Re Wallace, Phillip Geoffrey Ex Parte Gloria Wallace v Mann, John Howard [1997] FCA 388

One 1980 Gitsham drop deck extendable trailer - Registration No: A 64645 Chassis 619M 2. One 1976 Mercedes Benz Prime Mover - Registration No: MBD 830 Engine No: 4039 312 001 4260 3. One 1979 Mercedes Benz Table Top - Registration No: PSZ 682 engine No: OM40191420116743 VIN 38505524 383779 4. One 1990 Clarke Melroe Bobcat - Engine No: V1702-45345 VIN 5019-M26466 and mower (unregistered) 5. One 1986 Toyota White Panel Van - GW970 6. One 1993 Nissan Patrol - GW 827 7. One Trailer - CJ 5889
One Trailer - CD4413 9. One 1983 Millard Caravan - CD 8770
One Toyota Hi Lux Ute - YOR017 11. One 1988 Mayo H/made (Heavy duty trailer) E41770 (B92448) The application is brought under O35 r7 of the Federal Court Rules which provides:- "7(2) The Court, where it is not exercising its appellate or related jurisdiction under Division 2 of Part III of the Act, may if it thinks fit vary or set aside a judgment or order after the order has been entered where: (a) the order has been made in the absence of a party, whether or not the absent party is in default of appearance or otherwise in default and whether or not the absent party had notice of the motion for the order; ..." I need not consider whether that rule strictly applies in bankruptcy proceedings though it would seem from Order 76 rule 1(3) of the Federal Court Rules that it would do so. Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 makes it plain that a court such as this Court has inherent jurisdiction to set aside a judgment or order in a case where there has been a miscarriage of justice, though the jurisdiction should be exercised with great caution having regard to the importance of the public interest in the finality of litigation. In the present case, the evidence shows that notices of the hearing before Hill J were sent to Mr and Mrs Wallace at an address which was not then their current address. Notice was also sent to Mr J W Byrnes, who was at time advising them, although he was not a solicitor. Mr Byrnes has given evidence that he had no instructions to accept service and has no recollection of speaking to either Mr or Mrs Wallace with respect to the matter, a fact which is consistent with the attitude which Mr Byrnes was taking to toward the NAB and its solicitors. Having regard to the evidence of Mr and Mrs Wallace that they did not receive notice of the hearing before Hill J, and as the orders were made in their absence, I think that this is an appropriate case in which to vacate the orders made by Hill J on 24 April 1996 and to hear the matter again. Counsel for both parties said that they were now concerned only with items 1, 2, 3, 4 and 6 of the goods which were the subject of the orders made by Hill J. The other items have either been handed over or the Trustee has no interest in them. Accordingly, I shall direct my attention solely to the items which are currently in dispute. I shall deal first with items 1 to 4. Mr Wallace gave evidence that the Gitsham Drop Deck Extendable Trailer was at Forbes and was in a fairly poor state. He said that the Mercedes Benz Prime Mover, which is a 1976 model, had a blown up motor and required expenditure of about $30,000 to fix it. He said that the Mercedes Benz Table Top was unregistered and unroadworthy and was situated at Yass. He said that the Clarke Melroe Bobcat, also situated at Yass, had a blown up motor and transmission troubles. No evidence to the contrary was given. Prior to the sequestration of his estate on 19 April 1994, Mr Wallace had carried on business as a removalist, operating particularly in country areas. One of his specialities was that of removing homes from one location to another. At about the time of the bankruptcy, Mrs Wallace commenced trading on her own account as a building removalist. She has used the tradenames, "Canberra Country Building Removalist" and "G W Building Removalist". The vehicles which are in dispute have been used in Mrs Wallace's business. Mr Wallace had executed in favour of the National Australia Bank ("the NAB") goods mortgages over the subject items of property. Four of the goods mortgages, those for the Clarke Melroe Bobcat, the Mercedes Benz Table Top, the Mercedes Benz Prime Mover and the Gitsham drop deck extendable trailer, were dated 3 October 1990. A goods mortgage for a Ford Fairlane sedan, which was traded in on item 6, the Nissan Patrol, was dated 20 July 1992. In 1995, the debt to the NAB was approximately $200,000. On 24 March 1995, the NAB agreed to accept the sum of $180,000 in lieu of the amount actually owed by the debtor. This $180,000 was made up of $165,000 from the sale of the debtor's property at 1 Charolais Street, Forbes, over which the NAB held security, and $15,000 from the applicant. In consideration of that $15,000, the bank assigned to Mrs Wallace the whole of the bank's right, title and interest under the mortgages of the goods. The deed of assignment dated 24 March 1995, which was made between NAB and Mrs Wallace, contained the following recitals:- "A. PHILLIP GEOFFREY WALLACE (the 'Mortgagor') has executed in favour of the Bank, inter alia, the Bank's Security. B. At the date of this deed, the Mortgagor is indebted to the Bank for an amount in excess of $200,000 but the Bank has agreed that it will accept the sum of $180,000 (comprising $165,000 from the sale of the Mortgagor's property at 1 Charolais Street, Forbes plus the Sum) in lieu of the amount actually owed by the Mortgagor to the Bank. C. The Assignee has requested the Bank to assign to her the whole of the Bank's right, title and interest under the Bank's Security and the Bank has agreed so to do in consideration of the payment of the Sum by the Assignee to the Bank and otherwise upon and subject to the terms and conditions contained in this deed." The "Sum" was defined as "the sum set forth in the Second Schedule to this deed" which was $15,000. The Deed then provided:- "In consideration of the payment of the Sum by the Assignee to the Bank (the receipt whereof is hereby acknowledged by the Bank) the Bank as beneficial owner hereby assigns to the Assignee the Bank's right, title and interest under the Bank's Security and the full benefit of all the provisions of the Bank's Security to hold the Assignee absolutely." A notice of assignment directed to Mr Wallace, which was executed by Mrs Wallace and on behalf of the NAB read, inter alia:- "1. On 24 March 1995 ('the Assignment Date') National Australia Bank Limited ACN 004 044 937 ('Bank') transferred to Gloria Wallace the Bank's Security and also the Bank's right to recover all moneys payable by the Mortgagor pursuant to the Bank's Security. 2. As from the Assignment Date, you are unconditionally and irrevocably directed to pay all moneys owing under the Bank's Security to Gloria Wallace as and when such moneys become due and owing." Evidence given to the Court shows that the Bank received the sum of $180,000 referred to in recital B by way of the net proceeds of the sale of Mr Wallace's property at 1 Charolais Street, Forbes; - $165,000, and the further sum of $15,000 contributed by Mrs Wallace. It should be noted that, although NAB was the owner of the goods under the bills of sale, those bills had been taken by way of security for moneys lent. Therefore, Mr Wallace at all times retained the right to redeem the property on payment of the moneys due. The goods themselves were not assigned to Mrs Wallace by NAB. What was assigned was the benefit of the "Bank's Security", which was defined in the deed of assignment as "the securities described in the First Schedule to this deed". The First Schedule specified "Security as executed by the Mortgagor in favour of the Bank" and specified the five goods mortgages. Accordingly, although Mrs Wallace has used the subject equipment in her businesses, no right to do so has accrued to her under the goods mortgages, which were security only for the debt. In addressing the Court, her counsel said that Mrs Wallace had exercised her right as mortgagee under the securities. However, there is no evidence that Mrs Wallace took appropriate steps to effect a seizure, which would include notice to the Trustee. It is to be noted, moreover, that the NAB was paid out. It agreed to accept the sum of $180,000 in lieu of the amount actually owed by Mr Wallace to it. Although the deed of assignment was executed only between the NAB and Mrs Wallace, I am satisfied that Mr Wallace was aware of and participated in the arrangement. The use of the pronoun "We" in the sentence "We negotiated with the bank and they negotiated a sum of $180,000 they were prepared to take for it instead of the $200000" on p.62 of the transcript suggests that both Mr and Mrs Wallace negotiated with the NAB in the settlement. The arrangement was, moreover, one for which consideration was given, for Mrs Wallace provided $15,000 of the settlement figure from her own funds. It was part of the arrangement that she should do so. In the circumstances, Mrs Wallace cannot claim to hold the subject vehicles and equipment as security for some unspecified amount lent by the NAB and as yet unpaid. The NAB agreed to take $180,000 in settlement of its claim and received that sum. No further amount is owing. However, of the sum paid to the Bank, $15,000 was paid by Mrs Wallace out of her own funds. In the circumstances, I think that Mrs Wallace is entitled to security over the vehicles and equipment until she is repaid that sum. No issue with respect to registration under the Registration of Interests in Goods Act 1986 (NSW) or the Bills of Sale Act 1898 (NSW) has been raised. Counsel for Mrs Wallace submitted that Mrs Wallace was a secured creditor in the sum of $15,000 because the vehicles had been mortgaged by the debtor to the NAB and NAB's interest in those mortgages was assigned for consideration to the applicant. On this basis, he submitted that, in view of Mrs Wallace's interest as a secured creditor in the vehicles, Mrs Wallace was not bound to deliver the vehicles to the respondent. Counsel for the Trustee said that there were not funds in the estate to pay the $15,000 to Mrs Wallace. He sought an order that the goods be sold and that Mrs Wallace be paid out of the proceeds of sale. Having regard to the evidence given as to the location of and the state of the subject four items, it would not be appropriate for me either to order a sale or to order that the goods be delivered to auctioneers in Fyshwick in the Australian Capital Territory. I consider that the appropriate course is to declare that Mrs Wallace is entitled to security over the goods for the payment of the sum of $15,000, which security arises by reason of the assignment to her of the goods mortgages. I shall also declare that the Trustee is entitled to possession of the goods. The parties must work out between themselves appropriate arrangements to be made in respect of the goods. I shall reserve liberty to apply should difficulties arise. Counsel for Mrs Wallace claimed not only $15,000 but interest thereon. However, the submission of counsel for the Trustee should be accepted, namely, that such interest should be set off against the benefits derived by Mrs Wallace from the use of the goods. If an accounting were taken, there could well be some reduction made in the $15,000, but counsel for the Trustee did not seek that. As to item 6, the 1993 Nissan Patrol, the affidavit evidence of both Mr and Mrs Wallace was that Mrs Wallace contributed all the funds paid in relation to this vehicle. However, other evidence discloses that, on the purchase of the vehicle in 1993, there was traded in a Ford Fairlane vehicle which had been registered in the name of Mr Wallace alone and which had been the subject of a goods mortgage to the NAB. The Nissan was purchased originally in the joint names of Mr and Mrs Wallace, although approximately 12 months ago it was registered in the name of Mrs Wallace alone. One can readily accept that, from the date of bankruptcy and from the commencement of business by Mrs Wallace, it was Mrs Wallace who made the payments required on the vehicle thereafter. However, the Court would need more than a bald assertion that that was the fact in relation to the period from the purchase of the vehicle to the bankruptcy, when Mr Wallace was the person conducting the business. A further complicating factor is that it seems that the Nissan Patrol is the subject of a security. Mr Wallace gave evidence that $5,000 approximately was still due to Nissan Finance, the company which presumably provided finance on the purchase of the vehicle. Presumably, on the purchase of the Nissan Patrol, the goods mortgage over the Ford Fairlane was paid out. In the circumstances, I can do more than declare that Mrs Wallace and the Trustee have an interest in the Nissan Patrol, having regard, inter alia, to the respective contributions made by Mr Wallace and Mrs Wallace to its acquisition. I shall also declare that the vehicle is subject to any security which may be held by Nissan Finance. Hill J made no order as to costs with respect to the proceedings before him. Taking into account the fact that the costs of the proceedings before Hill J were wasted and that the parties have each had only limited success, I consider I should order that each party abide his or her own costs of these proceedings. I certify that this and the preceding 8 pages are a true copy of the reasons for judgment herein of his Honour Justice Davies. Associate : Date : 19 May 1997 Appearing for the applicant : M. Rollinson of counsel Counsel for the respondent creditor : C. Hogg Solicitor for the respondent creditor : Simon Beverly & Associates Date of hearing : 26 February 1997 Date of judgment : 19 May 1997

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