The Official Trustee in Bankruptcy v D'Jamirze and Ors. [1999] NSWSC 1249 (17 December 1999)

Last Updated: 20 December 1999

NEW SOUTH WALES SUPREME COURT

CITATION: The Official Trustee in Bankruptcy v. D'Jamirze & Ors. [1999] NSWSC 1249

CURRENT JURISDICTION: Equity

FILE NUMBER(S): 3593/97

HEARING DATE{S): 22, 23, 24 September and 25 November 1999

JUDGMENT DATE: 17/12/1999

PARTIES:

The Official Trustee in Bankruptcy - Plaintiff

Valentia D'Jamirze and ten others - Defendants

JUDGMENT OF: Hodgson CJinEq

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

Mr. J. Johnson for Plaintiff

Mr. C. Moore for Defendants

SOLICITORS:

Gordon & Johnstone, Sydney for Plaintiff

The Law Partnership, Sydney for Defendants

CATCHWORDS:

Taxes and dutes - Stamp duties - Mortgage executed but not stamped until hearing - Mortgagor becomes bankrupt - Whether Official Trustee's title subject to mortgage.

ACTS CITED:

Stamp Duties Act 1920 (NSW) s.29

DECISION:

See par.68-71 of judgment

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

CORAM: HODGSON, CJ in Eq.

Friday 17th December 1999

NO. 3593 OF 1997

THE OFFICIAL TRUSTEE IN BANKRUPTCY V. D'JAMIRZE & ORS.

JUDGMENT

1 The properties 7 Metella Road, Toongabbie (Folio Identifier 18/L/10697) and 9 Metella Road, Toongabbie (Folio Identifier 17/L/10697) are registered as owned by Valentina D'Jamirze, Alick D'Jamirze, Vladimir D'Jamirze, Zifira D'Jamirze, Yuri D'Jamirze, Victor D'Jamirze, Mickhail D'Jamirze, Zarema D'Jamirze, Nickolai D'Jamirze, Medeya D'Jamirze and Alexandre D'Jamirze as joint tenants. For convenience, I will refer to these persons by their Christian names.

2 Valentina, who was the mother of all the other joint tenants (who are accordingly brothers and sisters) died prior to 14th August 1997. Alick, Vladimir, Yuri, Victor and Nickolai became bankrupt prior to 14th August 1997.

3 In these proceedings, commenced on 14th August 1997, the plaintiff The Official Trustee in Bankruptcy seeks an order against the bankrupts that he be registered in their place on the title to the properties, and against all joint tenants that trustees for sale be appointed.

4 Alexandre Fedotov, the husband of Zifira, claims that the bankrupts, and also Michael and Alexandre, mortgaged their interests in the properties to him prior to the occurrence of the bankruptcies. He has been joined as a defendant in the proceedings, and he has applied to put on a cross-claim seeking a declaration of his interest and consequential relief.

OUTLINE OF FACTS

5 I will commence by outlining facts which are either clearly proved or not in dispute.

6 In 1989, members of the D'Jamirze family incorporated a number of companies: D'Jamirze Family Enterprises Pty. Limited, Razvitie FSP Pty. Limited, and Antonov Airlines (Cargo Services) Pty. Limited. The business of the second of these was stated to be aircraft maintenance, and that of the third was stated to be air transport (cargo and services).

7 No.7 Metella Road was acquired by the joint tenants in about July 1990 for $312,000.00, and No.9 Metella Road was acquired by them in about May 1991 for $190,000.00.

8 In about July 1991, it appears that the joint tenants executed a Deed relating to No.7 Metella Road. The operative parts of the Deed were in the following terms:

A. The parties to this Deed entered into an agreement dated 27 July 1990 as Purchasers to purchase the property situate at 7 Metella Road, Toongabbie in the State of New South Wales being the land more particularly described in Folio Identifier 18/L/10697 ("the Property") from Vince Sgro as Vendor ("the Agreement").

B. On 31 August 1990 the parties to this Deed completed the Agreement ("the Completion Date") and became the registered proprietors of the Property as Joint Tenants (hereafter referred to collectively as "the Registered Proprietors").

NOW THIS DEED WITNESSETH as follows:

1. The Registered Proprietors shall hold a meeting with all Registered Proprietors present within 12 months of the anniversary of the Completion Date and thereafter on or by the anniversary of the Completion Date in subsequent years ("the Meeting").

2. The Meeting shall be held to review whether the Property is to be sold. If a majority of the Registered Proprietors present at the Meeting require the Property to be sold, the Property is to be placed on the market within three (3) months from the date of the Meeting after first obtaining a valuation from 2 licensed real estate agents, which licensed real estate agents are to be agreed upon by a majority of the Registered Proprietors, with the costs of the valuations to be borne equally by the Registered Proprietors and a decision made by at least a majority of the Registered Proprietors to nominate within twenty-one (21) days of receipt of the second valuation one of the two licensed real estate agents as the real estate agent to sell the Property.

3. If a Registered Proprietor is sued or Registered Proprietors are sued the Registered Proprietor or Registered Proprietors shall immediately inform the remaining Registered Proprietors of the dispute and if in the opinion of the remaining Registered Proprietors they determine the dispute will or may affect the interest of the Registered Proprietors in the Property, the Registered Proprietor or Registered Proprietors shall immediately transfer his, her or their interest in the Property to the remaining Registered Proprietors at his, her or their expense.

4. Notwithstanding the provisions of Clause 1 hereof, the Registered Proprietors agree that if any one of them wishes to sell their interest in the Property the Registered Proprietor shall offer his or her share in writing to all remaining or surviving Registered Proprietors, and the Registered Proprietor or Registered Proprietors prepared to offer the highest amount for the share or interest in the Property shall be the Purchaser of it.

5. No Registered Proprietor shall offer his or her share or interest in the Property to any person who is not a party to this Deed.

6. The provisions of this Deed may be varied only by the mutual agreement of the remaining Registered Proprietors of the Property at the time of variation of this Deed.

9 There is in evidence a document in Russian purporting to be an agreement made in Moscow on 3rd September 1991 between seven of the registered proprietors and Mr. Fedotov. In English, the document reads as follows:

Present agreement is made between citizen Alexander FEDOTOV and citizens (Alexander, Yuriy, Alik, Victor, Mikhail, Nikolay, Vladimir) D'JAMIRZE.

Citizens D'JAMIRZE give their part of interest in real estate and land property (7 and 9 Metalla (sic) Road, Toongaby (sic), Sydney, NSW, Australia) to citizen Alexander FEDOTOV in exchange for the amount of 700 thousand (seven hundred thousand) US Dollars (its equivalent in Roubles).

Alexander D'jamirze (signature) Alexander Fedotov

(signature)

Yuriy D'jamirze (signature) (signature)

Alik D'jamirze (signature)

Victor D'jamirze (signature)

Mikhail D'jamirze (signature)

Nikolay D'jamirze (signature)

Vladimir D'jamirze (signature)

I will refer later to evidence concerning the circumstances of the making of this document.

10 There is also in evidence another document in Russian purporting to be a receipt dated 12th September 1991. In English, this document reads as follows:

Present receipt is issued to citizen Alexander Fedotov certifying that he handed over an amount of 700 thousand (seven hundred thousand) US Dollars in its equivalent in Roubles, at a rate of 1 to 50. The amount is handed over on behalf of citizens D'jamirze (Alexander, Yuriy, Alik, Victor, Mikhail, Nikolay, Vladimir).

In its turn, "Razvitie" firm commits itself to pay the above mentioned amount to the Military Air Forces of Russia on behalf of the directors of "Anatov Airlines" firm citizens D'jamirze (Alexander, Yuriy, Alik, Victor, Mikhail, Nikolay, Vladimir). Present amount of money is paid for exploiting aircraft.

12.09.91

O. Karpov (signature)

Commercial Director of FSP "Razvitie"

11 The receipt document was not admitted as evidence of the truth of its contents, but merely to show that Mr. Fedotov did obtain a document purporting to be a receipt in respect of his alleged payment of money.

12 There is also in evidence a letter dated 6th July 1992 to Vladimir from Robin Hunt, a solicitor who was then acting for members of the D'Jamirze family. The body of this letter was as follows:

As discussed earlier today with Victor, we have forwarded a letter to Esanda concerning your loan application. A copy of this letter is attached for your information.

13 There was attached to this letter a letter of the same date address to Esanda, in the following terms:

Our firm has for approximately five years acted for Mr. Victor D'Jamirze, Mr. Vladimir D'Jamirze and various other members of the D'Jamirze family.

D'Jamirze Family Enterprises Pty. Limited and the Anotov Airlines Company both have their registered offices at our premises. We have taken instructions in connection with various commercial enterprises for the Companies and other matters.

We hereby certify that the abovenamed persons have considerable assets including unemcumbered (sic) real estate at Toongabbie and that their family companies are going concerns.

14 The copies of these letters were produced from the solicitor's files: neither Vladimir nor Victor acknowledged receipt or knowledge of these letters.

15 On 11th March 1993, Mr. Fedotov migrated to Australia. Evidence was given that shortly afterwards he was given the certificates of title to the subject properties.

16 There is in evidence a facsimile dated 27th January 1994 addressed to Victor from Robin Hunt, the last paragraph of which reads as follows:

So far as the certificates of title for 7 and 9 Metella Road, Toongabbie are concerned, as already discussed with you on an earlier occasion, Nick Lazaris collected the deeds from us on 26 March 1992 and signed a receipt at that time. The deeds were handed to him in response to the telephone request to our accounts department made by Vladimir.

17 It appears that the bankrupts became so as follows:

· Alick, by sequestration order dated 14th April 1994, on act of bankruptcy dated 16th July 1993.

· Vladimir, by sequestration order dated 8th September 1994, on act of bankruptcy dated 1st February 1994.

· Yuri, by sequestration order dated 8th December 1991, on act of bankruptcy dated 12th July 1991.

· Victor, by sequestration order dated 1st November 1994, on act of bankruptcy dated 21st January 1994.

· Nickolai, by sequestration order dated 1st November 1994, on act of bankruptcy dated 21st January 1994.

18 The Statements of Affairs of the bankrupts (filed respectively on 19th September 1994, 11th November 1994, 21st December 1994, 16th December 1994, and 12th January 1995, made no reference either to the respective bankrupts' interest in the subject properties or to any secured (or any) debt to Mr. Fedotov.

ISSUES

19 It was not disputed that, subject to such interest if any as Mr. Fedotov acquired, The Official Trustee became entitled to the interests of the bankrupts in the properties, such title relating back to the relevant act of bankruptcy: see Bankruptcy Act 1966 s.58(5), Sonenco (No.77) Pty. Ltd. v. Silva [1989] FCA 462; (1989) 24 FCR 105 at 112. All the real issues in the case concerned Mr. Fedotov's claim.

20 There were substantial factual issues in this case concerning the circumstances of the alleged agreement and the alleged deposit of title deeds. These involved questions of credit.

21 There was no real dispute as to the legal effect of the agreement, if made; but the agreement was not stamped until the hearing of the proceedings, and there was an issue whether that stamping could have the effect of retrospectively taking the property out of the ownership of The Official Trustee.

22 Next, assuming the agreement was made and that the stamping was effective to displace the title of The Official Trustee, there was a question whether the agreement could affect the interest of Yuri, whose bankruptcy was based on an act of bankruptcy committed before the date of the agreement. That gave rise particularly to a question concerning the ordinary course of business.

23 Finally, there was the question whether the deposit of title deeds itself gave rise to an equitable charge which could prevail over the title of The Official Trustee.

FACTUAL ISSUES

Evidence

24 I will briefly outline significant evidence given in the case. Vladimir gave evidence that in 1989 an entity known as "Razvitie Russia", associated with the D'Jamirze companies, entered into a joint venture with the USSR Air Force to lease four aeroplanes to carry cargo around the world, particularly livestock and heavy machinery. The name Antonov Airlines was used. This entity operated for about two years. Its planes were maintained at an Air Force Base near Moscow. It paid a licence fee to the USSR Air Force. According to Vladimir, he was responsible for negotiating contractual and financial arrangements for this entity.

25 Vladimir also gave evidence that between 1985 and 1989, the D'Jamirze family kept a permanent suite of rooms at the Hotel Rossiy in Moscow. (It may be that this continued through until 1991). Vladimir says he was introduced to Mr. Fedotov by the security chief of the hotel.

26 Vladimir gave evidence that in 1991, Rasvitie Russia was experiencing cash flow difficulties, and need to pay about $US700,000.00 to the USSR Air Force for licence fees. In a conversation with Mr. Fedotov, Mr. Fedotov had said that he had money in a bank, was concerned about losing it, and was looking for a suitable business investment. According to Vladimir, he told Mr. Fedotov about the $US700,000.00 arrears of licence fees, and discussed a loan of that amount, also saying words to the effect: "If you are worried about the security of Russian banks, we can offer you security over our home in Australia". According to Vladimir, shortly afterwards Mr. Fedotov said to him that he had discussed the matter with his brother and decided to proceed.

27 According to Vladimir, the document was prepared, signatures from his brothers were obtained, he and Mr. Fedotov put on the final signatures, $US700,000.00 in roubles was collected in cash from Mr. Fedotov's bank, placed in two large suitcases, and couriered to the Soviet Air Force.

28 Vladimir also gave evidence that, shortly after Mr. Fedotov came to Australia, he gave him the certificates of title. Evidence was given on the voir dire concerning authorisation from other members of the family, but this was never admitted into evidence in the case. According to Vladimir, the title deeds thereafter remained in the house, at some stage in a filing cabinet, another stage in a drawer, and at another stage in a safe.

29 Victor gave evidence that he was the chairman of Razvitie Russia, and responsible for its day to day operations. There is in evidence an advertisement placed in the Australian Financial Review for Antonov Airlines, showing Victor as the chairman. Victor gave evidence that he was in Moscow in September 1991, a time of great upheaval in Moscow. He gave evidence of conversations with Vladimir concerning the transaction and concerning the signing of the document. He believes that he signed the document in Moscow.

30 Victor, Alexandre, Nickolai and Alick gave evidence of similar conversations with Vladimir, and that they signed the document. However, their evidence was unclear as to whether the document was signed in Moscow, or in Australia, or possibly in an aircraft. The passports of the brothers were subpoenaed, but only those of Vladimir, Alexandre and Nickolai are in evidence. It is fair to say that the passports of Vladimir and Alexandre tend to support the view that they were in Moscow in September 1991. Nickolai's passport indicates an arrival in Australia on 15th July 1991, and a departure from Australia on 5th October in a year which would appear to be 1991. One further particular piece of evidence that I note is that Alick gave evidence to the effect that the transaction was discussed many times in many different places.

31 Mikhail gave evidence that his signature was on the document, but he could not recall any circumstances. He could not recall whether he left Australia in 1991.

32 Mr. Fedotov gave evidence that he first met members of the D'Jamirze family in about mid-1991. However, in his oral evidence, he said that he was aware that Vladimir and Victor were in Moscow in September 1991, but not whether the other brothers were. In his affidavit, Mr. Fedotov said that at his initial meeting, he arranged with Vladimir to meet later, and they did so at the offices of Razvitie in a suburb of Moscow. At this meeting, Vladimir told him that they need $US700,000.00, and offered two houses and land in Sydney, Australia for security. According to Mr. Fedotov, after some discussion, he agreed.

33 According to Mr. Fedotov's affidavit, this conversation took place on a Friday. On the Monday, he withdrew roubles equivalent to $US700,000.00 from his bank in cash, and it was placed in a bag. In oral evidence, he said the application to withdraw was made on a Monday, the actual withdrawal on the Tuesday, and the money placed in two bags. He said that in return for the money he obtained the document, which contained all the signatures except Vladimir's and his own, and they both then signed the document.

34 Mr. Fedotov then gave evidence that shortly after arrival in Australia, Vladimir handed him the title deeds, and they were kept in a filing cabinet after that time. He also gave evidence that he went to Russia in 1998 to find documents relating to the transaction, but that the relevant bank had closed.

35 It should be recorded that Mr. Fedotov's affidavit was drafted by the solicitor for all defendants, including Mr. Fedotov, Mr. Spedding, on instructions Mr. Spedding obtained from Vladimir. The draft was sent out to Mr. Fedotov. After the draft had been sent out, Vladimir telephoned Mr. Spedding to say it was in order. Mr. Fedotov came to Mr. Spedding with Victor, who translated the document into Russian for Mr. Fedotov who then executed it.

Submissions

36 Both sides have provided written outlines of submissions, and I will not record them in detail. I will outline matters which strike me as being of significance.

37 Mr. Johnson for the plaintiff pointed out that there was no evidence from any of the D'Jamirze sisters, and made a Jones v. Dunkel submission.

38 In relation to Mr. Fedotov, he submitted that the circumstances of the making of the affidavit, his lack of understanding of what the proceedings were about, and his denial of any discussions of his evidence shortly before the hearing, supported the view that his evidence was prompted by Vladimir and Victor and was of little weight.

39 Mr. Johnson submitted that the Statements of Affairs and the solicitors' letters were not satisfactorily explained by the D'Jamirze brothers, and meant that little weight could be given to their evidence.

40 He submitted that the conversations leading up to the alleged agreement were unsatisfactorily vague, particularly in relation to matters such as interest and the term of the loan. He pointed to the lack of clarity in the evidence as to when the document was signed, particularly by the brothers apart from Vladimir. He pointed to conflicts in the evidence concerning the circumstances of the agreement and the collection of the money. He submitted that the alleged agreement would be a breach of the Deed of about July 1991.

41 He submitted that the agreement was a sham, and referred me to Sharrment Pty. Limited v. Official Trustee in Bankruptcy (1998) 18 FCR 449 at 453-8.

42 In relation to the deposit of title deeds, he submitted that the evidence was insufficient to find an intention to give security or authorisation by persons other than Vladimir.

43 For the defendant, Mr. Moore submitted that it had not been put to the witnesses that the agreement was a sham, nor had alternative versions of the events been put to the witnesses. It was very unlikely that the agreement had been fraudulently concocted. Mr. Fedotov's evidence should be accepted: his recollection was more concrete than those of Vladimir or Victor. Even if all the brothers were not in Moscow at the relevant time, there had been time to send the document to Australia to have them sign it before the transaction was completed.

44 So far as the Statements of Affairs were concerned, they were not completed with great care and attention, and are not evidence against Mr. Fedotov. As regards the solicitors' letters, the D'Jamirze brothers did not indicate any appreciation of what "unencumbered" meant, and it is unlikely that they gave any thought to the Fedotov mortgage and its effect.

Decision

45 As regards credit, I find I can give little weight to the evidence of the bankrupt D'Jamirze brothers. They all acted irresponsibly in completing their bankruptcy statements. I considered that Vladimir and Victor gave evasive evidence in relation to the solicitors' letters. These problems with the evidence of the D'Jamirze brothers do not count positively against Mr. Fedotov's case, but tend to remove some of the support which their evidence might otherwise give to his case.

46 As regards Mr. Fedotov, there is force in the criticism that has been made of Mr. Fedotov concerning the preparation of the affidavit, and Mr. Fedotov as well as his brothers-in-law, has a very strong interest in the matter. For reasons I will give, I consider it highly unlikely that all the brothers had signed the document by 3rd September 1991, so that I find Mr. Fedotov's evidence that all signatures were on the document when he signed it to be evidence that I cannot accept. However, otherwise I considered his evidence quite circumstantial, and I am inclined to accept the broad substance of that evidence, if not the details.

47 Coming to the circumstances of the Moscow transaction, I accept that the D'Jamirze brothers were involved in running a substantial airline, and incurred a substantial debt to the USSR Air Force, and required a large sum of money to pay it. I accept that Vladimir was in Moscow at the relevant time, and also Victor, having regard to his recollection of the events of that time and to the circumstance that Mr. Fedotov says that he met him at around the time. I think it is probable that Alexandre was in Moscow at the relevant time, having regard to his passport.

48 As regards the others, I am very doubtful that they were in Moscow at the time. Nickolai's passport suggests that he was in Australia, although I cannot entirely rule out the possibility that he travelled as crew on an airline and did not have his passport stamped. Mickhail has been ill for some time, and it seems extremely unlikely that he was in Moscow during the turbulent events of August and September 1991. As far as Alick and Yuri are concerned, there is no particular reason to think they were in Moscow, apart from the evidence of Vladimir and Mr. Fedotov that their signatures were on the document by the time that they signed the document; and Alick's evidence of many discussions about the transaction seems improbable.

49 The written document itself carries some weight. I am not inclined to think that it was fraudulently prepared later. The receipt does not carry any weight by reason of its terms, because it was admitted only as a receipt document obtained by Mr. Fedotov. Having regard to the turbulent events then occurring in Moscow, I do not find it implausible that Mr. Fedotov may have invested $US700,000.00 in this way without enquiry as to the value or title to the Australian properties, or clear agreement about interest or repayment.

50 I do not think the alleged agreement would be a breach of the July 1991 deed, which relates to sale of interests; but in any event, I do not think this would significantly affect the probabilities of what happened, or Mr. Fedotov's rights. I am inclined to accept that Vladimir and Victor signed the document at the time. As I have said, I am inclined to accept the broad substance of Mr. Fedotov's evidence. However, I am strongly of the view that Mickhail had not signed the document by 3rd September: in my opinion it is unlikely in the extreme that the document was prepared on the Friday, sent by plane to Australia over the weekend, and came back available for the completion of the transaction on Tuesday. I am inclined to think that Nickolai, Alick and Yuri did not sign it at the time. I have no strong view as to whether Alexandre signed it at the time. I am unable therefore to accept Mr. Fedotov's evidence as to what signatures were on the document when he signed it.

51 In those circumstances, I find on the balance of probabilities that Mr. Fedotov did advance $US700,000.00 in roubles to enable Razvitie Russia to pay money it owed to the USSR Air Force, and that Vladimir and Victor signed the document in exchange for that advance. However, I am not affirmatively satisfied as to the time when Alick, Yuri or Nickolai signed the document, nor am I satisfied that, at any time prior to signing the document, they became bound by a specifically enforceable agreement to sign such a document. In those circumstances, I find that, subject to other matters to which I will come, the interests of Vladimir and Victor were charged by reason of the transaction, but I am unable to find that the interests of the other three bankrupts were charged at any time before they became bankrupt.

52 I do not believe the deposit of title deeds can take the matter any further. I accept again the broad substance of Mr. Fedotov's evidence, but I am not satisfied by that evidence as to the time of delivery, in particular whether it occurred prior to 1st February 1994, the date of the last relevant act of bankruptcy. There is no evidence of authority, so that it seems to me that at best, the deposit could affect the interest only of Vladimir.

STAMP DUTY

53 The transaction in this case occurred prior to 1st July 1998, so that it is subject to the Stamp Duties Act 1920 (NSW): see Duties Act 1997 (NSW) Schedule 1 par.3, Schedule 2 par.2.2. Section 29 of the Stamp Duties Act 1920 provides as follows:

29(1) Except as aforesaid, no instrument executed in New South Wales or relating (wheresoever executed) to any property situate or to any matter or thing done or to be done in any part of New South Wales, shall, except in criminal proceedings, be pleaded or given in evidence, or admitted to be good, useful, or available in law or equity for any purpose whatsoever, unless it is duly stamped in accordance with the law in force at the time when it was first executed: Provided that any instrument chargeable with duty before the appointed day shall be deemed to be duly stamped in accordance with the law in force at the time when it was first executed, notwithstanding that the duty chargeable on such instrument is denoted in terms of the currency provided for by Part II of the Currency Act 1965 of the Parliament of the Commonwealth of Australia or any Act passed in amendment of or substitution for the same.

(2) Subsection (1) of this section applies to and in respect of an unexecuted copy of an instrument referred to in that subsection (being an instrument that was first executed on or after 20th October 1982) in the same way as it applies to the instrument unless:

(a) the court is satisfied that the instrument of which it is a copy is duly stamped; or

(b) the copy is duly stamped in accordance with section 73D.

(3) No instrument made or executed (whether in New South Wales or elsewhere) on or after 21 November 1986 in respect of a transaction to which Division 3A of Part 3 applies, shall, except in criminal proceedings, be pleaded or given in evidence, or admitted to be good, useful, or available in law or equity for the purpose of proving that a change in beneficial ownership to which the transaction relates occurred, unless:

(a) an instrument to effect that transaction has been sufficiently stamped; or

(b) any statement required to be lodged under section 44A in respect of the transaction has been lodged and the duty and any fine with which the statement is chargeable have been paid.

(4) Sections 27 and 28 and this section do not apply to an instrument or a copy of an instrument tendered as evidence on behalf of a party (not being a person who is primarily liable to duty in respect of the instrument) if the court is satisfied:

(a) that the party has informed, or will in accordance with arrangements approved by the court inform, the Chief Commissioner of the name of the person primarily liable to duty in respect of the instrument; and

(b) that the party will, in accordance with arrangements approved by the court, lodge the instrument or a copy of the instrument with the Chief Commissioner.

54 It was submitted by Mr. Johnson that, prior to stamping, the document of 3rd September 1991 had no effect in law or equity to confer any title on Mr. Fedotov: see Ash Street Properties Pty. Ltd. v. Pollnow (1987) 9 NSWLR 80. Accordingly, prior to stamping, by operation of Commonwealth legislation (Bankruptcy Act 1996), the beneficial interests of the bankrupt defendants vested in The Official Trustee, and subsequent stamping was not effective to divest or otherwise affect The Official Trustee's title under that legislation.

55 This submission has some apparent support from statements in various judgments suggesting that, until an instrument is stamped, it has no legal effect: see Dent v. Moore [1919] HCA 11; (1919) 26 CLR 316, Eagle Star Trustees Ltd. v. Taiping Trading Pty. Limited SCNSW, Powell, J., 3/12/90; Australian Property & Management Pty. Ltd. v. Devefi Pty. Limited SCNSW, Young, J., 7/4/97; Ash Street Properties per Mahoney, JA at p.82.

56 However, all those cases dealt with instruments that had not been stamped at any time, and they did not need to address the particular question of the effect of late stamping. That question was specifically addressed and authoritatively determined in Shepherd v. Felt & Textiles of Australia Pty. Limited [1931] HCA 21; (1931) 45 CLR 359, to the effect that once an instrument is stamped, it is as efficacious as from execution as if it had never fallen within the operation of s.29 of the Stamp Duties Act.

57 The leading judgment on this point is that of Dixon, J, with whom Starke and McTiernan JJ agreed. Dealing with an argument that, at the time of the breach alleged in that case, the relevant agreement was unstamped and therefore inefficacious, Dixon, J said this (at pp.382-3):

There remains the contention that, conceding the application of sec.27 to an instrument bearing a sufficient but uncancelled stamp, and conceding the payment of the correct amount of "the unpaid duty and the fine payable by law", nevertheless the document was not efficacious at the time of the alleged breach, which therefore could not be wrongful. This argument depends upon sec.29 of the Stamp Duties Act, the material words of which are: "Except as aforesaid, no instrument ... shall ... be pleaded or given in evidence, or admitted to be good, useful, or available in law or in equity for any purpose whatsoever, unless it is duly stamped in accordance with the law in force at the time when it was first executed". The words "except as aforesaid" qualify the whole section, and it is evidence that whatever is comprised within them is not vitiated by its provisions. The words refer to the preceding sections, including sec.25, which allows instruments to be stamped after execution and upon payment of a fine if more than a month has elapsed, and sec.27, which authorizes the reception in evidence of an instrument although there is some omission or insufficiency of the stamp thereon, if the amount of the unpaid duty and the fine payable by law is paid to the officer of the Court. Further, the condition expressed in the section upon which the usefulness of the instrument is made to depend is not introduced by the word "until" but by the word "unless". It is not to be pleaded or given in evidence or admitted to be good, useful or available unless it is duly stamped. The expressions "pleaded", "given in evidence", and "admitted" refer to the use or the recognition of the document or of its operation in judicial proceedings or otherwise, and, I think, would naturally be understood as intending that when by due stamping it had become pleadable, receivable in evidence and admissible as good, useful and available, then its validity and operation as from the beginning were to be construed as unaffected by the enactment.

The judgments of Rich and Evatt JJ were to somewhat similar effect.

58 Plainly, this means that an unstamped instrument is not of absolutely no effect until stamped: the use of the word "until" in some of the cases noted earlier is obiter, and contrary to the ratio of Shepherd. Until stamped, an instrument has whatever effect is consistent with the proposition that, if stamped, it will be fully effective ab initio. To put this another way, Shepherd must mean that an instrument is effective from the start conditionally upon being stamped before relied on in court, or alternatively, from the start carries the potentiality of being so effective.

59 This approach is confirmed by the express disapproval in Shepherd of the case of Wagga Finance Co. v. Lever (1929) 30 SR(NSW) 76. In that case, it had been held that the tort of detinue was not committed by a refusal of a demand for goods made by a person whose title depended on an unstamped instrument. The disapproval of that case must mean that it was decided in Shepherd that the unstamped instrument was, at the time of the demand, sufficient to make refusal of the demand detinue, provided that the instrument was stamped before being relied on in court.

60 This general approach is also confirmed by In Re Delny Fodders (1973) 4 SASR 538; Commercial Banking Co. of Sydney Limited v. Love [1975] HCA 48; (1975) 133 CLR 459; and Re Douglas; Ex Part Starkey (1987) 75 ALR 97. In the last case, a bill of sale had been executed in August 1986, and stamped in December 1986. The assignor executed a Deed of Assignment under the Bankruptcy Act in March 1987. The trustee sought to set aside the bill of sale as a preference given within six months before the execution of the Deed of Assignment, pursuant to s.122 of the Bankruptcy Act 1966. Pincus, J held that, once stamped, the bill of sale was effective from August 1986, more than six months before execution of the deed of assignment.

61 In my opinion, it follows that, when Vladimir and Victor became bankrupt, their interest in the properties passed to The Official Trustee, subject to the mortgage to Mr. Fedotov which was effective conditionally upon being stamped, or alternatively subject to the potentiality of this mortgage becoming effective from its date in the event of its being stamped. Accordingly, upon the instrument being stamped, the condition was satisfied and/or the potentiality became an actuality. This did not involve the divesting of an interest already vested in The Official Trustee, but merely the removal of a condition from a limitation on that interest.

YURI'S INTEREST AND ORDINARY COURSE OF BUSINESS

62 In circumstances where I am not satisfied when Yuri executed the document, it is not necessary for me to decide this issue.

63 However, I will note Mr. Moore's submission that, assuming Yuri executed the agreement on or about 3rd September 1991, Mr. Fedotov is entitled to the benefit of s.123 of the Bankruptcy Act 1966, the effect of which is that nothing in the Act invalidates the mortgage if Mr. Fedotov can establish the matters in s.123(1)(e),(f) and (g). Those matters are as follows: (e) that the transaction took place before the day on which the debtor became a bankrupt; (f) that the person did not, at the time of the transaction, have notice of the presentation of a petition against the debtor; and (g) that the transaction was in good faith and in the ordinary course of business.

64 Mr. Moore submitted that the only questionable matter in this case concerned "ordinary course of business", and in relation to that the test was that laid down in Robertson v. Grigg [1932] HCA 29; (1932) 47 CLR 257, per Gavan-Duffy, CJ and Starke, J (at p.267):

Therefore, the test under s.95 of the ordinary course of business is not whether the act is unusual or common in the business of the debtor or of the creditor, but whether it is "a fair transaction, and what a man might do without having any bankruptcy in view".

Mr. Moore relied on the approval of that approach in Burns v. McFarlane [1940] HCA 25; (1940) 64 CLR 108 and Harkness v. Partnership Pacific Limited (1997) 41 NSWLR 204.

65 However, Robertson was dealing with a preference case, and the focus on what a person might do without having bankruptcy in view is appropriate in such cases. There are other statements in even the cases relied on by Mr. Moore to the effect that, for a transaction to be in the ordinary course of business, it must be an "ordinary business transaction". The transaction in this case does not appear to be the sort of transaction which would be undertaken with the bankruptcy of the D'Jamirze brothers in view; but the whole circumstances of the transaction are so extraordinary that I would not be prepared to find that it is a transaction in the ordinary course of business.

DEPOSIT OF TITLE DEEDS

66 It does appear that a deposit of title deeds by an owner with his creditor for the purpose of securing an antecedent debt will operate as an equitable charge: see Coote On Mortgages, 9th Ed., 1927, Vol.1, p.86; Re Wallis & Simmonds (Builders) Limited (1974) 1 WLR 391 at 395; Westpac Banking Corporation v. Cronin (1990) 6 BPR 13,105.

67 However, I have already indicated that I am not satisfied that the deposit occurred prior to the last of the relevant acts of bankruptcy. Being unsatisfied as to the time of the deposit and the circumstances, and having regard to its relationship to a transaction which I do not consider was in the ordinary course of business, I would not be satisfied that the deposit itself was a transaction in the ordinary course of business. Furthermore, I am not satisfied that the deposit by Vladimir had the authority of the other D'Jamirze brothers. In those circumstances, the deposit of title deeds cannot take the matter any further.

CONCLUSION

68 It follows that The Official Trustee is entitled to the interests of Alick, Yuri and Nickolai in the properties unaffected by any mortgage or charge to Mr. Fedotov; and to the interests of Vladimir and Victor subject to a mortgage or charge in favour of Mr. Fedotov to secure the equivalent of $US700,000.00.

69 As submitted by Mr. Moore, I accept that the bankruptcies of the five bankrupt defendants severed the joint tenancy, with the result that The Official Trustee became entitled to five-elevenths of the two properties as a tenant in common with the six non-bankrupt defendants, who held the remaining six-elevenths interest as joint tenants inter se. As a result of the death of Valentina, the six-elevenths interest is now held by the five surviving non-bankrupt defendants as joint tenants.

70 It follows that The Official Trustee is entitled to the appointment of trustees for sale. Upon sale, the net proceeds would be divided, as to three-elevenths to The Official Trustee, as to two-elevenths to Mr. Fedotov, and as to the remaining six-elevenths to the five surviving non-bankrupt defendants. At present, I do not see any necessity to have the interest of The Official Trustee or Mr. Fedotov registered.

71 My tentative view on costs is that The Official Trustee can satisfy his costs from his three-elevenths share, Mr. Fedotov can satisfy his costs from his two-elevenths share, and the five non-bankrupt defendants should bear their own costs. The five bankrupt defendants would be liable to pay costs, but it appears there would be little point in making any such order.

************

LAST UPDATED: 17/12/1999