FEDERAL COURT OF AUSTRALIA

Pedersen v Delaveris [2010] FCA 536

THE COURT ORDERS THAT:

1.                  The applicant has leave pursuant to s 58(3)(b) of the Bankruptcy Act 1966 to continue the proceedings in the Supreme Court of New South Wales between the applicant and the first respondent (Proceedings No. 3506 of 2009) to the extent necessary to enable the Supreme Court of New South Wales to determine the applicant’s entitlement to the relief specified in paras 1, 2, 5, 6 and 7 of the statement of claim filed in those proceedings. 

2.                  The second respondent pay the applicant’s costs of the application.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

(Revised from Transcript)

1                     This is an urgent application for an order giving the applicant leave pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth) (the Act) permitting her to continue with proceedings brought under the Property (Relationships) Act 1984 (NSW) (the PR Act) in the Supreme Court of New South Wales against the first respondent.  There was no appearance by the first respondent at the hearing of the application though his trustee, the second respondent, did appear and made submissions in opposition to the proposed order. 

2                     The first respondent was made bankrupt on 25 March 2010 on his own petition.  The second respondent, Andrew Wily, was appointed trustee of the first respondent’s estate on that day.  According to a summary prepared by the trustee of the bankrupt’s statement of affairs, the bankrupt had only two significant assets namely, a motor vehicle of modest value and a property at Connells Point in New South Wales (the Connells Point property) which he acquired in around June or July 2007.  According to the summary, the value of the Connells Point property is estimated to be $800,000 although there is evidence that the trustee has obtained an informal valuation suggesting that it might be worth a little more than this.

3                     The summary of the statement of affairs also indicates that there is a secured creditor owed an amount of $765,000 and various unsecured creditors owed a total of $745,000.  The secured creditor is Westpac Banking Corporation (Westpac), which is the registered mortgagee of the Connells Point property.  There is a list of unsecured creditors included in the trustee’s summary which include various relatives of the bankrupt who he claims to owe a total of $395,000, and a further amount of $200,000 which he claims to owe to Kekatos & Partners.  I am informed by the trustee that Kekatos & Partners is a firm of accountants. The applicant issued a notice to produce for copies of any proofs of debt and supporting documentation provided by creditors.  The trustee did not produce any documents even though it appears that he wrote to the creditors of the first respondent on or about 21 April 2010 calling for proofs of debt. 

4                     The applicant took me through a chronology which, for the purpose of this hearing, the trustee accepted as correct.  Relevantly, the applicant and the first respondent commenced living together in rented premises in around June 2000.  The applicant claims that in July 2007 she and the first respondent purchased the Connells Point property for $865,000, which was acquired in the first respondent’s name using moneys advanced by Westpac.  They took up residence at the Connells Point property in July 2007.  The applicant claims that she contributed $43,500 towards the deposit and that she commenced making mortgage payments in respect of the Connells Point property in August 2007.

5                     The applicant also claims that in July 2003 a company associated with the first respondent purchased a half share in a kindergarten for $90,000 which was sold in May 2008 for approximately $600,000.  The applicant says that the first respondent received $300,000 from its sale. 

6                     The relationship between the applicant and the first respondent ended in September 2008, at which time she moved out of the Connells Point property.

7                     In July 2009 the applicant commenced proceedings in the Supreme Court against the first respondent.  The relief claimed is as follows:

1.         An order pursuant to section 8 and section 20 of the Property (Relationships) Act 1984, varying or adjusting the interests of the parties in the property of the domestic relationship.

2.         A declaration that the Defendant holds the Property on trust for the Plaintiff in a portion to be determined by this honourable Court.

3.         An order that, pursuant to section 66G of the Conveyancing Act 1919, the Property vest in trustees for the sale of the Property. 

4.         An order that upon the sale of the Property the proceeds of the sale be distributed as follows and in the following priority:

            (a)     the costs of the sale, being agents costs and commission and legal costs of sale;

            (b)     the trustees’ costs associated with the sale;

            (c)     the residue to be divided between the Plaintiff and the Defendant in a proportion to be determined by this honourable Court.

5.         An order that the Defendant pay to the Plaintiff a sum determined by this Court to be an appropriate proportion of the property of the domestic relationship.

6.         An order that the Defendant pay to the Plaintiff interest on any sum adjudged to be paid by the Defendant to the Plaintiff at the rate specified in section 100 of the Civil Procedure Act. 

7.         An order that the Defendant pay the Plaintiff’s costs of this application.

8                     The affidavit evidence in the Supreme Court proceedings was filed in November and December 2009.  These affidavits include affidavits from the applicant and the first respondent.  The proceedings have been ready for hearing since at least March 2010. A mediation was held on 4 March 2010 which was unsuccessful.  On 18 March 2010 the proceedings were then set down for hearing in May 2010.  I was told there was an application made on 24 March 2010 by the second respondent to vacate the hearing date on the basis that the May dates were inconvenient to his legal representatives.  That problem was quickly resolved by the allocation of new hearing dates of 3 and 4 June 2010.  However, soon after the proceedings were set down for hearing, the first respondent was made bankrupt on his own petition.  The Supreme Court proceedings are scheduled to be heard over two days in the latter part of next week.

9                     The trustee accepts that s 58(3)(b) does not prevent the applicant from pursuing her claim for a declaration that the bankrupt holds some portion of the Connells Point property on trust for her.  As to that claim, I was informed by the solicitor for the trustee that the trustee proposes to appear and resist it.  However, so far as the other claims are concerned, the trustee says he opposes leave being given because it would increase the legal costs that will be incurred by him in defending the proceedings. I will return to that point later in these reasons.

10                  Section 58(3) of the Act provides:

            Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

            (a)     to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or

            (b)     except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.

11                  There is a question as to whether s 58(3)(b) applies to the proceedings commenced by the applicant in the Supreme Court however there was very little argument before me directed to that point.  I have real doubts as to whether the Supreme Court proceedings are “in respect of a provable debt” within the meaning of s 58(3)(b), at least not until such time as an order for the payment of money is made.

12                  In any event, it is open to me to proceed on the assumption that leave is required without determining whether the section applies: Allanson v Midlands Credit Ltd & Anor (1977) 16 ALR 43.  In that case the Full Court (Bowen CJ, Riley and Deane JJ) said (at 49):

Where a court is given power to grant leave to perform a particular act, or pursue a particular course of action, and the question whether the need for such leave has arisen involves difficult and complicated questions of law or fact, it is permissible, in an appropriate case, to proceed on the basis that such leave is necessary rather than involve the parties in the futile exercise of determining, possibly after a series of appeals, whether the need for such leave has arisen.

I propose to consider the question of leave on the footing that s 58(3)(b) applies to the Supreme Court proceedings.

13                  In determining whether or not leave should be granted, I have in mind the purposes of bankruptcy law as explained by Hill J in Re McMaster; Ex parte McMaster (1991) 33 FCR 70 at 72-73:

The modern bankruptcy law serves three purposes. The first is to ensure that the assets of the bankrupt are distributed rateably among creditors. The second, which is interrelated with the first, is to ensure that one creditor does not obtain an undue advantage over other creditors. The third is to bring about the discharge of the debtor from future liability for his existing debts, so that the debtor may start afresh…

This passage was approved by the Full Court in Fraser v Commissioner of Taxation (1996) 69 FCR 99 at 112. 

14                  I do not see how giving leave to the applicant to proceed would be inconsistent with any of the purposes of the bankruptcy legislation identified by Hill J in McMaster. It cannot be suggested that the applicant has brought the Supreme Court proceedings for the purpose of obtaining some advantage over unsecured creditors. The proceedings were brought long before the bankruptcy commenced. By the time the first respondent filed his petition, the proceedings were ready for hearing.

15                  I think it is desirable that the proceedings in the Supreme Court proceed to a final hearing as planned for the purpose of determining whether the applicant has a proprietary interest in the Connells Point property as she claims and for the purpose of determining the extent of her entitlements, if any, under the PR Act.

16                  The trustee suggested it was preferable for him to determine the extent of the applicant’s entitlements under the PR Act by reference to the affidavits that have been filed in the Supreme Court proceedings.  I do not agree.  It appears that there are substantial conflicts between the evidence of the applicant and the first respondent which it would be better to have tested and resolved in the usual way.   

17                  Given that all the evidence has been filed and that the final hearing is to take place next week, I do not see any significant disadvantage to unsecured creditors in allowing the Supreme Court proceedings to continue to a final hearing.  The difference in legal costs between a hearing confined to some issues and a hearing which encompasses all issues comes down to the difference between one and two days in court.  To my mind this is a factor which strongly favours the giving of leave.

18                  The trustee says that the position of the estate is such that there will be little money available to satisfy the claims of unsecured creditors.  To some extent this is based upon an acceptance of the first respondent’s statement of affairs which may not be reliable. There is no other material before me to suggest that the estate is in as dire a position as the statement of affairs implies.

19                  In any event, if the trustee chooses to defend the Supreme Court proceedings (as he says he will) then the applicant runs the risk of being ordered to pay the trustee’s costs in the event that she is unsuccessful. 

20                  However, even if the applicant is successful in the Supreme Court proceedings in obtaining a declaration that some portion of the Connells Point property is held on trust for her, I do not think it would be appropriate for any orders to be made under s 66G of the Conveyancing Act 1919 (NSW) or for the applicant to seek to enforce any order for the payment of money that may be made in her favour by the Supreme Court without making a further application for leave to do so.  I accept that leave may not be required in relation to the former, but so far as the latter is concerned it seems to me that it would fly in the face of s 58(3)(a) of the Act. 

21                  What I propose to do is to grant the applicant leave to continue the Supreme Court proceedings to the extent necessary to enable it to determine the applicant’s entitlement to the relief specified in paras 1, 2, 5, 6 and 7 of the statement of claim.  To the extent that the applicant is successful in obtaining the declarations or orders sought it would be open to her to seek further relief in this Court for the purpose of giving effect to those declarations and orders should that become necessary.

22                  So far as costs are concerned, the applicant has been successful in obtaining the relief sought by her.  The trustee did not merely submit but opposed her application.  I therefore order the trustee to pay the applicant’s costs of the application.

23                  By way of postscript, I note that after I delivered my reasons for judgment the trustee informed me that (contrary to what I was previously told) he has not been joined to the Supreme Court proceedings.  He says that he wishes to be joined and that he is in fact a necessary party. I asked the applicant to undertake to the Court to apply to join the trustee as the second defendant in the Supreme Court proceedings.  The solicitor appearing for her gave me that undertaking. The leave which is granted by me should be understood as extending to the continuation of the Supreme Court proceedings against both the first respondent and the second respondent upon him being joined as second defendant.

Associate:

Dated:         1 June 2010