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Federal Court of Australia |
Last Updated: 1 March 1999
Official Trustee in Bankruptcy (trustee) v Turner[1999] FCA 129
Bankruptcy Act 1966 (Cth) ss 5, 58, 115(1), 116
Family Law Act 1975 (Cth)
Re Clark; Ex parte Beardmore [1894] 2QB 393 followed
Corke v Corke [1994] FCA 944; (1994) 48 FCR 359 applied
Isaacs v Robertson [1985] AC 97 cited
Re Zagoridis; Ex parte Q'plas Group Pty Ltd (1990-1991) 98 ALR 718 cited
Re Baxter; Ex parte The Official Receiver v Baxter (1986) 10 FCR 398 applied
McGovern v State of Victoria (1984) VR 570 referred to
The Wik Peoples v Queensland [1994] FCA 967; (1994) 49 FCR 1 cited
Castrique v Imrie (1870) LR 4 HL 414 followed
R v British Coal Corporation; Ex parte Price (No 3) (1993) TLR 298 referred to
Oil Basins Ltd v Commonwealth [1993] HCA 60; (1993) 67 ALJR 955 referred to
News Ltd v Australian Rugby Football League Ltd [1996] FCA 1256; (1996) 139 ALR 193 referred to
Victoria v Sutton (1998) 82 ALJR 1386 referred to
OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATE OF EDWIN JOHN TURNER v TURNER
NG 7008 OF 1996
O'LOUGHLIN J
ADELAIDE (HEARD IN SYDNEY)
24 FEBRUARY 1999 IN THE FEDERAL COURT OF AUSTRALIA RE: A Bankrupt
OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATE OF EDWIN JOHN TURNER
Applicant AND: First Respondent
ROSE JOSEPHINE TURNER
Second Respondent JUDGE:
NEW SOUTH WALES DISTRICT REGISTRY NG 7008 OF 1996
EDWIN JOHN TURNER
KENNETH EDWIN TURNER
O'LOUGHLIN J DATE OF ORDER: 24 FEBRUARY 1999 WHERE MADE: ADELAIDE (HEARD IN SYDNEY)
THE COURT ORDERS THAT:
1. This matter stand adjourned for further consideration.
2. The applicant serve forthwith a copy of the reasons of the Court published this day on the Registrar General and the State Bank of New South Wales (or its successor in title)
3. Any party be at liberty to have the matter relisted for further consideration on seven day's notice.
4. The applicant's costs, calculated on the solicitor and client scale, be paid out of the bankrupt estate of Edwin John Turner.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 7008 OF 1996 |
|
RE: | EDWIN JOHN TURNER
A Bankrupt
OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATE OF EDWIN JOHN TURNER Applicant |
|
AND: | KENNETH EDWIN TURNER
First Respondent
ROSE JOSEPHINE TURNER Second Respondent |
JUDGE:
O'LOUGHLIN J DATE: 24 FEBRUARY 1999 PLACE: ADELAIDE (HEARD IN SYDNEY)
2 The bankrupt's first wife was Rose Josephine Turner ("Rose"), the second respondent; their marriage was dissolved by order of the Family Court on 13 July 1978. They were, at one stage, the joint proprietors of the property.
3 It appears from the affidavit dated 17 December 1996 of Cheryl Cullen, a clerk in the employ of the Insolvency and Trustee Service Australia, that on 23 July 1985, the Family Court ordered the bankrupt to pay Rose, by way of a property settlement, the sum of $35,952. In return, Rose was to transfer her interest in the property to the bankrupt. Ms Cullen deposed in par 10 of her affidavit that it appeared to her that the bankrupt had paid to Rose the money due to her under the property settlement; she came to that conclusion because the caveat that Rose had earlier lodged against the property was withdrawn by Rose on 12 August 1991. She also deposed that she had searched the relevant Family Court file and noted that "the matter was removed from the active pending list on 18 February 1991". Ms Cullen concluded that she believed that Rose "has no further interest in the property". In her affidavit, Ms Cullen annexed a copy of an affidavit that had been sworn and filed by the bankrupt in the Family Court. In par 5 of his affidavit, the bankrupt deposed that he had paid $35,900 to Rose on 15 November 1985 which meant that she was then owed only $52 plus interest. Rose filed a submitting appearance but has taken no other part in the proceedings. However, she wrote a letter dated 22 October 1996, in response to an inquiry from the trustee, saying that she has been "fully paid". In these circumstances I agree with Ms Cullen's conclusions and make a finding that Rose has ceased to have any beneficial interest in the property. This finding means that the bankrupt had become the sole beneficial owner of the property with effect from about November 1985. However, notwithstanding the events that have been recounted, the property remained in the joint names of the bankrupt and Rose for a further three years or so.
4 In February 1989, a transfer of the property in favour of the first respondent, Kenneth Edwin Turner ("Kenneth") was purportedly executed and registered in the Lands Titles Office. Kenneth is the son of the bankrupt and Rose. The transferors were named as the bankrupt and Rose and it appeared that their respective signatures had been placed on the memorandum of transfer. The transfer contained the following entry:
5 The figures "80,000" were inserted in handwriting; the balance of the entry is part of the printed form. Three months later, on 3 May 1989, a caveat was lodged against the property by Rose who claimed that the transfer to Kenneth was fraudulent and that her signature on the transfer was a forgery.
"The abovenamed transferor (sic) hereby acknowledged receipt of consideration of $80,000."
6 Meanwhile the bankrupt had married for a second time; his second wife's name was Anne. That marriage has also ended in divorce. On 20 September 1988, the Family Court had ordered the bankrupt to pay Anne, by way of a property settlement, the sum of $29,160 plus interest at 15 per cent per annum. The order of the Family Court then went on to make provision for the sale of the property in the event of Anne not receiving the money to which she was entitled by the due date for payment. The order provided:
7 The bankrupt not having paid Anne the money to which she was entitled, on 22 February 1990 the Family Court made an order in the proceedings between the bankrupt and Anne, setting aside the purported transfer from the bankrupt and Rose in favour of Kenneth. Although a copy of that order has never been lodged in the Lands Titles Office, the order has never been set aside. A year later, on 25 February 1991, Anne lodged a caveat against the property; she claimed an estate or interest in the property based on the Family Court's order of 22 February 1990 coupled with her appointment by the Court as the sole agent for the sale of the bankrupt's interest in the property. That order concluded with the words "... and that upon the sale of such property the proceeds be distributed in accordance with the Order made herein on 20 September 1988." However, the probabilities of the case are, and I find that ultimately Anne received her entitlement under the property settlement for she withdrew her caveat on 12 July 1991.
"That if the payment of $29,160.00 . . . is not made by 31st January, 1989, ... then Mrs Rose Turner and the Husband shall sign all deeds and documents and do all things to effect a sale of the former matrimonial home at 821 Eleventh Avenue, Austral in the State of New South Wales and from the funds available from the said sale, after payment of [costs commission, rates and secured debts]. . . the proceeds be allocated as follows:-
(a) the amount including interest still owing to Mrs Rose Turner pursuant to the Judgment of His Honour Justice Gee in proceedings No. P. 483/77, between the Husband and Mrs Rose Turner;
(b) the sum of $29,160.00 plus interest at the rate of 15% per annum, calculated from this date, 20th September, 1988; and
(c) the balance to the Husband."
8 On 1 October 1996 the solicitors for the trustee wrote to Anne; the letter was addressed to her at her solicitor's address as the trustee had no other address at which to write her. The solicitors for the trustee also wrote Anne's solicitors on the same date. The effect of that correspondence was as follows:
* the trustee was proceeding on the assumption that the bankrupt had paid out Anne her entitlement under her property settlement;
* the trustee was intending to rely on the order of the Family Court of 22 February 1990 setting aside the transfer of the property to Kenneth;
* the trustee was intending to make an application to this Court "for a declaration that the property in fact vested in the Trustee by operation of the Family Court order of 22 February 1990".
9 There is no evidence of the trustee having received any reply from Anne or from her solicitors.
10 On 11 April 1997, Kenneth applied to the Family Court for leave to intervene in the proceedings between the bankrupt and his second wife Anne; in that application he sought an order that the Order of the Family Court of 22 February 1990 (ie the order setting aside the transfer of the property to him) be set aside; the trustee also applied for and was granted leave to intervene in that application. On 1 October 1997 a Registrar of the Family Court issued directions that Kenneth file an amended application on or before 22 October 1997; that was not done and a required hearing fee was not paid. As a result the Family Court Registrar made an order removing Kenneth's application from the pending cases list. In his affidavit that was sworn on 23 December 1997 in these proceedings, Kenneth has said "On advice I do not propose to press the Family Court Application". No further explanation was given for this decision.
11 Since acquiring the property, Kenneth has spent substantial sums of money on improvements. The most expensive item has been the acquisition and installation of an additional transportable home. In all, he has listed details of expenditure totalling almost $75,000. Kenneth tendered in these proceedings the affidavit and report of Salvatore Calandra, a valuer and a member of the Australian Institute of Valuers and Land Economists. He valued the property in 1998 at $330,000, expressing the opinion that without the improvements that Kenneth had added to the property, it would be worth only $280,000. Mr Calandra also expressed the opinion that in February 1989 when the property was transferred to Kenneth for a consideration of $80,000, it would have been then worth about $240,000. The imprint of the ad valorem stamp duty on the memorandum of transfer shows that stamp duty was assessed on a value of $200,000 for the property - not $80,000
12 Mr Turner's bankruptcy commenced on 24 June 1991, being the date of the commission by him of the relevant act of bankruptcy. I do not understand this to be an issue in dispute. Hence, if the bankrupt then retained any interest in the property, the trustee's title to that property related back to that date: subs 115(1) of the Bankruptcy Act 1966 (Cth) ("the Act"). Section 58 of the Act operates to vest in the trustee the property of a bankrupt, including any after-acquired property. The word "Property" is defined quite widely in s 5; it means:
13 On 22 February 1990, a date preceding the date of the commencement of the bankruptcy and the date of the making of the sequestration order, the Family Court had ordered that the transfer in favour of Kenneth be set aside. The critical question that must therefore be determined is the effect at law of this order. Does it mean that the bankrupt became the sole beneficial owner of the property? And if it does, is his beneficial interest subject to any, and if so what, charge or equity in favour of Kenneth?
"real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property".
14 The expression "the property of the bankrupt" is defined in subs 5(1) of the Act to include the property divisible among the bankrupt's creditors and any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt. Section 116 of the Act is entitled "Property Divisible Among Creditors"; subs (1) of that section provides that subject to the Act:
15 The title that the trustee enjoys is only as good as that which the bankrupt would have enjoyed if his or her estate had not be sequestrated. In Re Clark; Ex parte Beardmore [1894] 2QB 393 Davey LJ said at 410:
"(a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge;
(b) the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge;
(c) ...
(d) ...
is property divisible amongst the creditors of the bankrupt."
16 In Corke v Corke [1994] FCA 944; (1994) 48 FCR 359 Lockhart J (with whom Black CJ and Beazley J agree) referred to this passage with approval, having earlier said:
"The broad and general principle is, that the trustee in a bankruptcy takes only the property of the bankrupt, and takes it subject to all the liabilities and equities which affect it in the bankrupt's hands ..."
17 If therefore, the order of the Family Court setting aside the transfer in favour of Kenneth is to be given full force and effect, pars (a) and (b) of subs 116(1) of the Act would mean that the property, now beneficially owned wholly by the bankrupt, would become property divisible among his creditors.
"It must be remembered that the trustee's title to the bankrupt's property is no higher or better than the title of the bankrupt himself.
. . .
The trustee in bankruptcy is generally bound by the equities which affect the bankrupt; so that if a third party has an equitable interest in property, the law protects that property and the property passes to the Official Trustee, but it is "clogged with all the equitable conditions which attach to it": Whyte v Williams (1903) 29 VLR 69 per Madden CJ at 81. See generally the discussion on this matter in Sonenco (supra) per Beaumont J at 111-113 and Ryan and Gummow JJ at 120-123."
18 The evidence with respect to the consideration passing from Kenneth in return for the transfer of the property into his name is sparse. I accept that at the time of the execution of the transfer, he signed a mortgage in favour of the State Bank of New South Wales. That mortgage secured the property for unspecified advances. A letter was sent by the bank in February 1989 to Kenneth (the exact date is obscured); it identified that the bank had advanced him $68,000 on the security of the property and then listed the manner in which that amount had been disbursed. The following extract from the letter is significant:
19 Anthony Turner, who received $30,738.46, is another son of the bankrupt and is Kenneth's brother. There is no evidence before the Court explaining why this amount of money was paid to Anthony. The payment of $5,490 to the Office of State Revenue was for the Stamp Duty that was payable on the transfer. Traditionally, this is payable by the purchaser. There is no evidence explaining why, in this case, it was effectively paid by the vendor.
"In accordance with your instructions, Bank Cheques were issued to the following representing proceeds (sic) the advance to enable the above purchase:-
* Bank Cheque in favour of Anthony Turner $30,738-46
* Bank Cheque in favour of Office of State Revenue 5,490-00
* Bank Cheque in favour of K.J. Turner 11,245-00
* Bank Cheque in favour of Kencalo & Rimes, Sol. 1,265-00
* Bank Cheque in favour of Commonwealth Bank of Aust. 7,903-71
* Bank Cheque in favour of Avco 11,357-83
$68,000-00"
20 The next payment that is recorded in the bank's letter is a payment of $11,245 to "KJ Turner". The applicant submits that this was a payment to Kenneth, notwithstanding that his second Christian name is "Edwin". There is no other evidence on this subject.
21 Kencalco & Rimes were the solicitors who acted for the parties in relation to the transfer. Whether the amount of $1,265 that was paid to them was the exclusive responsibility of the vendor or whether it was the combined costs of the vendor and the purchaser is not clear.
22 The payment of $7,903.71 to the Commonwealth Bank of Australia is acknowledged by the trustee as being a payment for the benefit of the bankrupt to discharge the mortgage that was formerly registered over the property. The last payment of $11,357.83 to AVCO is also acknowledged by the trustee as a payment that was made for the benefit of the bankrupt. It was to discharge a debt to a finance company that was jointly owed by the bankrupt and his second wife, Anne. There is no evidence about the identity of the recipient of the balance of the purchase price $12,000. In his affidavit of 23 December 1997 Kenneth said:
"I paid the Bankrupt the sum of $80,000.00 for the property. I obtained these funds by way of a loan of $68,000.00 from the State Bank. I granted a mortgage over the property to the State Bank to secure repayment of this loan. Annexed hereto and marked "C" is a true copy of that Mortgage. The balance of $12,000.00 came from the sale of the property that I owned at Lot 7, Knowles Road, Aylmerton. Annexed hereto and marked "D" is a true copy of the Transfer relating to the sale of that property."23 The first sentence in this quoted passage is not literally accurate. For example, the payment of $30,738.46 was made to Anthony, not to the bankrupt. Why? If it was to satisfy a debt or an obligation, then perhaps one could loosely say that this sum was paid to the bankrupt but there was an obligation, on Kenneth to advance more information than is presently before the Court. It is possible to give Kenneth the benefit of the doubt with respect to the payments for solicitor's costs and stamp duty and it is clear that the payments to the Commonwealth Bank and Avco were for the bankrupt's benefit. But these payments total only $26,006.54.
24 There is no evidence that would justify a finding that the balance of $80,000 was paid to or for the benefit of the bankrupt. And, of course, the problem is compounded by the valuer's opinion that the property at the time of the transfer was worth about $240,000. The factors lead to the obvious conclusion that the transfer to Kenneth was not an "arms-length" transaction. But, there being no allegation that the transfer was executed for the purpose of defeating or delaying creditors, it is not a matter that need play any part in the outcome of these proceedings. Its inclusion is (subject to one remaining factor that is discussed later) only for the purposes of completing the narrative of a complicated story.
25 It was agreed by the parties that the order of the Family Court that was made on 22 February 1990 was made by a Registrar of that Court acting under the powers contained in s 85 of the Family Law Act 1975 (Cth). It was also agreed that either no reasons were given by the Registrar with respect to his or her decision to make the order or, if there were any reasons given, they can not now be found. Searches have been made at the Family Court but without success. Section 85 of the Family Law Act provides as follows:
"(1) In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.26 Although there is no evidence of the date when the divorce proceedings involving the bankrupt and Anne commenced, there is evidence that on 20 September 1988, that is, before the date of the transfer of the property from the bankrupt and Rose to Kenneth, the Family Court had ordered that the bankrupt pay certain moneys to Anne. One is left therefore to assume that the Family Court made its order of 22 February 1990 setting aside the instrument because it was satisfied that the disposition had been made by the bankrupt with the intention of defeating the earlier order; this assumption leaves unanswered how the Family Court dealt with Rose's alleged participation in the execution of the instrument, bearing in mind that she was not a party to those divorce proceedings.
(2) The court may order that any money or real or personal property dealt with by any such instrument or disposition may be taken in execution or charged with the payment of such sums for costs or maintenance as the court directs, or that the proceeds of a sale shall be paid into court to abide its order.
(3) The court shall have regard to the interests of, and shall make any order proper for the protection of a bona fide purchaser or other person interested.
(4) A party or a person acting in collusion with a party may be ordered to pay the costs of any other party or a bona fide purchaser or other person interested of an incidental to any such instrument or disposition and the setting aside or restraining of the instrument or disposition.
(5) In this section, disposition includes a sale and a gift."
27 Mr Tregenza, counsel for Kenneth, attacked the power of the Family Court to make the order of 22 February 1990 setting aside the transfer. Furthermore, he submitted that it was within the power of this Court to declare that the order of the Family Court was beyond its powers. In support of this submission, Mr Tregenza advanced the following arguments:
1. the order of 22 February 1990 did no more than affect an instrument of transfer: it merely set aside the transfer but failed to order a reconveyance of the property; it did not affect the status or the title of the property; the instrument of transfer having been registered in the Lands Titles Office within a short time of its execution and long before the order of 22 February 1990, the transfer had become, what counsel described as, "a spent force". As a result, Kenneth's interest in the property could only be affected by the order of a Court of competent jurisdiction which order effectuated a divestment of or charge upon Kenneth's estate and interest in the land;
2. two of the three parties who were affected by the order, Rose and Kenneth, were not parties to the proceedings as the order had been made in the dissolution proceedings relating to the bankrupt's marriage to Anne; the Family Court did not, therefore, have authority to set aside Rose's execution of the transfer - nor did it have power to interfere with Kenneth's enjoyment of the property;
3. in order to bind Kenneth, the order of 22 February 1990 had to be an order "in rem", whereas the subject order only bound the parties of the proceedings, (ie, the bankrupt and Anne) and was a judgment "in personam";
4. the order of the Family Court dated 9 July 1991 has, by implication, discharged the earlier order of 22 February 1990. The order of 9 July, so far as is relevant, provided that the bankrupt pay to Anne all moneys (including her costs) that were due to her pursuant to earlier orders of the Family Court by 4.00 pm on 30 July 1991; it also provided that upon payment of all moneys due by the bankrupt to Anne, Anne was to deliver up to the bankrupt withdrawals in registrable form of the caveats that she had lodged over the property.
1. The Family Court's Order of 22 February 1990
28 The Family Court order of 22 February 1990, properly understood, did not merely affect an instrument, ie, the memorandum of transfer: it was directed to a transaction which transaction was manifested by the memorandum of transfer. There can be no doubt, notwithstanding issues of indefeasibility of title, that a Court of competent jurisdiction (and the Family Court is such a Court) may make an order which, when implemented, will have the effect of making changes to the legal and beneficial ownership of land. The act of setting aside the transfer of the property in favour of Kenneth meant, initially, that the beneficial interest in the property reverted to that person or those persons who formerly enjoyed that interest. Based on historical data as recorded on the title, that would be the bankrupt and his first wife Rose, but as I have found that the bankrupt acquired Rose's beneficial interest in the property when he paid her out in accordance with the order of the Family Court, it means that by 22 February 1990, the bankrupt had became the sole beneficial owner of the property. It also means that his beneficial interest in that property became property divisible among his creditors upon the occasion of his subsequent bankruptcy. The next issue to determine is what effect this Court should give to the Family Court order.
2. Rose and Kenneth were not parties
29 Even though it has been submitted that the Family Court order was irregularly or improperly obtained (because Kenneth and Rose had not been made parties to the proceedings when the order was made) it is clear that the order of the court is to be obeyed until such time, if at all, as it is set aside: Isaacs v Robertson [1985] AC 97; Re Zagoridis; Ex parte Q'plas Group Pty Ltd (1990-1991) 98 ALR 718 at 726-727 per Spender J. In any event, even though Kenneth was not formally joined as a party to the proceedings, he was served with a copy of the relevant documents and he thereby had the opportunity of being heard and of protecting his interest. There is evidence that he was present in the Family Court on 26 July 1989 when the issue with respect to the setting aside of the transfer was the subject of argument.
30 In Re Baxter; Ex parte The Official Receiver v Baxter (1986) 10 FCR 398 Northrop J was called upon to consider what was the effect of an order of the Family Court in a bankruptcy matter. The facts in Baxter's case were as follows: the husband and wife entered into a terms contract with the Housing Commission in 1959 to purchase their matrimonial home. In 1971 the husband became bankrupt; in 1972 he left the matrimonial home and did not return. The wife and the children of the marriage continued to live in the home, the wife paying all moneys due under the terms contract as and when they became payable. As a result of the bankruptcy, the trustee claimed that the equity in the home was owned by the trustee and the wife as tenants in common in equal shares. In 1973 the trustee lodged a caveat in the Titles Office to protect the bankrupt estate's interest in the home. In 1978 the trustee served notice on the Housing Commission of the estate's interest and called on the Commission, upon completion of the terms contract, to transfer the home to the trustee and the wife as tenants in common in equal shares. Meanwhile the husband had been automatically discharged from his bankruptcy in 1976. In 1984, the wife made application to the Family Court for orders under the Family Law Act 1975 (Cth) with respect to the home. A copy of her application and supporting affidavits were served on the trustee but the trustee elected to take no part in the proceedings. The Family Court subsequently made a declaration that the wife was "the sole proprietor of the equity" in the former matrimonial home and ordered that the husband "forthwith transfer and assign to the wife all his estate and interest in the terms contract. As the whereabouts of the husband were unknown, the Registrar of the Family Court was appointed to execute all necessary documents.
31 The proceedings in the Federal Court in Baxter's case sought directions on the following questions:
* whether the interest of the husband in the house vested in the trustee as property of the husband's estate divisible amongst his creditors, notwithstanding the order of the Family Court; and
* whether the order of the Family Court had any effect on the interest of the trustee in the house.
32 Northrop J noted that there were authorities that supported the view that subsequent orders under matrimonial legislation do not affect the title of a trustee in bankruptcy once a property has vested in the trustee. However, and notwithstanding those authorities, his Honour declined to hear and determine the trustee's application. His Honour's view, with which I respectfully agree, was that the Federal Court must give full faith and credit to the orders of the Family Court. His Honour, in concluding that the Federal Court had no jurisdiction or power to set aside the order of the Family Court, said:
33 The facts in the present case are less dramatic than those in Baxter's case in that in the present case the order of the Family Court of 22 February 1990 setting aside the transfer in favour of Kenneth preceded the date of the Sequestration Order and the date of the commencement of the bankruptcy. Unlike Baxter's case, there is nothing to suggest, prima facie, that the order was beyond the power of the Family Court. In those circumstances, it seems to me to be inevitable that this court must give recognition to the Family Court order. That means that this Court must recognise that, with effect as from 27 February 1990, Kenneth ceased to have any legal estate or interest in the property. Whether he retained any beneficial interest in the property and whether he acquired any further beneficial interest in it as a consequence of the improvements that he made to the property since 1990 are different issues. The normal rule is that an order that directly affects a third person's rights against or liabilities to a party should not be made unless the person is also joined as a party: News Ltd v Australian Rugby Football League Ltd [1996] FCA 1256; (1996) 139 ALR 193 at 298; see also the remarks of McHugh J in Victoria v Sutton (1998) 82 ALJR 1386 at 1399-1400. But the application of that rule should have been invoked by Kenneth in Family Court proceedings.
"The relevant facts are simple. By order, the Family Court has made a declaration that the wife is the sole proprietor of the equity in the house. That order has not been set aside. The trustee is making an application to the Federal Court for orders which would be inconsistent with and contradictory to the order of the Family Court. The question is whether the Federal Court should refrain from hearing and determining the application of the trustee under the Bankruptcy Act while the Family Court order remains in existence. In my opinion it should.
The general rule is that once an order of a court has been entered, except by way of appeal, no court has power to review that order: generally see Halsbury's Laws of England, (4th ed), vol 26, par 556; see also Re K Piper (1960) SR (NSW) 328.
. . .
. . . If the Federal Court proceeded to hear and determine the application, of necessity, conflicting orders would be made. The Family Court order may not be binding upon the trustee, but until it is set aside, it is binding upon the wife. Any order of the Federal Court made in the application by the trustee would be binding upon the wife. That illustrates the practical results arising from conflicting judgments."
3. A Judgment in rem or in personam
34 The next question is whether the order of the Family Court of 22 February 1990 setting aside the instrument was one that was conclusive upon "world at large" as affecting status (a decision in rem) or was limited in its binding effect to those who were parties to the proceedings in which the order was made (a decision in personam): see McGovern v State of Victoria (1984) VR 570 at 575 per Crockett, Murphy and Marks JJ. The Full Court there quoted with approval the exposition of the relevant principles that appear in Spencer, Bower and Turner, Res Judicata, 2nd ed, p 229 where it is said that:
35 The comparable passage in the 3rd ed p 250 is substantially the same:
"Any English judicial decision which operates upon a thing (in the physical sense) by effecting a disposition of it, is said to determine the status of the thing, and such decision accordingly may be set up by, or against, any member of the English public, as conclusive in rem, whereas any decision which determines, not the disposition of the thing, but solely the personal rights, liabilities, equities, and interests of the parties inter se in relating to the thing, concludes those parties only, or their privies. It must be remembered, however, that, in order to establish that a decision operates in rem whether it be one which determines the status of a person, or that of a thing, all other conditions, of a valid estoppel per rem judicatam must be satisfied, no less that where the decision is inter partes."
"An English judicial decision which operates upon a thing by effecting a disposition of it determines its status and may be set up by, or against, any member of the English public, as conclusive in rem. To establish that a decision operates in rem and determines the status of a thing, all other conditions of a valid res judicata estoppel must be satisfied."36 In The Wik Peoples v Queensland [1994] FCA 967; (1994) 49 FCR 1, Drummond J stated that the test for determining whether a judgment given in litigation between particular parties operates as a judgment in rem is that stated in Castrique v Imrie (1870) LR 4 HL 414 at 429:
His Honour then continued:
"We think the inquiry is, first, whether the subject matter was so situated as to be within the lawful control of the state under the authority of which the Court sits; and, secondly, whether the sovereign authority of that State has conferred on the Court jurisdiction to decide as to the disposition of the thing, and the Court has acted within its jurisdiction. If these conditions are fulfilled, the adjudication is conclusive against all the world."
"This test is formulated in a way which identifies judgments in rem in relation to things, although certain judgments do operate in rem in relation to persons. But, so far as things are concerned, there are four characteristics which a judgment must possess if it is to operate in rem in relation to the thing in question:37 By applying these principles to the facts in the present case, I am left in no doubt. The power of the Family Court under s 85 of the Family Law Act is not just limited to the setting aside of the instrument; it extends, by necessary implication, to orders enforcing the Registrar General of Deeds to give effect to the "setting aside": see subs 85(2); and it expressly acknowledges the existence of and makes provision for the protection of the rights of a bona fide purchaser. I have therefore concluded that the order of the Family Court of 22 February 1990 has the effect of a judgment in rem.
(1) First, the location of the thing the subject of the judgment must be within the control of the State under whose authority the Court sits. If the thing is land, the land must be located within the territory of that State.
(2) Secondly, the judgment must be a decision as to the status or disposition of the thing. What this involves is explained in Halsbury's Laws of England (4th ed), vol 16 where it is said, in par 969, that, to be a judgment in rem in relation to a thing, the judgment: "must affect the `res' in the way of condemnation, forfeiture, declaration of status or title, or order for sale or transfer", In McGovern v Victoria [1984] VR 570 it was said at 576:
"... A judicial decision which creates title to or affects property in a thing in possession is a decision that determines the status of that thing and, to that extend, is conclusive in rem."
(3) Thirdly, the judgment must purport to be given in the exercise of a jurisdiction to determine the status or disposition of the property in question conferred on the Court by the authority of the State. Typically, this element will be found to exist in the fact that a statute confers jurisdiction on a court or tribunal for the specific purpose of determining the status or disposition of property of the kind in question in the proceedings. See, eg. Wakefield Corporation v Cooke [1904] AC 31 and Armstrong v Whitfield [1974] QB 16.
(4) Fourthly, the Court must have acted within that jurisdiction in giving the judgment."
4. The Family Court's Order of 9 July 1991
38 I fail to see how the making of this order could be construed as having any effect on the Court's earlier order of 22 February 1990; the order of 22 February 1990 was not expressed in terms that made its execution conditional upon the bankrupt failing to pay the Anne the money that was due to her. On the contrary it was absolute in its terms. I reject the submission that the order of the Family Court of 9 July 1991 affected that Court's earlier order of 22 February 1990.
39 As a result of the conclusions that I have reached, it seems to me that this is a case where declaratory relief is appropriate. The determination of the question was specific and practical; it was neither hypothetical nor academic: R v British Coal Corporation; Ex parte Price (No 3) (1993) TLR 298; Oil Basins Ltd v Commonwealth [1993] HCA 60; (1993) 67 ALJR 955. Subject to the remarks that follow, I intimate that I would be prepared to make a declaration and an order in the following terms:
1. A declaration that the Official Trustee in Bankruptcy is entitled to become the registered proprietor of the land and improvements contained in folio identifier 821/2475 (formerly Volume 1035 Folio 178) being the land and improvements situated at and known as 821 Eleventh Avenue, Austral in the State of New South Wales (hereinafter called "the property")
2. An order that the property vest in the Official Trustee in Bankruptcy subject to mortgage Z801053
40 I would also be prepared to make such further or consequential orders as may be necessary to implement and compliment the proposed declaration and order that I have set out above.
41 The matter that has caused me the most concern is that there is evidence that shows that Kenneth has substantially added to the value of the property; how can he be protected? The evidence suggested that the trustee does not need the whole of the proceeds of the sale to pay out secured and unsecured creditors. On the date of hearing, 24 August 1998, counsel for the trustee tendered without objection a calculation of the amount required by the trustee to pay creditors 100 cents in the dollar. The estimate was $86,806.32, although that amount would now be greater because of (among other things) the costs incurred by the trustee in this litigation. Nevertheless, everything points to there being a surplus in the bankrupt estate which would go to the bankrupt. That would not be fair. As between the bankrupt and Kenneth, the bankrupt had elected to transfer his legal and beneficial interest in the property to Kenneth when he executed the transfer in Kenneth's favour on 2 February 1989. This Court has not made a finding that Rose's signature on that transfer was a forgery. In fact, this Court does not know why the Family Court ordered that the transfer be set aside. The justice of the matter seems, therefore, to call out for the intervention of the Court to afford a measure of protection to Kenneth. Although Kenneth has had legal representation in this matter, he has not filed a notice of opposition to the declaration and orders sought by the trustee, nor has he filed any cross-claim in support of his rights and interests in the property. However, I do not intend to see Kenneth's position harmed by any procedural defect. But having said that, I must, nevertheless, base my decision only on the evidence that has been put before the Court. The measure of protection that the Court offers may not be sufficient to satisfy Kenneth but if that be the case, it is his fault because of his failure to adduce evidence to satisfy the Court that he should have a greater entitlement.
42 It remains to consider the interests of the bankrupt. It might have been that he wished to dispute a proposed order that all surplus moneys be paid to Kenneth. Such rights as he may have should not be overlooked. Normally I would have ordered the trustee to serve a copy of these reasons on the bankrupt so that he would have had the opportunity to apply to the Court to be heard with respect to the proposed orders of the Court. However the bankrupt gave evidence during the course of the hearing and this issue was put to him. He disclaimed any interest in the surplus proceeds that might arise as a consequence of any sale of the property. He said:
43 Subject to a qualification that I will shortly mention, I would be prepared to order that the trustee, after paying out all secured and unsecured creditors and all costs and expenses of the administration (including the litigation), is to hold the balance then remaining on trust for, and to pay the same to Kenneth. The qualification is that it may be that Kenneth, having become aware of my reasons and the nature and effect of the proposed declaration and orders, may prefer to pay the trustee a sum sufficient to pay out all claims, expenses and costs in return for the trustee withdrawing the present claims against Kenneth. If that be Kenneth's wish, and if it be possible to implement it in the not too distant future, the Court would be prepared to make accommodating orders. For that reason I will delay formal entry of any orders for the time being to enable the parties to consider the position.
"Your Honour, anything that's in that property belongs to my son. I'm not entitled to anything. I've been paid. I've paid out all the people I was married to, unfortunately I had to and then that's it. I shouldn't be given anything that I'm not entitled to have and that's basically it, your Honour.")
44 The order of the Court is that this matter stand adjourned for further consideration with liberty to any party to apply to have the matter relisted for the entry of formal orders on seven days notice.
45 The applicant also sought a direction in these terms:
"A direction pursuant to Section 138 of the Real Property Act, 1990 that upon lodgment of a copy of this order and upon payment of the prescribed fees, to the Registrar General, he record the plaintiff as the registered proprietor of the property without the production to him of the duplicate of the Certificate of Title and issue a new Certificate of title in the name of the plaintiff."46 Neither the Registrar General nor the present mortgagee are parties to these proceedings. The idea of issuing a new certificate of title without giving those parties an opportunity to be heard does not appeal to me. I would think that the more appropriate course is for the applicant to serve a copy of these reasons on the Registrar General and on the mortgagee inviting the mortgagee to produce the copy of the title that it holds for a purpose of enabling the trustee to register this order and a transmission in the Titles Office. If however, the mortgagee or the Registrar General has any objections to this course of action they can approach the Court for directions. For that purpose there will be liberty to the parties, including interested third parties to apply on seven days notice. There will be an order that the applicant's costs be paid out of the estate of the bankrupt.
|
I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable
Justice O'Loughlin. |
Associate:
Dated: 24 February 1999
|
Counsel for the Applicant: | Mr J T Johnson |
| Solicitors for the Applicant: | Sally Nash & Co. |
| Counsel for Kenneth Edwin Turner,
the first respondent: |
Mr R Tregenza |
| Solicitors for Kenneth Edwin Turner,
the first respondent: | Doherty Partners
by their city agents Gordon & Johnstone |
| Rose Josephine Turner
the second respondent filed a submitting appearance | |
| Date of Hearing: | 24 August 1998 |
| Date of Judgment: | 24 February 1999 |
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