Perpetual Trustee Company Limited v Daniel Cuitanovic as trustee of the bankrupt estate of Kosta Dimitrovski

Ex Tempore Judgment 1In these proceedings in the Court's Possession List Perpetual Trustee Company Limited ("Perpetual") as first plaintiff, and the second plaintiff Fidante Partners Limited ("Fidante"), seek possession of certain real property in Thirroul of which the defendant, Kosta Dimitrovski, is the registered proprietor. 2Mr Dimitrovski is said to have defaulted on a loan agreement and a mortgage. The plaintiffs claim they are entitled to possession of the land. These reasons do not record the full particulars of title or the address of the land in conformity with the Court's policy of minimising the risk of identity theft arising from the publication of its judgments. 3The matter is complicated by the fact that Mr Dimitrovski was made bankrupt on 16 May 2013. Today, 27 May, his trustee in bankruptcy, Mr Daniel Cuitanovic, appears in his place. Mr Dimitrovski himself does not appear. Mr Dimitrovski filed a debtor's petition. I will order today that Mr Cuitanovic be substituted as defendant in place of Mr Dimitrovski. 4It follows from the operation of s 58 of the Bankruptcy Act 1966 that the equity of redemption of Mr Dimitrovski's Thirroul property has now become vested in his trustee in bankruptcy Whitbread v Whitbread [1967] 2 NSWR 393, and Hanshaw v National Australia Bank Limited [2012] NSWCA 100. In respect of all but one aspect of these proceedings, the trustee now speaks on behalf of Mr Dimitrovski's relevant property interests. 5There is an issue to be dealt with shortly about whether or not it is appropriate for this Court to proceed to grant judgment for possession in circumstances where Mr Dimitrovski is now bankrupt. But I am satisfied for reasons I will shortly explain, that it is open to the Court so to do. First though I identify the basic facts of the matter which led to the commencement of the proceedings. 6The plaintiffs are two entities associated with the Challenger Howard Mortgage Fund. That fund was structured as follows: the second plaintiff Fidante, by its earlier name, Challenger Managed Investments Limited, lent moneys on behalf of the Challenger Howard Mortgage Fund; but Perpetual at all times held the mortgages securing the moneys so lent, and did so for the benefit of the Challenger Howard Mortgage Fund. 7Thus they are both plaintiffs to these proceedings: Perpetual to seek relief under its mortgage, and Fidante to seek relief under its loan agreement. Today, Perpetual's rights under the mortgage are in issue. 8I am satisfied on the materials that have been put before the Court that Fidante made a loan agreement with Mr Dimitrovski on 30 January 2008, in an amount of $1 million for a term of three years. Security given for that loan was the Thirroul property. I am also satisfied that the loan documentation declared that the loan agreement was for investment purposes only, and that the loan agreement required that Mr Dimitrovski use the services of a solicitor as a condition of the loan agreement. 9The loan agreement was entered into on 11 December 2007. A formal deed of loan to the same effect was executed on 11 January 2008. The deed of loan was witnessed by Mr Stanizzo, the solicitor for Mr Dimitrovski. The defence filed in the proceedings does not contest that Mr Dimitrovski signed the deed of loan and the mortgage. 10Mr Dimitrovski also signed a declaration by a borrower which recorded his understanding that the loan agreement and the mortgage over the security property had been taken out after his receipt of independent legal advice, and that the borrowings in question were for investment purposes. 11The loan agreement was supported by two securities. One was a deed of guarantee and indemnity provided on behalf of a company controlled by Mr Dimitrovski, "Shano Developments Pty Limited", with which the Court is not concerned in these proceedings. The other security was the Perpetual mortgage securing all amounts outstanding on the loan agreement. 12I am satisfied that the loan moneys were applied as directed by Mr Dimitrovski. He executed an authority to pay and complete, authorising Mr Stanizzo to act on his behalf in respect of the application of the loaned funds. The evidence supports the conclusion that on 30 January 2008, loan funds of $1 million were advanced to Mr Dimitrovski. After that advance, the loan proceeded without default for the whole of the agreed three year term. The matters that give rise to these proceedings arose only after the expiry of the three year period. 13The loan agreement provided for the repayment of the loan on 1 February 2011. But Perpetual's ledgers, evidence and the served default notices all support the conclusion that the principal was not repaid on 1 February 2011, and indeed, is still outstanding. Some interest payments were made after 1 February 2011, but no repayments have been received since at least 1 May 2011. Default notices were served upon the defendant Mr Dimitrovski prior to him becoming bankrupt. 14I am satisfied that under the provisions of the mortgage and the loan agreement, Perpetual is entitled to possession of the Thirroul property, subject to two matters. The first of those two matters is the intervention of Mr Dimitrovski's bankruptcy, and the second is proof of who is residing at the Thirroul property. 15As to the first of these matters, Mr Dimitrovski's bankruptcy has the effect of making it incompetent for any of his creditors to enforce a remedy against him or his property in respect of a provable debt, except with leave of the Federal Court of Australia, to take any proceedings or take fresh steps in any proceedings in respect of a provable debt: Bankruptcy Act 1966 s 58(3) ("Banktruptcy Act"). But there is an exception to Bankruptcy Act s 58(3) under s 58(5) in respect of secured creditors, of which Perpetual claims to be one. 16Bankruptcy Act s 58(5) provides: "Nothing in the section affects the right of secured creditors to realise or otherwise deal with his or her security". Mr Bedrossian, on behalf of Perpetual, says that on its claim it may proceed to a judgment for possession. But he concedes that judgment for any pecuniary amount claimed in the statement of claim would not be authorised under s 58(5). Mr Swan on behalf of the trustee does not say anything against that proposition. Both Mr Bedrossian and Mr Swan seem to me to be correct when the authorities are analysed. 17Both White J in Savieri v Brown [2008] NSWSC 1210 ("Savieri") at [31], [32] and [33], and Young JA in Hanshaw v National Australia Bank Limited [2012] NSWCA 100 ("Hanshaw") at [35] to [44], make clear that a plaintiff seeking to enforce a right of possession or a right to exercise a power of sale of property conferred under a mortgage, are attempting to, "realise or otherwise deal with his or her security", within Bankruptcy Act s 58(5). 18Even without the assistance of authority, one could readily infer that a step such as taking possession for the purposes of sale, was an act of realisation of that security. But this is now confirmed by Savieri and Hanshaw. 19For that reason, it seems to me that Perpetual's action in these proceedings is not barred by Bankruptcy Act s 58(3). There is no impediment on that account in the Court proceeding to give judgment for possession. 20The other procedural issue relates to the application of Uniform Civil Procedure Rules 2005 ("UCPR") r 36.8, which provides as follows: Unless the court orders otherwise, judgment for possession of land may not be given or entered against a defendant in his or her absence unless the plaintiff files an affidavit: (a) stating that, when the originating process was filed or (if the claim for possession arises from an amendment to the originating process) when the amendment was made: (i) specified persons (other than parties to the proceedings) had been in occupation of the whole or any part of the land, or (ii) no persons (other than parties to the proceedings) had been in occupation of the whole or any part of the land, and (b) stating that, as to each person specified in accordance with paragraph (a) (i) (other than a person whose occupation the plaintiff does not seek to disturb): (i) the originating process has been duly served on the person, or (ii) the person has, since the time referred to in paragraph (a), ceased to be in occupation of any part of the land, and (c) in relation to a claim for possession by reason of default in the payment of money, stating particulars of the default. 21The question first arises as to whether UCPR r 36.8 applies or not. For the reasons that follow, in my view, it does. 22The statement of claim in these proceedings was filed in July 2011, and served shortly thereafter. These proceedings were set down for hearing in February of 2013, and have come on for hearing today, 27 May 2013. 23The purpose of UCPR r 36.8 is to ensure that anyone who is an occupant of the premises of which possession is sought, has notice of the application, whether that person claims an interest in the property or not. But UCPR r 36.8 is expressed in terms of its application where judgment is given or entered against the defendant "in his or her absence". Mr Dimitrovski was still the named defendant when these proceedings commenced and today he was also absent. 24The trustee in bankruptcy is now the defendant in these proceedings, not Mr Dimitrovski. He is represented by Mr Swan. But Mr Swan, not surprisingly, has frankly conceded that he has not made any inquiries before today as to who is in possession of the premises. 25It seems to me that the issue for which UCPR r 36.8 is providing, still needs to be addressed. Before giving judgment for possession it is necessary to ensure that there is evidence that all occupants of the property who were occupants when the proceedings were commenced, have been served. I will require this provision to be complied with before giving any judgment for possession. 26So, to satisfy UCPR r 36.8, the plaintiffs now read an affidavit of Ian McKerrell deposing to service of the originating process on Mr Dimitrovski on 15 August 2011. Mr McKerrell deposes to the fact at the time of service at the Thirroul property, he said to a male person, "Are you Kosta Dimitrovski as referred to and herein?", referring to the statement of claim and notice to occupier filed in the proceedings. 27He deposes in evidence, which I accept, to the person with whom he was speaking saying, "Yes, I don't want this to happen". Mr McKerrell then says that he asked: "Is there any other occupiers over the age of sixteen residing here at the moment, and also at the time of filing, being 15 July 2011?" 28He says again in evidence, and I accept that the person who I infer is Mr Dimitrovski, then said: "No, I was the only one living here then, and I am currently the only person occupying this home, but sometimes my daughter stays with me." 29Mr McKerrell then left an extra copy of the notice to occupier, and the statement of claim with the person who I infer was Mr Dimitrovski. I do not regard the occasional visit by a relative as bringing such a person into occupation of the whole or any part of the land. It appears from the available evidence that Mr Dimitrovski was the only occupant of the land, and he has been served with notice to occupier and the Statement of claim. 30I am satisfied that the requirements of UCPR r 36.8 have been satisfied. I will, accordingly, enter judgment for possession in favour of the first plaintiff, Perpetual over the Thirroul property. 31As Perpetual and Fidante made clear, they do not seek any money judgment in these proceedings. This includes any judgment as to costs. Those are matters which will be left to the trustee and Perpetual and Fidante to resolve in the future by other processes. 32The formal orders of the Court are as follows: (1)Substitute Mr Daniel Cuitanovic as trustee of the bankrupt estate of Kosta Dimitrovski as defendant. (2)I grant leave to Mr Swan, on behalf of the trustee of Mr Dimitrovski's estate to file a notice of appearance. (3)That the trustee of the estate of Kosta Dimitrovski, a bankrupt, the present defendant, gives to the first plaintiff, Perpetual, possession of the whole of the land contained in Certificate of Title, identifier lot 1 in DP578279. The postal address is xxx xxxxxxxx xxxxxxxx xxxxx Thirroul 2515. (4)I grant Perpetual, the first plaintiff, leave to issue a writ in relation to the land, but I stay the operation of order 2 for 28 days from today.