Duncan (Trustee) v Coulter, in the matter Coulter [2021] FCA 214

FEDERAL COURT OF AUSTRALIA

Duncan (Trustee) v Coulter, in the matter Coulter [2021] FCA 214 File number: SAD 185 of 2020

Judgment of: WHITE J

Date of judgment: 11 March 2021

Catchwords: BANKRUPTCY – application by a trustee in bankruptcy for an order of judicial sale for jointly owned property, pursuant to ss 69 and 70 of the Law of Property Act 1936 (SA) – applicant entered into contingent contracts of sale with third parties – contracts contingent on the consent of the non-bankrupt party or an order for judicial sale – application granted.

Legislation: Bankruptcy Act 1966 (Cth) ss 30, 58(1), 77 Federal Court of Australia Act 1976 (Cth) ss 37M, 37N Judiciary Act 1903 (Cth) s 79 Law of Property Act 1936 (SA) ss 69, 70, 71, 74

Cases cited: Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1; (2001) 204 CLR 559 Callahan v O'Neill [2002] NSWSC 877 Re Francis; ex parte Official Trustee in Bankruptcy (1988) 82 ALR 335 Re Holland, ex parte Official Trustee in Bankruptcy (1985) 5 FCR 165 Re Permanent Trustee Nominees (Canberra) Ltd [1989] 1 Qd R 314 Weston (Trustee), in the matter of Jeffery v Jeffrey [2019] FCA 554 Woodson (Sales) Pty Ltd v Woodson (Australia) Pty Ltd (1996) 7 BPR 14,685

Division: General Division

Registry: South Australia

National Practice Area: Commercial and Corporations

Sub-area: General and Personal Insolvency

Number of paragraphs: 41

Date of hearing: 5 March 2021

Counsel for the Applicant: Mr P Bullock

Solicitor for the Applicant: Cowell Clarke

Counsel for the First Respondent: The First Respondent did not appear

Counsel for the Second Respondent: Mr S Carragher

Solicitor for the Second Respondent: WRP Legal & Advisory

ORDERS SAD 185 of 2020 IN THE MATTER OF IVAN LAWRENZE COULTER BETWEEN: STEPHEN JAMES DUNCAN IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF IVAN LAWRENZE COULTER Applicant

AND: IVAN LAWRENZE COULTER First Respondent

ANTHEA CHRISTINE COULTER Second Respondent

order made by: WHITE J DATE OF ORDER: 11 MARCH 2020

THE COURT ORDERS THAT:

1. Pursuant to ss 69 and 70 and 71 of the Law of Property Act 1936 (SA) (LoP Act) as applied by s 79 of the Judiciary Act 1903 (Cth) that the land set out below be sold: (a) the real property known as Lot 9, Sugar Loaf Hill Road, Angaston, South Australia, being the whole of the property comprised in Certificate of Title Register Book Volume 5692 Folio 235; (b) the real property known Lot 6, Rodgers Road, Flaxman Valley, South Australia, being the whole of the property comprised in Certificate of Title Register Book Volume 5836 Folio 397; and (c) the real property known as 516 Brownes Road, Flaxman Valley, South Australia, being the whole of the property comprised in Certificate of Title Register Book Volume 5477 Folio 186; (collectively hereon referred to as the "Land") 2. Pursuant to ss 69 and 70 of the LoP Act as applied by s 79 of the Judiciary Act: (a) the Respondents deliver up vacant possession of the Land within 45 days of this order; (b) in the event that the Respondents fail to give up vacant possession of the Land in accordance with Order 2(a), a Writ of Possession be issued forthwith in favour of the Applicant; (c) the Respondents remove from the Land all vehicles, rubbish and chattels that have not vested in the Applicant ("Personal Property") within 45 days; and (d) in the event that the Respondents fail to comply with Order 2(c), the Applicant may remove and dispose of the Personal Property as he sees fit after 45 days have passed from the making of this order. 3. Pursuant to ss 69 and 70 of the LoP Act as applied by s 79 of the Judiciary Act: (a) prior to the settlement of the sale of the Land, the Applicant is to retain an independent conveyancer who is to act for the Applicant and Respondents in the transaction on the Applicant's instructions; (b) at settlement of the sale of the Land, the Applicant is to cause the amount due under the mortgages secured over the Land to be paid to the mortgagee; (c) the net proceeds of the sale of the Land, after deduction of all proper expenses due at settlement are to be paid into or kept in the trust account of the conveyancer for the transaction appointed by the Applicant; (d) within fourteen (14) days after the payment of the net proceeds of sale of the Land into the trust account of the conveyancer for the transaction appointed by the Applicant, the Applicant is to cause those net proceeds to be distributed in equal half shares between the Applicant and Second Respondent, subject to first making any adjustments which may be required as between the Applicant and Second Respondent, including but not limited to in respect of mortgage repayments, or such other costs and expenses incurred by either the Applicant or Second Respondent in the care and preservation of the Land that have not already been reimbursed at settlement; (e) a sealed copy of this order be served upon the land agent before or immediately after the sale or upon such other person who may be holding the proceeds of sale and upon that person paying the net proceeds to the trust account of the conveyancer appointed by the Applicant, such person be discharged from any further liability to account to the parties for the proceeds of sale; (f) in connection with the sale of the Land, the Respondents are to execute any and all documents necessary, in order to effect the sale of the Land; (g) if either of the Respondents refuse or neglect to execute any document necessary to give effect to the sale of the Land as ordered at Order 3(f) herein, then and in such case a Registrar or Deputy Registrar of this Honourable Court upon proof by affidavit of either of the Respondents such refusal or neglect is hereby appointed to execute any such document on behalf of either the First or Second Respondent and if in his/her opinion it shall be necessary to do all such other acts and things and execute all such other documents as shall be necessary to give full force and effect of these orders and shall execute and do the same accordingly and the party in default shall pay the Applicant's costs as agreed or as taxed; and (h) the parties have liberty to apply for further orders and directions. 4. An order that the Applicant's costs of this application be paid from the bankrupt estate of the First Respondent. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

WHITE J: 1 On 5 March 2021, I indicated the orders I would make in these proceedings pursuant to ss 69 and 70 of the Law of Property Act 1936 (SA) (the LoP Act) for the sale of jointly owned real estate as well as consequential orders. I said that I would make the orders and publish reasons for them later. The following are those reasons. 2 The first respondent was declared bankrupt on 17 March 2020. The applicant is his trustee in bankruptcy. 3 The applicant wishes to sell three properties which the first respondent owned with his wife (the second respondent) as joint tenants. On 16 December 2020, he filed an application seeking orders pursuant to ss 69, 70 and 71 of the LoP Act for the sale of the three properties and orders pursuant to ss 30 and 77 of the Bankruptcy Act 1966 (Cth) directed to obtaining vacant possession of the properties. 4 The first respondent has sent to the Court, but not filed, a document entitled "Notice of Acting" in which he states that he is representing himself. He has not appeared at any of the hearings in the matter. 5 The second respondent has legal representation. 6 The three properties are: (a) Lot 6, Rodgers Road, Flaxman Valley, South Australia, being the whole of the property comprised in Certificate of Title Register Book Volume 5836 Folio 397 (the Rodgers Road Property); (b) Lot 9, Sugar Loaf Hill Road, Angaston, South Australia, being the whole of the property comprised in Certificate of Title Register Book Volume 5692 Folio 235 (the Angaston Property); and (c) 516 Brownes Road, Flaxman Valley, South Australia, being the whole of the property comprised in Certificate of Title Register Book Volume 5477 Folio 186 (the Brownes Road Property). 7 The Rodgers Road and Angaston Properties are used as deer farms. The Brownes Road Property is the residence of the first and second respondents. 8 On the first respondent's bankruptcy, his interest in the three properties became that of his bankrupt estate. During 2020, the applicant conducted negotiations with the second respondent with a view to her purchasing the first respondent's interest in the three properties, but no agreement was reached. 9 In about October 2020, the applicant instructed a real estate agent to market the three properties by way of an Expression of Interest Program (EOIP). That Program commenced on 12 October 2020 and ended on 27 November 2020. It resulted in offers for the three properties which were materially higher than the previous kerbside valuations made by the agent and which had been used as the basis for negotiations between the parties. 10 By letter dated 30 November 2020, the applicant invited an offer of $463,000 from the second respondent to purchase the first respondent's interest in the properties and provided her with copies of the offers which had been received in the EIOP. The second respondent did not respond to that invitation. 11 By letter dated 10 December 2020, the applicant by his solicitors warned the second respondent that he intended to file an application seeking an order for sale of the properties and sought her consent to the properties being sold. 12 On 14 December 2020, the second respondent's solicitors informed the applicant's solicitors that the second respondent intended to pay out the full amount of the "bank debt" secured over the properties and to purchase the first respondent's interest in them; that she had applied through a finance broker for finance; that she had been given a favourable response; and that she anticipated that the "finance documents" would be "forthcoming by the end of the week". The solicitor said that he would provide copies of the finance documents to the applicant as soon as they were received and requested that he "hold off taking any Court action". 13 Nevertheless, on 16 December 2020, the applicant filed his application in this Court. 14 On 21 December 2020, the applicant entered into contracts for the sale of the Angaston Property for $541,000 and for the sale of the Rodgers Road and Brownes Road Properties for $1.2 million to the persons who had made the highest offers in the EOIP. The price of $1.2 million included $100,000 for plant and equipment if the vendor agreed to sell those items. Settlement on the contract for the sale of the Angaston Property is due on 12 March 2021 and settlement on the contract for the sale of the Rodgers Road and Brownes Road Properties is due on 1 April 2021. Settlement in both cases is, however, conditional on the second respondent's consent or an order from the Court permitting the sales. Both contracts provided that either party could terminate the contract if the condition was not satisfied by 28 February 2021 but, at the time of the hearing on 5 March 2021, neither party had exercised the entitlement to terminate. 15 The Court listed the applicant's proceedings for a first case management hearing on 27 January 2021 but, at the parties' request, that hearing was vacated. Instead, Court made orders by consent establishing a timetable for the exchange of affidavits and submissions and the matter was listed for hearing on 16 March 2021. However, the respondents did not file any affidavits and, on the applicant's application and over the first respondent's opposition, the hearing was brought forward to 5 March 2021. 16 The second respondent's solicitor explained the absence of any affidavit from the first respondent in an email to the applicant's solicitor on 15 February 2021: We have not filed any affidavit material because the client intends to have the funds available to satisfy [the first respondent's] equity in the property before the hearing, and there would seem little utility filing an affidavit that spoke of what our client is hoping to achieve. I have indicated that those funds will need to be in our trust account before the hearing. 17 As is apparent, it appears that a deliberate decision was made not to comply with the order concerning the filing of affidavits by the second respondent. 18 As at the commencement of the hearing on 5 March 2021, the second respondent had still not filed any affidavit in the proceedings. Her solicitor filed an affidavit on 22 February 2021 which indicated that, while the second respondent had sought finance through a finance broker "in or about December 2020", it had become evident by 10 February 2021 that finance had not been approved to the extent necessary to discharge the debt to the mortgagee and the amount of approximately $460,000 sought by the applicant for the first's respondent's interest in the properties. The solicitor deposed that the second respondent was to pay $200,000 into his firm's trust account to be used towards the payments in respect of the properties (later evidence indicated that this had occurred). The solicitor went on to depose: I am instructed that an additional approximately $250,000 should be available to be deposited into my firm's trust account by 5 March 2021 as the final amount required to purchase [the first respondent's] equity in the properties. I am instructed that these monies will be sourced in connection with the second's respondent company, Windy Hills Export Meats Pty Ltd. 19 However, before the commencement of the hearing on 5 March 2021, the second respondent had not provided evidence of the payment of the additional $250,000 or of any present or imminent ability to do so. In particular, she had not provided any documentary evidence, such as financial or trading statements, suggesting that she would have the ability to raise funds from the income of her business. 20 At the commencement of the hearing on 5 March 2021, counsel for the second respondent provided an unfiled affidavit of the second respondent bearing the date 22 February 2021 but said to have been made only very shortly before the hearing itself. Counsel relied on the affidavit, in particular, the evidence it was said to contain about the prospect of the second respondent raising the necessary finance in the near future, in support of an application for an adjournment of the hearing. I refused the adjournment for reasons which I gave at the time but which included the nebulous quality of the evidence concerning the provision of finance, the conduct of the second respondent in the litigation to date, the fact that the Court had dealt previously (on 24 February 2021) with an application by the second respondent for more time in which to raise finance, the prejudice which an adjournment would cause the applicant, and the obligations imposed by the Court under ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) (the FCA Act). 21 The first respondent has not filed any affidavit at all.

The effect of the first respondent's bankruptcy 22 Upon the first respondent being declared bankrupt, the joint tenancy which had previously existed between him and the second respondent was severed, at least in equity, such that they became tenants in common in each property: Re Holland, ex parte Official Trustee in Bankruptcy (1985) 5 FCR 165 at 167; Re Francis; ex parte Official Trustee in Bankruptcy (1988) 82 ALR 335 at 339-40. Further, by reason of s 58(1)(a) of the Bankruptcy Act, the first respondent's half interest in the properties vested in the applicant.

The Court's power and jurisdiction 23 As previously noted, the applicant seeks the order for sale of the properties under ss 69, 70 and 71 of the LoP Act. Those sections provide: 69—Power to order partition or sale instead of partition (1) On any application for partition the court may order a partition of the said land or other property, and may give all necessary or proper consequential directions. (2) On any such application if it appears to the court that, by reason of the nature of the property, or of the number of the parties interested or presumptively interested therein, or of the absence or disability of some of those parties, or of any other circumstance, a sale of the property and a distribution of the proceeds would be more beneficial for the parties interested than a division of the property between or among them, the court may, if it thinks fit, on the request of any of the parties interested, and notwithstanding the absence, dissent or disability of any others of them, direct a sale of the property accordingly, and may give all necessary or proper consequential directions. 70—Sale on application of certain proportion of parties interested On any application for partition, if the party or parties interested individually or collectively, to the extent of one moiety or upwards in the property, request the court to direct a sale of the property and a distribution of the proceeds, instead of a division of the property between or among the parties interested, the court shall, unless it sees good reason to the contrary, direct a sale of the property accordingly, and shall give all necessary or proper consequential directions. 71—As to purchase of share of party desiring sale On any application for partition, if any party interested in the property requests the court to direct a sale of the property and a distribution of the proceeds instead of a division of the property between or among the parties interested, the court may, if it thinks fit, unless the other parties interested in the property, or some of them, undertake to purchase the share of the party requesting a sale, direct a sale of the property, and give all necessary or proper consequential directions, and in case of such undertaking being given the court may order a valuation of the share of the party requesting a sale in such manner as the court thinks fit, and may give all necessary or proper consequential directions. 24 This Court's general power in bankruptcy matters derives from s 30(1) of the Bankruptcy Act. It provides: (1) The Court: (a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and (b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter. 25 It has been held that s 30(1) is not a source of authority in the Court to make an order for the sale of a property co-owned with a bankrupt by some other person: Coshott v Prentice [2014] FCAFC 88; (2014) 221 FCR 450 at [100]. However, s 79 of the Judiciary Act 1903 (Cth) picks up relevant procedural and substantive State law as surrogate Federal law, thereby enabling courts exercising Federal jurisdiction to provide remedies afforded otherwise only under State law in the exercise of State jurisdiction: Coshott v Prentice at [111]. Courts exercising Federal jurisdiction operate on the basis that s 79 applies the substance of any relevant State law insofar as it can be applied: Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1; (2001) 204 CLR 559 at [141] (McHugh J). The operation of s 79 in relation to s 69 and s 70 of the LoP Act was recognised by Charlesworth J in Weston (Trustee), in the matter of Jeffery v Jeffrey [2019] FCA 554 at [55]-[64]. 26 As the terms of s 70 indicate, the Court should direct a sale of jointly held property "unless it sees good reason to the contrary". The authorities with respect to the interstate counterparts of s 70 indicate that a co-owner holding at least 50% of a parcel of real property is generally entitled to an order for partition or sale: Callahan v O'Neill [2002] NSWSC 877 at [8] and see the authorities cited therein. The onus is on the party resisting an order for sale to establish "good reason to the contrary": Woodson (Sales) Pty Ltd v Woodson (Australia) Pty Ltd (1996) 7 BPR 14,685 at 14,701. The authorities also indicate that the circumstances which may constitute "good reason to the contrary" are relatively confined: Re Permanent Trustee Nominees (Canberra) Ltd [1989] 1 Qd R 314 at 317. As was noted by Young CJ in Eq in Callahan v O'Neill, it is only in situations in which it would, under settled principles, be inequitable that the order may be refused.

Consideration 27 The applicant sought orders of four different kinds. First, an order pursuant to ss 69 and 70 of the LoP Act that the three properties be sold. Secondly, orders with respect to obtaining vacant possession of the properties. Thirdly, orders concerning the manner in which the proceeds of the sale of the two properties are to be applied and, fourthly, an order that the applicant's costs of the application be paid from the bankrupt estate of the first respondent. 28 It is understandable that the second respondent would not wish the orders to be made. The respondents purchased the Brownes Road Property approximately 45 years ago and have lived in it ever since as their family home. It is the property in which they raised their children. Moreover, it is understandable that the offers received under the EOIP in late 2020, being materially higher than the kerbside valuations of the real estate agent which had been used in the parties' negotiations until that time, presented something of a setback to the second respondent, in that it meant that she had to raise approximately $200,000 more than had been previously contemplated. 29 However, having been unsuccessful on the application for the adjournment, counsel for the second respondent did not oppose the Court making the order for the sale of the three properties. 30 Counsel did oppose the making of the second and third categories of orders. He submitted that the Court should not, in effect, endorse the entry by the applicant into the two contracts and that instead the Court should order the appointment of an independent trustee to conduct a sale with, as I understood it, that sale to be by auction so as to obtain the best price reasonably obtainable. Counsel suggested that the EOIP conducted by the applicant's real estate agent may not have obtained such a price. 31 These submissions suffer from the fact that the second respondent had not complied with the Court's orders concerning the time for filing of affidavits and outlines of submissions. It meant that several of the submissions had the quality of bare assertions only, being unsupported by evidence or by reference to authority. 32 There are circumstances in which it is appropriate for the Court to appoint an independent trustee to conduct a sale of property which it has ordered. However, contrary to the respondents' submissions, there is no invariable practice to that effect. 33 Counsel did not point to any matter indicating that the applicant was not discharging appropriately his responsibilities as trustee of the first respondent's bankrupt estate or to any other matter suggesting reasons for the Court to have concern about conduct of the applicant if he is authorised to attend to the sale. Moreover, the second respondent has not provided any evidence concerning the identity of an appropriate person to be the independent trustee, the additional costs likely to be incurred in appointing such a trustee, and nor did she indicate a willingness to share the costs of the engagement of an independent trustee. Further still, the submission that some better price may be able to be obtained by auction did not seem consistent with the submissions concerning the extent of the first respondent's equity in the properties which counsel had made in support of his application for the adjournment. 34 Having regard to these matters, I am not persuaded that the appointment of an independent trustee is either necessary or appropriate. 35 Counsel for the second respondent submitted that the usual course with orders under ss 69 and 70 of the LoP Act is that the steps towards sale are made only after the Court has given the direction for sale. He went so far as to describe this as the "proper" course. However, I did not understand him to submit that ss 69 and 70 do not contemplate applications for orders for sale after applicants have entered into contingent contracts for sale. Certainly counsel did not refer to any part of the text or ss 69 and 70 or to authority which would support that position. 36 I am unable to discern in ss 69 and 70 a limitation of that kind. The apparently general words of the sections should not be narrowly confined. Section 74 of the LoP Act to which counsel referred does not indicate a contrary position. They are capable of encompassing a circumstance in which an applicant for a sale has the opportunity, before making the application, to accept an advantageous offer for the property in question which is subject to the Court exercising its power under ss 69 and 70. 37 It is to be remembered that a contract which is contingent upon an order for sale being made does not become effective until that condition is satisfied. That is to say, there is no sale until that condition has been satisfied. Moreover, the Court is not bound by the mode of sale adopted by an applicant in entering into a contingent contract. Both ss 69 and 70 of the LoP Act empower the Court to give "all necessary or proper consequential directions" when directing the sale of the property. That enables the Court to direct the manner in which the sale it has ordered should proceed, which may be different from the form of sale contemplated by any antecedent contingent contracts. 38 In my view, the orders in the second and third categories sought by the applicant are "necessary or proper consequential directions" to give effect to the order for sale. There is no good reason to direct some other mode of sale. 39 However, counsel also drew attention to the fact that it is the second respondent, and not the applicant, who has been attending to payments of mortgage instalments since the first respondent's bankruptcy. Account will have to be taken of this in the disbursement of the sale proceedings. The applicant agreed that that was so. As the second respondent had not raised this previously, I gave the applicant the opportunity to provide a revised minute of the order appropriate to give effect to that entitlement of the second respondent and said that I would include it in the orders when made with these reasons. 40 For these reasons, I was satisfied that it was appropriate for the Court to make the orders pursuant to ss 69 and 70 sought by the applicant. The orders now made will include the revision proposed by the applicant to take account of the second respondent's entitlement arising from her payment of the mortgage instalments.

Conclusion 41 These are my reasons for making the orders for judicial sale sought by the applicant. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice White.

Associate: Dated: 11 March 2020