Case Law Updates

1. A recent court judgment that has far-reaching implications for the insolvency industry. Employees hoping to be paid out wages and superannuation are at the highest risk of losing their benefits to the tax office, as are insolvency practitioners who might find there is no money for their fees if the tax office jumps the queue. Liquidators also fear they could end up with no money to fund legal action to recover other assets of a failed company. Lawyers have expressed surprise and concern at the judgment in December by the Full Federal Court in a case between the ATO and Bruton Holdings. The effect of the judgment is that the tax office can issue a notice, known as a 260-5 notice, directly to a third-party debtor, after a company has commenced winding up, lawyers say. Instead of company debtors paying money to the liquidators which would then be distributed to creditors, they can now be forced to pay the money directly to the tax office to offset any tax liability the failed company might have.

   Commissioner of Taxation v Bruton Holdings Pty Limited (in liq) [2008] FCAFC 184 (1 December 2008)

1. Application for declaration that alleged creditor has security interest in bankrupt's land and for order extending operation of caveat affecting that land - Whether proceedings "in respect of a provable debt" - REAL PROPERTY - Caveats against dealing - Application for order extending operation of caveat affecting bankrupt's land - Caveat claims interest as security for debt - Whether leave to proceed under Bankruptcy Act required.

   Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505

1. Application for declaration that alleged creditor has security interest in bankrupt's land and for order extending operation of caveat affecting that land - Whether proceedings "in respect of a provable debt" - REAL PROPERTY - Caveats against dealing - Application for order extending operation of caveat affecting bankrupt's land - Caveat claims interest as security for debt - Whether leave to proceed under Bankruptcy Act required.

   Mango Media Pty Ltd v Velingos [2008] NSWSC 202

2. Trusts and trustees - Administration of trust upon bankruptcy of original trustees - Sale of trust property - Right of trustee in bankruptcy to retain proceeds of sale - Whether proceeds of sale a trust asset - Whether valid resignation by original trustee - Whether trust fund vested in new trustee prior to bankruptcies - Right of trustee in bankruptcy to indemnity from trust funds in respect of trust debts - Whether indemnity extends to contingent liabilities - Trustee in bankruptcy's equitable lien over trust property.

   Agusta Pty Ltd & Ors as trustees for the Cavallino Unit Trust v The Official Trustee in Bankruptcy as trustee of the bankrupt estates of Gustavo Ferella and Angelo Ferella [2008] NSWSC 685

3. Caveatable interests - Where bankrupt transferred joint tenancy interest in land to spouse for $1 consideration - Where trustee of bankrupt estate issued a notice pursuant to Bankruptcy Act 1966, s 139ZQ, to bankrupt's spouse - Where notice set aside but appeal pending to Federal Court - Where caveat claims "equitable interest" - Where application to Court made for the purpose of extending operation of caveat in aid of appeal in Federal Court - Whether caveator's claim in the caveat "has or may have substance" - Test for determining whether claim "has or may have substance " - Whether nature of interest was sufficiently described in the caveat - Whether caveator sufficiently complied with (NSW) Real Property Regulation 2003, cl 7 - Whether Bankruptcy Act, ss 120 and 121 create a caveatable interest - Whether charge created by Bankruptcy Act, s 139ZR(1) is a caveatable interest - Where s 139ZR(1) charge did not exist at time caveat lodged - Where caveat discloses no connection with s 139ZR(1) - DISCRETIONARY CONSIDERATIONS - Where trustee has not administered bankrupt estate or brought proceedings expeditiously - Whether more appropriate remedy to aid appeal in Federal Court is to seek an interlocutory injunction from that Court - Where sufficient security retained for trustee's claim.

   Sutherland v Vale [2008] NSWSC 759.

4. Creditor's petition based on fresh act of bankruptcy where earlier creditor's petition dismissed in prior proceedings - Whether principles of res judicata, issue estoppel or Anshun estoppel apply - whether proceedings an abuse of process - Whether creditor's petition meets the requirements of the bankruptcy Act in relation to description and value of security - Whether Court should go behind the judgment - Whether incorrect car registration number made petition defective - Whether incorrect amount of debt in creditor's petition - Whether for other sufficient cause sequestration order ought to be made.

   Capital Finance v Nathan [2008] FMCA 1363 (7 October 2008)

5. Application to review decision or conduct of a trustee in the administration of a bankrupt estate - Sale of real estate - Trustee permitting asserted secured creditor to take residue of the proceeds of the sale - Security later undermined by decision of the Supreme Court in separate proceedings - Whether the trustee responsible for any loss to unsecured creditors considered.

   Constantindis v Robinson [2008] FMCA 1374 (1 October 2008)

6. Wife's alleged interest in property of which bankrupt husband registered proprietor - Constructive trust.

   Doukidis v Williamson & Anor [2008] FMCA 1352 (24 September 2008)

1. Application for indemnity costs - Whether "walk away" offers genuine offers of compromise - Whether unsuccessful plaintiff's failure to accept was unreasonable.

   Burbidge v Wolf [2008] NSWSC 332

2. Appellant served on Respondent Offer of Compromise under the Uniform Civil Procedure Rules and a Calderbank offer - Appellant obtained result no less favourable to it than the terms of the offer it made - Whether indemnity costs appropriate - Appellant made Calderbank offer to Respondent on day before trial - Appellant served Offer of Compromise under the UCPR before second tranche of hearing - Where result of appeal is that Appellant ought to have succeeded in court below on basis other than that run at trial or extensively on appeal.

   State of NSW v Tyszyk (No. 2) [2008] NSWCA 180

3. Plaintiff successful at first instance, and defendant successful on appeal - Offer of compromise by defendant at first instance, but not on appeal - Whether offer complied with rules - Whether it was an offer of a genuine compromise, where acceptance would leave plaintiff with no appreciable compensation - Whether court should order otherwise as regards costs at first instance - Whether court should order indemnity costs of the appeal.

   The Uniting Church v Takacs (No 2) [2008] NSWCA 172

1. Preliminary discovery - Inability to obtain "sufficient information to decide whether or not to commence proceedings" - Where explicit threat of particular proceedings already made.

   Contour Building and Construction Pty Ltd v Kerr [2008] NSWSC 883

2. Discovery only ordered if reasonably necessary - Court must give effect to the overriding purpose of the Civil Procedure Act 2005 to facilitate the just, quick and cheap resolution of the real issues in the proceedings - Categories of documents sought do not focus on the real issue namely whether the plaintiff has had a heart attack.

   Eyles v Norwich Union Life Australia Ltd [2008] NSWSC 741

3. Discovery and inspection of documents - Grounds for resisting production - Client legal privilege - Whether documents privileged - Dominant purpose for creation of documents.

   Hawksford v Hawksford; Hawksford v Hawksford [2008] NSWSC 31

1. Construction of mortgage - Equitable mortgage - Registrable on default - Fraud in registration - Indefeasibility

   Khan as Trustee for The Khan Family Trust v Hadid; Hadid v Khan as Trustee for The Khan Family Trust (No 2) [2008] NSWSC 119

2. Claim by mortgagee for possession of land following mortgage default - Default judgment entered and writ of possession issued - Writ of possession executed and Plaintiff takes possession of property - Defendants re-enter property - Plaintiff obtains writ of restitution - Defendants seek stay of execution of writ of restitution and apply to set aside default judgment - McKenzie friend - Claim to right of trial by jury - Relief refused - Plaintiff entitled to proceed with writ of restitution

   Perpetual Limited v Kelso and Anor [2008] NSWSC 906

3. Plaintiff is second mortgagee of defendant's land - Where plaintiff seeking judicial sale of property - Whether first mortgagee must be joined as a defendant to proceedings - Whether informal consent of first mortgagee sufficient - Where proposed sale involves sale of first mortgagee's interest in the land - Whether second mortgagee can sell the first mortgagee's interest without its consent - First mortgagee joined as a defendant

   Sood v Christianos [2008] NSWSC 1018.

4. Mortgagee serves notice under s.63 Real Property Act 1900 on tenant of mortgaged property - Denial of default by mortgagor - Application by mortgagor to suspend operation of notice on terms - "special circumstances" - Serious questions to be tried - Balance of convenience.

   Perpetual Trustee Company Limited and Anor v Agusta Pty Limited [2008] NSWSC 646

5. Whether prima facie case for caveatable interest made out - POWER OF SALE - Whether mortgagee whose receiver adopts and seeks to enforce a contract for sale made before appointment of receiver is exercising power of sale and may invalidate a lease under s 53(4) Real Property Act - Caveat extended

   Antar v Fairchild Development Pty Ltd (R&M App) & Ors [2008] NSWSC 638

6. Sale by mortgagee at auction - Duties of mortgagee - Duty of good faith - Whether common law or equitable relief - Whether failure to follow up or accept offer higher than auction price amounted to breach of duty.

   Boumelhem v Commonwealth Bank of Australia [2008] NSWDC 75 (This decision has been amended. Please see the end of the judgment for a list of the amendments)

7. Application for possession by mortgagee - Mortgagors elderly with limited English - Whether capable of understanding transaction - Contracts Review Act 1980 - Whether contract unjust - Undue influence - Unconscionable bargain - Powers of Attorney Act 2003 - Security document executed by co-owner pursuant to powers of attorney granted by other co-owners - Whether valid or procured by fraud - Unjust enrichment - Restitution

   J P Morgan Trust Australia Limited v Siahos [2008] NSWSC 207.

8. Application to set aside default judgment & writ of possession - Explanation for Delay and Reasonably arguable defences under Consumer Credit Code and Contracts Review Act.

   King Mortgages Pty Ltd v Nader [2008] NSWSC 108

1. Application for order setting aside - Local Court judgment entered following lodgment of certificate of assessment of costs - Judgment in favour of two persons - Statutory demand issued by one of those persons in respect of debt to that person only - Whether genuine dispute as to existence of debt

   Riverlands Club Holdings Ltd v Suzy David trading as David Legal [2008] NSWSC 1065

2. Application for appointment of provisional liquidator - Whether "urgency" - Whether "suspicious circumstances" - Whether intrusive appointment warranted.

   Earth Loop Pty Ltd v AIAN Investments Pty Ltd [2008] NSWSC 1042

3. Whether genuine dispute as to existence of debt - Where debt said to arise by operation of statute - Whether conditions prescribed by statute for imposition of payment condition satisfied - Plaintiff fails to show plausible contention that conditions not satisfied - Extent to which question of statutory construction should be determined upon an application of this kind - Application for order setting aside statutory demand dismissed with costs.

   South Coast Aboriginal Cultural Centre Ltd v Commonwealth of Australia [2008] NSWSC 1000

4. Statutory demand signed by one trustee/creditor only where loan agreement with two trustees/creditors - Affidavit accompanying demand silent on the issue of authority and no evidence as to delegated authority of trustee creditor who made the affidavit deposing to debt.

   115 Constitution Road Pty Ltd v Alan Downey as Trustee for NBD Systems & Anor [2008] NSWSC 997