FEDERAL COURT OF AUSTRALIA
Weston (Trustee), in the matter of Jeffery v Jeffery [2019] FCA 554
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Subject to these orders, the land comprised in Certificate of Title Register Book Volume No 5403 Folio 413 and the improvements on it (“Land”) be sold, together with such water allocation or irrigation rights (“Water Entitlements”) relating to the Land as evidenced in the certificate forming annexure NJA-11 to the affidavit of Natalie Jennifer Abela sworn on 19 February 2019.
2. Within 14 days, the Applicant and the Second Respondent appoint a Land Agent to effect the sale of the Land together with the Water Entitlements, such Land Agent to be:
2.1 identified by agreement between the Applicant and the Second Respondent within 7 days of these orders; or, failing such an agreement
2.2 a person nominated by the Real Estate Institute of South Australia Inc, being a person:
2.2.1 having a place of business situated in the Riverland in South Australia; and
2.2.2 not being a person previously engaged or instructed by the Applicant for any purpose connected with the sale or proposed sale of the Land.
3. Prior to entering any contract for the sale of the Land, the Applicant and the Second Respondent are to appoint a registered Conveyancer who is to act for the Applicant and the Second Respondent in the transaction, such Conveyancer to be:
3.1 a person identified by agreement between the Applicant and the Second Respondent; or, failing such an agreement
3.2 a person nominated by the Land Agent.
4. The Applicant’s application for costs be further adjourned to 4.00pm on 16 April 2019, the Respondents having leave to appear by telephone link.
5. At or before 5.00pm on 17 April 2019 the parties may apply to be heard in relation to the ancillary orders proposed at paragraphs 4 to 22 of the proposed orders provided to the parties today and marked MFI1.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
CHARLESWORTH J:
1 On 12 April 2019 I made orders in this action providing for the sale of a co-owned property situation in the Riverland in South Australia. I gave oral reasons for those orders. I now provide written reasons to the same effect.
2 The applicant is the trustee of the bankrupt estate of Mr Brian Frederick Jeffery (the Trustee). He was appointed under s 181A of the Bankruptcy Act 1966 (Cth) on 27 November 2017 when he replaced two prior trustees. Mr Jeffery’s unsecured creditors have lodged proofs of debt totalling about $260,000. There are also secured creditors.
3 Mr Jeffery is the first respondent. He became bankrupt by a sequestration order made on 14 December 2016. No appeal was brought against the sequestration order, nor has Mr Jeffery sought to have the sequestration order annulled.
4 As at the date of his bankruptcy, Mr Jeffery was a joint owner of land situated near Monash in the State of South Australia, together with his wife Narelle Merilyn Jeffery (the second respondent).
5 The land is that comprised in Certificate of Title Register Book Volume No 5403 Folio 413. Improvements on the land include a home in which Mr Jeffery, Mrs Jeffery and their three children reside. It has not been suggested by either Mr Jeffery or Mrs Jeffery that they held their respective interests in the land in other than equal shares, nor is there any evidence that Mrs Jeffery has a contractual or equitable claim over what was previously Mr Jeffery’s interest.
6 The land is subject to a mortgage in favour of the Australian New Zealand Banking Group Limited (ANZ). As at 27 February 2019, the two loans secured by the mortgage were in arrears. The Court is presently unaware as to the status of the loans.
When Mr Jeffery became a bankrupt, his interest in the land vested in the Trustee by the operation of s 58(1) of the Bankruptcy Act and the joint tenancy was severed in equity such that the co-owners then held their respective interests as tenants-in-common: Re Holland; Ex parte Official Trustee in Bankruptcy (1985) 5 FCR 165 at 168 (Fisher J); Re Francis; Ex parte Official Trustee in Bankruptcy (1988) 82 ALR 335 at 153-154 (Forster, Woodward and Spender JJ). The Trustee has since become the registered proprietor (and hence the legal owner) of a half interest in the land.
7 In this action the Trustee seeks orders that the land be sold and that, after the deduction of the expenses of the sale and the discharge of the mortgage, the net proceeds of the sale be distributed equally between the Trustee and Mrs Jeffery. It is the Trustee’s submission that the order for sale may be made pursuant to ss 69 and 70 of the Law of Property Act 1936 (SA) (LP Act), being a State law that this Court is bound to apply by reason of s 79 of the Judiciary Act 1903 (Cth).
8 Additional orders are sought to secure the vacant possession of the land for the purpose of facilitating the sale, and to provide for the marketing of the land and the preservation and application of the sale proceeds. The additional orders (described in submissions as “ancillary”) are sought pursuant to the LP Act and, in their application to Mr Jeffery, pursuant to ss 30 and 77 of the Bankruptcy Act.
9 It is convenient at this juncture to set out the statutory provisions upon which the Trustee relies.
LEGISLATION
10 Sections 79 and 80 of the Judiciary Act provide:
79 State or Territory laws to govern where applicable
(1) The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.
…
So far as the laws of the Commonwealth are not applicable or so far as their provisions are insufficient to carry them into effect, or to provide adequate remedies or punishment, the common law in Australia as modified by the Constitution and by the statute law in force in the State or Territory in which the Court in which the jurisdiction is exercised is held shall, so far as it is applicable and not inconsistent with the Constitution and the laws of the Commonwealth, govern all Courts exercising federal jurisdiction in the exercise of their jurisdiction in civil and criminal matters.
11 The plurality of the High Court in Rizeq v Western Australia (2017) 262 CLR 1, after considering the history of s 79 of the Judiciary Act, said that the section (at [63]):
… is a law, enacted under s 51(xxxix) of the Constitution, which serves to ensure that the exercise of federal jurisdiction is effective. The section fills a gap in the law governing the actual exercise of federal jurisdiction which exists by reason of the absence of State legislative power. The section fills that gap by picking up the text of a State law governing the exercise of State jurisdiction and applying that text as a Commonwealth law to govern the manner of exercise of federal jurisdiction. The section has no broader operation.
12 Sections 27(1) and 30(1) of the Bankruptcy Act are as follows:
27 Bankruptcy courts
(1) The Federal Court and the Federal Circuit Court have concurrent jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than:
(a) the jurisdiction of the High Court under section 75 of the Constitution; or
(b) the jurisdiction of the Family Court under section 35 or 35A of this Act.
…
30 General powers of Courts in bankruptcy
(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.
13 Section 77 of the Bankruptcy Act imposes obligations upon a Bankrupt, including an obligation to execute such instruments and generally do all such acts and things in relation to his or her property and its realisation as are required by the Bankruptcy Act or by the trustee or as are ordered by the Court upon the application of the trustee (s77(1)(e)) and to aid to the utmost of his or her power in the administration of his or her estate (s 77(1)(g)).
14 Sections 69 and 70 of the LP Act 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.
15 The word “land” is defined in s 7 of the LP Act to include any land of any tenure, and an easement, right, privilege, or benefit in, over or derived from the land. The word “court” is defined to mean the Supreme Court or the District Court or, subject to monetary limitations, the Magistrates Court.
THE HEARING
16 The progress of this matter to judgment has been complicated by events affecting the legal representation of the respondents and by the intervention of ANZ in the proceeding in its capacity as mortgagee. To some extent, the procedural background is relevant to the substantive issues to be decided. It is convenient at this point to summarise its salient features.
17 As at the date of the first case management hearing on 29 January 2019, no notice of address for service had been filed on behalf of either Mr or Mrs Jeffery. At that hearing, a solicitor made an appearance on behalf of the respondents by telephone link. I heard the solicitor’s submissions on the basis that the solicitor would file a notice of address for service by 4.00pm that day and I made an order that he do so. Correspondence before the Court indicated that the solicitor had been in correspondence with the Trustee for some months on behalf of both Mr and Mrs Jeffery in relation to the land. The solicitor’s correspondence was uncooperative in both tone and effect. The solicitor had indicated to the Trustee that he would not accept service of documents on behalf of the respondents in this proceeding.
18 At the case management hearing, the solicitor asserted to the Court that he was too unwell to attend to the filing of a notice of address for service on that day.
19 I ordered that the matter be set down for hearing on 27 February 2019. Then, at the conclusion of the case management hearing, and in the presence of Mr Jeffery, I expressed concern that the respondents’ solicitor may not have the capacity to act for the respondents having regard to what he had told the Court about the state of his health and, to some extent, the content of his correspondence. The solicitor was asked to consider his obligations to the Court and to his clients so that if there was any possibility that his illness might prevent him from attending at the hearing on 27 February 2019, consideration should be given to the respondents securing alternative legal representation. I indicated that if there was to be an application for an adjournment of the hearing by reason of the solicitor’s illness, it would be necessary that the Court be satisfied that the illness could not have been foreseen. The respondents’ solicitor acknowledged what had been said and later indicated that he may brief independent Counsel.
20 The solicitor otherwise informed the Court that the respondents sought more time because Mr Jeffery had, notwithstanding his bankruptcy, some prospect of earning sufficient funds to purchase the Trustee’s interest in the land in the coming weeks or months.
21 The solicitor filed a notice of acting on 31 January 2019, two days after the ordered time frame.
22 On the morning of 27 February 2019, an affidavit was filed by a solicitor acting on behalf of ANZ. The solicitor deposed to having received instructions to commence proceedings in the Supreme Court of South Australia for an order for possession of the land so that ANZ may proceed with the sale of the land as mortgagee in possession. The Court was informed by an email from the Trustee’s solicitor that ANZ had advised on that day that it would oppose the orders sought by the Trustee in this proceeding.
23 When the hearing commenced on 27 February 2019, Counsel appeared for ANZ and was granted audience. Orders were made for the joinder of ANZ as a respondent.
24 Counsel for ANZ informed the Court that although no proceedings had been commenced in the Supreme Court for the sale of the property in accordance with and in the exercise of the mortgagee’s powers of sale, notices of default in respect of arrears on the secured loan had been served (including on the Trustee) in the previous September. Counsel for ANZ said that the bank jealously guarded its right as a secured creditor to manage the sale of the land in accordance with the terms of its security.
25 Mr and Mrs Jeffery appeared without their solicitor. That was not unexpected. On 15 February 2019 an email had been sent to my associate from a person (also a solicitor) who said that he shared business premises with the respondents’ solicitor, although they were not in business together. The sender of the email said that the respondents’ solicitor was in hospital and had been there for a week and that the solicitor was unsure whether he would be released from hospital. The sender of the email said that he had not met with the respondents and had not been retained to act for them or received instructions from them. The sender did not state whether the respondents were personally aware of the circumstances described in the email. The email received by the Court was not copied to the respondents.
26 On the morning of 27 February 2019, the Court received a further email from a solicitor (not being the respondents’ solicitor) again confirming that the respondents’ solicitor would not attend the hearing and attaching written submissions that had been filed on behalf of the respondents on 21 February 2019.
27 At the commencement of the hearing, Mr and Mrs Jeffery told the Court that they had not been informed of their solicitors’ inability to attend until the day before the hearing. Mr Jeffery also said that he had numerous meetings with the solicitor and had “taken some notes”.
28 Mr and Mrs Jeffery confirmed that it was their intention to terminate the solicitor’s retainer and they made submissions on their own behalf on the basis that they would promptly file a notice of address for service on their own behalf, which they did.
29 In the course of submissions, Mrs Jeffery asserted from the bar table that she operated a successful hairdressing business from the land and that the effect of the sale of the land would be that she could not derive an income to support her three children.
30 The hearing was adjourned part heard principally because of the matters raised by the late intervention of ANZ. I made orders fixing a time by which ANZ may make an application in the proceeding. I made a further order to the effect that Mrs Jeffery have 14 days in which to file an affidavit deposing to matters affecting her occupation of the land. I made that order on the basis that, on the material before me, it appeared that the respondents’ solicitor had not discharged his duties to his clients with respect to the proper preparation of his clients’ case for hearing.
31 The matter was set down for further case management on 3 April 2019.
32 Mrs Jeffery filed no affidavit in the meantime and ANZ made no application within the ordered time frame. On 27 March 2019, solicitors for ANZ informed the Court that their client no longer opposed the orders sought by the Trustee. At its request, ANZ was excused from further attendances.
33 I directed that the substantive hearing be immediately resumed on 3 April 2019 so that it may be finally determined.
34 Mr and Mrs Jeffery again appeared self-represented. They informed the Court that their solicitor had passed away. Mrs Jeffery said that she had not filed an affidavit concerning her occupation of the land because she and Mr Jeffery had been personally distressed at the passing of their former solicitor.
35 In the circumstances described, I provided Mrs Jeffery with the opportunity to give oral evidence concerning her assertion that she derived income from the operation of a business, notwithstanding that she and Mr Jeffery had terminated the solicitor’s retainer. The effect of Mrs Jeffery’s evidence in chief was that she had operated a hairdressing business for about 20 years and that while residing in the home at Monash the business was conducted from an outbuilding situated on the land. That business, se said, was now the source of the family’s income.
36 There was then a further adjournment to enable the Trustee to obtain documents bearing on the matters raised in Mrs Jeffery’s oral evidence and to prepare further affidavits and submissions concerning the transfer of water entitlements affecting the land and other matters.
JURISDICTION
37 The respondents’ written submissions largely address the topic of the Court’s power to make the orders sought on the Trustee’s originating application. The submissions were filed at a time when the respondents’ solicitor remained on the Court file. They appear to be incomplete and are somewhat jumbled. The respondents’ argument, as I understand it, proceeds as follows:
(1) jurisdiction is vested in the Federal Court of Australia by s 39B(1A)(a) of the Judiciary Act with respect to any matter in which the Commonwealth is seeking an injunction or declaration;
(2) the Trustee is not the Commonwealth and the matter may therefore be distinguished from Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] FCA 1; (2001) 204 CLR 559;
(3) the originating application is made in respect of a matter “arising out of and exclusively governed by” a State law (namely the LP Act) and there is no corresponding provision in a Commonwealth statute;
(4) the LP Act defines the word “court” to mean the Supreme Court of South Australia and the District Court of South Australia;
(5) the Federal Court does not fall within the definition of a “court” for the purposes of the LP Act, and even if it did “State jurisdiction cannot be conferred on the Federal Court”.
38 The second of these propositions may be accepted in part. The Trustee is not the Commonwealth.
39 Subject to what is said below about the operation of s 79 of the Judiciary Act, it may also be accepted that the word “court” is defined in the LP Act in terms that do not include this Court.
40 The respondents’ submissions must otherwise be rejected.
41 The conclusion that this Court has jurisdiction in this matter and the power to make the orders sought by the Trustee may be reached by two alternate paths of reasoning.
42 First, this Court has such original jurisdiction as is vested in it by laws made by the Parliament: Federal Court of Australia Act 1976 (Cth) (FCA Act), s 19(1). Section 22 of the FCA Act provides:
22 Determination of matter completely and finally
The Court shall, in every matter before the Court, grant, either absolutely or on such terms and conditions as the Court thinks just, all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward by him or her in the matter, so that, as far as possible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of proceedings concerning any of those matters avoided.
43 Subsection 32(1) of the FCA Act provides that, to the extent that the Constitution permits, the Court has jurisdiction in respect of matters not otherwise within its jurisdiction that are associated with matters in respect of which the jurisdiction of the Court is invoked.
44 Section 39B(1A)(c) of the Judiciary Act provides that the original jurisdiction of this Court includes jurisdiction in any matter arising under any laws made by the Parliament (subject to certain exceptions that do not apply).
45 The present “matter” is a controversy principally between the Trustee and Mrs Jeffery as to whether the land should be partitioned or sold so that the interest in the land that is vested in the Trustee by virtue of s 58(1) of the Bankruptcy Act may be converted into money for distribution among Mr Jeffery’s creditors. Also in dispute is the question of whether Mr Jeffery should be ordered to vacate the land and to remove his personal possessions from it, and as to whether he should be required to execute such instruments as are necessary to effect or facilitate the sale.
46 There can be no doubt that the Trustee’s interest in the land is property that is divisible among Mr Jeffery’s creditors pursuant to s 116(1)(a) the Bankruptcy Act.
47 Also vested in the Trustee is the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as may be exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy: Bankruptcy Act, s 116(1)(b).
48 At the commencement of his bankruptcy, Mr Jeffery had the capacity to exercise, for his own benefit, powers in and over or in respect of his interest in the land, which included a capacity to bring an application for the partition or sale of the land under s 69 and s 70 of the LP Act. In my view, the severance of the joint tenancy and the conversion of each co-owners’ interests into that of tenants in common did not affect the rights of either co-owner to issue proceedings for the partition or sale of the land so as to realise their respective interests in it.
49 The Trustee’s duties, functions and powers in connection with Mr Jeffery’s property are conferred by the Bankruptcy Act. They include:
(1) a duty to determine whether the bankrupt’s estate includes property that can be realised to pay a dividend to creditors (s 19(1)(a));
(2) a duty to take appropriate steps to recover property for the benefit of the estate (s 19(1)(f));
(3) a duty to apply the proceeds of the property of the bankrupt in the order prescribed in s 109 of the Bankruptcy Act;
(1) a duty to declare and distribute dividends amongst the creditors who have proved their debts, with all convenient speed (s 140(1));
(2) a duty to distribute as dividend all moneys in hand (s 140(2));
(3) the power to sell all or any part of the property of the bankrupt (s 134(1));
(4) the power to otherwise administer the property of the bankrupt in any way specified in ss 134(1)(a) to (n), or in any other way (s 134(1)(m)).
50 The Trustee seeks relief in this proceeding for the purpose of exercising powers and functions conferred by a law of the Parliament in respect of the Trustee’s interest in property, being an interest that owes its existence to a law of the Parliament. The Trustee’s capacity to commence proceedings in respect of the land is a capacity that itself is exercisable by virtue of (at least) s 19(1)(f), s 58(1), s 116(1)(a) and (b) and s 134(1)(m) of the Bankruptcy Act.
51 The “matter” is one in which the sale of the whole of the land is resisted by the co-owner, a non-bankrupt, as well as by the bankrupt himself.
52 In the circumstances I have described, the matter arises under a law made by the Parliament within the meaning of s 39B(1A)(c) of the Judiciary Act and the Court is exercising federal jurisdiction in respect of it. The jurisdiction being exercised is equivalent to that conferred by the High Court by s 76(ii) of the Commonwealth of Australia Constitution Act. By this path of reasoning, jurisdiction is attracted whether or not the power to make the orders sought by the Trustee in the resolution of the controversy is conferred in direct terms by the Bankruptcy Act or another law of the Commonwealth Parliament. In the exercise of federal jurisdiction, the Court must look to ss 79 and 80 of the Judiciary Act to supply the applicable law.
53 Secondly, the Court has jurisdiction to determine the whole of the controversy because the relief sought by the Trustee includes orders under s 30 of the Bankruptcy Act for the enforcement of Mr Jeffery’s obligations under s 77 of the Bankruptcy Act. Those orders relate not only to the land and Mr Jeffery’s occupation of it, but to certain water entitlements that do not run with the land in a proprietary sense, as discussed elsewhere in these reasons. The orders would also require Mr Jeffery to permit a licensed land agent to attend on the land for the purpose of effecting its sale. Transfer of the water entitlements to an incoming purchaser of the land is sought for the purpose of achieving a higher purchase price for the whole of the land so as to maximise the proceeds of the sale of the Trustee’s interest in the land for distribution among Mr Jeffery’s creditors. It follows from these considerations that the Court has jurisdiction in the matter by virtue of ss 19(1), 22 and 32 of the FCA Act together with ss 27, 30 and 77 of the Bankruptcy Act, whether or not regard is had to s 39B(1A)(c) of the Judiciary Act. The realisation by the Trustee of the monetary value of the water entitlements and Mr Jeffery’s interests as an occupier of the property form inextricable parts of a single controversy, of which the proposed sale of the land against Mrs Jeffery’s wishes as co-owner also forms a part.
54 Whichever path of reasoning is adopted, the Court is exercising federal jurisdiction. As has been said, in the exercise of federal jurisdiction, the laws to be applied are those identified by s 79 and 80 of the Judiciary Act. Neither the Trustee nor the respondents submitted that the law to be applied was that to be identified by reference to s 80 although it may be that the same result would ensue if that provision were first to be applied.
55 As to s 79, the case is one in which the LP Act is “applicable” within the meaning of that provision because it establishes a regime by which the respective rights of two or more persons having an interest in land may be identified, contested and adjusted.
56 It is the Trustee’s position that there is no Commonwealth law that establishes an alternate regime by which the co-owner of land may obtain orders for the sale of the whole of the land so that the co-owner’s interest in the land may be converted into money. Whilst a person holding an interest as tenant in common in land is entitled at law to deal with that interest, that circumstance does not preclude the person from seeking an order that the land be partitioned or sold. I am satisfied that, for the purposes of s 79 of the Judiciary Act, there is no law of the Commonwealth that “provides otherwise”. In this regard it is necessary to explain why the Trustee has not sought an order for the sale of the land pursuant to s 30 of the Bankruptcy Act.
57 In Coshott v Prentice (2014) 221 FCR 450 (at [94], [119] to [122]) the Full Court determined an appeal from orders that provided for the sale of land on the application of the trustee of a bankrupt estate. Immediately prior to the bankruptcy, the land had been jointly owned by the bankrupt and his wife. The principal issue at trial and on the appeal was whether the bankrupt held his interest in the land on trust for a private superannuation fund or otherwise pursuant to a resulting trust in favour of a third party. The primary judge held that he had not, with the consequence that the bankrupt’s interest in the land was property that had vested in the trustee under s 58(1) and was divisible among the bankrupt’s creditors. On the application of the trustee made within the same proceeding, the primary judge made orders for the sale of the land under s 66G of the Conveyancing Act 1919 (NSW).
58 On appeal it was argued that neither s 30 of the Bankruptcy Act nor s 66G of the Conveyancing Act conferred power on the primary judge to make an order for the sale of the land.
59 The Full Court held (at [100]) that the general power in s 30(1) of the Bankruptcy Act did not extend to the making of orders for the sale of property which was co-owned by a person who is not the bankrupt, thereby destroying that person’s rights in the property. The reasoning of the Full Court toward that conclusion is set out at length at [91] to [104] of the reasons for judgment. It is unnecessary to extract the Court’s reasoning here.
60 The Full Court went on to conclude that as the Court was exercising federal jurisdiction, s 79 of the Judiciary Act supplied the law by which an order for the sale of the property may be made as against the interests of a co-owner, that law being the Conveyancing Act. Accordingly, whilst s 30 of the Bankruptcy Act did not confer power on the Court to make the order for sale, the power was conferred by the law of the State in which the Court was sitting, in accordance with s 79 of the Judiciary Act.
61 In Coshott the Court had jurisdiction under s 39B(1A)(c) of the Judiciary Act because there was a controversy between the parties as to whether the bankrupt’s interest in the property had vested in the trustee, such that the matter was one in which an issue arose under a law made by the Parliament, namely the Bankruptcy Act. The trustee in that case had sought declaratory relief to confirm the existence of the interest he claimed had vested in him. The trustee’s application for orders for sale of the property formed a part of the same “matter”.
62 I have not overlooked the circumstance that, in the present case, there is no antecedent controversy as to whether the interest of Mr Jeffery has vested in the Trustee. Here, the trustee of a bankrupt estate makes an application for orders for sale of land in which he has an undisputed interest and so the “matter” must be conceived of differently than the matter that attracted the Court’s jurisdiction in Coshott. It is, notwithstanding that difference, a matter that the Court has jurisdiction to hear and decide by either path of reasoning I have identified above. This is, as I have said, a matter involving the exercise of federal jurisdiction within the meaning of s 79 of the Judiciary Act.
63 The Full Court in Coshott went on (at [109] to [114]) to explain the operation of the Judiciary Act in that case in a way that conveniently (and by analogy) disposes of any remaining challenge made by the respondents in respect of the Court’s jurisdiction and powers:
The power to appoint trustees for sale is conferred upon the “court”. That term is defined in s 7(1) of the Conveyancing Act to mean the Supreme Court. On its face, the power conferred by s 66G does not extend to this Court. Nor in any event could a State law operate directly and of its own force in the exercise of federal jurisdiction: APLA Ltd v Legal Services Commissioner of New South Wales (2005) 224 CLR 322 at 406 [229] (Gummow J); Re Wakim; Ex part McNally (1999) 198 CLR 511 (Re Wakim) at 558 [59], 559 [61].
It is at this point that s 79 of the Judiciary Act comes into play. The section provides that:
The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.
The High Court has held that s 79 operates to pick up and apply both procedural and substantive State law as a surrogate federal law, thereby enabling courts exercising federal jurisdiction to provide remedies afforded otherwise only under State law in the exercise of State jurisdiction. To the extent that it was pressed, the appellants’ argument that s 79 is limited to procedural laws must be rejected. As Gleeson CJ, Gaudron and Gummow JJ explained in Australian Securities Investment Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 599 (Edensor) at 591-592 [68]:
It is well established from the decisions under s 79 of the Judiciary Act, most recently that in Austral Pacific Group Ltd (In liq) v Airservices Australia [(2000) 203 CLR 136 at 143 [13]], that a State statute may be applicable as a source of rights and remedies in federal jurisdiction even though, on its own terms, that law identifies only the courts of the enacting State as the courts to provide those remedies.
(Emphasis added)
Their Honours continued to explain that, if s 79 did not operate in this way:
…the operation of Federal jurisdiction might readily be stultified. There might be withdrawn from courts exercising federal jurisdiction (including this Court) the effective authority to quell controversies in respect of which, by reason, for example, of the identity of parties, s 75 of the Constitution had conferred original jurisdiction upon this Court and s 77 empowered the Parliament to grant authority to the other federal courts and to State courts exercising federal jurisdiction. An attempt by State law to achieve that result would, as to this Court, be repugnant to s 75 of the Constitution. Where jurisdiction was conferred by a law made by the Parliament in exercise of its powers under s 77 of the Constitution, the State law also would be invalid for inconsistency under s 109 of the Constitution.
Thus, while s 79 of the Judiciary Act does not enlarge the reach of State laws as a matter of construction of the State law, the fact that the State law provides only for State courts to enforce its provisions is no impediment to the operation of s 79. As McHugh J explained in Edensor at 612 [137], “The fact that a State statute either expressly or as a matter of construction provides only for State courts to enforce its provisions does not mean that it cannot be ‘picked up’ and applied by s 79 of the Judiciary Act in the exercise of federal jurisdiction.”
The position is different, however, if the State law is not applicable for some other reason. As McHugh J also explained, “courts exercising federal jurisdiction should operate on the hypothesis that s 79 will apply the substance of any relevant State law in so far as it can be applied”: Edensor at 613 [141] (emphasis added).
64 The Full Court went on to reject the appellants’ arguments as to why the Conveyancing Act was not “applicable”.
65 I now turn to consider whether the evidence bearing on the question of whether the order for sale should be made.
FACTS
66 For the most part, the facts are not contentious. I make the following findings on the basis of the affidavit evidence, and the oral evidence of Mrs Jeffery.
67 Mr and Mrs Jeffery purchased the land in 2003 for $340,000. They have resided in the property since that time and have three minor children, all of whom still live at home.
68 The Trustee has caused a land agent to perform a “kerb side appraisal” of the land. On the basis of that appraisal, the Trustee believes the Land is valued at between $360,000-$370,000. That appraisal did not have regard to the value of any water entitlements that might be sold together with the land.
69 The land is subject to a mortgage granted in favour of ANZ in respect of two loans. As at November 2018, the amount outstanding on the loans was a little over $201,000.
70 There are outstanding council rates owing on the land in excess of $13,000 and that liability appears to be growing.
71 At the commencement of these proceedings it was the Trustee’s view that there was likely to be some equity in the estate’s share of the land after payment of amounts owing to ANZ and other expenses.
72 In October 2017, the former trustees of Mr Jeffery’s bankrupt estate wrote to Mrs Jeffery with respect to the land. The trustees confirmed that Mr Jeffery’s interest in the land had vested in them. They informed Mrs Jeffery of their obligation to realise that interest for the benefit of Mr Jeffery’s creditors. Mrs Jeffery received and understood that letter. I find that from October 2017, Mrs Jeffery contemplated that the family home may be sold against her wishes.
73 The Trustee wrote again to Mr Jeffery in July 2018. By that letter, the Trustee advised of his appointment and stated that Mr Jeffery’s interest in the land had vested in him for the benefit of Mr Jeffery’s creditors. The Trustee advised Mrs Jeffery of his wish to appoint a real estate agent to market and sell the property. He also advised Mrs Jeffery of her option to make an offer to buy the Trustee’s interest and encouraged her to make a prompt proposal if she wished to adopt that course. The Trustee advised Mrs Jeffery of her option to cooperate with the sale and notified her that proceedings might otherwise be commenced for orders for the sale of the property, including orders for vacant possession.
74 Soon after this correspondence was sent, Mr and Mrs Jeffery’s solicitor wrote to the Trustee’s solicitor advising that he was acting for them. He continued to correspond with the Trustee’s solicitor in the latter months of 2018 in relation to the property and Mr Jeffery’s bankruptcy more generally. In so far as the land was concerned, I find the solicitor’s correspondence to be obstructive, unresponsive or otherwise unhelpful. Neither Mr Jeffery nor Mrs Jeffery agreed to permit any person to enter the land to conduct a valuation, nor did Mrs Jeffery make an offer to purchase the Trustee’s interest in the land, at least not an offer that was capable of acceptance. As I have said, the solicitor said that he did not have instructions to accept service of initiating documents in these proceeding, thus putting the Trustee to the expense of personally serving Mrs Jeffery and preparing an application for orders for substituted service in relation to Mr Jeffery.
75 I find that as at late 2018, Mr Jeffery had not cooperated in the administration of the bankrupt estate more generally. More particularly, he did not complete a Statement of Affairs as required by s 54 of the Bankruptcy Act until 26 November 2018, nearly two years after the bankruptcy commenced. As a consequence, the period of Mr Jeffery’s bankruptcy has been prolonged and the investigation of his affairs rendered more difficult.
76 I find that the land has no domestic water supply. Water is provided by way of allocation and irrigation rights through a trust known as the Central Irrigation Trust (CIT). CIT is a trust established for the purposes of the Irrigation Act 2009 (SA). It is the joint position of the parties that, although the water entitlements relate to the land and are issued in respect of the land, they may, at least in some respects, be traded as property independently of the transfer of the land itself. Neither party assisted the Court to understand the precise legal mechanisms by which the water rights arise or may be dealt with.
77 I find (and it does not appear to be disputed) that properties without the domestic water supply are common in the Riverland region where the land is situated and that transfers of land commonly occur together with transfers of the water entitlements.
78 The entitlements are certified by the CIT. The relevant certificate is that annexed to the affidavit of Natalie Jennifer Abella sworn on 19 February 2019 at NJA-11. The CIT does not have a system of registering the rights of members of the trust to hold water allocation or irrigation rights. The Trustee has nonetheless notified the CIT of his interest in the land and in the water rights themselves, and these have been noted by the CIT. I find that the transfer of the water rights will depend upon the approval of the CIT, whether or not they were transferred together with the transfer of ownership of the land itself.
79 Mr Jeffery submits that there is a market for the water allocation rights which he values at $6,100 per megalitre, and there is some support for that submission in the evidence upon which the Trustee relies. On the basis of that evidence, I find that the water entitlements are property of some monetary value and that Mr Jeffery’s interest in the water entitlements have themselves vested in the Trustee and are divisible among his creditors. Mrs Jeffery nonetheless remains a co-owner of the water rights, howsoever described.
80 I find that Mrs Jeffery operates a hairdressing salon from the home or another building situated on the property and that she has done so since around 2003. I find that it is a successful business and an important part of the family life. By reason of Mr Jeffery’s bankruptcy, I infer that income derived from the hairdressing business is a primary source of income for the family.
81 I find that Mr Jeffery has an interest in the land as an occupier of it. His interest as an occupier arises by virtue of his marriage to Mrs Jeffery. In legal terms he is, in my view, entitled to reside at the property on the license of Mrs Jeffery who maintains her interest as a co-owner of the land in accordance with the general law.
SUBMISSIONS
82 Mr and Mrs Jeffery’s submissions were to the effect that the sale of the property would cause considerable hardship to them and to their children. They question the motivations of the Trustee and expressed concerns that there would be insufficient equity remaining in the property upon its sale to achieve any proper purpose in the administration of Mr Jeffery’s bankrupt estate. From the bar table they asserted that they had made an offer to the Trustee to “pay the debt” and complain that they had not been told how much they “owed”. I understand these submissions to proceed on an assumption that the predicament now faced by them may be resolved by paying the debt that originally formed the subject of the creditor’s position that resulted in the sequestration order. Mr and Mrs Jeffery expressed dismay that the original debt in the amount of $30,000 could result in loss of the family home. That dismay is unsurprising in light of the quality of legal representation that they seemed to have received in the proceedings.
83 Mr and Mrs Jeffery also expressed concern that they would not have control over the reserve price that might be set should there be an order that the home be sold by way of public auction. They submitted that they should not be required to give vacant possession of the property within 28 days, being the timeframe specified in the Trustee’s minutes of order. They submitted that it was not possible for Mrs Jeffery to relocate her business within that time. I understand the submissions to mean that the orders sought by the Trustee were oppressive and would cause great hardship.
84 In written submissions, it was also contended that the Bankruptcy Act could not operate so as to cause a man to live separately from his wife.
85 The Trustee submitted that on an application under ss 69 and 70 of the LP Act, considerations of hardship and fairness were irrelevant. Reliance was placed on the remarks of Mason P (as he then was) in Hogan v Baseden [1997] NSWCA 151in which his Honour said at [1] in relation to an equivalent provision in s 66G of the Conveyancing Act 1919 (NSW):
It would not be a proper exercise of the power to decline relief under s66G of the Conveyancing Act to refuse an application on grounds of hardship or general unfairness: See Re McNamara and the Conveyancing Act (1961) 78 WN (NSW) 1068; Ngatoa v Ford (1990) 19 NSWLR 72 at 75. It follows that in the unhappy event that the parties are unable to settle their differences then the making of an order appointing trustees for sale seems inevitable unless the respondent could establish a legally binding agreement not to put her out of occupation of her home, or circumstances that would ground some estoppel to similar effect. On either issue the Court would need to address at least four questions: first, whether anything that was said on the particular topic was intended to have legal effect; secondly, whether any arrangement or understanding (if legally effective) it was intended to apply in the circumstances which happened following the breakdown of amicable relations between the parties; thirdly, whether any agreement or understanding was subject to a condition that the respondent would dispose of her remaining interest in the property in any particular way upon her death; fourthly, whether the rights (if any) of occupancy reserved to the respondent under such arrangement (if it existed) were in the nature of a life estate or a right of residence terminable upon the respondent vacating occupancy for any reason.
86 The Trustee submitted that a tenant in common ordinarily should obtain an order for the sale of land as of right, absent the contractual or equitable claim raised against his or her proprietary interests by the other co-owner. There are, as I have said, no such claims raised by Mrs Jeffery vis-à-vis the interest previously held by Mr Jeffery in this case.
87 The Trustee further submitted that if the order for sale were not made, then the Bankruptcy Act will operate such that Mr Jeffery’s interest would remain vested in the Trustee for a period of at least six years beyond the discharge of Mr Jeffery’s bankruptcy which, by reason of the late lodgement of his statement affairs, would not occur for another three years. Whilst Counsel for the Trustee acknowledged that the Trustee may dispose of or otherwise deal with his interests as a tenant in common other than by seeking an order for the sale of the whole of the land, the situation in the present case is complicated by the existence of a mortgage securing loans owed to ANZ by Mr and Mrs Jeffery jointly. Any sale by the Trustee of his interests to Mrs Jeffery (or, for that matter, to any other person) would, it was submitted, require the approval of ANZ).
CONSIDERATION
88 I accept the Trustee’s submissions as to the operation of the Bankruptcy Act should an order for sale not be made.
89 In the circumstances as I have described them I have determined that it is appropriate to make an order that the land be sold together with the water entitlements relating to it. In reaching that conclusion I afford considerable weight to the duties of the Trustee and the interests of Mr Jeffery’s creditors. I do not consider it practicable for there to be a partition of the land, especially having regard to the interests of ANZ and the limited equity that might yet be gained upon the land’s sale.
90 I have had regard to the possibility that Mr and Mrs Jeffery might yet obtain sufficient funds to either purchase the Trustee’s interest or to come to other arrangements whereby the Trustee might see fit to disclaim or otherwise compromise his interest in the land. However, I do not consider that, of itself, to be a reason not to make an order for sale. Rather, it is a factor that may be taken into account when considering the form of ancillary orders that should be made in the exercise of the Court’s discretion as to how and when the sale should occur.
91 It is not necessary to consider whether the sentiments expressed by Mason P in Hogan are correct, and if so, whether they apply equally to the discretion conferred by ss 69 or 70 of the LP Act. The limits of the discretion conferred by ss 69 and 70 are to be discerned from the LP Act as a whole. In my view, the circumstances of this case are such that the land should be sold notwithstanding the hardship that may be suffered by Mr and Mrs Jeffery and their three minor children by the fact of the sale per se.
92 Considerations of hardship do, however, weigh in my consideration of the ancillary orders that should be made.
93 The orders proposed by the Trustee would require Mr and Mrs Jeffery to give vacant possession of the property within 28 days of the date Court’s order.
94 Two issues arise. The first is whether vacant possession should be given at any time prior to the settlement on the sale of the land to the incoming purchaser. The second is, if vacant possession should be given, when that should occur.
95 In respect of the first question I give considerable weight to the circumstance that Mrs Jeffery has been on notice since 2017 of the wish of the Trustee to sell the land. I also find that correspondence sent on Mr and Mrs Jeffery’s behalf by their solicitor was productive of delay and did not appear to assist Mrs Jeffery at all. By that correspondence, the Trustee provided Mrs Jeffery with an opportunity to cooperate with the sale of the property and so vacate the land within a timeframe that would be far less disruptive to her and to her family than the timeframe that is now proposed.
96 I have also weighed the submissions made on behalf of Mr and Mrs Jeffery which indicate that they are resentful of the consequences of Mr Jeffery’s bankruptcy and of the Trustee and so may not be minded to cooperate with the steps that are to be taken in order to effect the orderly sale of the land.
97 I weigh against these factors the circumstance that, in my view, Mr and Mrs Jeffery have for all intents and purposes been unrepresented in the sense that they have not had competent legal advice and representation. Their resentment and their apparent non-cooperation is, in my view, explained, to some extent, by their ignorance as to the operation of the law.
98 I am not satisfied that the property will yield a higher sale price merely because it is vacant at the time that is marketed for sale. The vacation of the property during the marketing period should only be ordered to prevent Mr and Mrs Jeffery from frustrating or prolonging the sale process.
99 On balance, I consider that the order for the sale of the property and the water entitlements should be done in such a way that would give Mrs Jeffery an opportunity to cooperate in the sale of the land as a co-owner and so maximise the prospect of her achieving the best sale price that can be achieved in all the circumstances. I will propose ancillary orders to the parties so that they may be heard on their terms before the ancillary orders are made and entered.
100 I am also satisfied that the ancillary orders should provide for the appointment of a land agent and a conveyancer who are truly independent in the sense that the identity of those persons should either be agreed or appointed in a way that is provided for in the Court’s orders. The minutes of order as presently proffered by the Trustee do not make adequate provision for the appointment of a land agent who is truly independent, nor do they make adequate provision for Mrs Jeffery, as co-owner, to participate and cooperate in the orderly sale.
101 In my view, it is not necessary to state on the face of the orders themselves the statutes pursuant to which they are made. At least in the case of Mr Jeffery, there are alternate sources of power. To be clear, the orders should be understood as having been made against Mr Jeffery in his capacity as the bankrupt pursuant to s 30 and s 77 of the Bankruptcy Act and in his capacity as an occupier of the land pursuant to s 69 and s 70 of the LP Act. As against Mrs Jeffery, the orders for sale are made pursuant to s 69 and s 70 of the LP Act as applied in the proceedings in the manner I have identified earlier in these reasons.
102 The Court makes the following orders:
1. Subject to these orders, the land comprised in Certificate of Title Register Book Volume No 5403 Folio 413 and the improvements on it (“Land”) be sold, together with such water allocation or irrigation rights (“Water Entitlements”) relating to the Land as evidenced in the certificate forming annexure NJA-11 to the affidavit of Natalie Jennifer Abela sworn on 19 February 2019.
2. Within 14 days, the Applicant and the Second Respondent appoint a Land Agent to effect the sale of the Land together with the Water Entitlements, such Land Agent to be:
2.1 identified by agreement between the Applicant and the Second Respondent within 7 days of these orders; or, failing such an agreement
2.2 a person nominated by the Real Estate Institute of South Australia Inc, being a person:
2.2.1 having a place of business situated in the Riverland in South Australia; and
2.2.2 not being a person previously engaged or instructed by the Applicant for any purpose connected with the sale or proposed sale of the Land.
3. Prior to entering any contract for the sale of the Land, the Applicant and the Second Respondent are to appoint a registered Conveyancer who is to act for the Applicant and the Second Respondent in the transaction, such Conveyancer to be:
3.1 a person identified by agreement between the Applicant and the Second Respondent; or, failing such an agreement
3.2 a person nominated by the Land Agent.
103 The parties are to be provided with an opportunity to be heard in respect of the following additional and ancillary orders, which are intended to provide for an orderly sale process in which Mrs Jeffery’s interests are observed and in which she may participate and cooperate:
4. The Applicant is to serve a sealed copy of this order upon the Land Agent and the Conveyancer within 7 days of their respective appointments.
5. The proceeds of the sale of the Land (including any deposit payable in accordance with the terms of the contract for sale) are to be deposited into a trust account operated by the Conveyancer and instructions for the disposition of the proceeds from the trust account are to be given jointly by the Applicant and the Second Respondent in accordance with these orders.
6. The Land is to be sold by way of auction, subject to any agreement between the Applicant and the Second Respondent that the Land be sold by private treaty.
7. If the Land is to be sold by auction, it is to be sold by public auction in accordance with the conditions of sale for auctions approved by The Real Estate Institute of South Australia Inc by such auctioneer and at such reserve price as recommended by the Land Agent, such recommendation to be:
7.1 given and explained in writing; and
7.2 on the basis of the vendor being neither anxious nor reluctant to sell.
8. If the Land is to be sold by way of auction, the auction is to be conducted on a date specified by the Land Agent, being a date no sooner than 4 weeks following the date upon which the Land is first advertised for sale.
9. Subject to these orders, the First and Second Respondents are to permit the Land Agent to enter the Land without notice for any purpose connected with the marketing of the Land and its sale (including the sale of the Water Entitlements), at any time between the hours of 9 am and 6 pm on week days and between 11 am and 4 pm on other days.
10. The permission in paragraph 9 of these orders is to extend to any prospective purchaser accompanying the Land Agent and any other person accompanying the Land Agent for the purpose of preparing marketing materials in connection with the Land or conducting an auction for the sale of the Land.
11. The First and Second Respondents must not inhibit or otherwise interfere with the activities of the Land Agent or any other person accompanying the Land Agent in accordance with these orders.
12. The First and Second Respondents must implement such recommendations as may be given by the Land Agent for the removal of rubbish from the Land and for the cleaning of any improvements on the Land for the purpose of presenting the Land for sale.
13. If the Land is not sold at auction, or within such further time after the auction as the auctioneer may have the sole right to sell, the Land is to be sold by private treaty at a price and upon such terms and conditions as are recommended by the Land Agent.
14. The costs of advertising the Land for sale by auction or private treaty be limited to reasonable costs, having regard to the recommended reserve price or the recommended sale price as the case may be.
15. No later than 14 days prior to the date of the settlement of the sale of the Land, the First and Second Respondents are to:
15.1 give up vacant possession of the Land; and
15.2 remove from the Land all vehicles, rubbish and chattels that have not vested in the Applicant (Personal Property).
16. In the event that the First Respondent and the Second Respondent fail to give up vacant possession of the Land in accordance with the order in paragraph 15(a), a Writ of Possession be issued forthwith in favour of the Applicant.
17. In the event that the First and Second Respondents fail to remove the Personal Property from the land in accordance with the order in paragraph 15(b), the Applicant may remove and dispose of the Personal Property as he sees fit and the Applicant’s expenses shall be payable to the Applicant by the Second Respondent.
18. Upon settlement of the sale of the Land, the Applicant and the Second Respondent are to cause:
18.1 the amount due under any mortgage secured over the Land to be paid to the mortgagee;
18.2 the payment of all other costs and expenses and the discharge of all liabilities owed by them as vendors of the Land as are necessary to effect the transfer of the Land;
18.3 the payment of all other costs associated with the sale of the Land including the costs of the Land Agent and the Conveyancer.
19. Within 14 days after settlement of the sale of the Land, the Applicant and the Second Respondents are to instruct the Conveyancer to pay:
19.1 50 per cent of the net proceeds to the Applicant, then:
19.2 any amount owing to the Applicant by paragraph 17 of these orders as evidenced by written receipts; then
19.3 the remainder to the Second Respondent.
20. The First Respondent and the Second Respondent are to execute and return any and all documents necessary to effect the sale of the Land and the Water Entitlements, including all documents necessary to make the appointments referred to in these orders.
21. Where no time frame is specified in these orders for the execution of a document or the giving of instructions, the document must be executed and the instructions given within a time frame specified by the Applicant.
22. The parties have liberty to apply at short notice for further orders and directions, including for orders that the First and Second Respondents give immediate vacant possession of the Land by virtue of their non-compliance with any one of the orders, or for any other relief.
104 I will hear the parties as to costs.
I certify that the preceding one hundred and four (104) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Charlesworth. |
Associate:
