Federal Court of Australia

Frugtniet v Mansfield as trustee for the bankrupt estate of Frugtniet [2025] FCA 1137

ORDERS

THE COURT NOTES:

A.    The undertaking given by the respondent, the text of which appears at Annexure A to these orders.

THE COURT ORDERS THAT:

1.    The interlocutory application lodged for filing on 26 August 2025 be dismissed.

2.    Costs of the interlocutory application be reserved.

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

ANNEXURE A

RESPONDENT’S UNDERTAKING

1.    The Respondent (Trustee) undertakes to hold the proceeds of sale in respect of the following properties:

(a)    2/57-61 Penelope Lucas Lane, Rosehill NSW 2142 with certificate of title 2/SP79889 (First Rosehill Property);

(b)    10, 57-61 Penelope Lucas Lane, Rosehill NSW 2142 with certificate of title 10/SP79889 (Second Rosehill Property);

(c)    9/50 Hythe Street, Mount Druitt NSW 2770 with certificate of title 9/SP63235 (Mount Druitt Property); and

(d)    8/22-24 Swete Street, Lidcombe NSW 2141 with certificate of title 8/SP9057 (Lidcombe Property),

(together, the Properties) in a controlled monies account after deduction of amounts in respect of the following items:

(e)    commissions, marketing expenses and any other expenses of any real estate agent retained by the Trustee to sell the Properties;

(f)    any costs for repairs and maintenance necessary to repair any damage or defect in the Properties which is likely to impede, hamper or delay their sale;

(g)    any costs, expenses or disbursements incurred in connection with preparing the Properties for sale including but not limited to any cleaning, gardening, styling or any other necessary charge or expense;

(h)    water charges, council rates and strata levies due in respect of each of the Properties;

(i)    any disbursements and expenses incurred in respect of insuring the Properties;

(j)    any legal expenses incurred in respect of transferring the Properties to the purchasers;

(k)    any lien securing the Trustee’s costs and expenses including remuneration incurred in the care, preservation and/or realisation of the Properties;

(l)    the amounts secured, outstanding and necessary to discharge the registered mortgages granted in respect of the Properties; and

(m)    all other disbursements and expenses incurred in connection with the sale of the Properties by the Trustee,

and not disburse those net proceeds prior to the delivery of judgment in these proceedings or further order of the Court.

REASONS FOR JUDGMENT

KENNETT J:

Introduction

1    The respondent to this appeal (the trustee) is the trustee of the bankrupt estate of Jerome Frugtniet (the bankrupt). The appellants are the parents of the bankrupt.

2    The substantive dispute between the parties concerns four residential properties. Two of the properties are situated in Rosehill, New South Wales. The others are in Lidcombe and Mount Druitt (also in New South Wales). Prior to his bankruptcy (which commenced in 2020), the bankrupt was the registered proprietor of the properties. It appears that the appellants occupy one of the properties and have been accustomed playing some role in securing tenants for the other properties and collecting rent. The properties secure two loans from the National Australia Bank (the NAB loans) which were in the name of the bankrupt.

3    In the proceedings below, the trustee sought declarations to the effect that the properties form part of the estate, together with orders that the present appellants (and any other occupants) vacate the properties. The appellants argued that the properties were held by the bankrupt as trustee for them and therefore, pursuant to s 116(2)(a) of the Bankruptcy Act 1966 (Cth), did not become property divisible among the creditors of the bankrupt. The primary judge rejected this submission and, on 15 July 2025, made orders substantially in the terms sought by the trustee: Mansfield (Trustee), in the matter of Frugtniet v Frugtniet [2025] FCA 803 (the primary judgment). In a separate judgment delivered on the same day, the primary judge refused an application by the appellants to re-open their case and renew the tender of a document purporting to be a trust deed: Mansfield (Trustee), in the matter of Frugtniet v Frugtniet (Reopening Application) [2025] FCA 804 (the reopening judgment). The appellants seek to set aside both judgments.

4    The primary judge did not find the nature of the trust asserted by the appellants particularly clear, but dealt with their argument as follows.

(a)    One variant of the argument relied on a document purporting to have been executed in 2014 and to establish or recognise an express trust over the properties in the appellants’ favour (the purported trust deed). There was a contest about the authenticity of this document, arising from the fact that it was produced very late in the piece by the appellants and was inconsistent with the arguments they had advanced until then. The primary judge did not need to resolve that controversy because the deed had not been stamped pursuant to the Duties Act 1997 (NSW) (the Duties Act) and, so his Honour found, could not be admitted into evidence in the face of s 304 of that Act. It was not really in contest that the declaration of a trust was a dutiable transaction, the purported trust deed was required to be stamped and it was not stamped. The purported trust deed was therefore not admitted into evidence. This effectively put paid to the assertion of an express trust because, under s 23C(1)(b) of the Conveyancing Act 1919 (NSW), the intention of a settlor to create a trust over land must be recorded in writing. His Honour was not satisfied, in any event, that there was ever an oral agreement to create a trust (at [87]).

(b)    References to a “constructive trust” in the appellants’ submissions were understood by his Honour to invoke the concept of a joint endeavour constructive trust, explored in Muschinski v Dodds (1985) 160 CLR 583 (Muschinski) and Baumgartner v Baumgartner (1987) 164 CLR 137. The principle established in those cases operates where “the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it” (Muschinski at 620 (Deane J)). The primary judge found that the evidence did not establish any joint endeavour that subsequently failed (at [92]).

(c)    The appellants also suggested that the properties were the subject of a “resulting trust”. The resulting trust is a familiar doctrine. As encapsulated by the primary judge at [49]-[50], there is a presumption of a resulting trust arising from the payment of the purchase price of a property by someone other than the ultimate legal owner, but this can be rebutted by evidence of actual intention or the counter-presumption of advancement. The so-called presumption of advancement involves the drawing of an inference about the intention of the settlor from the fact of certain relationships such as parent and child. In the present case the primary judge found that the appellants had paid the deposits to acquire the properties where deposits were required, and other transfer costs, with the remainder of the purchase price funded by bank loans for which the bankrupt was liable (at [88]). His Honour then expressed the following conclusions concerning the asserted resulting trust (at [93]-[94]).

With regard to a resulting trust, the bulk of the purchase price was paid by [the bankrupt] in the form of loans for which he was liable to the bank. To the extent that [the appellants] made some contributions to the purchase price, the presumption of advancement is not displaced by evidence, objectively determined, of any contrary intention ... That is to say, to the extent that [the appellants] contributed to the purchase of the properties by paying deposits and transfer costs, and to the extent that they contributed thereafter by managing the properties, they did that for the benefit of their young son. They may well also have had in mind that they could impose on him to make the properties available as security for development opportunities that they later wished to pursue, but their contributions were nevertheless by way of advancement.

There is evidence of [the appellants] paying monies from time to time into the loan accounts. The details of those payments are proved by the bank statements and they are summarised in the document labelled “MFI-1”. It shows that deposits in the sum of $13,237.10 were made in Brian’s name and $36,572.41 in Suzanne’s name. That is the only reliable evidence of the extent of the contributions made by [the appellants], but in any event those payments were in all probability rental payments that they had collected. So, although I accept that [the appellants] paid the deposits and transfer costs on the properties, how much those in fact were was not proved. I do not accept their say-so on the amounts many years later when they cannot be expected to remember them. I place no weight on that evidence. I am also not satisfied that the amounts recorded in “MFI-1” are contributions from them – rather, they are rentals collected and properly due to Jerome.

5    Judgment was reserved in the substantive proceeding on 26 June 2025. On 4 July 2025 the appellants made an application to re-open their case in order to tender the purported trust deed which, they said, had been “duly stamped” after the completion of the hearing. It appeared that only nominal duty of $500 had been paid in order to have the document stamped. In the reopening judgment, the primary judge accepted evidence that a trust deed would normally attract ad valorem duty in a much larger amount (and potentially penalty interest as well) and that the purported trust deed had been incorrectly submitted to the NSW Office of State Revenue through an automated process. His Honour was therefore satisfied that the purported trust deed had not been properly stamped and remained inadmissible under s 304 of the Duties Act (at [10]). In any event, his Honour was not prepared as a matter of discretion to allow the appellants to reopen given the appellants’ delays and the lengthy opportunity they had had to regularise the position in relation to stamping (at [12]).

The application for a stay

6    By an interlocutory application filed in the appeal, the appellants sought a stay of the orders made in the primary judgment.

7    The interlocutory application was lodged for filing on 26 August 2025. It was accepted for filing on 28 August 2025. It was sought to be agitated before the duty judge, but this was not permitted in the absence of clear confirmation that the trustee had been served. The trustee filed a notice of acting on 4 September 2025 and the appeal was allocated to me for case management on 5 September 2025. As there was now some urgency, I listed the interlocutory application before me at 2.15pm on Monday 8 September 2025.

8    The trustee filed an affidavit of his solicitor and brief written submissions, but these did not reach me or the appellants before the commencement of the hearing. The trustee also relied on an affidavit which he had sworn in the proceeding below. Counsel for the trustee explained his client’s opposition to the grant of a stay, but I determined that the appellants (who are not represented) should have some time to consider the documents filed by the trustee and to gather any evidence they might wish to file in reply. I therefore adjourned the hearing of the interlocutory application to 2.15pm on Wednesday 10 September 2025. The hearing resumed at that time, with the appellants having filed affidavits from two current tenants of the properties and a person connected with a third tenant, together with further affidavits they had themselves sworn.

9    On Thursday 11 September 2025 I made an order dismissing the interlocutory application. What follows are my reasons for making that order.

Approach to the question of a stay

10    In Quach v MLC Limited [2022] FCAFC 202 at [81], the Full Court (Collier, Perry and Thomas JJ) adopted the following summary of relevant principles set out in National Retail Association v Fair Work Commission (No 2) [2014] FCA 664 at [11]:

Relevant principles to which the Court ought have regard in the present circumstances include the following:

•    An order granting a stay is an interlocutory order at the discretion of the primary judge, although the discretion must be exercised judicially: National Australia Bank Limited v Norman [2009] FCAFC 13 at [44].

•    Further, the discretion of the Court in granting a stay ought not be exercised lightly, and only in circumstances where there would be so adverse and serious a consequence that interlocutory intervention should take place notwithstanding that there has not been an opportunity for full consideration of the appeal: Nikolaides v Legal Services Commissioner [2005] NSWCA 91 per Bryson JA at [18]; Thomson v Young [2013] NSWCA 300 at [8]. Circumstances warranting the grant of a stay have been described as “exceptional” (Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No. 1) [1986] HCA 84; (1986) 161 CLR 681 at 683; Rahme v Commonwealth Bank [1993] HCA 62; (1993) 117 ALR 618 at 620; Petrotimor Companhia de Petroleos S.A.R.L. v Commonwealth of Australia [2003] FCAFC 82 at [24]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256).

•    To that extent the balance of convenience plays an important role in determining whether an order ought be made: Bannister & Hunter Pty Ltd v Transition Resort Holdings Pty Ltd [2014] NSWCA 87 per Ward JA at [18].

•    The Court may be minded to refuse a stay where it is satisfied that there are no serious questions for the determination in the appeal or review: Kalifair Pty Ltd v Digi-Tech (Australia) Ltd [2002] NSWCA 383; (2002) 55 NSWLR 737 at [18]; ACES Sogutlu Holding Pty Ltd v Commonwealth Bank of Australia [2014] NSWCA 84 at [6]. Conversely, the Court may be minded to grant a stay where, on a preliminary assessment of the case, the Court is satisfied that grounds of appeal or review have merit: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 695; Attorney-General for the State of Queensland v Fardon [2013] QCA 299 at [15].

•    The Court may be minded to grant a stay where it is satisfied that any subsequent appeal or review would be rendered nugatory should a stay be refused: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 695; Jennings Construction Limited v Burgundy Royale Investments Proprietary Limited [1986] HCA 84; (1986) 161 CLR 681; Paringa Mining & Exploration Co PLC v North Flinders Mines Ltd (No 2) [1988] HCA 53; (1988) 165 CLR 452; National Australia Bank Limited v Norman [2009] FCAFC 13 at [43].

•    Decisions at first instance should not be treated as merely provisional. A successful party in litigation is entitled to the fruits of its judgment, and courts should not be disposed to delay the enforcement of orders. A sufficient basis must be shown to outweigh these considerations: Keane JA in Cook’s Construction Pty Ltd v Stork Food Systems Australasia Pty Ltd [2008] QCA 322; [2008] 2 Qd R 453 at 455; Attorney-General for the State of Queensland v Fardon [2013] QCA 299 at [15]; Julia Farr Services Inc v Hayes [2003] NSWCA 142 at [24].

•    The Court will consider whether a stay is warranted in the interests of justice: Alexander v Cambridge Credit Corporation Limited (1985) 2 NSWLR 685 at 694; NSW Bar Association v Stevens [2003] NSWCA 95 at [83]; ACES Sogutlu Holding Pty Ltd v Commonwealth Bank of Australia [2014] NSWCA 84 at [5].

11    This statement directs particular attention, in the present case, to three issues (which must be addressed in the light of the overall consideration that, usually, the successful party should be allowed to enjoy the fruits of victory):

(a)    whether the appeal has real prospects of success;

(b)    the extent to which the appeal is likely to be rendered nugatory if a stay is not granted; and

(c)    the nature of any prejudice that would befall the trustee (as trustee of the bankrupt estate) if the orders made in the court below are stayed.

Consideration

Prospects of the appeal

12    While the appeal is not obviously hopeless its prospects of success appear, on preliminary inspection, to be very limited.

13    First, as to the existence of an express trust, s 304 of the Duties Act relevantly provides as follows.

304    Receipt of instruments in evidence

(1)    An instrument that effects a dutiable transaction or is chargeable with duty under this Act is not available for use in law or equity for any purpose and may not be presented in evidence in a court or tribunal exercising civil jurisdiction unless—

(a)    it is duly stamped, or

(b)    it is stamped by the Chief Commissioner or in a manner approved by the Chief Commissioner.

(2)    A court or tribunal may admit in evidence an instrument that effects a dutiable transaction, or is chargeable with duty in accordance with the provisions of this Act, and that does not comply with subsection (1)—

(a)    if the instrument is after its admission transmitted to the Chief Commissioner in accordance with arrangements approved by the court or tribunal, or

(b)    if (where the person who produces the instrument is not the person liable to pay the duty) the name and address of the person so liable is forwarded, together with the instrument, to the Chief Commissioner in accordance with arrangements approved by the court or tribunal.

…

14    The primary judge’s analysis of the effect of s 304(1), which I have referred to above, appears to be unimpeachable. In relation to the potential for admission of a document under s 304(2), his Honour noted a procedure followed in the Supreme Court of New South Wales, under r 31.13 of the Uniform Civil Procedure Rules 2005 (NSW), whereby a document may be admitted pursuant to s 304(2)(a) if the person liable to pay duty gives an undertaking to transmit the relevant document to the Chief Commissioner within a specified time. During the hearing the first appellant had proffered an undertaking to pay the stamp duty on the purported trust deed. However, this did not satisfy the primary judge that the stamp duty would be paid, because there was evidence that the first respondent was impecunious: he had himself deposed to facts which led his Honour to make provision for pro bono legal representation (at [40]). This finding is not challenged by the notice of appeal.

15    It is suggested by grounds 2 and 5 of the notice of appeal that the primary judge should have admitted the purported trust deed for the “collateral purpose” of proving “intention” (presumably for the purpose of establishing a resulting trust). However, there are two problems with that argument. One is the words “for any purpose” in s 304(1) (and the absolute terms in which that provision prohibits presentation of a document in court). The other is that it is hard to see how a document which in its terms creates an express trust could be understood to demonstrate any “purpose” other than the creation of such a trust.

16    In the end, therefore, the arguments advanced in reliance on the purported trust deed appear to be capable of succeeding only if the reopening judgment is reversed and the document is admitted. This line of attack faces the difficulty that, even if there is an error in the primary judge’s conclusion that the purported trust deed was not properly stamped following the payment of nominal duty, his Honour expressed additional discretionary reasons for refusing leave to reopen. The refusal of leave would therefore be overturned only if an error of principle (in the House v The King (1936) 55 CLR 499 sense) were shown to afflict the exercise of discretion. No such error has been alleged and there is no obvious basis upon which one could be alleged.

17    It should also be noted that the reception of the purported trust deed into evidence would not itself be sufficient for the appellants to succeed. It would require resolution of the contest about the authenticity of that document, which the primary judge put to one side.

18    Secondly, the primary judge’s conclusions as to whether a constructive or resulting trust arose in the circumstances of the case were squarely based on his Honour’s analysis of the (in many respects) competing evidence of the appellants on one hand and the bankrupt on the other. Questions of credibility appear to have been important in his Honour’s findings. Findings of this kind will be set aside by an appellate court only if they are contrary to incontrovertible facts or uncontested testimony, or are glaringly improbable (see eg Fox v Percy [2003] HCA 22; 214 CLR 118). At least on a preliminary assessment, it is not clear how that could be properly alleged in the present case.

19    In relation to the primary judge’s assessments of credibility, it is relevant to note that the appellants allege that they were denied procedural fairness as a result of the bankrupt being cross-examined by telephone, and what is alleged to be inadequate legal representation. If these allegations have substance, they might lead to the primary judgment being set aside but would not require dismissal of the trustee’s originating application. The Full Court would most likely be unable to make the factual findings necessary to decide the matter substantively and a retrial would be required.

Extent to which the appeal would be rendered nugatory in the absence of a stay

20    Absent a stay, the orders of the primary judge require the trustee to be given vacant possession of the properties by 15 September 2025. The trustee may, and evidently intends to, proceed to sell the properties as soon as possible in order to realise the equity in them. If the appellants are correct that they are the beneficial owners of the properties pursuant to a trust, that interest would be defeated by the sale. While that process of sale would take some time, and might not be completed before judgment was delivered in the appeal, I have proceeded on the basis that there is at least a substantial possibility of the interest claimed by the appellants being defeated before their appeal is determined.

21    However, it does not follow that the appeal would be rendered nugatory in the absence of a stay. As counsel for the trustee observed, in the event that the properties are sold, the appellants (if they do have a beneficial interest in the properties) would have a claim against the proceeds of sale. While the appellants plainly regard this as a sub-optimal outcome (which is understandable, as they live in one of the properties), it has the result that their interests will be far from wholly defeated by the absence of a stay.

22    This point is reinforced by an undertaking which was proffered by the trustee at the hearing on 10 September 2025 and provided in written form on 11 September 2025. The full text of that undertaking is set out in an annexure to my orders. In essence, the trustee undertakes to place the net proceeds of sale of the properties in a controlled money account and not to disburse them prior to the delivery of judgment in the appeal. Thus, if the appellants succeed in establishing that they were the beneficial owners of the properties, there will be a fund against which they can claim. The “net” proceeds of sale would, according to the terms of the undertaking, be subject to a large number of deductions. However, these deductions are in my view either unavoidable or appropriate in the circumstances. They comprise, in effect:

(a)    costs of sale and preparing the properties for sale;

(b)    costs of insuring the properties;

(c)    any lien securing the trustee’s own costs including remuneration incurred in realising the properties;

(d)    amounts necessary to discharge the mortgages over the properties; and

(e)    outstanding water charges, council rates and strata levies.

23    The appeal is therefore not rendered nugatory in the absence of a stay, even if it is the case that success in the appeal would not achieve everything that the appellants would have gained from success at first instance.

24    Indeed, for reasons mentioned below, it may be well be in the interests of the appellants for the properties to be sold sooner rather than later.

Extent of prejudice if a stay is granted

25    The evidence before the primary judge included two appraisals of each of the properties, obtained in November 2024, which gave them a total value of $2,460,000 at the high point and $2,225,000 at the average of the midpoints. This was imperfect as valuation evidence but was treated by his Honour as giving some indication of the properties’ value as at the time of the trial. At that time, the total amount outstanding under the NAB loans was $1,716,463 and this was offset by $166,614 standing to the credit of the estate in offset accounts. The total debt was therefore around $1.55 million, resulting in positive equity in the properties of around $910,000 (on the highest estimates) or $675,000 (on the midpoint estimates).

26    I was taken by counsel for the trustee through bank statements for the relevant accounts (covering the period from December 2024 to June 2025) which are substantially consistent with the primary judge’s summary of the debt position. What emerges from these, and from the affidavit evidence relied on by the trustee, is as follows (accepting that the evidence is not completely up-to-date and the actual account balances will have changed since June).

(a)    Rent for the properties that is received by the trustee is paid into an NAB account which is a “100% offset account” linked to one of the NAB loans. The amounts held in that account therefore reduce the monthly interest payable on the NAB loans. The rent being received is around $5,000 per month.

(b)    Despite this, the monthly interest on the two NAB loans is somewhat more than $10,000. The interest is added to the loan balance each month. Both loans are in default and subject to interest rates of around 8 percent.

(c)    As things stand, therefore, the estate’s equity in the properties is being steadily eroded. They do not earn enough income to pay the interest on the loans which they secure. It does not appear to be in dispute that the properties are the only substantial assets in the bankrupt estate. There are therefore no other sources of funds available to the trustee that might be used to pay down the NAB loans or meet the interest accruing on them.

27    This position is to some extent contested. The appellants submitted that the trustee had brought about this erosion of the equity in the properties, either deliberately (one of many allegations of misconduct made against him) or through inadequate attention to his duties. They complained that they had been given insufficient information about what the trustee was doing with money received by way of rent, while at other times it was asserted (without pointing to any evidence) that the trustee was paying the rent into a secret account and not using it to reduce the debt burden. It may be that the appellants did not appreciate that the accounts into which rent was being paid were offset accounts and that holding funds in those accounts did in fact reduce the rate at which the NAB loan balances were growing. In any event, I am not persuaded that there is any substance in these complaints. On the other hand, it may be that the trustee could be doing more to protect the equity. There was some evidence that the tenants in the properties were not always up to date with rent payments and some were in arrears by non-trivial amounts. Ironically, one of the tenants in significant arrears was the first respondent.

28    While none of these figures is exact and some of the details may be open to debate, I accept the trustee’s core proposition that the estate’s equity in the properties is being eroded and will continue to be eroded until the properties are sold. This is a form of detriment to the interests of the estate that would not be remedied by the trustee succeeding in the appeal. The estate would thus be permanently deprived of some part of the fruits of its victory by the delay that would result from the grant of a stay. That prejudice would extend to the creditors to the extent that the value of the equity in the properties fell below the amount of the bankrupt’s debts. There is no clear indication of whether that has happened or will happen. However, I note that, at the time of the primary judgment, the primary judge regarded it as uncertain whether there was a material positive balance in the estate (at [24]).

29    The steady increase in the balance of the NAB loans, and the corresponding decline in the equity position, is the reason why it was noted above that an early sale of the properties may be in the best interests of the appellants.

30    In the course of their submissions the appellants offered an undertaking to meet any shortfall between the rent received for the properties and the interest on the NAB loans until the disposition of the appeal. I do not consider that this is a solution to the problem outlined above for two reasons. First, because it is evident from the appellants’ evidence and submissions that they regard the bankruptcy of their son as illegitimate (and the fault of the trustee) and do not accept that the trustee is performing his functions properly, any arrangement between them for the payment of a shortfall amount (which would need to be agreed each month) would very likely be productive of further disputation. I have no confidence in the ability of the parties to manage such an arrangement consensually. Secondly, no evidence has been led to suggest that the primary judge was wrong to conclude that the first appellant was impecunious or that his financial position has changed since the primary judgment. Nor is there any evidence that the second appellant has a substantial income or assets of her own; indeed, the contrary was suggested by the way she framed her submissions. I can therefore have no confidence that an undertaking of the kind offered would be able to be performed.

Disposition

31    The considerations discussed above all point to the conclusion that the orders of the primary judge should not be stayed. I would probably have reached this conclusion even in the absence of the undertaking proffered by the trustee. However, that undertaking substantially strengthens the case against a stay, by ensuring that success in the appeal would not be unavailing.

Associate:

Dated:    16 September 2025