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  • Unreported Judgment

Official Trustee in Bankruptcy v Cameron

 

[2008] QSC 89

 

SUPREME COURT OF QUEENSLAND

  

PARTIES:

FILE NO:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

14 May 2008

DELIVERED AT:

Brisbane 

HEARING DATE:

12 December 2007

JUDGE:

Daubney J

ORDER:

  1. That the application be adjourned to a date to be fixed, pending the hearing and determination of the proceedings commenced by the respondent by claim no. 11160 of 2007;
  1. The costs of and incidental to the application be reserved.

CATCHWORDS:

REAL PROPERTY – INCIDENTS OF ESTATES AND INTERESTS IN LAND – JOINT TENANCY AND TENANCY IN COMMON – Incidents – Joint tenancy – severance – In bankruptcy matters – where the respondent and her husband were registered proprietors as joint tenants of a house property – where the interest in the property held by the respondent’s husband was transmitted to the applicant following bankruptcy – where the applicant seeks the appointment of statutory trustees for sale of the property pursuant to s 38 of the Property Law Act 1974 (“PLA”) – where the respondent claims, in separate proceedings, that she is entitled, following payment of the registered mortgage over the property, to the entire equity in the property, or alternatively, to be exonerated in respect of the applicant’s interest in the property – whether a determination under s 38 of the PLA would be inappropriate in the circumstances.  

COUNSEL:

FW Redmond for the applicant

AP Collins for the respondent

SOLICITORS:

Piper Alderman for the applicant

HWL Ebsworth Lawyers for the respondent

[1] In 1980 the respondent (‘Mrs Cameron’) and her husband purchased, and became registered proprietors as joint tenants of, a house property at Kenmore.  This was, and remains, their family home.  They paid $63,000 for the property, borrowing about half of that from a bank.

[2] On 14 August 2003, Mr Cameron became bankrupt on presentation of a debtor’s petition.  He has since been discharged from bankruptcy.

[3] On 8 July 2005, Mr Cameron’s interest in the property was transmitted to the Official Trustee in Bankruptcy (‘the Official Trustee’), which became, and remains, registered as a tenant in common in a one half share in the property.

[4] The Official Trustee has now, as a co-owner of the property, applied pursuant to s 38 of the Property Law Act 1974, (‘PLA’) for the appointment of statutory trustees for the sale of the property.

[5] Mrs Cameron opposes the making of such an order on the grounds that:

 

(a)She has, by reason of an equity of exoneration, a charge over the entirety of the half share in the property held in her husband’s bankrupt estate;

 

(b)Further, or alternatively, by reason of the common intention of Mr and Mrs Cameron with respect to the purchase and holding of the property as their family home and contributions made by Mrs Cameron for the upkeep and maintenance of the property, a constructive trust exists by which the husband’s estate’s interest in the property is held on trust for Mrs Cameron as beneficial owner.

[6] Mr Cameron is an optometrist.  In 1987 he bought into the practice in which he was then employed.  The buy-in price was $120,000, which he borrowed from a bank against the security of the property.  At the time of this refinancing, Mr and Mrs Cameron’s secured debt to the bank for personal purposes was less than $30,000.  In 1990, Mr Cameron assumed sole ownership of the optometry practice.  In 1996 ownership of the optometry practice was transferred into Kel D Cameron Optometrist Pty Ltd (‘the Company’), of which both Mr Cameron and Mrs Cameron were directors but Mr Cameron was the sole shareholder.  The Company was ordered to be wound up in June 2003.  Mr Cameron says that throughout the course of running the optometry business, initially as a sole trader and then through the Company, he financed the operation of the business by a business overdraft, a business loan, and a business credit card.  The advances made under these facilities were secured against the property.

[7] In August 2003, at Mr Cameron’s request, his accountant provided the Official Trustee with a calculation of the amount of money which had been drawn and applied against the security of the property for the optometry business from the end of the 1993 financial year.  This calculation did not include the $120,000 which had been borrowed for his initial acquisition of the business.  His accountant calculated at that stage that the amount borrowed against the security of the property which had been applied to the business over the period from the 1993 financial year until May 2003 was some $145,265. 

[8] In about May 2000, Mr Cameron arranged a refinancing of the borrowings with the Bank of Adelaide.  This was done by a ‘Home Line and Visa Credit Card’ facility, with $247,000 being advanced on a loan account and a credit card with a $5,000 limit.  Mr and Mrs Cameron were the named customers and signed the bank documents for that facility.  Mr and Mrs Cameron gave the Bank of Adelaide a registered mortgage over the property to secure those advances.  Mr Cameron used money obtained under these facilities to refinance and continue to fund the operation of the business in the Company. 

[9] Mr Cameron’s accountant has sworn an affidavit to which he exhibits a printout from his firm’s computer system of the Company’s unaudited financial accounts for the period commencing 30 June 1996 and ending 30 June 2003.  The balance sheet in those accounts contains an entry under secured non-current liabilities for ‘Loan – KDC home loan’.  The amount of that liability as at 30 June 2003 was $208,383.  In a further affidavit the accountant deposes as follows:

 

‘3.In particular, I have been requested to explain the entry under the heading “Non-Current Liabilities, Financial Liabilities, Secured” which stated “Loan – KDC Hom Loan $208,383.00”.

 

4.I recall that Kel Cameron and Barbara Cameron refinanced in 1999/2000.  I have not had chance to refer back to my diaries for the exact date or to refresh my memory, however, I do recall holding a meeting at my offices at Red Hill with both Kel Cameron and Barbara Cameron.

 

5.At that meeting, I recall it being discussed that Kel had arranged the refinance and had dealt directly with the bankers to organize the borrowing.  The need for the refinance was to be [sic] meet pressing business debts.

 

6.I recall having a discussion with Barbara and the requirement for her to sign various prices of paperwork to facilitate the refinance, the details of which I explained to her.

 

7.I recall at the time that Barbara was quite determined in her attitude that the loan was Kel’s and that it was entirely his responsibility to repay.  Barbara was quite agitated by the fact that her husband had allowed the business’s supplier and tax debts to build to the extent that they had.

 

8.Accordingly, when the refinance went through and the business debts had been paid out, we identified in the financial statements that the monies from the refinanced home loan used for the business debt was clearly identified as a loan by Kel D Cameron personally to the company.

 

9.Had Barbara lent the money to the company then we would have incorporated her name into the entry in the financial statements.’

[10] From about mid-2006 to September 2007 correspondence passed between the Official Trustee (and later its solicitor) and the accountant (acting in that respect for Mrs Cameron) with a view to eliciting an offer by Mrs Cameron to purchase the husband’s bankrupt estate’s interest in the property from the Official Trustee.  The thrust of the accountant’s responses on behalf of Mrs Cameron to the Official Trustee was to seek to demonstrate not merely that the bankrupt estate’s interest in the property was of no value but in fact that it was in a ‘negative equity position’ in respect of the property.  Such offers as were made on behalf of Mrs Cameron were considered by the Official Trustee to be too low as to be ‘reasonable’.

[11] Ultimately, in September 2007, the Official Trustee filed an application in the District Court for the appointment of statutory trustees for the sale of the property.  When the matter came on before the District Court, it was transferred to this Court (as I understand it, on a jurisdictional basis).  At that time, Mrs Cameron deposed to the fact that, since her husband’s bankruptcy, she had met all of the mortgage payments (totalling $99,460) and rates ($7,870.25) in relation to the property.

[12] After the order was made transferring the application to this Court, Mrs Cameron commenced separate proceedings in this Court against the Official Trustee seeking the following relief:

 

‘1.A declaration that the Defendant holds its interest in the subject property more properly described as Lot 88 on RP 127450 on trust for the Plaintiff as beneficial owner in fee simple;

 

2.Further or alternatively, a declaration that the Plaintiff and Defendant hold their respective interest in the subject property on trust for the Plaintiff and Defendant jointly

 

3.Further, a declaration that any claim which the Defendant may have to any legal or equitable interest in respect of the net equity held in the property (exclusive of the registered mortgage) has been exonerated.

 

4.Further or alternatively a declaration that the subject property was held by the Plaintiff and Kel Cameron on trust for each other as registered proprietors in fee simple.

 

5.Further or alternatively an accounting and inquiry as to the Plaintiff’s interest in the subject property including an accounting ads [sic] to the payment of mortgage payments and rates.

 

6.Such further and other orders that this Honourable court Deems meet.

 

7.Costs.’

[13] On the basis of the matters I have outlined above, Mrs Cameron claims in that proceeding that after payment of the registered mortgage she is entitled to the entire equity in the property, or alternatively is entitled to be exonerated in respect of any claim which the Official Trustee may otherwise have in respect of Mr Cameron’s interest in the property.

[14] In respect of the claim for a constructive trust, it is pleaded in that proceeding:

 

‘10.Further at all material times it was the common intention of the Plaintiff and Kel Cameron was [sic] that:

 

10.1the subject property would at al [sic] material times be continued to be used as the family home in which the Plaintiff, Kel Cameron and their children would reside.

 

10.2the property would be held on trust by the Plaintiff and Kel Cameron for each other beneficially

 

PARTICULARS

 

10.3the subject property was purchased in 1980 as the family home as registered proprietors in fee simple as joint tenants.

 

10.4It was purchased with the common intention it was to be the family home and that it would be held by each of the Plaintiff and Kel Cameron for the benefit of the other;

 

10.5The Plaintiff and the Defendant pursuant to and in reliance upon the joint purpose maintained and improved the property and made financial and non financial contributions to its maintenance and upkeep.

 

11.In the premises each of the Plaintiff and Kel Cameron each held their interest in the subject property on trust for the Plaintiff and Kel Cameron jointly.

 

12.In the premises it would be unconscionable for Kel Cameron (or his trustee in bankruptcy) to resile from that common intention to purport to claim any interest in one half of the property sell the subject property so as to deny the Plaintiff her equitable interest in the subject property.’

 

[15] Both Mr Cameron and Mrs Cameron have sworn affidavits deposing to this common intention, and to the contributions made by Mrs Cameron to the upkeep and maintenance of the property.

[16] In November 2007, the Official Trustee obtained a ‘kerbside assessment’ of the property from a real estate agent, who estimated the value of the property at between $480,000 and $550,000.

[17] Notwithstanding the institution of the separate proceedings by Mrs Cameron, the Official Trustee maintains that it is now entitled to an order appointing statutory trustees for the sale of the property, submitting, in effect, that as co-owner, such an order is its for the asking.  Reliance was placed in that regard on an observation by McPherson JA in Goodwin v Goodwin[1] that ‘[i]t is well settled that, to an application under s 38 of the Property Law Act as this is, there is practically speaking no defence’.   Goodwin’s case was quite different from this one.  The property in that case was owned by the appellant, his wife, and his mother as tenants in common.  The mother had three shares in the property and the appellant and his wife held two shares as joint tenants.  The mother applied for, and obtained, an order for statutory sale under s 38.  The appellant and his family lived on and farmed the property, but the mother needed her share of the proceeds of sale to support herself.  The appellant appealed against the order.  He did not appear when the appeal was called on for hearing, and the Court of Appeal gave ex tempore reasons for dismissing his appeal.  (For completeness, I observe that it would appear that the appellant appeared, and was heard by the Court, later on the day of the hearing, but the Court confirmed the dismissal of the appeal for the reasons it had already given).  In the course of giving reasons for dismissing the appeal, McPherson JA, with whom Williams JA and McMurdo J agreed, said:

 

‘It is well settled that, to an application under s 38 of the Property Law Act as this is, there is practically speaking no defence, and none has been suggested or was suggested at the hearing before the District Court in Kingaroy.  The Judge who hears an application of his kind has nominally a discretion whether to make an order under the section, but there was nothing before his Honour to activate the discretion in this case in such a way as to require or lead the learned Judge to refuse the order that was sought and which he made.’

[18] In concluding his reasons, McPherson JA said:

 

‘In all the circumstances, I can see nothing that could be said to demonstrate that the judge’s order under s 38 in this case was not properly made or that his discretion in making it was not properly exercised.  I would for my part therefore dismiss the appeal both for the reasons I have given and also because of the non appearance of the appellant to support this appeal this morning when it was called on.’ 

[19] Section 38(1) provides:

 

38Statutory trusts for sale or partition of property held in co-ownership

 

(1)Where any property (other than chattels personal) is held in co-ownership the court may, on the application of any 1 or more of the co-owners, and despite any other Act, appoint trustees of the property and vest the same in such trustees, subject to encumbrances affecting the entirety, but free from encumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.’

[20] In Duncan & Wallace ‘Property Law and Practice (Qld)’, it is explained, at [5.390], that under previous partition law, partition or sale in lieu was regarded as an incident of co-ownership, and accordingly a co-owner was entitled to an order almost as of right (that is, the Court had little discretion in the matter). 

[21] The use of the word ‘may’ in s 38, however, clearly confers a discretion on the Court with respect to the making of an order, albeit that it has been said that, whilst the section does not give rise to an entitlement to an order, the circumstances where relief has been refused have been constrained.[2]  In Re Permanent Trustee Nominees (Canberra) Ltd[3], Connolly J[4] essayed the approaches of the courts under the old partition actions and the legislative precursors to s 38, and said:

 

‘It may be seen therefore that in modern times there are few defences to partition proceedings based merely on the circumstances of the parties.  To say therefore that the exercise of the jurisdiction is virtually mandatory is an adequate statement for most cases but it is, in my opinion, not strictly the law and should be avoided.’

[22] There is a discretion to refuse relief, in appropriate circumstances, under s 38.  So much is clear from the following observation by the New South Wales Court of Appeal in Williams v Legg[5] (a case dealing with the equivalent statutory provision in New South Wales):

 

‘We agree with [the trial judge’s] conclusion that there are circumstances in which an application made by a person entitled to do so can, as a matter of discretion, be refused by the Court.  This is consistent with the decision of the Full Court of the Supreme Court of Queensland in Ex Parte Permanent Trustee Nominees (Canberra) Ltd ... .’

[23] Further, the New South Wales Court of Appeal said[6]:

 

‘To adapt the language of Farwell J sitting at first instance in Re Buchanan-Wollaston’s Conveyance [1939] Ch 217 at 223-224 the section could not be intended to require a court to extend relief to one who is putting forward a claim for what is equitable assistance merely to enable that party thereby to escape contractual obligations.  To do so would be to disregard the well-established rule of equity that he who seeks equity must do equity.’

 

For present purposes in describing the ambit of the discretion it is sufficient to say that it enables the Court to refuse an order for sale where the order would be inconsistent with some proprietary right, or some contractual or fiduciary obligation ...’

[24] An example of a refusal may be found in Re Bolous[7].  The parties in that case were co-owners of land on which they conducted a business in partnership.  The partnership agreement permitted a partner to give notice of retirement from the partnership, and such notice triggered an entitlement in the other partner to purchase the share of the retiring partner.  One of the partners made application under s 38 for the appointment of statutory trustees for the sale of the real property.  No notice of intention to retire from the partnership had been given.  In refusing the s 38 application, Ryan J concluded at 167:

 

‘In my opinion, the fact that the property is being used for partnership purposes, and that it may be partnership property, are circumstances which make it inappropriate to make an order for the appointment of statutory trustees for sale of the property.  The parties have agreed to conduct a business in partnership on the property and they have agreed on the terms upon which one partner may retire from the partnership, and they have also agreed as to the distribution of the assets upon determination of the partnership.  An authorisation for sale of the property would or at least could be inconsistent with the rights of the parties under the partnership agreement.  Accordingly, I refuse to make the order sought by the summons.’

[25] In the present case, therefore, the immediate question, in my view, is whether the issues of exoneration and constructive trust raised by Mrs Cameron amount to circumstances which would justify the exercise of the discretion against the making of an order under s 38.

[26] The equity of exoneration was described by the Full Federal Court in Parsons v McBain[8] as follows at [18] – [21]:

 

‘18.We can now consider each appellant’s claim to ownership of the remaining half based upon the right of exoneration.  The equity of exoneration is summarised in Fisher & Lightwood’s Law of Mortgage (Aust. Ed., 1995) at par 30.7:

 

“It is a well established principle that a person who has mortgaged his property to secure the debt of another stands only in the position of a surety and is entitled to be exonerated by the principal debtor.  In this position is a wife who has mortgaged her property to secure money raised for the benefit of her husband.  There is a similar equity in favour of a husband.

 

Where the property of the wife, or property over which she has a power of appointment, is mortgaged, and the money is paid to her and her husband, or to him alone, it is considered prima facie that it was borrowed for his benefit, and his property is first applied, as for payment of his own debt, unless the presumption is rebutted by proof on the part of the husband, that the whole or some part of the money did not come to his hands.  If the debt was not originally incurred for the benefit of the husband, this equity of exoneration does not arise by reason of his giving a covenant as additional security.  The result will be the same, where the husband has paid off the mortgage, and has taken an assignment of it in trust for himself.”

 

The authorities go back three centuries:  Huntington v Huntington (1702) 2 Vern 438;  23 ER 881;  Taite v Austin (1714) 1 P Wms 284;  24 ER 382;  Parteriche v Powlet (1742) 2 Atk 383;  26 ER 632;  Clinton v Hooper (1791) 3 Bro CC 201;  29 ER 490.

 

19.It was once thought that this doctrine was limited to husband and wife.  This appeared to be the view of Ashburner in his Principles of Equity (2nd ed, 1933) at p 170.  In Halsbury’s Laws of England (4th ed, 1979), exoneration is discussed only under the title concerned with husband and wife (Vol 22, pars 1071-1076).  However the authorities show that the doctrine is not so limited, and will apply in other cases.  That is what occurred in Gee v Liddell [1913] 2 Ch 62 and Caldwell v Ridge Wholesale Acceptance Corporation (Australia) Limited (1993) 6 BPR 13, 539.

 

20.The equity of exoneration is an incident of the relationship between surety and principal debtor.  It usually arises where a person has mortgaged his property to secure the debt of another, whether or not that other has covenanted to pay the debt.  However, it will also arise in a case where, although not an actual suretyship, the relationship is treated as one of suretyship.  This is Lord Selbourne’s third class of suretyship mentioned in Duncan, Fox, & Co v North and South Wales Bank (1880) 6 App Cas 1, 10.  For the doctrine to apply in this class, the following facts will usually exist.  First, a person must charge his property.  Where the person is the beneficial owner of the property it will be sufficient if the charge is by his trustee.  Second, the charge must be for the purpose of raising money to pay the debts of another person or to otherwise benefit that other person.  Third, the money so borrowed must be applied for that purpose.  See generally Re Berry (a bankrupt) [1978] 2 NZLR 373.

 

21.An equity of exoneration operates in the nature of “a charge upon the estate of the principal debtor by way of indemnity for the purpose of enforcing against that estate the right which [the beneficiary] has, as between [the beneficiary] and the principal debtor, to have that estate resorted to first for the payment of the debt”:  Gee v Liddell [1913] 2 Ch D 62 at 72.  Thus, where co-owners mortgage their property so that money can be borrowed for the benefit of one mortgagor, the other has an interest in the property of the co-mortgagor whose property is to be regarded as primarily liable to pay the debt.’

 

[27] Even where jointly owned property is charged partly for the benefit of one spouse alone and partly for the benefit of both spouses (such as, in the present case, for part of so much of the debt secured over the property as was attributable to personal family borrowings), and it is possible to apportion the secured debt between those two elements, the equity of exoneration may apply to entitle the other spouse to exoneration to the extent of the amount borrowed and applied for the benefit of the first spouse alone – Farrugia v Official Receiver[9].  Assuming that it is accepted that the bulk of the debt secured over this particular property was applied for the benefit of the husband (who then passed the money on to the Company), Mrs Cameron would be held to have a charge upon her husband’s interest in the property by way of an indemnity to secure her right of exoneration, and that charge would not have been obliterated by Mr Cameron’s bankruptcy;  his interest in the property which passed to the Official Trustee would be regarded as having been subject to the charge in her favour.[10] 

[28] The circumstances described in the affidavit material filed before me give rise, in my view, to real and substantial triable issues as to whether the interest in the property now held by the Official Trustee is subject to such a charge.  Moreover, the evidence strongly suggests that such a charge extends over the entirety, or at least a very substantial part of, the bankrupt estate’s interest in the property.  The establishment by Mrs Cameron of such a charge over the whole, or a significant part of, the interest in the property held by the Official Trustee may very well, in my view, be a sufficient circumstance to enliven an exercise of the discretion to refuse the making of an order under s 38.

[29] Having regard to the fact that I consider there to be triable issues on the question as to whether Mrs Cameron does have the benefit of such a charge in equity, it would seem to me to be most inappropriate at this stage to make an order under s 38 (being for relief which is, in essence, equitable) in the teeth of the countervailing contention sought to be mounted by Mrs Cameron in equity.

[30] In light of the view I have taken as to the triable issues raised in respect of the equity of exoneration, it is unnecessary for me to comment further on Mrs Cameron’s claim for a constructive trust, save to observe again that a finding that such a trust exists would likely be a powerful discretionary deterrent to the making of an order under s 38.

[31] In all the circumstances, then, it seems to me that it is inappropriate at this stage to make a determination on the application which has been made under s 38 of the PLA.  Rather, that application should be stood over, pending the hearing and determination of Mrs Cameron’s claims for exoneration and in respect of the constructive trust.  Curial determination of those issues is most likely, it seems to me, to be determinative of the outcome of the application under s 38.

[32] Accordingly, I order:

 

1.That the application be adjourned to a date to be fixed, pending the hearing and determination of the proceedings commenced by the respondent by claim no. 11160 of 2007;

 

2.The costs of and incidental to this application be reserved.

Footnotes

[1] [2004] QCA 50.

[2] Hogan v Baseden (1997) 8 BPR 15,723, per Beazley JA at 15,726.

[3] [1989] 1 Qd R 314 (Full Court).

[4] at 321.

[5] (1993) 29 NSWLR 687 at 692.

[6] at 693

[7] [1985] 2 Qd R 165.

[8] (2002) 192 ALR 772.

[9] (1982) 43 ALR 700, per Deane J at 702-703.

[10] Ibid at 703.

Close

Editorial Notes

  • Published Case Name:

    Official Trustee in Bankruptcy v Cameron

  • Shortened Case Name:

    Official Trustee in Bankruptcy v Cameron

  • MNC:

    [2008] QSC 89

  • Court:

    QSC

  • Judge(s):

    Daubney J

  • Date:

    14 May 2008

Litigation History

No Litigation History

Appeal Status

No Status