(a) The Authority of the Trustee
12The Hunters argue that the Trustee had no legal authority to deal with Mr Hunter's interest in the Property when he signed the Consent Judgment in March 2012. The Bank disputes that contention, arguing that Mr Hunter's interest in the Property vested in the Trustee upon Mr Hunter's bankruptcy and that the Trustee thereafter had exclusive authority to deal with that interest, and that he, not Mr Hunter, appropriately signed the Consent Judgment. The resolution of this question turns on the construction of the provisions of the Bankruptcy Act 1966 (Cth) and authorities marking the extent of the federal jurisdiction in bankruptcy.
13The Hunters' authority argument commences with more facts. Mr and Mrs Hunter made an informal and then a formal agreement for Mr Hunter to dispose of his half interest in the property to Mrs Hunter. After a lengthy marriage Mr and Mrs Hunter separated in November 2009. She practices as a solicitor with Hunter Flood Lawyers, the solicitors acting for the Hunters in these proceedings. She crafted an informal agreement, dated 23 November 2009, on their separation. That agreement, entitled "Property Settlement Between Kim Francis Hunter and Kim Lee Hunter", provides for practical division of their matrimonial property. Under this informal agreement Mr Hunter would take and be responsible for: a patisserie business, a family company, Indulgence Hunter Pty Limited, the net proceeds of sale of a unit in North Sydney, superannuation funds, personal effects; and he would have to meet some of the couple's personal loan obligations. Mrs Hunter would take and be responsible for: two motor vehicles, an interest in a number of legal practices, some minor superannuation funds, some bequests, the furniture and contents of the Property and her personal effects; and she would be responsible for meeting a private debt and the mortgage payments over the Property.
14The informal deed effected this division of assets and liabilities by providing for the transfer of title of a number of assets from one party to the other. Mrs Hunter agreed to transfer her interest in the family company, Indulgence Hunter Pty Limited to Mr Hunter. And Mr Hunter agreed to transfer his interest in certain BMW and Honda motor vehicles to Mrs Hunter.
15Then they agreed to transfer Mr Hunter's interest in the Property. Mr Hunter formally agreed in the following terms to that transfer:
"KF Hunter hereby transfers all his right title and interest as joint tenant in [the Property at Balgowlah] to pay KL Hunter and agrees to sign all and any documents including a Real Property Act transfer and do all things necessary to effect registration of such transfer."
16The parties agreed to give further effect to this informal agreement: by further agreeing "to do all and any other acts and sign any other documents to give effect to the above properties settlement"; and, "to document the within property settlement in a formal family law agreement". They did both.
17There is no suggestion in these proceedings that this was not an authentic document. It has a ring of authenticity to it; being a practical attempt to capture a moment of consensus before a parting couple went their separate ways. Subject to the operation of the Family Law Act 1975 in relation to property settlements, the November 2009 informal agreement would appear on its face to effect between Mr and Mrs Hunter an agreement which the parties wished to make immediately binding, although to be documented later: falling within the first class of Masters v Cameron (1954) 91 CLR 353 at 360 agreements, where the parties intended to be immediately bound to the performance of their bargain, having reached finality in all the terms.
18The parties did formalise their agreement later. But it took them some time to do so. Mr Hunter's impending bankruptcy perhaps seemed to have spurred them into action. On 14 March 2011 Mr and Mrs Hunter executed a document entitled "Financial Agreement under s 90C of the Family Law Act 1975". This March 2011 formal agreement was made just two days before Mr Hunter was made bankrupt on a creditor's petition in the Federal Magistrates Court, on 16 March 2011. The sequestration order notes "that the date of the act of bankruptcy is 22 October 2010", which act of bankruptcy was non compliance with a bankruptcy notice. Thus, Mr Hunter's act of bankruptcy occurred after the separation and the making of the 23 November 2009 informal agreement, but long before the 14 March 2011 formal agreement was executed.
19The March 2011 formal agreement essentially reflected the terms of the earlier informal agreement, thereby somewhat confirming the parties' earlier intentions to enter into a binding informal agreement in November 2009. The March 2011 formal agreement provided in clause 4(a): that Mr Hunter "shall do all acts and things and sign all documents necessary to transfer Kim Lee Hunter the right title interest in the real property situated at [the Property] at the expense of Kim Lee Hunter"; and in clause 4(b), that Mrs Hunter "shall assume all liability for and indemnify Mr Hunter against payments for the mortgage debts incurred over the matrimonial property". This formal agreement appears to conform with the formal requirements for a binding agreement under Family Law Act, s 90C. It was accompanied by certificates of independent advice to Mr and Mrs Hunter made in conformity with Family Law Act, s 90G. And the formal agreement has annexed to it a full statement of the assets and liabilities of the couple and their agreed estimated value.
20The Hunters' argument turns to the legal effect of these informal and formal property settlement agreements. They contend that those agreements result in Mr Hunter's half share in the Property not being "the property of the bankrupt" within Bankruptcy Act, s 5, upon his later bankruptcy. Not being the "property" of the bankrupt, their argument proceeds, the Property does not come under the Trustee's control; rather Mr Hunter is free to deal with it; and, Mr Hunter should always have been served with legal process before any judgment was entered against him.
21The Hunters' argument requires analysis of Bankruptcy Act, ss 5, 58, 115 and 116. Bankruptcy Act, s 5 defines "the property of the bankrupt" in relation to a bankrupt, as "the property divisible among the bankrupt's creditors", subject to some non applicable exceptions.
22Bankruptcy Act, s 58 provides for the vesting of property upon bankruptcy. The general rule is where a debtor becomes bankrupt "the property of the bankrupt, not being after acquired property, vests forthwith in the Official Trustee or...a registered trustee... of the estate of the bankrupt..." (Bankruptcy Act, s 58(1)(a)); and, after acquired property of the bankrupt vests as soon as it is acquired, in the Official Trustee or the registered trustee (Bankruptcy Act, s 58(1)(b)). The expression "after-acquired property" in relation to a bankrupt means property required by or devolving on the bankrupt after the date of bankruptcy: Bankruptcy Act, s 58(6). Moreover, nothing in s 58 "affects the right of a secured creditor to realise or otherwise deal with his or her security": Bankruptcy Act, s 58(5).
23Bankruptcy Act, s 115 fixes the commencement date of a bankruptcy. Where a person, such as Mr Hunter, becomes bankrupt on a creditor's petition then the bankruptcy relates back to and commences at the time of the commission of the earliest act of bankruptcy within six months before the presentation of that creditor's petition: Bankruptcy Act, s 115(1). In Mr Hunter's bankruptcy, that date is fixed at 22 October 2010.
24Bankruptcy Act, s 116 identifies the property of the bankrupt which is divisible among the bankrupt's creditors. In general terms s 116(1) provides that all property vested in a bankrupt at the commencement of the bankruptcy or which otherwise devolves upon the bankrupt and before the bankrupt's discharge, is "property divisible among the creditors of the bankrupt": Bankruptcy Act, s 116(1). But this statutory command is subject to an exception upon which the Hunters rely in this proceeding. Bankruptcy Act, s 116(2) relevantly provides that "sub-section (1) does not extend to the following property: (a) property held by the bankrupt in trust for another person".
25With this factual and legal background, the Hunters' argument may be summarised in the following propositions: (1) Mr Hunter's legal interest in the Property is held as trustee for Mrs Hunter under either or both of the November 2009 or March 2011 matrimonial property settlement agreements; (2) Bankruptcy Act, s 116(2) applies to Mr Hunter's half interest in the Property as trustee, and it is therefore not property divisible among his creditors and so is not "the property of the bankrupt" in Mr Hunter's bankruptcy; (3) Mr Hunter's half interest in the Property does not vest upon Mr Hunter's bankruptcy in the Trustee under Bankruptcy Act, s 58(1) and therefore Mr Hunter retains his right to deal with the Property, which is unaffected by bankruptcy law; thus, (4) the Consent Judgment signed by the Trustee was "irregular" within UCPR, r 36.15 because it was entered without Mr Hunter having been served the originating process and with the assent of someone not authorised to act on Mr Hunter's behalf, both of which actions denied him procedural fairness.
26The plaintiff Bank seeks to answer the Hunters' argument at two levels, saying: this Court does not have jurisdiction to determine the issues raised in their argument; and, in any event the argument is invalid for various reasons. These reasons deal with the first of these answers. As the Bank is successful in my view on the first question of jurisdiction, it is not necessary to consider the second.
27The Bank persuasively argues that the jurisdiction to determine the Hunters' argument is exclusively vested in the Federal Court of Australia and the Federal Magistrate's Court, not in this Court.
28The Bank's argument, which I accept, is the following. The decision whether the Trustee has authority to sign the Consent Judgment, depends upon whether the Property is Bankruptcy Act, s 5 "property of the bankrupt [Mr Hunter]", and whether the Property has vested in the Trustee under Bankruptcy Act, s 58. Bankruptcy Act, s 58(3), constrains Mr Hunter from seeking determination of that issue in any court. Section 58(3) provides:-
"58 Vesting of property upon bankruptcy-general rule
(3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding."
29By Bankruptcy Act, s 5, "the Court" is defined as "a court having jurisdiction in bankruptcy under this Act". This directs attention to Bankruptcy Act, s 27(1) which provides:-
"27 Bankruptcy courts
(1) The Federal Court and the Federal Magistrates Court have concurrent jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than:
(a) the jurisdiction of the High Court under section 75 of the Constitution; or
(b) the jurisdiction of the Family Court under section 35 or 35A of this Act."
30The reference in s 27(1) to "jurisdiction and bankruptcy" directs attention to the s 5 definition of "bankruptcy". When used in relation to questions of jurisdiction and proceedings, "bankruptcy" means "any jurisdiction and proceedings under or by virtue of this Act".
31What is the scope of Bankruptcy Act, s 27(1)? This issue has been considered in a number of cases. In Sutherland v Brien (1999) 149 FLR 321 Austin J decided that Bankruptcy Act, s 27(1) does not vest in those courts to which it refers, exclusive jurisdiction in respect of every question turning upon the interpretation and application of the Bankruptcy Act. As Barrett J explained in Green v Schneller [2001] NSWSC 897 at [22]; (2001) 189 ALR 464, "that must be so. When persons become bankrupt, it is necessary for courts to determine all kinds of questions about the consequences. One class of such questions relates to the nature of the rights of persons to property."
32In Sutherland v Brien (1999) 149 FLR 321 Austin J decided that in cases concerning the nature of the rights of persons to property the Bankruptcy Act did not preclude the exercise of the well established jurisdiction of courts other than those mentioned in s 27(1), "to determine and declare rights to property and to make orders as to its destination".
33But as Barrett J also explained in Green v Schneller [2001] NSWSC 897 at [22] that general jurisdiction, which lies in other courts, will be displaced by any aspect of jurisdiction clearly given to Bankruptcy Act, s 27(1) courts:-
"But that undoubted general jurisdiction will yield to any aspect of the jurisdiction for determination and declaration of such rights which the Bankruptcy Act itself places in the hands of s27(1) courts. In Scott v Bagshaw (above), the Full Federal Court noted that among the matters so placed in the hands of those courts is "applications to declare for or against the title of the trustee to any property". Because this is one of the matters s31(1) of the Act requires "the Court" to hear in open court, it is identified as a matter within the definition of "bankruptcy" and thereby seen to be within s27(1). That aspect of the general jurisdiction "to determine and declare rights of property and to make orders as to its destination" which entails "applications to declare for or against the title of the trustee to any property" is accordingly reposed in s27(1) courts alone."
34The question Mr and Mrs Hunter now seek to agitate is whether or not the Property is caught by Bankruptcy Act, s 116(1), because as Mr Hunter's half interest in the Property is held in trust for Mrs Hunter under the partly performed property settlement, that provision, s116(1) "does not extend to...property held by the bankrupt in trust for another person": s 116(2). That question falls within the jurisdiction of Bankruptcy Act, s 27(1) courts. As the Full Court of the Federal Court explained in Scott v Bagshaw [2000] FCA 816; (2000) 99 FCR 573, Bankruptcy Act, the terms of s 27(1) are to be understood in context, and Bankruptcy Act, s 31(1)(f) elucidates what the drafter of s 27(1) had in mind as falling within the expression "bankruptcy" as defined in s 5(1) of the Act. Bankruptcy Act, s 31(1)(f) makes clear that:-
"In exercising jurisdiction under this Act, the Court shall hear and determine the following matters in open Court:
...
(f) applications to declare for or against the title of the trustee to any property...."
35The Full Court pointed out in Scott v Bagshaw [2000] FCA 816 (at [18]); (2000) 99 FCR 573 that applications having the stated effect, namely declaring for or against the title of the trustee to any property "would be encompassed within the concept of 'bankruptcy'".
36For the Hunters to succeed on this Motion the Court would have to "declare...against the title of the trustee" to the Property. The Hunters cannot succeed without this Court finding that Mr Hunter's half share in the Property did not vest in the Trustee on Mr Hunter's bankruptcy. For that reason their Motion is an application which Bankruptcy Act, s 31(f) makes clear, falls within the exclusive jurisdiction of Bankruptcy Act s 27(1) courts and cannot be determined by this Court. It then follows, in my view that the Hunters cannot now establish that the Trustee's signing the Consent Judgment was "irregular" within UCPR, r 36.15 on the basis that the Trustee had no authority to sign it.
37Nor was it "irregular" under UCPR r 36.15 or liable to be set aside under UCPR r 36.16 because Mr Hunter was not served with process before judgment. The Hunters cannot establish in this Court that the Bank denied Mr Hunter procedural fairness because he was not served with legal process, to the service of which he was entitled before the Consent Judgment was entered. Mr Hunter would only be entitled to be served with the statement of claim if his share in the Property did not vest in the Trustee. But that is the question for a court exercising Bankruptcy Act section 27 (1) jurisdiction, not this Court. Moreover any contention from Mr and Mrs Hunter that Mr Hunter is entitled to be served with legal process somewhat conflicts with Bankruptcy Act s 58(3)(a), which constrains creditors from enforcing "any remedy against the person or property of the bankrupt in respect of a provable debt". Apart from the Bank's rights under its mortgage security (preserved by Bankruptcy Act s 58(5)) to proceed against Mr Hunter's share in the Property, Bankruptcy Act s 58 (3)(a) is an answer to any complaint on his part of procedural unfairness in relation to any personal remedy against him: the Bank cannot enforce such a remedy anyway. The Hunters' Motion fails for these reasons.
38How then would the Hunters challenge the Trustee's decision to give his assent to the Consent Judgment? Under Bankruptcy Act, Part VIII, Division 4 the Trustee's conduct is subject to the supervision of the "Court", namely Courts vested with jurisdiction under Bankruptcy Acts 27(1). Bankruptcy Act, s 178 authorises a bankrupt "affected by an act, omission or decision of the trustee" to apply to the Court which may make such order in the matter as "it thinks just and equitable". The application must be made "not later than 60 days after the day in which the person becomes aware of the Trustee's act, omission or decision": Bankruptcy Act, s 178(2). The Trustee's decision to assent to the Consent Judgment, a decision made in March 2012, could not now be challenged without the leave of the Court to make an application out of time. The Federal Court or the Federal Magistrate's Court would have the power to make declarations as to the ownership of the Property on such an aplication. There are many examples of those two Courts making such declarations: see for example Charan v Gleeson [2010] FMCA 703 at [34].
39The Hunters unsuccessfully sought to resist this conclusion. They argue that the matrimonial property settlements occurred well before Mr Hunter's bankruptcy, and that the Trustee has not made an application to set those settlements aside. The March 2011 formal settlement was not "well before" the bankruptcy. Indeed it occurred after the commencement of the bankruptcy, in October 2010. Leaving the consequences of the timing of the October 2010 settlement to one side, the November 2009 settlement agreement undoubtedly took place before the commencement of the bankruptcy. But its timing is no answer to the problem the Trustee has raised about jurisdiction. The November 2009 settlement agreement simply means that Mrs Hunter claims an equitable interest in the half share of the Property in Mr Hunter's name which the Trustee now holds. Mrs Hunter's claim to that equitable interest is as incapable of determination by this Court, as is Mr Hunter's wish to challenge the Trustee's dealing with a half share in the Property through the Consent Judgment. Mrs Hunter's claim to an equitable interest in the other half share of the Property, is an application "to declare for or against the title of the Trustee to any Property" within Bankruptcy Act, s 31(1)(f). By parity of reasoning, this issue must be determined within the exclusive jurisdiction of s 27(1) courts, not this Court.
40The contest between Mrs Hunter and the Trustee must also be distinguished from the contest between the Hunters and the Bank. As to the contest between Mrs Hunter and the Trustee, it is not necessary to forecast her prospects. But perhaps it may be observed that Mrs Hunter may have an arguable case against the Trustee arising out of the November 2009 informal property settlement. Bankruptcy Act, s 123(6) protects from invalidity dispositions and assignments by a bankrupt "executed, made or incurred by the debtor before the day in which the debtor becomes a bankrupt, under or in pursuance of the maintenance agreement or maintenance order". The Bankruptcy Act also saves from invalidity, through s 123, conveyances, transfers or assignments for valuable consideration. It would appear to be arguable upon the face of the November 2009 settlement that each of the parties both gave and received consideration for their respective promises, which were part of a give and take arrangement to achieve final property resolution on separation. Upon bankruptcy the trustee is generally bound by the equities which affect the bankrupt. So if a third party has an equitable interest in property, when it passes to the Official Trustee it is "clogged with all the equitable conditions which attach to it": Whyte v Williams [1903] 29 VLR 69 per Madden CJ at 81 and Corke v Corke (1994) 48 FCR 359 at 365. As Mrs Hunter arguably provided consideration to Mr Hunter for the agreement to transfer his half interest in the Property to her, then her equitable interest may be enforceable against the Trustee, and this case may be distinguishable from cases such as Corke v Corke (1994) 48 FCR 359, where such enforcement was not available. The November 2009 agreement is in any event outside the relation back period for a bankruptcy commencing in October 2010, and it may perhaps support the transfer of an equitable interest in the Property to Mrs Hunter. But I express no final view about that question. It is a matter for another Court to determine upon much fuller evidence than is now before this Court.
41But the position between the Hunters and the Bank is quite distinct. Indeed the Hunters in their submissions do not dispute that the Bank is a secured creditor of both of them and that nothing in Mr Hunter's bankruptcy affects the Bank's right as a secured creditor to deal with its security: Bankruptcy Act, s 58(5). The Trustee's assent to the Consent Judgment is a recognition on his part that the Bank has this right under its mortgage security over the Property. After the Bank exercises its security rights against the Property (to the extent it is validly held by the Trustee), there may perhaps be a residue of value, left in the hands of the Trustee. Then Mrs Hunter and the Trustee may have to contest their entitlement to that residue in a Bankruptcy Act, s 27(1) court. But it is presently unclear whether there will be any residue worth contesting.
42The parties put submissions about whether or not Mrs Hunter did acquire an equitable interest in Mr Hunter's share in the Property in November 2009. But it is unnecessary for this Court to consider those matters. They would only arise in any contest between the Trustee and Mrs Hunter should Mrs Hunter decide to challenge the Trustee's decision to assent to the Consent Judgment, or to challenge the Trustee's claim to legal and equitable ownership of Mr Hunter's half interest in the Property. It is not necessary to further elaborate upon or explain those arguments now. This Court cannot decide them. Whether or not Mrs Hunter acquired an equitable interest in Mr Hunter's half share in the Property in November 2009, by the time of Mr Hunter's bankruptcy, any residual equitable interest he continued to hold in the Property as a joint tenant with Mrs Hunter would certainly have been severed by the appointment of the Trustee upon the sequestration of Mr Hunter's estate, and been converted to a tenancy in common: Director of Public Prosecutions for Victoria v Le [2007] HCA 52 at [100] and Bankruptcy Act s 58(2).
43It is sufficient to record the principal areas of the Hunters' alternative argument as being: (1) whether the informal agreement made in November 2009 which was not fully compliant with Family Law Act, s 90C effects the transfer of an equitable interest in the property from Mr Hunter to Mrs Hunter; (2) whether in the events which had happened between Mr and Mrs Hunter after the making of the November 2009 informal settlement, Mr Hunter actually became a trustee of that Property for Mrs Hunter at general law; and (3) whether the Trustee considered Mrs Hunter's interest when he assented to the Consent Judgment. Given the Hunters' failure on the first point, it is not necessary further to examine these issues.