my reasoning
42 I agree, respectfully, with the Magistrate's conclusion (see paragraph 26 above) that it would be unconscionable for the respondent, as trustee in bankruptcy, to retain the benefit of the expenditure by the appellants on preserving the property. However, in my opinion, the Magistrate fell into error when, having found that there was no estoppel arising out of any specific representation that the Official Receiver would allow the appellants to keep the property if there was no equity in it, he decided apparently that there was no need to consider any other further possible basis for an estoppel. In my view, there was such a need.
43 I think it is sufficiently clear that when the Magistrate referred to "any specific representation" he meant any express representation. Was there any other representation to similar effect by way of conduct, including inaction and silence? I think there was.
44 When the Official Receiver, through Mr Peel, called upon the appellants to provide him with valuations of the property it was in the context of having told them (at the second meeting on 6 December 1996) that he needed those assessments to enable him to determine any current equity held by them in the property. He needed that information, as all three of the persons concerned were aware, in order to decide whether to sell the interest which, as trustee, he had acquired in the property. Mr Peel recorded the following in his contemporaneous diary note:
"I told the bankrupts that we would be looking into the sale of the house property if there was equity we would also be looking into the validity into (sic) the mortgage to the mother …".
45 The appellants provided the Official Receiver with the last of those valuations by March 1997. In all these circumstances, I consider that it was incumbent upon the Official Receiver, within a reasonable time thereafter, to make a decision (and inform the appellants) whether he was (at that time) going to take any steps to realise the property for the benefit of the creditors and, if not, to inform the appellants what other course he proposed to take.
46 By not doing so during a period of over four years, I consider (and so find) that the Official Receiver and, subsequently, the respondent, represented and maintained such representation to the appellants that they did not propose to assert any entitlement to any net proceeds from the realisation of the property. Important factors in that assessment are:
· the request and then the direction (the Official Receiver told the appellants, by letter dated 5 March 1997, that they would be in contempt of Court if they failed to comply) to the appellants to obtain the valuations;
· the finding by the Magistrate that Mr Peel led the O'Briens to believe that they could remain in the property whilst they continued to "pay the mortgage";
· Mr Peel's statement to the appellants that so long as they lived in the property it was their responsibility to deal with any mortgage commitments;
· the Magistrate's finding that the respondent and the Official Receiver knew full well that the appellants were making payments to the first mortgagee which had the effect of preserving the property; and
· the very long period which expired before the respondent eventually decided to sell the property.
47 The respondent sought to justify the delay by referring to the fact that it was necessary to investigate the validity of the second mortgage. He asserted that Mr O'Brien had been uncooperative in that regard.
48 The evidence is that the Official Receiver was provided (by the second mortgagee's solicitors) with a copy of the second mortgage on or about 26 November 1996, together with a written response to some eleven questions. Those responses gave particulars of the date upon which $50,000 was advanced, the fact that the debtors had made no payments of moneys payable under that mortgage and that the total of principal and arrears of interest was some $57,000. At the meeting on 6 December 1996 Mr O'Brien told Mr Peel that the money advanced upon the security of the second mortgage had been used by one of his companies, Poynman Pty Ltd, which was in liquidation. If the Official Receiver was unable to obtain further confirmation from the appellants that the moneys had in fact been advanced by the second mortgagee to them or at their direction, then he could have exercised his powers under the Act to obtain the necessary financial records from the liquidator of Poynman Pty Ltd. He would then have been in a position to decide whether to challenge the assertion that the property was properly the subject of security for a debt of some $57,000. It would appear that the Official Receiver simply did not take the necessary steps to obtain the relevant information.
49 In my opinion, as the years passed without any action on the part of the Official Receiver, a combination of the original conduct (demanding valuations) and statements made by Mr Peel on the Official Receiver's behalf, his failure to take any action to realise the property, and his silence (despite knowing that substantial payments of capital and interest were being made by the appellants) gave rise to the representation that the Official Receiver was no longer interested in realising the property and had, in effect, abandoned it to the appellants. It is not necessary for me to find the exact point at which such a representation came into existence. If it were necessary for me to do so, I would have thought that it would arise, at the latest, at the expiration of about two years from the time when the appellants provided the Official Receiver with the valuations in March 1997. As from the time when the representation came into existence the appellants assumed, quite reasonably in my view, that the legal relationship existing between them and the Official Receiver in relation to the property was that the Trustee had abandoned any interest in the property in favour of them. The property was thereafter at their risk. It may be worth noting that if the value of the property had fallen to the extent that despite the appellants having paid interest and repaid capital, there was no equity in the property, then that would have been their loss.
50 It is quite clear, in my opinion, that the Official Receiver (and later, to a lesser extent, the respondent) by the conduct to which I have referred above induced the appellants to adopt the assumption or expectation that neither of them was interested in selling the property and they had abandoned it to the appellants.
51 It is also quite clear that the appellants acted in reliance on that assumption or expectation by making the payments of principal, interest, rates and taxes, and that the Official Receiver and the respondent knew that they were doing so.
52 The appellants' unchallenged evidence was that at the time when they became bankrupt they had two offers of free accommodation, one from each side of their family and the opportunity to lease a nearby flat for $85.00 per week ($368.33 per month). By contrast, the monthly interest payable under the first mortgage to the bank was, almost always, in excess of $1,000 per month. The appellants also reduced the principal amount substantially and, as I have mentioned, paid all the rates and taxes.
53 Furthermore, Mr O'Brien's evidence that he, being a tradesman, personally carried out improvements to the property, which I have summarised at paragraph 14 above, was not challenged.
54 The Magistrate declined to make any restitutionary allowance in respect of such work, on the basis that there was evidence from a valuer that the house had no value i.e. that the only value was land value. Be that as it may, I find that, in addition to making payments of principal and interest, rates and taxes, the appellants acted to their substantial detriment in effecting the refurbishments described above.
55 The respondent now seeks to frustrate the assumption or expectation which he, and the Official Receiver before him, have raised in the appellants by a combination of the factors to which I have referred above, and which caused them to act to their very substantial detriment.
56 In my opinion, it would be unconscionable, on well-accepted equitable principles, to allow the respondent to do this. He should not be allowed, after so many years, to step in and unconditionally assert his legal rights: Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 406-408, 428-429; The Commonwealth v Verwayen (1990) 170 CLR 394 at 410-414, 440-446, 453-455.
57 There was no submission from the respondent that the appellants were precluded from raising the matter of equitable estoppel on this basis. I think that the respondent was correct in not making such a submission. It seems to me that the case was fought at first instance upon the appellants' claim that the respondent was estopped from asserting his legal rights. The main basis of that claim was an express representation. Nonetheless, all of the evidence upon which the appellants relied was before the Magistrate and, in my view, he should have considered the alternative basis for an equitable estoppel which emerged from that evidence. At paragraph [5] of his reasons, the first issue which the Magistrate stated had been raised for his decision was:
"Was an estoppel by conduct, representation/silence or otherwise raised against the Trustee in bankruptcy of the O'Briens which would require the Trustee to reconvey to them the Medindie property?"
58 There is a further point. It concerns that part of Mr Peel's evidence which was as follows:
"Part of the standard process of advising people [he was referring to bankrupts] about real estate is to say words to the effect that if there is currently no equityin the property that if they continue to make payments to the secured creditor, and the secured creditor does not exercise any sale rights and the Trustee will not sell it, because obviously there is no equity, then as long as they continue to make those mortgage payments they can remain in the property. [Mr Peel confirmed that he would have said those words to Mr and Mrs O'Brien at the interview on 6 December 1996 and then continued as follows] I would advise them if there was no equity in the property and the trustee was not in a position to sell it and they continued to make mortgage payments, they could remain in the property. However, if they did so and the property acquired an equity at a future time, as a result of those payments, the trustee's interest could still be realised. I also would have explained to them that they could, if they wanted to, in the situation where there was no equity, perhaps find somebody who could make an offer to purchase the trustee's interest for a nominal figure."
59 The Magistrate found that Mr Peel told the appellants, on this occasion, that the Medindie property vested in the Trustee. Although he expressed confidence that when Mr Peel described his "usual practice" as being to say or do something, that that practice was followed in this case, the Magistrate did not make a clear finding as to whether Mr Peel told the appellants that if the property acquired an equity in future, the Trustee's interest could still be realised. In fact, later in his reasons, at paragraph 67 the Magistrate held that there was no discussion at any time about the effect of the payment of sufficient moneys to the first mortgagee to prevent the sale and to allow the appellants to continue to reside in the premises.
60 In my view, in the absence of any clear finding about what Mr Peel may have said in relation to future realisation, the facts as found by the Magistrate gave rise to the equitable estoppel which I have described above.
61 In my view, once the Magistrate had found unconscionability, he moved too quickly to considering the matter as being one in which the appellants were confined to some form of restitutionary order.
62 I have found that the appellants have "an equity to some relief" - the words used in the principal judgment in Giumelli v Giumelli (1999) 196 CLR 101 at [11]. The next question is - what relief? Included in the orders sought by the appellants in their Notice of Appeal are orders which would require the respondent to surrender the property to them. Such an order would amount to the creation of a "constructive trust" of the type identified by their Honours in Giumelli at [2] to [6]. As their Honours observed, at [10], before a Court imposes such a constructive trust, it should decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust. Later in those reasons, at [34] to [47], their Honours reviewed the relevant authorities, and in particular the various views expressed in Verwayen. It is, in my opinion, clear from the authorities that, as a matter of doctrine, an order could be made requiring the respondent to make good the assumption which the Official Receiver and he induced to be made by the appellants. But before making such an order I must consider all the circumstances of the case.
63 As was the case in Giumelli there are third party interests in the present matter. I refer to the interests of the unsecured creditors. However, the evidence strongly suggests, and the Magistrate so found at [73] of his reasons, that if the appellants had not made the payments to the bank, the bank would have sold the property within a short period of time and the creditors would have got nothing. This must have been on the basis that the amount owing under the second mortgage was to be taken into account. Taking the average valuation of the property in February/March 1997 as being $230,000, there would have been a shortfall of about $21,000. I consider that it is appropriate to take the moneys owing under the second mortgage into account. It was (and still is) a valid security registered on the Certificate of Title. The respondent and his predecessor have had more than ample time to investigate whether, in terms of creating a debt, the transaction with the second mortgagee did not in reality do so, and to challenge the validity of that security. They have not done so. So there was nothing in the property for the creditors, there being no suggestion that they would have kept up the payments under the mortgage or mortgages in the hope of an increase in value of the property. But there was some evidence, albeit of a hearsay nature, that a substantial portion of the increase in property values in the Medindie area occurred in the period of a "year or so" preceding the bringing by the respondent of this application.
64 I take into account also, but to a somewhat lesser extent, that any conduct engaged in by the Official Receiver and the respondent should be viewed as having been engaged in as representative of the interests of creditors.
65 As I have mentioned earlier in these reasons, vis à vis the creditors, it is the appellants who have borne all of the risk that the property might have fallen in value. In those circumstances (and all the other circumstances to which I have referred throughout these reasons) there seems to be what might perhaps be described as an equitable symmetry in the proposition that their expenditure and efforts should result in their receiving the whole of any increase in value.
66 I have considered whether it would be appropriate to confine the appellants' remedies to equitable compensation in a money sum equivalent to their expenditure of money and effort on the property, plus perhaps some proportion of the increase in value of the property over the years (with the balance being payable to the respondent as trustee of their estates). I do not consider that, in all the circumstances it would be appropriate to do so. I have reached this conclusion not simply on the basis that relief by way of reconveyance of the property would not be inequitably harsh (see Deane J in Verwayen at 443), but after taking into account all the circumstances.
67 In view of the conclusions which I have reached in respect of the appellants' principal argument, it is not necessary for me to consider whether any part of the income derived by the appellants since their bankruptcies formed after-acquired property or otherwise vested in their sequential trustees. Nor is it necessary to consider whether, by applying their income in satisfaction of the moneys payable under the first mortgage and in further reduction of the principal owing under that mortgage, in reliance upon the assumption induced in them by the Official Receiver and the respondent, thereby acquiring what I have found to be an entitlement to equitable relief, the appellants have somehow caused "after-acquired property" to come into existence which must vest in the respondent. Mrs O'Brien has long been discharged from bankruptcy. In my view, the proper adjustment of the equitable rights and obligations as between her and the respondent requires that the respondent be ordered to transfer one-half of his interest in the property to Mrs O'Brien forthwith. To give effect to such a similar remedy in relation to Mr O'Brien, and to avoid any possibility that the respondent might seek to "claw back" Mr O'Brien's equitable entitlements, I shall frame the orders in his favour so that any conveyance to him will take effect forthwith upon his discharge from bankruptcy. But there is one further matter which needs to be considered, which also militates against an immediate reconveyance of a half interest in the property to Mr O'Brien. That is whether Mr O'Brien should be required "to do equity".
68 The respondent argued that Mr O'Brien did not come to the Court with "clean hands". This was a reference to Mr O'Brien's failure to comply with demands made by the Official Receiver that he supply particulars of his income so that an assessment might issue under Division 4B. Mr Stevens, counsel for the respondent, submitted that:
"If he wants equity to be done, he must clearly have disclosed to his trustee what his income was so that a contribution could have been made. It does not make any difference as to the way he expends his income but it would be a complete farce to permit somebody to avoid an assessment and thereby accrue property in whatever form and then be able to claim that, "You can't touch this because I've used it from the income which was acquired after the bankruptcy and is therefore exempt …"."
69 I think that there is some merit in parts of that submission. Mr O'Brien was under a statutory duty to provide evidence of his income within no later than 21 days after the end of each contribution period - see s 139U of the Act. The evidence is that he did not do so. It is probably too late now for assessments to be made under the Act, but equity can mould an appropriate remedy, for example, by granting relief upon conditions. The point is relevant only to Mr O'Brien, since no complaints are made against Mrs O'Brien.