Federal Court of Australia

Kellendonk v State of Western Australia, in the matter of Jasienska-Dudek (a Bankrupt) [2021] FCA 418

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the estate in fee simple in the property described as Lot 1 on Diagram 9645 being the land in Certificate of Title Volume 1658 Folio 167 known as 20 Loton Avenue, Midland in the State of Western Australia (Property), vests in the applicants as joint tenants absolutely.

2.    The applicants must lodge with the second respondent:

(a)    a registrable discharge of Mortgage N318204;

(b)    a sealed copy of these orders; and

(c)    the duplicate certificate of title for the Property.

3.    No order as to costs.

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

REASONS FOR JUDGMENT

JACKSON J:

1    The applicants sought orders under s 133(9) of the Bankruptcy Act 1966 (Cth) vesting in them land registered in the name of Ms Maria Jasienska-Dudek, a bankrupt. The respondents, the State of Western Australia and the Registrar of Titles, did not oppose the orders. At the hearing on 21 April 2021 I made orders substantially to the effect of the primary relief which the applicants sought. These are my reasons for making those orders.

Background

2    For reasons that will be explained, the outcome of the matter depended on the proper characterisation of an informal agreement which the applicants and Ms Jasienska-Dudek reached in 2019.

3    The subject property (Property) is one lot of residential land in Midland, Western Australia. In early 2016, the applicants agreed to lend $350,000 to Ms Jasienska-Dudek to help her buy the Property. The terms were set out in a written 'interest agreement' which Ms Jasienska-Dudek signed on 20 April 2016, which was a brief acknowledgement by her of the debt of $350,000 and of her liability for 'interest' in the sum of $40,000 to be payable within 21 days of settlement. The liability was secured by a first registered mortgage over the Property to the applicants. This provided for payment of the principal in full by 1 December 2016 and 'default interest' at 5% per annum payable on demand.

4    The funds were advanced and on 4 May 2016 Ms Jasienska-Dudek became registered proprietor of the Property, and the applicants became the first (and only) registered mortgagees. Ms Jasienska-Dudek defaulted in repayment of the principal of $350,000 and other amounts owing. She remained in default at all times until the performance of an agreement reached in 2019 which will be described shortly.

5    The first applicant, Mr Kellendonk, has provided unchallenged affidavit evidence of discussions in late 2018 and early 2019 following unsuccessful attempts to market the Property for sale. On 1 October 2018 Ms Jasienska-Dudek's son-in-law, Simon Barry, told Mr Kellendonk that Ms Jasienska-Dudek would agree to sign the Property over to the applicants if they gave her $15,000 cash. Mr Kellendonk declined that offer.

6    On 27 December 2018 solicitors for the applicants sent a letter of demand to Ms Jasienska-Dudek which told her to treat the letter as a notice pursuant to s 108 of the Transfer of Land Act 1893 (WA) (TLA) allowing them to exercise their power of sale under the mortgage. Some correspondence between the solicitors for the applicants and the solicitors for Ms Jasienska-Dudek ensued without resolution, before she ceased to be represented in April 2019.

7    On 10 June 2019, Ms Jasienska-Dudek emailed the applicants' solicitor directly saying:

I am writing about the property at 20 Loton Ave, Midland. As your client, Mr Kellendonk wants to exercise control over the above property, please prepare the document for title transfer to his name and I will sign it.

All the payment related to the property rates, water and power are paid up to date, but I am ceasing this duty as of today. Please ask your client to make necessary changes.

Please note also that Real Estate agent agreed to maintain the marketing sale of the property without extention of sale contract and they are awaiting for further instructions from your client.

8    On 19 June 2019 the solicitor gave a response to the effect that the applicants were considering their options and that due to potential stamp duty implications, 'at this stage they are not willing to engage in a transfer that may be regarded (effectively) as a purchase'. The response told Ms Jasienska-Dudek that she remained liable for rates, water and power.

9    On 13 September 2019, however, the applicants' daughter, Kate Kellendonk, who was acting as their solicitor, emailed Ms Jasienska-Dudek saying (bolding in original):

You say you are unable to meet your obligations as the owner of the Property. We refer to your emails dated 21 August 2019 (attached).

If you fail to meet those obligations, there may be implications for you as the Council/the Water Corporation may move to recover those amounts from you.

Offer

Our clients are prepared to purchase the Property from you for the sum of $350,000, in lieu of repayment of the Loan provided to you by our clients (i.e. currently secured by the first mortgage).

In order to facilitate the purchase, you will need to agree to complete/execute all of the relevant transfer documents transferring the Property to our clients for the sum of $350,000. If you agree to do so, the Loan provided to you by our clients will be considered repaid in full, and the relevant mortgage will be discharged as part of the transfer when registered with Landgate.

The offer was open for acceptance until 20 September 2019 and was said to be a Calderbank offer. The emails dated 21 August 2019 were not in evidence but there is no reason to think that Ms Kellendonk's summary of what they said was inaccurate.

10    Ms Jasienska-Dudek replied on 19 September 2019 as follows:

Can you please confirm that the sale of the property will be in full and final settlement of all and any claims that Mr and Mrs Kellendonk, and any associated parties, may have against me?

If this is the case, then I agree to sell 20 Loton Avenue, Midland to Mr and Mrs Kellendonk for the sum of $350 000.

11    On 25 September 2019 Ms Kellendonk replied saying, relevantly:

We confirm that the offer to purchase the Property for $350,000 will be in full and final settlement of all and any claims that our clients (i.e. Mr and Mrs Kellendonk only) have against you in relation to the Property (i.e. 20 Loton Road).

The offer represents a more than reasonable price for the Property given its current market value and the amount of interest that has accrued since you defaulted on the terms of the Loan and mortgage.

12    Ms Jasienska-Dudek responded the following day saying that she was 'happy to execute the transfer of land documents to facilitate the transfer as discussed below'.

13    On 29 October 2019 the applicants' solicitors received a transfer of land form for the Property signed by Ms Jasienska-Dudek. This was lodged with the Western Australian Department of Finance for stamp duty assessment. On 2 January 2020 Mr Kellendonk received an assessment of stamp duty based on a valuation of the Property at $500,000 (apparently an earlier copy of the assessment notice was lost in the post and never received). Since that valuation and the assessed duty were higher than the applicants had been expecting, they did not lodge the transfer form for assessment with Landgate.

14    On 22 January 2020 the applicants received an email from the Official Trustee in Bankruptcy notifying them that Ms Jasienska-Dudek had been declared bankrupt on a debtor's petition on 17 December 2019. The Official Trustee was the trustee in bankruptcy. The letter indicated that the Official Trustee would have no objection to the applicants exercising their powers as secured creditor and initiating the process by which they could act as mortgagees in possession. There were further discussions between the applicants (and Ms Kellendonk) and the office of the Official Trustee. The Official Trustee told them that there was insufficient equity in the Property to warrant a sale on the market by the Official Trustee and said that it intended to disclaim the Property on the ground that it was burdened with onerous covenants and not readily saleable. The Official Trustee served the notice of disclaimer of property on 29 April 2020.

15    The applicants thought that they could still lodge the outstanding transfer of the Property. On 2 June 2020 they received a reassessment of the stamp duty which was acceptable to them. They paid the duty on 1 July 2020 and lodged the transfer for registration. But on 27 July 2020 they received a letter from Landgate saying that because of the bankruptcy and the disclaimer of the Property, Landgate's view was that the appointment of the trustee in bankruptcy terminated Ms Jasienska-Dudek's authority to deal with the Property and that the disclaimer terminated her rights, interests and liabilities in it. The letter acknowledged that the transfer predated the bankruptcy but Landgate appeared from the letter to consider that s 53 of the TLA, concerning the time of registration, made the date of registration the relevant date, not the date of the instrument. The applicants withdrew the transfer.

Orders sought

16    The primary relief sought by the applicants was an order under s 133(9) of the Bankruptcy Act vesting the Property in them absolutely, with the same effect for the purposes of entering them as registered proprietors as an order for foreclosure issued by the Registrar of Titles under s 122 of the TLA. Alternatively, they sought what can be described as more usual orders in circumstances where a trustee in bankruptcy disclaims property subject to a mortgage, which in broad terms would vest the Property in them so that they may exercise powers as mortgagees in possession.

Consideration

17    Section 133 of the Bankruptcy Act relevantly provides:

133    Disclaimer of onerous property

(1AA)    Where any part of the property of the bankrupt consists of:

(a)    land of any tenure burdened with onerous covenants; or

(b)    property (including land) that is unsaleable or is not readily saleable; subsection (1) applies.

…

(1)    Subject to this section, the trustee may, notwithstanding that he or she has endeavoured to sell or has taken possession of the property or exercised any act of ownership in relation to it and notwithstanding, in the case of property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered, that he or she has not become the registered owner of that property, by writing signed by him or her, at any time disclaim the property.

…

(2)    A disclaimer under subsection (1) or (1A) operates to determine forthwith the rights, interests and liabilities of the bankrupt and his or her property in or in respect of the property disclaimed, and discharges the trustee from all personal liability in respect of the property disclaimed as from the date when the property vested in him or her, but does not, except so far as is necessary for the purpose of releasing the bankrupt and his or her property and the trustee from liability, affect the rights or liabilities of any other person.

(3)    If a trustee disclaims property whose transfer must be registered under a law of the Commonwealth or of a State or Territory of the Commonwealth, the trustee must give notice of the disclaimer as soon as practicable to the officer who has the function of registering the transfer.

…

(9)    The Court may, on application by a person either claiming an interest in, or being under a liability not discharged by this Act in respect of, disclaimed property, and after hearing such persons as it thinks fit, make an order, on such terms as the Court considers just and equitable, for the vesting of the property in, or delivery of the property to, a person entitled to it or a person in whom, or to whom, it seems to the Court to be just and equitable that it should be vested or delivered, or a trustee for that person.

(10)    Subject to subsection (11), where an order vesting property in a person is made under subsection (9), the property to which it relates vests forthwith in the person named in the order for that purpose without any conveyance, transfer or assignment.

(11)    Where:

(a)    the property to which such an order relates is property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered; and

(b)    that law enables the registration of such an order;

the property, notwithstanding that it vests in equity in the person named in the order, does not vest in that person at law until the requirements of that law have been complied with.

18    Prior to the Official Trustee's disclaimer of the Property, Ms Jasienska-Dudek had legal title to it as registered proprietor and (subject to the following) the Official Trustee had equitable title to it as trustee in bankruptcy, since no transfer to him has ever been registered: Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane (a Bankrupt) [2017] FCA 696 at [10], [17] (Derrington J). But there is no question that the disclaimer of 29 April 2020 was effective for the purposes of s 133(2); the correspondence from the Official Trustee indicated that it was not readily saleable and the mortgage contained 'onerous covenants' within the meaning of s 133(1). The result is that both Ms Jasienska-Dudek's legal title and the Official Trustee's equitable title were terminated. As a consequence, the land escheated to the Crown in the right of the State of Western Australia: McFarlane at [17]; see also Rams Mortgage Corporation Ltd v Skipworth (No 2) [2007] WASC 75; (2007) 239 ALR 799 at [8].

19    Section 133(9) relevantly authorises a person 'claiming an interest in' the disclaimed Property to make an application of the present kind. Despite the termination of Ms Jasienska-Dudek's and the Official Trustee's interests in the Property consequent on the disclaimer, the fee simple in the Property probably continued to exist to the extent necessary to permit the applicants to claim an interest as mortgagees so as to ground an application for vesting under s 133(9): see Commonwealth Bank of Australia v State of Western Australia, in the matter of Arbidans (a Bankrupt) [2020] FCA 1514 at [14] and the authorities cited there. But that is the basis of the relief the applicants seek in the alternative, not their primary relief. For the primary relief, they claim an interest under the unregistered transfer or, possibly, under the contract for the transfer of the land they made with Ms Jasienska-Dudek.

20    In that regard, there was some focus in the parties' submissions on the equitable interest that arises when a purchaser under a contract for the sale of land has a right to specific performance: see PSAL Pty Ltd v Raja [2016] WASC 295 at [65]-[69] (Pritchard J) and the authorities summarised there. It is clear from the terms of the agreement I have described above that the consideration provided by the applicants - the release from all claims - passed to Ms Jasienska-Dudek at the time that she performed her obligations by providing the transfer. After that time there may have been no right to specific performance to compel the provision of the transfer because the agreement had been fully performed by Ms Jasienska-Dudek as vendor. She had agreed to provide an executed transfer and she had done that. It may even be that the agreement had been discharged by performance: see the discussion in Reliance Financial Services Pty Ltd v Baddock [2002] NSWSC 857 at [10]-[19].

21    But it is not necessary to decide those points, because at least once Ms Jasienska-Dudek had given the executed transfer of the Property to the applicants with the intention that they would lodge it for registration, that created (or brought closer to perfection) an equitable interest in the Property. In Brunker v Perpetual Trustee Co (Ltd) (1937) 57 CLR 555 at 599 Dixon J (with whom Rich J agreed) said:

A transfer for value may before registration confer upon the transferee an equitable estate or interest. But it does so, not because it is a transfer, but because the transferee has given value for the land, and because, notwithstanding that the instrument is a memorandum of transfer, it may, as a writing, suffice to satisfy the requirements of the Statute of Frauds, and so place the transferee in the position of a purchaser who is entitled to specific performance of his contract and has paid his purchase money.

See also Latham CJ at 581 (in dissent, but not on this point).

22    The applicants gave value here, namely the release of the debt and all other claims which, as I have said, took effect on the provision of the transfer form. No party in the present case raised any concern arising from the Statute of Frauds 1677 (Imp) or s 34 of the Property Law Act 1969 (WA) and as Dixon J's comments suggest, the signed transfer would answer that concern anyway.

23    Watt v Lord [2005] NSWSC 53; (2005) 62 NSWLR 495 concerned an instrument of transfer of land given to a transferee pursuant to a contract of sale where the purchase price had been paid but the transfer had remained unregistered for more than 43 years. After a detailed review of the authorities, including Brunker and National Trustees Executors & Agency Co of Australasia Ltd v Boyd (1926) 39 CLR 72, Gzell J concluded (at [55]) that the unregistered instrument gave the transferee equitable title to the property on payment for value, despite the intervening death of the transferor. In my opinion it is the same here. On the terms of the contract as I have described them, the applicants gave value to Ms Jasienska-Dudek, at the latest, by means of a release and discharge effective on her delivery of the transfer. At that point in time, they obtained equitable title to the Property. The determination of the rights of Ms Jasienska-Dudek and the Official Trustee under s 133(2) did not terminate that equitable title held by the applicants: see National Australia Bank Limited v State of New South Wales [2014] FCA 298 at [8]-[9] (Perram J). It is a sufficient foundation as a claimed interest in the Property for the application now made.

24    The remaining issue for the court, then, as posed by s 133(9), is whether the court considers that the applicants are entitled to the Property, or are persons in whom it seems to the court to be just and equitable that it should be vested: see Australia and New Zealand Banking Group Ltd v State of Queensland [2016] FCA 1221 at [9] (Rangiah J). In light of my conclusion above about the applicants' equitable title, it could be said that they are entitled to the Property, so that there is no need to consider what is just and equitable. However the parties approached the matter on the latter basis, so I will too.

25    It was common ground that the question of what was just and equitable would, in this case, turn on the proper characterisation of the agreement for transfer of the Property between Ms Jasienska-Dudek and the applicants. Was it an agreement to transfer the land absolutely, in consideration of a release and discharge of all claims? Or was it an agreement that the property would be transferred to the applicants so that they could use it to obtain recovery of the principal and interest on the loan (and other costs and amounts payable under the mortgage)? If it was the latter, then it would be just and equitable to make the alternative orders sought (the ones commonly made when mortgagees apply for vesting under s 133(9)) on the basis that the applicants and Ms Jasienska-Dudek did not intend the applicants to take the Property absolutely but only as a means of enforcement of Ms Jasienska-Dudek's liabilities to them.

26    I have already set out the key terms of the emails between Kate Kellendonk and Ms Jasienska-Dudek which evidence the agreement. I have also given some relevant context leading up to those emails. In my view it is clear that Ms Jasienska-Dudek wished to be rid of the Property, which was a burden, and that she wished to transfer it to the applicants absolutely in return for a release of all claims the applicants may have against her. That was the applicants' intention too, and so is a mutual intention ascertained objectively from the correspondence. The parties used the terminology of 'purchase' and 'sale' and one of Ms Kellendonk's emails spoke of discharge of the mortgage (occurring on the registration of the transfer documents), not of enforcement of the mortgage. A purchase price of $350,000 was specified, being the principal of the loan, with that price to be satisfied by a release of the loan and all other claims. As Ms Kellendonk implicitly pointed out, the result would be that Ms Jasienska-Dudek would be released from liabilities of a higher amount, which is inconsistent with characterising the arrangement as one of enforcement of those liabilities. The agreement is properly characterised as one for the absolute transfer of the Property on sale.

27    The applicants have adduced the opinion of a valuer that as at 5 March 2021 the Property was worth $230,000. That was potentially relevant to the question of whether the applicants would receive some windfall if the Property was vested in them absolutely, so that they would not be liable to account to anyone (the Official Trustee, the court or the State) for any surplus after satisfaction of liabilities owed to them. In view of the proper characterisation of the agreement for the sale of the Property, I do not consider the question of any windfall arises. But if I am wrong about that, the valuation puts the matter beyond doubt; unless property values change dramatically, the applicants will enjoy no windfall.

28    It can be just and equitable to employ s 133(9) to give effect to a pre-existing agreement between parties which would have been performed but for the bankruptcy: see e.g. McMillan v Bidmonta Pty Ltd, in the matter of the bankrupt estate of David Robert McMillan [2013] FCA 865 at [16] (Yates J); Commonwealth Bank of Australia v Western Australia Land Authority trading as Land Corp [2013] FCA 888 at [18] (Barker J). It was just and equitable to vest the Property in the applicants absolutely so as to give effect to the agreement and transfer here.

29    Orders were therefore made substantially in terms proposed by the second respondent, the Registrar of Titles, on the basis that if the documents referred to in paragraph 2 of the orders are lodged then the Registrar will register the applicants as proprietors of the Property.

Associate:

Dated:    23 April 2021