FEDERAL COURT OF AUSTRALIA

Trustees of the Property of Shane L Fuz (Bankrupt); in the matter of Shane L Fuz (Bankrupt) v NSW Trustee and Guardian [2019] FCA 1311

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant is to bring in Short Minutes of Order to give effect to these reasons within seven days.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

FLICK J:

1    In February 2012, Mr Shane Fuz was declared bankrupt pursuant to a sequestration order made by the then Federal Magistrates Court.

2    As at February 2012, Mr Fuz and his wife were joint owners of a property at Nowra. Mr Fuz’s wife, Ms Joanne Fuz, died in July 2015. The beneficiaries under the Ms Fuz’s Will were her four children – Joshua, Mathew, Jayanne and Aaron. Notwithstanding her death in 2015, no application for probate has been made.

3    After the death of his wife, Mr Fuz continued to reside in the Nowra property.

4    The son Aaron was also declared bankrupt pursuant to a sequestration order made in July 2016.

5    The trustees of the bankrupt estate of Mr Fuz now apply for an order pursuant to s 66G of the Conveyancing Act 1919 (NSW) (the “Conveyancing Act”) for the sale of the Nowra property.

6    As set out in the Statement of Affairs filed by Mr Fuz in December 2012, the Nowra property is the only known asset of the bankrupt estate of Mr Fuz, other than an insignificant amount in a bank account, limited superannuation and a motor vehicle.

7    The Nowra property is the subject of a mortgage to the Commonwealth Bank of Australia. But there do not appear to be any monies owing under that mortgage.

8    At present, the known liabilities of Mr Fuz which have not been satisfied include:

    a claim by the Australian Taxation Office for the sum of $98,137.52;

    a claim made on behalf of the Australia and New Zealand Banking Group Limited for personal credit card debts in the sum of $16,861.99;

    a claim by a former trustee in the sum of $4,337.99; and

    a claim by the current trustees for their remuneration in the sum of $16,540.34.

As yet, however, the trustees have not called for formal proofs of debt to be lodged in respect to Mr Fuz’s estate.

9    The objective sought to be achieved by the trustees of Mr Fuz’s estate is thus to secure the sale of the Nowra property so that half of the monies received on sale (less allowable expenses) can become available for distribution to the presently known creditors and such other creditors as may lodge formal proofs of debt.

10    The Application is to be granted.

The powers & duties of a trustee in bankruptcy

11    A principal duty of a trustee in bankruptcy is to take possession of the property of a bankrupt and to realise that property for the purpose of satisfying the debts of the bankrupt’s creditors.

12    The duties of a trustee include those set forth in s 19(1) of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”) in part as follows:

The duties of the trustee of the estate of a bankrupt include the following:

(a)    notifying the bankrupt’s creditors of the bankruptcy;

(b)    determining whether the estate includes property that can be realised to pay a dividend to creditors;

(c)    reporting to creditors within 3 months of the date of the bankruptcy on the likelihood of creditors receiving a dividend before the end of the bankruptcy;

(e)    determining whether the bankrupt has made a transfer of property that is void against the trustee;

(f)    taking appropriate steps to recover property for the benefit of the estate;

…

The duties set forth in s 19 are not exhaustive but “inclusive”: Tapp v LawCover Insurance Pty Ltd [2013] FCA 35 per Rares J at [15]. One of the “dual function[s]” of a trustee is to “administer the estate in the interests of the creditors and the bankrupt”: Adsett v Berlouis (1992) 37 FCR 201 at 208 per Northrop, Wilcox and Cooper JJ. See also: Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550 at 560 per Foster, von Doussa and Sundberg JJ.

13    The powers of a trustee include those set forth in s 134(1) of the Bankruptcy Act, which includes a power to “sell all or any part of the property of the bankrupt”.

14    If necessary for the purposes of discharging their duties as trustees, an available course in an appropriate case is for a trustee in bankruptcy to apply for a “partition order” or “sale order”, in respect of property jointly held by a bankrupt with another person, pursuant to s 66G of the Conveyancing Act.

15    Section 66G(1) provides as follows:

Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.

Section 66G may be invoked in the present proceeding by reason of s 79 of the Judiciary Act 1903 (Cth).

16    Although s 66G confers a discretion, the circumstances in which an order will not be made are limited and an order is made “almost as of right”: Ferella v Official Trustee in Bankruptcy [2015] NSWCA 411; (2013) ABC(NS) 452. Tobias AJA (with whom Bergin CJ in Eq agreed) summarised some of the available authorities and the general principles as follows (at 460 to 461):

The relevant principles relating to s 66G of the Conveyancing Act

[36]    The principles applicable to the exercise of the discretion under s 66G to order trustees for sale of a co-owned property were conveniently summarised by Black J in Pascoe v Dyason [2011] NSWSC 1217 at [5]-[8]. Relevantly for present purposes, it is now well-established that although the Court has a discretion whether or not to make an order under the section, the grounds on which it will ordinarily refuse to make one are limited. In particular, there is no general jurisdiction to refuse to grant such an order on the basis of hardship or unfairness. An example of when the limited discretion to refuse to make an order can be exercised is where such an order would be inconsistent with a proprietary right or a contractual or fiduciary obligation: Grizonic v Suttor 12 BPR 22,797 at [8] per Campbell J.

[37]    In Hogan v Baseden (1997) 8 BPR 15,723, Mason P (at 15,723) having observed that it would not be a proper exercise of the power to decline relief under s 66G to refuse an application on grounds of hardship or general unfairness, noted that:

[I]n 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.

[38]    In Cain v Cain [2007] NSWSC 623at [10], Young CJ in Eq noted that the categories of cases in which the Court has declined to grant such an order include: where the legal title is held by trustees and the trust instrument contained its own procedure for sale; where the plaintiff’s conduct rates as an estoppel against the sale; and where an order would be incompatible with a contractual or equitable duty binding the applicant. Furthermore, in Tory v Tory [2007] NSWSC 1078 at [42], White J noted that an order under s 66G:

[I]s almost as of right unless on settled principles it would be inequitable to allow the application.

His Honour confirmed that an application would be refused if making the order would be inconsistent with a proprietary right or contractual or fiduciary obligation on the basis of conventional estoppel or equitable estoppel.

[39]    In Callahan v O’Neill [2002] NSWSC 877 at [8], Young CJ in Eq observed that, as a general rule, any co-owner holding at least 50% of a parcel of real property is entitled almost as of right to an order for sale under s 66G and it is only in situations where it would, under settled principles, be inequitable to permit such an application that an order may be refused. His Honour cited Williams v Legg (1993) 29 NSWLR 687, which I refer to at [41] below. The appellants sought to gain some comfort from his Honour’s remarks suggesting that it could be inferred that where a co-owner held a greater interest than 50%, that fact would be relevant in the exercise of the Court’s discretion to refuse the making of an order. Even if that be so, as appears below, it does not assist the appellants in the present case as the first appellant only held a 50% interest in the Properties.

[40]    In any event, this Court in Ross v Ross 15 BPR 28,945 at [36] noted that the discretion to refuse relief under s 66G was a “limited one”.

The discretion reserved to the Court by s 66G as to the making of an order is thus “a limited one”: Rambaldi v Woodward [2012] NSWSC 434 at [30] per Davies J (“Rambaldi”). See also: Dixon v Watiwat [2012] NSWSC 402 at [20] per Stevenson J; Matta v Matta [2015] NSWSC 963 at [9] to [10] per Black J.

17    With reference to the facts of the present case, upon the making of the sequestration order in February 2012, the property of Mr Fuz became vested in the Official Trustee pursuant to s 58(1) of the Bankruptcy Act. Upon their appointment in October 2016, the property then became vested in the Applicant trustees. The trustees may thus apply for an order pursuant to s 66G of the Conveyancing Act. Even though Mr Fuz was automatically discharged from bankruptcy in December 2015, the time limit within which any power to realise property did not lapse until six years thereafter by reason of s 129AA of the Bankruptcy Act.

18    There is reason to exercise the discretion conferred by s 66G of the Conveyancing Act in favour of granting the Application. In the absence of an order for sale, the indebtedness of the bankrupt cannot be satisfied either in whole or in part. Monies will also thereby become available to the trustees to call for formal proofs of debt.

19    It is appropriate that the trustees in the bankrupt estate of Mr Fuz also be appointed as trustees for sale. As noted by Davies J in Rambaldi [2012] NSWSC 434:

[42]    In the first place, it is appropriate that the bankruptcy trustees should be appointed the trustees for sale. There is clearly a cost saving compared with the appointment of outside trustees for that purpose. Secondly, if other trustees were appointed, including the Defendant, that would not result in no costs on the part of the trustees because they would be obliged to have an involvement in relation to the sale to fulfil their duties under the Bankruptcy Act. Thirdly, the proposed cap on their costs results in an added expense which is very small relative to the likely sale price of the Property.

On the facts of that case, an order for sale of the bankrupt’s property was made and the trustees in bankruptcy were appointed as trustees for sale.

20    Although the proper Respondent to the present proceedings is correctly identified as the New South Wales Trustee and Guardian, a copy of the Application presently being made has been served not only upon the Respondent but also the executors of the estate of Ms Fuz and upon Mr Fuz. At the hearing of this proceeding on 13 August 2019, a solicitor appeared seeking to represent Mr Fuz. Irrespective of whether or not he had a right of appearance and a right to make submissions, the solicitor accepted in such submissions as were made that there was no basis upon which he could oppose the orders being sought by the trustees.

CONCLUSIONS

21    The Application made by the trustees of the bankrupt estate of Mr Fuz is granted.

22    The Applicant should bring in Short Minutes of Order giving effect to these reasons within seven days.

THE ORDER OF THE COURT IS:

1.    The Applicant is to bring in Short Minutes of Order to give effect to these reasons within seven days.

Associate:    

Dated:    21 August 2019