Carrafa v Chaplin, in the matter of the bankrupt estate of Michael Chaplin

Federal Court of Australia|2019-03-22|Before: Colvin J

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

COLVIN J: 1 Mr Chaplin became a bankrupt on 11 July 2006. At the time Mr Chaplin was the proprietor of a property in Broomehill, Western Australia. A dwelling had been constructed on the property under the supervision of Mr Chaplin as an owner/builder. The dwelling was structurally complete when the sequestration order was made. 2 Mr Chaplin has remained in occupation of the Broomehill property since the sequestration order. He says that since the commencement of the bankruptcy, parts of the dwelling that had not been painted were painted and he has otherwise maintained the dwelling. Otherwise he cannot remember what was done to the property since the sequestration order due to the passage of time. There was no objection to the evidence being given informally by Mr Chaplin as to these matters and I accept the evidence for the purposes of the application. 3 Mr Chaplin was discharged from bankruptcy on 12 July 2009. However, by notice of extension, the revesting time for the Broomehill property has been extended pursuant to s 129AA(4) of the Bankruptcy Act 1966 (Cth) (Act). So the Broomehill property held by Mr Chaplin at the time of his bankruptcy continues to be administered by his trustee in bankruptcy. 4 It is common ground that the Broomehill property has been continuously occupied as the home of Mr Chaplin and his two children since his bankruptcy in 2006. 5 It appears that for many years the absence of owner/builder insurance prevented the transfer of the property to the trustee and its sale as an asset of the bankrupt estate. However, these are not matters the subject of formal evidence. In any event, it was not until 2016 that the Broomehill property was transferred into the names of the then trustees of the bankrupt estate of Mr Chaplin. 6 The position of the current sole trustee, Mr Carrafa, is that at some point in time (the evidence is not precise as to when) the then trustees of the estate agreed with Mr Chaplin that he could remain in occupancy of the Broomehill property in order to maintain the property whilst it was marketed for sale. This appears from the content of a letter sent by accountants acting on his behalf to Mr Chaplin which is annexed to the affidavit of Mr Carrafa. Mr Carrafa's position on the application is that the agreement to that effect has been terminated. 7 In 2017 lawyers acting on instructions from the trustee served a notice of termination pursuant to s 64 of the Residential Tenancies Act 1987 (WA) on Mr Chaplin. The notice sought vacant possession by 27 November 2017. Despite taking that step, the trustee did not proceed to seek an order for possession in accordance with the provisions of the tenancy legislation. Instead, in September 2018 the trustee commenced proceedings in this court seeking orders for possession and delivery up of the Broomehill property, relying on s 30, s 77(1)(e) and s 129(2) of the Act. 8 So it is that more than 12 years after the commencement of his bankruptcy, during which time Mr Chaplin and his children have lived in the Broomehill property as their home, the trustee now seeks orders requiring Mr Chaplin to relinquish vacant possession. In support of the application the trustee condescends to no detail about the circumstances in which Mr Chaplin came to be allowed to remain in the property all this time, the nature and extent of any work undertaken by Mr Chaplin on the property, the circumstances in which the insurance was unable to be obtained, and why there has been such a delay in arranging the sale of the property during which, for a period of many years, Mr Chaplin has maintained the property whilst living in it as his home. The trustee simply claims that, by reason that he is now the registered proprietor of the Broomehill property in his capacity as trustee of the bankrupt estate, he is entitled to unconditional orders for vacant possession. 9 There are two reasons why that application should be refused but before referring to those reasons it is necessary to refer to the nature of the statutory jurisdiction that the trustee seeks to invoke and the law applying in Western Australia concerning the termination of residential tenancies.

The basis for the application: s 30, s 77(1)(e) and s 129(2) 10 Section 30(1) of the Act confers a general power on the court to decide all questions of fact or law 'in any case of bankruptcy' and to make such orders as the Court considers necessary 'for the purposes of carrying out or giving effect to the Act'. The provision is facilitative. It does not empower the Court to decide matters that stand outside the bankruptcy or the purposes of the Act. I note that the purposes of the Act relate to the appropriation and equitable distribution of the assets comprising the bankrupt estate with consequent relief from ongoing liability of the bankrupt for debts existing at the time of the bankruptcy: see Storey v Lane [1981] HCA 47; (1981) 147 CLR 549 at 556. 11 So it has been held that an order cannot be made in the exercise of the power conferred by s 30(1) of the Act for the sale of property co-owned by a bankrupt which would burden the interest of the other co-owner beyond the recognition of the rights of the bankrupt in the co-owned property at the time it became part of the bankrupt estate: Coshott v Prentice [2014] FCAFC 88; (2014) 221 FCR 450 at [100]. It has also been held that s 30(1) is not a source of power by which the court may override or defeat express provisions of the Act: Tyler v Thomas [2006] FCAFC 6; (2006) 150 FCR 357 at [13]. 12 Section 77 of the Act makes provision for a number of ways in which a bankrupt must assist the administration of the sequestrated estate of the bankrupt, in particular s 77(1)(e) provides that a bankrupt 'shall execute such instruments and generally do such acts and things in relation to his or her property and its realization' as are required by the Act, the trustee or the Court. 13 Section 129(1) of the Act provides that the trustee of a bankrupt estate shall forthwith take possession of all property of the bankrupt 'capable of manual delivery'. Section 129(2) then provides that the Court may on application of the trustee 'enforce possession accordingly'. 14 In Coshott v Prentice the Court (Siopis, Katzmann and Perry JJ) observed at [94] that s 30 had been held 'to provide sufficient power to make orders against a bankrupt for the vacation of property, issuing a warrant of possession and for the sale of property in circumstances where the bankrupt is not complying with his or her obligations under the Act', citing Vince (Trustee), in the matter of Sopikiotis (Bankrupt) v Sopikiotis (No 2) [2012] FCA 1298 at [4]; Pattison v McKinnon [2008] FCA 1624 at [2] and Official Receiver v Fall [2008] FMCA 489 at [10]-[12]. The qualifying words are significant. The decided cases refer to a power to make such orders where there has been a failure by a bankrupt to comply with an obligation under the Act. 15 For completeness, I note that s 7 of the Civil Judgments Enforcement Act 2004 (WA) abolished the common law writs by which judgments or orders of a court in Western Australia may be enforced. Section 95 of that Act provides that where the Court grants an order for possession of land then in order to enforce the judgment a person entitled to the benefit of the judgment 'may apply to the court for an order, addressed to the sheriff, authorising the sheriff to seize the property concerned and deliver possession of it to the person'. Section 53 of the Federal Court of Australia Act 1976 (Cth) provides that subject to the Rules of Court a person in whose favour a judgment of the Court is given is entitled to the same remedies by execution as are allowed in like cases where a judgment of the Supreme Court of a State has been given. The Federal Court Rules 2011 (Cth) provide in r 41.10 that a party who wants to enforce a judgment or order of the Court may apply for an order that can be made in the Supreme Court of the State in which the judgment or order has been made. The Federal Court Rules do not themselves provide for the issue of a writ of possession or warrant of possession. 16 Therefore, to the extent that the present application seeks a warrant of possession in respect of the Broomehill property, the application is misconceived. The appropriate course is for the Court to consider whether to make any unconditional order for possession as sought by the trustee. If that order is made and there is a failure to comply with that order then the trustee would be able to seek an order pursuant to the statutory application in this court of a power of the kind conferred by s 95 of the Civil Judgments Enforcement Act.

Residential tenancy legislation in Western Australia 17 Section 60 of the Residential Tenancies Act provides that a residential tenancy agreement shall not be terminated except where a notice of termination has been given and the tenant delivers up vacant possession or a competent court, on the application by the lessor, terminates the agreement. A residential tenancy agreement is defined in s 3 as 'any agreement, whether or not in writing and whether express or implied, under which any person for valuable consideration grants to another person a right to occupy … any residential premises … for the purpose of residence'. The term 'competent court' is defined through the effect of s 3, s 12A and s 13 of the Act as being exclusively the Magistrates Court of Western Australia. 18 In the circumstances of the present case the agreement by Mr Chaplin to maintain the Broomehill property whilst in occupation is valuable consideration for the purposes of the residential tenancies legislation.

The circumstances of Mr Chaplin's possession of the Broomehill Property 19 It is important in the context of the present application to consider the basis upon which Mr Chaplin is in possession of the Broomehill property. On the trustee's evidence Mr Chaplin has been in possession of the property under an agreement made with the trustee whereby he could remain in possession on the condition that he maintain the property. An agreement of that kind is made on the basis that the property forms part of the estate and in the exercise of the trustee's power to administer the estate. Under the terms of the agreement Mr Chaplin is allowed to remain in possession. 20 In addition, on the evidence it appears that some painting works beyond maintenance of the property may have been undertaken by Mr Chaplin over the years he has been in occupation of the Broomehill property. If so, the benefit of those works will have been received by the trustee in the course of the administration. These are matters about which the trustee has provided no evidence in support of the claim. 21 These matters may be significant because issues may arise as to whether there are restitutionary or equitable claims that may be made by Mr Chaplin on the basis of such works. If claims can be made, then they would give rise to issues as to the relief that might be granted, particularly conditions that might be imposed in relation to any order for possession. There is no evidence of a claim by Mr Chaplin that the property does not form part of the bankrupt estate and that he is remaining in possession on the basis that he was the owner at that time. This is not a case where the trustee is seeking to get in an asset of the estate. 22 Rather, the trustee has become the registered proprietor. So, the title to the Broomehill property having been transferred to the trustee, the issue is whether, by reason of circumstances that have arisen and continue to pertain during the course of the administration, the court should order unconditionally that vacant possession of the Broomehill property be given by Mr Chaplin. 23 In those circumstances, I now turn to the two reasons why the application by the trustee should be dismissed

First, the residential tenancy of Mr Chaplin has not been terminated 24 In the administration of the affairs of the bankrupt estate the trustee is bound by the law, especially the law as to the property comprising the assets of the estate not modified by the provisions of the Act itself. In particular, having made an agreement with Mr Chaplin that he may remain in possession of the Broomehill property, an asset of the estate, the trustee is bound by the law concerning such agreements. The Act does not confer a right upon a trustee to terminate an agreement to which the Residential Tenancies Act applies, otherwise than in accordance with that law. 25 The Act does require Mr Chaplin to do all things necessary to enable the trustee to get in the property of the estate. However, Mr Chaplin has not been shown to be doing anything to prevent that from occurring. His possession of the Broomehill property does not depend upon any claim based upon his prior ownership of the property. Mr Chaplin is in possession of the Broomehill property pursuant to a residential tenancy agreement for the purposes of the Residential Tenancies Act. Although notice of termination was given, under the terms of the Act the agreement is not terminated unless or until Mr Chaplin vacates or the Magistrates Court of Western Australia makes an order terminating the agreement. Neither of those events has occurred. 26 As I have said, this is not a case where the bankrupt is refusing to vacate property forming part of the estate based on no more than the ownership of the property at the time of the bankruptcy. The question raised by the present application is whether the trustee is entitled to an order for possession having regard to the dealings by the trustee with Mr Chaplin in the course of the administration. The trustee, like any owner, must abide by residential tenancy legislation and is bound by equitable principles arising from dealings between the trustee and the bankrupt in the course of the administration. 27 As the trustee has not terminated the existing residential tenancy agreement the trustee is not entitled to an order for vacant possession. 28 This morning the Court received a supplementary outline of written submissions for the trustee in which it was said that if an order under s 71 of the Residential Tenancies Act was required then the Court could and should make such an order under the jurisdiction conferred by s 79 of the Judiciary Act 1903 (Cth). I note that the trustee commenced the present application in September 2018. The matter was listed for hearing on 29 January 2019. At that time, I raised the question whether an order terminating a residential tenancy agreement was required from the Magistrates Court of Western Australia before the trustee could seek an order for possession. The matter was adjourned on the application of the trustee, and I directed that any further affidavit and submissions in support of the application to be filed on or before 21 February 2019. In those circumstances, the submission by the trustee is raised very late in the day and without any real notice to Mr Chaplin, who appears on his own behalf. It also is made without any formal application to amend the application. Such an application was made orally in the course of submissions, but no explanation was provided for the delay in the making of the application. 29 If the application was to be entertained an issue would arise as to whether a claim to relief under the Residential Tenancies Act is part of the same matter as the application for an order in the exercise of power conferred by the Act. The former seeks to invoke a jurisdiction to terminate a residential tenancy. The latter seeks an adjudication for the purposes of the administration of the estate in bankruptcy that, on the law as applied to the facts, the trustee is entitled to an order for possession of particular property. It may be that they are not part of a single controversy and therefore the federal jurisdiction of this Court conferred by s 79 of the Judiciary Act does not extend to the making of an order terminating the residential tenancy: see the analysis in Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1; (2001) 204 CLR 559 at [50]-[60]. Further, there may be an issue of the kind raised in Smith v Smith [1986] HCA 36; (1986) 161 CLR 217 at 240-241, because the authority to terminate an agreement made in Western Australia is entrusted exclusively to the Magistrates Court of Western Australia, and the exercise of that power to terminate is the only basis upon which a party can establish that a residential tenancy agreement has been brought to an end (putting to one side those instances where a tenant elects to vacate after receiving a notice to terminate). This may be a statutory power of a kind that is not brought within s 79 of the Judiciary Act on its proper construction. 30 However, it is not necessary to resolve these matters because there are two reasons why the late application by the trustee should not be entertained. 31 First, any application for an order terminating the residential tenancy agreement must be made within 30 days after the date specified in a notice of termination as to when the tenant must deliver up vacant possession. The date in the notice before the Court has long since passed. As to this aspect, it is submitted for the trustee that the court assuming that it has jurisdiction by operation of s 79 of the Judiciary Act has power under s 20(f) of the Residential Tenancies Act to extend or shorten any period prescribed by or under this Act within which any action must be taken. However, in the circumstances of this case where the notice required Mr Chaplin to vacate in November 2017, the application was commenced in September 2018 and there was no application for an order until today, it seems to me that there is not a proper basis demonstrated to the court for the exercise of a power of the kind expressed in s 20(f). 32 Second, as I have noted, the application is made very late in the day and it would be unfair to allow the application to be raised at this time. The application concerns Mr Chaplin's home and he is entitled to have some certainty concerning this application rather than there be further delay consequent upon an amendment which would necessarily, in my view, have the consequence that there would be an adjournment for the benefit of Mr Chaplin to consider the matter.

Second, the trustee has not disclosed to the court all the relevant circumstances 33 A trustee in bankruptcy has all the fiduciary duties of a trustee under the general law (as modified by the Act): Re Fuller [1996] FCA 523. Further, the trustee is an officer of the court when exercising powers and discretions: Re Condon; Ex parte James [1874-80] All ER Rep 388 at 390. So the decision to bring the present application and the manner in which it is to be brought are both matters to which these obligations apply. 34 In Frost v Sheahan [2008] FCA 1073 at [73], Besanko J raised concern in relation to a failure by the trustees to present the full picture to the court. His Honour found there was an obligation on the trustees as respondents to the application to disclose all matters which may be relevant on the application; in that case, an application for discharge from bankruptcy. The same applies in the present case. 35 As I have noted, the trustee brings the present application without disclosing to the court the detail of the circumstances in which Mr Chaplin has been allowed to be in possession of the Broomehill property for many years. Even though questions as to these matters were raised in the course of initial return of the application on 29 January 2019 and the matter adjourned at the request of counsel for the trustee and a direction made for the filing of any further submissions and affidavits, no further affidavit material has been filed by the trustee. 36 In the unusual circumstances of the present case, it is incumbent upon a trustee to provide details of relevant information that may bear upon whether the relief sought, particularly its unconditional character, should be granted. In the absence of disclosure of the circumstances that pertained over the long history of this matter, it is not possible to conclude with the requisite degree of confidence whether the unconditional order for vacant possession should be granted. In particular, it is not possible to discount the existence of valid claims on the part of Mr Chaplin which may entitle him to some condition in respect to any relief that might be granted to the trustee. 37 It is not to the point that Mr Chaplin himself, though given an opportunity, has not presented to the court the detail of the events as they have unfolded. The administration of the sequestrated estate is entrusted to the trustee as an officer of the court, and part of the discharge of that obligation is to ensure that on an application of this kind, the court is informed of the relevant circumstances that might reasonably bear upon whether the orders sought should be made. 38 Having regard to the obligation falling upon the trustee in relation to the disclosure of relevant matters, the trustee has not demonstrated that an unconditional order should be granted.

Conclusion 39 For those reasons, the application by the trustee should be dismissed. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.

Residential Tenancies Act 1987(WA)ss 3, 12A, 13, 60, 64, 71

Bankruptcy Act 1966(Cth)ss 30, 77, 129, 129AA

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