act provides that only property that was disclosed in the bankrupt’s statement of affairs re-vests on the sixth anniversary of discharge from bankruptcy. That anniversary has not been reached. Accordingly, s.129AA of the Bankruptcy Act does not apply. In any event, the trustee in bankruptcy may make a claim against property for up to
    20 years after the date of bankruptcy: s.127(1) of the Bankruptcy Act.
18. I accept that this matter must be determined with due regard to the dicta of the High Court in The Trustees of the Property of John Daniel Cummins v Cummins [2006] HCA 6; (2006) 224 ALR 280 at [71]:
    • The present case concerns the traditional matrimonial relationship. Here, the following view expressed in the present edition of Professor Scott's work respecting beneficial ownership of the matrimonial home should be accepted:
      • It is often a purely accidental circumstance whether money of the husband or of the wife is actually used to pay the purchase price to the vendor, where both are contributing by money or labor to the various expenses of the household. It is often a matter of chance whether the family expenses are incurred and discharged or services are rendered in the maintenance of the home before or after the purchase.
    • To that may be added the statement in the same work:
      • Where a husband and wife purchase a matrimonial home, each contributing to the purchase price and title is taken in the name of one of them, it may be inferred that it was intended that each of the spouses should have a one-half interest in the property, regardless of the amounts contributed by them. (emphasis added)
19. Whilst the Cummins case (supra) involved a claim by the trustee in bankruptcy under s.121 of the Bankruptcy Act, the current case is said by the Official Trustee to be an example of the highlighted text from that judgment. The Official Trustee simply asserts that it may be inferred that Ms Brown held the Property for herself and on trust for Mr Daevys and that their interests in the Property were equal. I made a declaration on 5 October 2010 that Mr Daevys has an interest in the Property and that the issues of whether that interest has vested in the Official Trustee and the quantum of that interest be stood over for determination. Therefore, it is beyond doubt that an interest of
    Mr Daevys in the Property exists. The remaining question is its quantification, noting that it has vested in the Official Trustee.
20. The Official Trustee contends that it is not necessary for the Court to work out a percentage of contributions by the parties. Indeed this task is claimed to be “impossible” on the evidence from Mr Daevys and
    Ms Brown. Instead the Official Trustee asserts that this was in the nature of a traditional marriage of the type referred to in Cummins. It was not relevant who was earning the most money and nor do there appear to have been discussions between the parties to the effect that the Property would be solely owned by Ms Brown.
21. The Official Trustee’s primary contention is that there is nothing in the circumstances of this case which would indicate that the Cummins principle should not be applied to the Property. There is said to be nothing in the facts and circumstances to indicate that the Property was other than a jointly owned property although registered solely in the name of Ms Brown.
22. The Official Trustee therefore contends that there should be a 50/50 division of the Property. In support of that proposition the Official Trustee further notes that the purchase of the Property, although in the name of Ms Brown, was clearly intended to be used as the matrimonial home of both her and Mr Daevys as is evidenced by their cohabitation in the Property during marriage. After separation and divorce the property was occupied by Mr Daevys and the mortgage was for a time paid by him, although Ms Brown asserts that she resumed responsibility for the mortgage at the end of 2006. Further, documents produced under subpoena show that a development application in respect of the Property submitted to Gosford City Council named both Mr Daevys and Ms Brown as “owners” of the Property. It is arguable that their interests were regarded by them as equal whether as joint tenants or as tenants in common.
23. The fact that the mortgage was in the name of Ms Brown alone does not assist the Court to determine that the Property was to be held solely by her. Because the mortgage payments were made by her and
    Mr Daevys, both adopted the mortgage.
24. In further support of the above contention the Official Trustee points out that Ms Brown and Mr Daevys appear to have treated the mortgage as a joint obligation by each of them rather than a sole obligation of
    Ms Brown. Notwithstanding the fact that the mortgage was registered in the name of Ms Brown alone, I accept that Mr Daevys also made mortgage payments, which provides support for a finding that the Property was shared, although not necessarily in equal shares. In addition, Ms Brown has conceded that Mr Daevys made financial contributions to the acquisition of the Property and improvements on it.
25. The fact that Ms Brown gave sole occupation to Mr Daevys of the Property after separation is corroborative of the fact that it was always intended to be shared property. The fact that Mr Daevys paid the mortgage during at least part of the time of his occupation also corroborates the fact that the Property was to be shared. Ms Brown never charged rent to Mr Daevys for his occupation of the Property. His obligation was to simply pay the mortgage as if he were a proprietor and liable for payment of the mortgage.
26. There is no evidence that Ms Brown paid wages or insurance for
    Mr Daevys with respect to building and improvements on the Property. This is further indication of shared ownership.
27. There is no evidence of any discussion that monies paid by Mr Daevys to Ms Brown or for the building of improvements on the Property would create an interest for him in the Property. Neither is there any evidence of any discussion that it would not. Both respondents appear to have dealt with the Property as if it were a shared matrimonial asset.
28. The Official Trustee submits that it is just and equitable for the Court to declare that Ms Brown holds half of the Property on trust for
    Mr Daevys. Consistently with ss.58 and 116 of the Bankruptcy Act the Court has found that Mr Daevys’ interest has vested in the Official Trustee. Any such interest is subject to the existing St George Bank mortgage.
29. Mr Daevys has conceded that he waited until he had been discharged from bankruptcy before making a claim for 50 per cent of the Property as an intentional act.
30. I have no difficulty in accepting that Ms Brown did not hold the Property solely for herself but also held it on trust for Mr Daevys in recognition of the contribution he made to its acquisition, maintenance and improvement. It is certainly open to me to find, as the Official Trustee contends I should, that the Property was held jointly by
    Ms Brown and Mr Daevys. However, I do not accept the Official Trustee’s contention that this case must be determined in conformity with the High Court decision in Cummins v Cummins. First, this case can be distinguished from Cummins on the basis that the purchase of the Property by Ms Brown occurred prior to the marriage and without any apparent intention to assist Mr Daevys to defeat his creditors.
    It was no doubt convenient for Mr Daevys to conceal his interest in the Property from the Official Trustee until after his discharge from bankruptcy, in the mistaken belief that he could thereby withhold that asset from his creditors. That, however, was Mr Daevys’ scheme, not Ms Brown’s. When Mr Daevys made his claim on the Property in 2009 it was resisted by Ms Brown.
31. The evidence supports Ms Brown’s contention that she paid the deposit on the Property, paid the stamp duty and arranged bank finance for it. Mr Daevys contributed financially by making mortgage payments and possibly by providing money to Ms Brown. It does not appear, however, that the money Mr Daevys received from the estate of
    Ms Pritchard was applied towards the Property directly. No further building work was done on the Property following the death of
    Ms Pritchard and what mortgage, rates and other payments were made by Mr Daevys after her death were irregular. Ms Brown asserts that she has no knowledge of what has become of the distributions to
    Mr Daevys from the estate of Ms Pritchard notwithstanding her acknowledgement that the money received by Mr Daevys was a matrimonial asset[4]. Overall, I do not accept that this case concerns a “traditional matrimonial relationship” like that described by the High Court in Cummins.
32. Secondly, I do not accept the Official Trustee’s contention that the contributions of Ms Brown and Mr Daevys to the acquisition, maintenance and improvement of the Property cannot be determined on the evidence. While it is not practicable, on the available evidence, to determine the value of whatever non financial contributions were made by Ms Brown and Mr Daevys, the available evidence is sufficiently clear to determine that Ms Brown’s financial contribution was approximately two thirds of the total sum expended on the purchase and improvement (and maintenance) of the Property. Therefore, the alternative and in my view preferable approach to take is to treat the acquisition and improvement to the Property as a joint venture between the respondents who were partners to the joint venture: Calverley v Green [1984] HCA 81; (1984) 155 CLR 242; Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583; Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137.
33. The Court can assess the respective interests on the following basis in accordance with Calverley v Green:

Purchase cost	$125,000.00
Improvement and stamp duty cost	$100,000.00
Total	$225,000.00
Ms Brown’s contribution	$150,000.00 $225,000.00 (66.6%)
The bankrupt’s contribution	$75,000.00 $225,000.00 (33.3%)

34. This is consistent with the discussions between the Official Trustee and Ms Brown which have pointed to an outcome of approximately two thirds in favour of Ms Brown and one third in favour of the Official Trustee. The available evidence on legal and equitable contributions supports that outcome. I find that a division of the Property in this case that is just and equitable is a division of 67 per cent in favour of
    Ms Brown and 33 per cent in favour of the Official Trustee.
35. As to the personal property, both Ms Brown and Mr Daevys seek an order that each party be declared the owners of property held in their own name or with others, noting that at least Mr Daevys has repartnered. I will make that order.
36. It is troubling that Mr Daevys has instituted other proceedings against Ms Brown in the Local Court. In the first place, in those proceedings Mr Daevys claims that he loaned Ms Brown $15,560.00 on or about
    18 July 2006, when he was a bankrupt and after he received funds from the deceased estate of Ms Pritchard, which were not disclosed to his trustee in bankruptcy. It would seem likely that if the loan was made as claimed, any repayment would be due to the trustee, not to Mr Daevys. Secondly, Ms Brown conceded in the family law proceedings that
    Mr Daevys made a matrimonial contribution from the estate of
    Ms Pritchard. In the circumstances the loan, if made, should be taken into account in those proceedings. Mr Daevys chose to make no claim in relation to the alleged loan in those proceedings and should not be permitted to do so in collateral proceedings. Mr Daevys claimed in the family law proceedings that after separation Ms Brown withdrew $40,000 from his bank account. Ms Brown conceded that she had withdrawn $16,000 with Mr Daevys’ authority to help her pay her general living expenses. I have taken that concession into account. The order that I will make in these proceedings is made expressly for the purposes of s.81 of the Family Law Act.
37. As to costs, I see no reason to disturb the costs order made on
    29 April 2010 by Federal Magistrate Cassidy. However, Ms Brown has been a necessary but reluctant participant in legal proceedings instituted by the Official Trustee in order to obtain the sale of the Property and the division of the proceeds of that sale. I note, in that regard, that a writ of possession was issued on 15 February 2011. The family law proceedings have been rendered more complex because of the unfortunate and unhelpful approach taken by Mr Daevys to his bankruptcy and his efforts to secure a legal interest in the Property after his discharge from bankruptcy. Mr Daevys’ failure to disclose his true financial position to his trustee is compounded by his failure to disclose his interest in various companies in the family law proceedings. His concealment has been grievous and has burdened Ms Brown in having to deal with the Official Trustee on the declaration of interests in the Property. Having regard to ss.117(2) and (2A) of the Family Law Act, Ms Brown should receive an award of costs fixed in the sum of $3,080 against Mr Daevys in the family law proceedings. That order in effect cancels out the order made previously by Federal Magistrate Cassidy.
38. The parties should otherwise bear their own costs.

I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 20 May 2011

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[1] Daevys & Brown & Anor [2011] FMCAfam 147
[2] Daevys v Official Trustee [2010] FMCA 906
[3] On 20 April 2011 the Federal Court (Flick J) dismissed Mr Daevys’ application for an extension of time for the appeal: Daevys v Official Trustee in Bankruptcy; In the Matter of Daevys [2011] FCA 397
[4] See Annexure B to Mr Daevys’ affidavit of 12 February 2010 at [9]