Federal Court of Australia

Sellers, in the matter of Paksoy [2022] FCA 822

ORDERS

THE COURT ORDERS THAT:

1.    The Land situated at 19 Pumps Road, Red Cliffs, Victoria (more particularly described in certificates of title volume 10684, folios 620, 621, 622 and 623—“the Land”), together with such water allocation or irrigations rights that relate thereto (the “Water Entitlements”) are, subject to these orders, to be sold.

2.    The applicant and second respondent shall confer about and, if possible, agree upon the appointment of a real estate agent to effect the sale of the Land together with the Water Entitlements (hereafter, “the Sale”).

3.    In the event that no such agreement is reached within 14 days of the date of these orders, the applicant shall be at liberty to engage a real estate agent to effect the Sale.

4.    Prior to entering into any contract for the Sale, the applicant and second respondent shall confer about and, if possible, agree upon the engagement of a conveyancer who is to act for the applicant and second respondent in connection with the Sale.

5.    In the event that no such agreement is reached within 14 days of the date of these orders, the applicant shall be at liberty to engage a conveyancer who is to act for the applicant and second respondent for the purposes of the Sale.

6.    The Sale is to be effected by way of auction, or in such other way as the applicant might, in his discretion, decide.

7.    If the Sale is to be effected by auction, it is to be effected by public auction in accordance with the conditions of sale for auctions approved by the Real Estate Institute of Victoria Ltd and in accordance with a sworn valuation of the Land obtained by the applicant, which will form the basis of the reserve price.

8.    The first respondent and second respondent are each to permit the real estate agent appointed pursuant to orders 2 or 3 above to enter the Land without notice for any purpose connected with the Sale, provided that such entry occurs between the hours of 9am and 6pm on weekdays, or between 11am and 4pm on other days.

9.    The permission referred to in order 8 above is to extend to any prospective purchaser accompanying the real estate agent and any other person accompanying the real estate agent for the purpose of preparing marketing materials in connection with the Sale.

10.    No later than 14 days prior to the date of settlement of the Sale, the first and second respondents must each:

(a)    give up vacant possession of the Land; and

(b)    remove from the Land all vehicles, rubbish and chattels (‘Personal Property’).

11.    In the event that the first and second respondents fail to remove any Personal Property from the Land in accordance with order 10 above, the applicant may remove and dispose of it as he sees fit.

12.    Upon settlement of the Sale, the proceeds thereof be distributed in the following manner and priority:

(a)    first, in discharge of any mortgage secured over the Land and the Water Entitlements, to be paid to the relevant mortgagee;

(b)    second, in discharge of any other encumbrances over the title to the Land, in recognition of the priority with which they were registered;

(c)    third, one half of the remaining balance to the second respondent;

(d)    fourth, in payment of the expenses incurred by the applicant in connection with the Sale; and

(e)    fifth, the remaining balance to the applicant.

13.    The first and second respondent are to execute and return to the applicant any and all documents necessary to effect the Sale, including all documents necessary to make the appointments referred to above.

14.    The applicant’s costs, charges and expenses of and incidental to this application are costs, charges or expenses of the administration of the first respondent’s bankruptcy within the meaning of section 109(1)(a) of the Act.

15.    The applicant shall serve a copy of this order on the registered mortgagee of the Land forthwith.

16.    There shall be liberty to apply on three days’ notice.

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

REASONS FOR JUDGMENT

Ex tempore

(Revised from transcript)

SNADEN J:

1    The applicant is the trustee of the first respondent’s bankrupt estate. The second respondent is the first respondent’s brother. By an originating application dated 17 November 2021, the applicant seeks orders in relation to a property that, prior to the first respondent’s bankruptcy, was owned jointly by the respondents. Specifically, he seeks orders to require that the respondents deliver to him vacant possession of the property, to permit him to oversee its sale and the distribution of the proceeds thereof, and generally to require that the respondents take steps to facilitate that course.

2    For the reasons that follow, the applicant is entitled to the relief for which he moves. Orders largely (although not entirely) in the form that he proposes shall be made.

3    Those orders pertain to the land located at 19 Pumps Road, Red Cliffs (more particularly described in certificates of title volume 10684, folios 620, 621, 622 and 623), and such water allocation or irrigation rights as are related thereto. Combined, that property and those rights are (or were) valued at approximately $410,000.00 to $430,000.00.

4    Prior to the commencement of the first respondent’s bankruptcy in June 2018, the property was owned jointly by the respondents. Upon his appointment as trustee (jointly and severally with another, Ms Ruhe), the first respondent’s interests in the property vested with the applicant: Bankruptcy Act 1966 (Cth) (the “Act”), s 58.

5    As is to be expected, the applicant has engaged with the respondents concerning the relief for which he now moves. Those efforts have not borne fruit. The second respondent, in particular, has not responded to the applicant’s efforts to realise the value of the property otherwise than by means of litigation. Indeed, he has not responded to any of the applicant’s correspondence for a significant period of time.

6    The application was listed for hearing on Thursday, 14 July 2022. Neither of the respondents appeared at the hearing, nor took any step in the matter prior to it. That was so despite the proper service of the originating application and the affidavit material that supported it (which was established by various affidavits of service, and effected in part according to the court’s prior orders in that regard). The hearing date was properly brought to the respondents’ attention and I therefore proceeded to hear the application in their absence.

7    The court’s jurisdiction to make orders requiring that the respondents deliver vacant possession of the property was (and is) not in doubt. Insofar as concerns the first respondent, that jurisdiction is conferred by s 30(1)(b) of the Act; and, more particularly, by its interaction with the obligations imposed upon bankrupts by s 77 of the Act. Insofar as concerns the second respondent, it arises if not by the same means then at least by means of accrual: see Federal Court of Australia Act 1976 (Cth), s 32(1).

8    There is also little doubt as to the court’s power to grant the other relief for which the applicant moves. Some complication arises in that regard from the fact that relief is sought against the second respondent, who is not a bankrupt. Sec 30(1)(b) of the Act does not confer upon this court a power to interfere with the property interests of non-bankrupts: Coshott v Prentice (2014) 311 ALR 428, 435 [20] (Siopis, Katzmann and Perry JJ). To the extent that the applicant moves the court for orders to facilitate the sale of the property to which this application relates—and, thereby, to interfere with the interests therein that the second respondent possesses—an alternate source of power is required.

9    It is to be found in the form of Part IV of the Property Law Act 1958 (Vic). In identified circumstances, those provisions empower the Supreme Court of Victoria to make orders for the sale of co-owned property: see Property Law Act 1958 (Vic), ss 228, 234C(4) and 234D. In circumstances such as the present, equivalent powers are conferred upon this court by s 79 of the Judiciary Act 1903 (Cth): Pekar v Holden [2017] FCA 596, [43]-[47] (Tracey J).

10    On the strength of the applicant’s affidavit material, I am satisfied that it is appropriate to exercise those powers in the present matter. It is apparent that the applicant requires the respondents’ assistance in connection with the property in order that he might discharge his statutory obligations as trustee of the first respondent’s bankrupt estate. Moreover, he requires the proceeds of the proposed sale in order that he might recover for the first respondent’s creditors the amounts that they are owed (or some portion of them). Orders in the nature of those now sought are not novel and there is no reason why they should not now be made.

11    Before concluding, something might be said about the order in which the applicant proposes to account for the sale proceeds of the property. It is proposed that those proceeds should be allocated first to the discharge of applicable securities, and then to the trustees’ costs of and associated with the sale.

12    It is not apparent to me why the applicant’s costs of the sale should be met from funds that might otherwise be allocated to the second respondent. The sale will proceed solely at the applicant’s initiative and there is no obvious reason why the second respondent should have to pay for it. This court has made orders in the past consistent with the notion that such costs are costs of administering a bankrupt estate, rather than costs to be borne by a non-bankrupt co-owner: see Scott (Trustee) v Le [2021] FCA 1364 (Moshinsky J); Le v Scott as trustee of property of Chanh Tam Le, a Bankrupt [2020] FCAFC 12, [10] (Kerr, Anastassiou and Anderson JJ). In my view, a more appropriate allocation sequence is as follows:

(1)    first, in payment of any mortgage or encumbrance over or in respect of the property or the water entitlements;

(2)    second, one half of the net balance to the second respondent;

(3)    third, in payment of all costs, charges and expenses related to the sale; and

(4)    fourth, to the applicant.

13    The orders that will be made will reflect that sequence. There shall otherwise be liberty to apply.

Associate:

Dated:    15 July 2022