Judgment
1HIS HONOUR: This is an application for interim relief by a mortgagor after her application for stay of execution of a writ of possession was refused by Johnson J in the Common Law Division of this Court.
2The application was heard by me on 28 March and 2 April 2012. I reserved my decision as it appeared to me that the application raised some significant issues and, as the applicant appeared in person, she was unable to provide me with needed assistance on these. I thus made some orders staying the sheriff's activity under the writ, until I could consider the matter properly. Unfortunately, mainly due to the unfortunate procedure of renumbering files (in this case from 2009/297005 to 2012/98237) that consideration has taken longer than it should have done.
3The basal facts are clear. On 18 November 2009, the National Australia Bank Ltd ("NAB") filed a statement of claim in the Common Law Division. The only defendant was the present applicant, Mrs Hanshaw. The NAB claimed possession of identified land at Ourimbah of which the applicant was claimed to be the registered proprietor. The property appears to be her ordinary residence.
4The claim alleged that the applicant had mortgaged the land to the NAB and that, under the terms of that mortgage, such default had occurred as entitled the NAB to possession of the land and also to a judgment for debt for $237,330.39 plus interest and costs.
5During argument on the present motion, Mrs Hanshaw claimed that she had never been served. However, I was handed up an affidavit of a process server who swore that he served it personally on her on 30 November 2009 and had a conversation with her at the time of service. I told Mrs Hanshaw this on 28 March and there has been no attempt to dispute the affidavit of service afterwards.
6There was no defence filed and, on 8 January 2010, the NAB moved for default judgment.
7The proceedings then went to sleep while the applicant approached the Financial Ombudsman Service. That episode closed on 31 May 2010.
8However, in the interim and on 17 May 2010, Mrs Hanshaw was made bankrupt on the petition of another creditor.
9The parties had made some arrangement and this arrangement held until November 2010 when the NAB alleged that Mrs Hanshaw was in breach of the arrangement. NAB then moved to enter default judgment and this was entered on 31 January 2011.
10During 2011 and early 2012, on seven occasions, the sheriff served notices on Mrs Hanshaw to vacate the land. On the majority of occasions, the NAB consented to a stay. However, with respect to the notice to be executed on 28 March 2012 at 11 am, the NAB declined to consent to a stay.
11Mrs Hanshaw applied to Johnson J for a stay. His Honour, for reasons he gave on 27 March 2012, refused that application. Basically, the learned primary judge said that the applicant still apparently owed the NAB over $255,000, she had had many previous stays and the time had come for finality. He was also unimpressed that the application had been made at the last minute.
12Early on 28 March 2012, Mrs Hanshaw approached the Registrar of the Court of Appeal with a request that a Judge of Appeal consider an application to stay Johnson J's order. Arrangements were made for me to hear Mrs Hanshaw at 10:30am that day.
13At 10:30am, Mrs Hanshaw appeared in person and Ms N Minassian, a solicitor with Gadens who had been involved with this case for some time, appeared for NAB.
14There seemed little doubt in my mind that, on the material before him, Johnson J's decision was appropriate. I also share Johnson J's view that last minute applications are usually made more in desperation than in soundness of principle. However, I was disturbed by some aspects of the case and thought that, as it was the applicant's home, I should hold the sheriff until I could consider those matters properly. This Court always has power, and should exercise that power in the right case, to stay proceedings while it considers the matter in proper depth.
15I thus directed the sheriff to cease executing the writ and stood the matter over until 2 April.
16On 2 April, Mrs Hanshaw again appeared unrepresented and this time the NAB appeared by Mr B Skinner of counsel. Counsel cited some authority to me, but, with a busy list, I thought it best to reserve my decision and give the submissions due depth of thought.
17The basal problem is what effect the bankruptcy had on the proceedings and whether the default judgment was so irregular that Mrs Hanshaw should be allowed a short time to apply to set it aside before she is evicted.
18The present proceedings had a twofold aspect: (1) a claim in debt; and (2) a claim for possession of land.
19In an action for possession of land, the material fact to be found is who as at the date of filing of the statement of claim has the better right to possession, the plaintiff or the defendant.
20The statement of claim asserts that the NAB has the better right to possession and, in the absence of a defence, there is a deemed admission.
21However, on 17 May 2010, Mrs Hanshaw was made bankrupt. When that happened, subject to s 58(5) of the Bankruptcy Act 1966 (Cth), the proceedings for debt were stayed and the equitable title to Mrs Hanshaw's equity of redemption passed to her trustee in bankruptcy. Until the trustee applied to be registered as proprietor, the mortgagor's legal title (inappropriately and confusingly referred to as an equity of redemption) remained in Mrs Hanshaw.
22The above is the consequences that flow from the Bankruptcy Act particularly s 132(3): Re Williams (1931) 3 ABC 157; Whitbread v Whitbread (1967) 10 FLR 120 at 121 (NSWCA).
23The trustee is a suburban accountant. In a letter to Gadens of 29 March 2012, he wrote that Mrs Hanshaw had never filed a statement of affairs, he had no idea of her position qua hardship and did not intend to take any steps with regard to the current proceedings.
24It is common ground that Mrs Hanshaw remains noted on the title as registered proprietor of the land.
25Commercially one can appreciate that a trustee will do absolutely nothing if he or she can see that there is the likelihood that no money will flow to his or her firm by taking any action in a bankruptcy which a Federal Court has committed to him or her to administer.
26If bankruptcy were a State matter, an equity judge would strongly suggest to the appropriate authorities that a professional person who has that attitude is not suitable to continue in the role. Persons who take on that role must accept that there will be administrations that are profitable for them and some that are not and do their duty in both.
27Whether the trustee likes it or not, whether he has funds or not, in equity, the mortgagor's estate in the Ourimbah land is vested in him to be administered for the benefit of the unsecured creditors. The trustee at the very least must consider whether there is likely to be any benefit for the unsecured creditors in taking some action. It is no excuse that the bankrupt has not filed a statement of affairs, the trustee should take the appropriate steps to compel its production.
28Section 58(3) of the Bankruptcy Act provides, in essence, that no creditor is to take any steps in any legal proceeding against the bankrupt nor enforce any remedy against the bankrupt or his or her property.
29Section 58(5) is as follows:
Nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security.
30Thus, unless subsection (5) applies, when Mrs Hanshaw became a bankrupt, the NAB should not have signed default judgment (Doran v Isaacs (1912) 12 SR (NSW) 699) and, indeed, the payments that Mrs Hanshaw made to it during the arrangement period, might be preferences.
31Before entering into the true construction of subsection (5), I must deal with a procedural matter.
32Under UCPR 6.30(1) the bankruptcy of Mrs Hanshaw did not cause the proceedings to abate. However, under UCPR 16.4(3)(a) and (b), possession should not be given by default judgment against a person other than the defendant who is in occupation unless special notice procedures are followed or the plaintiff excepts their interest from its claim.
33 UCPR 6.30 only protects people in occupation. It does not protect equitable owners (perhaps it should, cf Albany Home Loans Ltd v Massey [1997] 2 All ER 609, but that is a matter for the Rule Committee, not for me). Accordingly, although this was one of the matters that concerned me, I can now see that it has no significance.
34Again as the action in ejectment only concerns the better right to possession between the plaintiff and the defendant, the right of a third person who is interested in the land is irrelevant.
35I thus turn to s 58(5) of the Bankruptcy Act. I confess that I do not find it clear when it speaks of "realize or otherwise deal with his or her security". In particular, does a mortgagee who seeks judgment for the debt secured by the mortgage come within those words? A mortgagee selling the land clearly comes within s 58(5)'s protection, but does a mortgagee who merely seeks possession come within them?
36In Scott v Bagshaw [1999] FCA 1653; 95 FCR 37, Whitlam J said of section 58(5) at 39[8]:
That provision could not state more plainly that that s 58 does not trench upon any relevant right of the secured creditor.
37I must confess that I am not so confident about that, but it is significant that a Federal Court judge uttered those words. However, Scott v Bagshaw was reversed by the Full Court (Scott v Bagshaw [2000] FCA 816; 99 FCR 573) though the dictum quoted above was not referred to by the Full Court.
38There is surprisingly little material in the textbooks and commentaries as to the width of s 58(5). I have looked at some of the 19th century cases cited in the books, an example being White v Simmonds (1871) LR 6 Ch App 555, but the regime then prevailing means that such cases are of little assistance.
39Mr B Skinner, counsel for NAB on 2 April submitted that I would be assisted (in the sense of finding that s 58(5) protected the NAB) by the decision of Sundberg J in Gao v Official Trustee in Bankruptcy [2002] FCA 1238, approved by the Full Federal Court on appeal, [2003] FCAFC 84, and by the decision of White J in this Court in Savieri v Brown [2008] NSWSC 1210; 14 BPR 26,377.
40I do not consider that Gao assists the present problem.
41On the other hand, White J in Savieri v Brown said at [32]:
The plaintiff is seeking to enforce a remedy, namely the alleged right to possession, which is a dealing with his security within the meaning of s 58(5).
42His Honour did not give any reasons for that statement. However, it seems to me that it is correct. Section 58(5) should be construed relatively liberally and it is most common for mortgagees to obtain possession before sale so as to secure a larger sale price.
43Accordingly, I find that the NAB was entitled to sign judgment for possession.
44However, I have reservations as to whether signing of the default judgment for debt is within s 58(5). Technically speaking, a mortgagee can rely on its security and sell or sue for debt as a mortgage debt is still a debt that can be recovered in an in personam action for debt even though it is secured. I consider that an action in debt is not an action dealing with the security.
45This thought has little relevance to the present case as: (1) the NAB has not sought to prove in the bankruptcy for this judgment debt; (2) Mrs Hanshaw does not seem to dispute at least $255,000 of it; and (3) most importantly for present purposes, it has nothing to do with whether there should be some restraint on NAB obtaining possession.
46Accordingly, having examined the matter thoroughly, I cannot see any reason why Mrs Hanshaw should be able to restrain execution of the default judgment any longer.
47Thus, I dismiss the notice of motion of 28 March 2012 with costs. To be fair to her, as this property is her residence, I direct that the writ of possession not be executed until on or after Monday 7 May 2012.