3 47 CATCHWORDS Application by Official Trustee for directions under s.134 of the Bankruptcy: Act 1966 °- money received by Official Trustee from Defence Service Homes Corporation as part of a surplus from a mortgagee's sale of land of a bankrupt - bankrupt discharged at time that surplus received by Official Trustee - claims by secured creditors - basis of claims - is an equitable charge a "mortgage" under s.32 of the Defence Service Homes Act - were the debts released by discharge? - effect of s.35 of the Defence Service Homes Act 1918 - priorities between secured interests - costs. Bankruptcy Act 1966 - ss5(1), 83, 134, 153(1) and 153(3) Defence Service Homes Act 1918 - ss.32, 33, 35 and 36. RE: JOHN RAYMOND MURRELL, EX PARTE: THE OFFICIAL TRUSTEE IN BANKRUPTCY No. 107 of 1976 Smithers J. 30 October 1984 Melbourne. IN VICTORIA DISTRICT REGISTRY BANKRUPTCY DIVISION FEDERAL COURT OF AUSTRALIA NO. 107 OF 1976 www ww RE: JOHN RAYMOND MURRELL (A discharged bankrupt) EX PARTE: THE OFFICIAL TRUSTEE IN BANKRUPTCY as trustee of the property of John Raymond Murrell, a bankrupt (Applicant) Judge Making Order: Smithers J. Date of Order: 30 October 1984 Where Made: Melbourne. ORDER THE COURT ORDERS THAT: The Official Trustee apply the fund in his hands, first, in payment of the costs of and incidental to this proceeding incurred by each party other than the Corporation, second, in discharge of the monies due to Esanda Limited under the loan agreement of 22 August 1975 third, in discharge of the principal and interest secured by the lien to Mrs. Vreeke in respect of the deposit paid by her and her deceased husband in respect 2. of the proposed purchase by them from Mr. and Mrs. Murrell of the property then owned by them, fourth, in payment of any balance to Mr. Murrell. There be liberty to apply in respect of interest accrued on the amount of the fund or the determination of the precise sum due to Esanda Limited or Mrs. Vreeke under their securities. The application by Esanda Limited for leave to withdraw its proof of debt in the estate of Mr. Murrell be dismissed. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY BANKRUPTCY DIVISION NO. 107 OF 1976 wee ww RE: JOHN RAYMOND MURRELL (A discharged bankrupt) EX PARTE: THE OFFICIAL TRUSTEE IN BANKRUPTCY as trustee of the property of John Raymond Murrell, a bankrupt (Applicant) Coram: Smithers J. 30 October 1984 REASONS FOR JUDGMENT This is an application made to the Court on behalf of the Official Trustee in Bankruptcy as trustee of the estate of John Raymond Murrell (Murrell) pursuant to sub-section 134(4) of the Bankruptcy Act 1966 (the Act) seeking directions in respect of certain matters in connection with the administration of the estate of Murrell. The application concerns the ultimate disposition by the Official Trustee of the sum of $7,472.05 (hereinafter called "the fund") which was paid to the Official Trustee by the Defence Service Homes Corporation (the Corporation) in 1982 in 2. purported performance of its function under s.36(2) of the Defence Service Homes Act 1918. The fund constituted one half of the amount remaining in the hands of the Corporation as the proceeds of the sale by the Corporation as mortgagee of a house property theretofore owned by Murrell and his wife as joint proprietors less the costs, charges and expenses incidental to the sale. The sale by the Corporation pursuant to its powers under the mortgage was made by contract dated 25 August 1981 toa Mr. and Mrs. Thompson. It was completed, apparently by 28 August 1981 and the transfer was registered at the Office of Titles on 8 September 1981. On 16 February 1982 the Corporation paid one half of the amount held by it as the net proceeds of the sale to the Official Trustee in Murrell's bankrupt estate. The Official Trustee was advised by the Corporation that "The Minister has determined that half the surplus ($7,472.05) be paid to the Official Receiver, this sum being Mr. J.R. Murrell's share. The balance will be paid to Mrs. Murrell when she has been located." The estate of Murrell had been sequestrated upon his own petition in bankruptcy on 3 May 1976. Murrell was discharged from bankruptcy on 1 February 1981. It is said that on 16 February 1982 the Corporation was not aware that Murrell had been discharged from his bankruptcy. On 12 March 1982 the Corporation advised the Official Trustee that the Corporation had made no payment to any of the caveators whose caveats had previously been noted on the title, the Minister having determined that the surplus be distributed as set out in his letter of 16 February 1982. The Corporation added "It is our understanding that the Official Receiver will determine the validity or otherwise of claims to J.R. Murrell's share". At this stage the Official Trustee does not contend that the fund represents the proceeds of property of Murrell or a contingent or other interest which vested inthe Official Trustee in Bankruptcy pursuant to s.58(1)(a) of the Act, or that it constitutes after acquired property of Murrell which vested in the Official Trustee in Bankruptcy prior to Murrell''s discharge. The Official Trustee has asked, inter alia and somewhat formally for a direction as to whether the fund received by him should be repaid to the Corporation to permit another determination to be made pursuant to s.36(2) of the Defence Service Homes Act 1918 and gave reasons why he himself had not adopted that course. Mr. O'Donoghue who appeared for the Corporation contended that the money should be returned to it to permit the Minister to make a new determination on the ground that the Minister was under the impression that Murrell was not at the date of the payment a discharged bankrupt. However, there is no evidence before me that the payment would not have been made had the Corporation known at the date of payment that Murrell was discharged from his bankruptcy. It was not beyond the bounds of possibility that it might in any case have been paid to the Official Trustee and the Court was informed that there was no certainty that if the fund were repaid to the Corporation it would not again pay it to the Official Trustee. Treating the fund as being in the hands of the Official Trustee, in relation to Murrell's bankruptcy, as money to which various parties claim to be entitled it is necessary to consider a number of claims. Esanda Limited (Esanda), Cornelia Louise Vreeke (Mrs. Vreeke) and Murrell made claims to the fund and = sought the exercise of the Court's jurisdiction under s.134(4) of the Act to determine their claims. The Basis of Esanda''s Claim On 22 August 1975 Murrell became indebted to Esanda for $2,295.96 in respect of a loan repayable by twelve consecutive monthly instalments of $191.33. Clause 7 of the instrument of loan and acceptance provided, "As security for repayment of the loan and interest I agree in consideration of and as from the making of the loan, to charge as beneficial owner all freehold ... interests in land which I may now have or may during the currency of the loan acquire". According to principles discussed by Gillard J. in Avco Financial Services Utd. v. White £19773 VR 561 such a provision is effective to create a charge in relation to property specified therein. The current provision "specifies" all property of the chargor and in my opinion took effect with respect to his interest in the house property. I think the agreement was effective to create a charge over that property as security for the loan. On 24 December 1975 Esanda lodged caveat No.F982288 on the title of the property in question. The caveat was registered on that date. Pursuant to the terms of the caveat Esanda claimed an interest as chargee by virtue of a memorandum in writing dated 22 August 1975 in all the estate and interest of Murrell in the property in question in this case standing in the register book in the name of John Raymond Murrell and Shirley Ruth Irene Murrell. On 27 August 1981 Esanda provided the Corporation with a withdrawal of its caveat to permit the Corporation to transfer the land to the Thompsons free from encumbrance. The Basis of the Claim of Mrs. Vreeke The claim is for $2,000, the amount of a deposit paid by them to an Estate Agent, namely Finn & Kempe Pty. Ltd., on 16 January 1976 in accordance with the terms of a_ contract of sale under which Mrs. Vreeke and her husband agreed to purchase and the Murrells agreed to sell the property in question in these proceedings. It appears that Mr. Murrell remembers signing a document authorizing Finn & Kempe Pty. Ltd. to sell the property but does not recall signing any other documentation concerning the sale. It does appear, however, that both Mr. & Mrs. Murrell did sign a copy of the contract of sale. At no time did Mr. Murrell or his wife 6. receive the deposit of $2,000 or any part thereof and that sum has never been repaid to Mr. and Mrs. Vreeke. The Murrells were never able to discharge various unregistered encumbrances on the land and as a result the contract was never completed and must be deemed to have not been completed because of a failure on the part of Mr. & Mrs. Murrell to make title. In these circumstances Mr. & Mrs. Vreeke were entitled to repayment of the sum. At the date of the contract the Estate Agents Act 1980 had not been enacted. It would seem therefore that the payment to Messrs Finn and Kempe Pty. Ltd. must be treated as a payment to Mr. & Mrs. Murrell and constituted a liability to Mr. & Mrs. Vreeke which came into existence not later than within sixty days of 16 January 1976. That was the date for the payment of the balance of the purchase money and for the transfer of the property according to the contract of sale. Mrs. Vreeke claims herein as the survivor of herself and her husband who were entitled jointly to the return of the deposit paid to the estate agent. It is argued, and I think correctly, that Mr. & Mrs. Vreeke were secured creditors because they were entitled to an equitable lien over the property in respect of the amount of $2,000 paid by them as deposit. Clearly enough a purchaser of land who has paid his purchase money before conveyance has a lien in equity to the extent of the purchase money paid: see Rose v. Watson (1864) 10 HLC 672 and 11 ER 1187 where Lord Westbury said at p.1190:- "When the owner of an estate contracts with a purchaser for the immediate sale of it, the 7. ownership of the estate is in equity transferred by that contract. Where that contract is an executory contract in the sense, namely that the ownership of the estate is transferred subject to the payment of purchase money, every portion of the purchase money paid in pursuance of that contract is a part performance in execution of the contract and to the extent of the purchase money so paid does in equity finally transfer to the purchaser the ownership of a corresponding portion of the estate. ... It cannot be contested in this case that although the contract has failed in being performed completely the failure of a performance is attributable to the misconduct of the vendor." and where Lord Cranworth said at p.1192:- "There can be no doubt I apprehend that when a purchaser had paid his purchase money though he has got no conveyance the vendor becomes a trustee for him of the legal estate and he is in equity considered as the owner of the estate. When instead of paying the whole of the purchase money he pays part of it it would seem to follow asa necessary corollary that to the extent that he has paid his purchase money to that extent the vendor is atrustee for him; in other words that he acquires a lien exactly in the same way as if the payment of part of the purchase money the vendor had executed a mortgage to him of the estate to that extent. And of course an equitable lien differs from a common law lien in that a common law lien is founded on possession whereas an equitable lien which exists quite irrespective of possession confers on the holder the right toa judicial sale," Basis of the Claim by Mr. Murrell As put by Mr. Fraser the claim by Murrell rests primarily on s.77(3)(d) of the Transfer of Land Act 1958 (TLA). He contends that according to s.77(3)(d) the surplus in the hands of the Corporation after satisfying the claims of the Corporation itself was payable to Murrell as the 8. mortgagor. Section 77(3) provides as follows:- "(3) The purchase money received arising from the sale shall be applied - (a) firstly in payment of all costs charges and expenses properly incurred incidental to the sale and consequent on such default; (b) secondly in payment of the moneys which are due or owing on the mortgage or charge; (c) thirdly in payment of moneys owing under or in respect of subsequent mortgages and charges in the order of their respective priorities; (d) fourthly in payment of the residue (if any) to the mortgagor or into the Court under the provisions so far as they are applicable of section sixty-nine of the Trustee Act 1958 and the rules referred to therein, ..." Mr. Fraser said that these provisions are mandatory and unambiguous, that the subsequent mortgages and charges referred to in para (c) are exclusively registered mortgages and charges, and that there being no such registered mortgages or charges in this case the corporation had a plain duty to pay the surplus to Mr. Murrell. Mr. Fraser went further. He contended that when Esanda and the Vreekes withdrew their caveats any equitable interest they might have had in the land or the proceeds thereof was extinguished for all purposes. I do not accept this last contention. The existence of the equitable interests claimed was not conditional on the presence of caveats in a register book. A caveat operates as notice of an unregistered interest. It does not establish or create it. When the Corporation as mortgagee sold to the 9. Thompsons the caveats could not be maintained. They related to equitable interests which, for the purposes connected with the undoubted right of the mortgagee to give an unencumbered title to the Thompsons, could not stand. Uniess withdrawn they would have been subject to the provisions of s.89A of the TLA and could not have survived. But the lapse or withdrawal of the caveat did not affect the legal relationship between those having equitable claims in respect of the land and the proceeds from the sale thereof and the mortgagor. On their face the provisions of s.77(3) are mandatory. Nevertheless where there were in fact subsisting equities in the proceeds of sale which a Court of Equity would recognise and enforce it is difficult to contemplate that, while the surplus proceeds are in the hands of a mortgagee, a Court of Equity would not give the equitable owners access to it. And that view appears to be adopted in Beeby v. Official Assignee of Pickering and Pickering £19533 NZLR 832 and Hope v. Hope €19773 NZLR 582. The latter case concerned an interest arising under an order of the Court that security be given for certain maintenance payments over the petitioner's interest in the sum of $9,500 being the residue remaining from the sale by the first mortgagee of a property owned by the petitioner. This residue was claimed by an unregistered subsequent mortgagee (Alitalia). It was held that the order giving security took effect subject to the equitable charge created by the unregistered mortgage. The terms of s.104(1) of the Land 10. Transfer Act (NZ) 1952 were in substance equivalent to those of s.77(3) of the TLA. Wilson J. said :- "Mr. Woodhouse submitted that this subsection made no provision for payment to a mortgagee under an unregistered mortgage and unequivocally directed payment to the mortgagor after registered mortgages had been satisfied. He argued, further, that an unregistered mortgage gave the mortgagee an equitable charge over the land to which it related but when that land had been sold by a mortgagee under a registered mortgage his charge was lost and he had no security over any surplus resulting. Mr. Blackmore, however, submitted that Alitalia's equitable charge on the petitioner's interest in the land was converted, on the sale of the land, to an equitable charge on the petitioner's interest in the proceeds and attached to the moneys payable to the petitioner under para (d) of s.104(1), and he relied on the judgment of Hay J. in Beeby v. Official Assignee £19531 NZLR 832, 839, in which the learned judge held that the equitable charge created by an agreement to satisfy a debt out of the proceeds of the sale of land owned by the debtor attached to the surplus available after a mortgagee's sale in priority to the rights of the Official Assignee of the bankrupt debtor under s.104 of the Land Transfer Act. I think that Mr. Blackmore 1s right. Section 104 does not abrogate the rights of mortgagees under unregistered mortgages - it merely postpones them to those of mortgagees under registered mortgages. Paragraph (d) does not vest the surplus from a mortgagee''s sale in the mortgagor free from all equities but subject to then. In equity the equitable charge on the land is converted, on the sale of the land, to a charge on the proceeds. This is in accord with the intention of the parties to the mortgage, the petitioner and Alitalia, that it should be registered - an intention which was frustrated by the action of the respondent in lodging a caveat against the title which in the event she was unable to sustain. The order made by me for the giving of security over the fund was, of course, made some months after the fund came into being and, as it can ll. apply only to the interest of the petitioner in the fund at that time, it follows that it must take effect subject to Alitalia's equitable charge." Thus while the surplus was in the hands of the mortgagee it was subject to the enforceable equitable interest of the party having such interests, in priority to the interests of the mortgagor. It is unnecessary for the purposes of the Torren's system that provision be made for the payment to a mortgagor of a sum of money being the proceeds of an interest in land in respect of which the mortgagor had given security to persons who had given valuable consideration therefor to him. The notion that for the purpose of maintaining the purity of the register Parliament might, in effect, abrogate lawful interests arising from transactions entered into in good faith is unacceptable. It is not the purpose of the Torrens system as exemplified in the TLA to destroy, as between a registered proprietor and a person doing business with him, an equitable interest created by the registered proprietor in the ordinary course of business. To destroy such an interest where it was an encumbrance on the land subject to a mortgage pursuant to which a power of sale had been exercised, but not otherwise, would be remarkable indeed. The section may be construed therefore as operating subject to valid claims of third persons against the mortgagor, in respect of a_ surplus of proceeds froma sale of the property by the mortgagee, as exist according to law. Where a construction consistent with this view is open it should be adopted. It appears to me that 12. the provision for payment into court at the option of the Mortgagee is made to deal with cases in which there are conflicting claims to a surplus in the hands of a mortgagee. There is, therefore, no burden on a mortgagee who is faced with such claims. To give to s.77(3) a mandatory force according to its literal terms would create difficulties where, for instance, the mortgagor had assigned for value his interest in the surplus arising from the mortgagee's sale. An assignee could surely step into the shoes of the mortgagor although not within contemplation of the literal terms of the section. The view adopted by Wilson J., appears to me to be tenable and correct. Accordingly, attention must be given to Mr. Fraser's alternative contention that Esanda's charge is a mortgage within the meaning of s.32(1) of the Defence Service Homes Act 1918 and accordingly void and of no effect. Section 32(1) is in the following terms:- "32.(1) As between the Corporation and the purchaser or borrower with respect to the land or land and dwelling-house forming the subject of a contract of sale, mortgage or other security, the following condition shall be imposed, so long as any money due to the Corporation under the contract of sale, mortgage or other security remains unpaid, namely - the land or land and dwelling-house, as the case may be, shall not be mortgaged, and, in the case of a dwelling-house shall not be left unoccupied by the purchaser or borrower without the consent in writing of the Corporation; and 13. every mortgage or agreement entered into or made in contravention of the provisions of this section shall be void and of no effect." This sub-section may be compared with sub-section 35(1) and (5)(a) which provide as follows:- "35 (1) So long as any land or land and dwelling-house is subject to a contract of sale, mortgage or other security in accordance with this Act, a transfer (other than a transfer by or to the Corporation) of that land or land and dwelling-house or of any estate or interest therein shall not have any force or effect unless it - (b) is made by a person acting in the capacity of executor or administrator of the purchaser or borrower; or (c) 1s made with the consent in writing of the Corporation." (5) For the purposes of this section, a transaction or instrument by which a person (in this section called "the transferor") (a) transfers, conveys, assigns, grants, disposes of or surrenders, or grants an option to acquire, land or land and a dwelling-house that 1s subject to a contract of sale, mortgage or other security in accordance with this Act, or an estate or interest therein, or purports to transfer, convey, assign, grant, dispose of or surrender, or to grant an option to acquire, any such land or land and a dwelling-house or an estate or interest therein; or ..." Mr. Fraser contended that the final words of s.32(1) were fatal to the validity of Esanda's charge. But there is a well established distinction between a mortgage and a charge. In my view the charge is not a mortgage inthe nature of a mortgage registerable under the TLA. Also it does not have the characteristics of a mortgage under general law as there 14. is no conveyance of the legal estate. The word "mortgage" in s.32 means, I think, a mortgage of the kind registerable under the TLA or a mortgage under general law. As to the distinction between "mortgage" under the TLA and "charge" the observations of Professor Sykes at p.275 of "The Law of Securities" 3rd edition are significant. He says:- ",.. For, while under the general law there is no such thing as a common law legal charge, save in the special case of the rent charge or other exceptional cases, the contrary is the position under the Torrens system in view of the fact that the statutory mortgage itself is in structure a legal charge. Might it not be then that an agreement simply "to charge" or "give a charge" would be construed as an agreement to give not a charge but a Torrens mortgage, and therefore should be treated as a present mortgage in equity and not a charge? It is submitted that this is not so. The statutory Torrens mortgage though in form a charge, has absorbed much of the mortgage concept. A man in contracting to give a Torrens mortgage is contracting to give something which confers a foreclosure right. It is submitted, however, that an agreement simply to "charge" Torrens land with payment of a sum of money could logically result in nothing but an equitable charge. The promisor is not promising to give a security which carries with it a foreclosure right. He is using a word which prima facie connotes a security, one of the characteristics of which is that it does not give a right to foreclosure." Mr. Fraser emphasised that the absence of express reference to a charge in 5.35 of the Defence Service Homes Act 1918 indicates that the legislative view was that a charge was comprehended by the expression "mortgage" in 5.32. He said that so to hold would be in harmony with the protective purposes of provisions of the Act. I do not think this 15. follows. One may draw the inference from the provisions of that Act, that there is a general intention to protect an ex-service man who is buying a house from the Corporation from the risk of endangering his position, and that of the Corporation, by unwise transactions. This objective ought to protect the ex-service man from giving a charge as well as a mortgage. And it is said that as a matter of construction s.35(5) does s0 operate in that a charge is included in the definition transfer within the meaning of s.35(1). The problem was discussed in Australian and New Zealand Banking Corporation Ltd. v. Greig £1980] 1 NSWLR 112 at pp.118 and 119 by Master Allen of the Supreme Court of New South Wales with reference to an application for a charging order under s.27 of the Judgment Creditors Remedies Act 1901 (NSW) upon the equity of redemption in the house property of a service man in respect of which the Director of Defence Service Homes held a mortgage and had not consented to the charging order. It was pointed out at p.118:- ».. mone of the estate or interest of the mortgagor in the land passes by the order from the mortgagor to the judgment creditor. What the order does is to give to the judgment creditor the right to obtain an order for sale (or other appropriate judicial remedy) in the event that the mortgagor does not satisfy the judgment debt within three months. ... I agree with Professor Sykes, that "... it is impossible to deny the description of 'proprietary' to the interest of the creditor. the charge is an 'interest' in land, though it is not ownership, and though in fact it does not even comprise any of the rights which go to make up the bundle of ownership ... ". As a transaction conferring an interest in the land it falls plainly with the scope of s.35 of the Defence Service Homes 16. ct 1918 as a "transfer". But Mr. Fraser argues that on 1 February 1981 the debt due to Esanda was released by Murrell's discharge on that date. Was Esanda's debt released by the discharge in bankruptcy? Subject to a qualification in respect of secured debts Section 153 of the Act provides that the discharge of a bankrupt operates as a release of all provable debts of the bankrupt. The relevant qualification so far as this case is concerned is that a secured creditor may realise or otherwise deal with his security 1f he has not proved in the bankruptcy for any part of the secured debt. Esanda contends that its debt was not released because it was and is a secured creditor who did not prove for any part of the secured debt. In fact it did what it could to prove its debt, but the debt was never admitted by the Official Trustee. Section 83 of the Act provides that for the purposes of the Act a creditor shall be taken not to have proved a debt until a proof of debt lodged by him in respect of that debt has been admitted. There is therefore no doubt that for the purposes of s.153 of the Act Esanda must be taken not to have proved. If then Esanda was, at the date of Murrell's discharge from bankruptcy, a secured creditor, its rights to realise or otherwise deal with its security were preserved by 5.153(3). For the purposes of the Act a secured creditor in relation to a debtor means a person holding a mortgage charge or lien on property of the debtor as 17. a security for a debt due to him from the debtor: see s.5(1). Accordingly at the date of discharge Esanda by virtue of the charge arising from the terms of the document of 22 August 1975 would seem to have been a secured creditor. But because, on 22 August 1975 Murrell's real property was the house owned by him and his wife subject to a mortgage to the Corporation, 8.35 of the Defence Service Homes Act 1918 must be considered. According to that section, a transfer of land which is subject to a mortgage to the Corporation without its consent shall not have any force or effect so long as the land is subject to that mortgage. It follows that during the period of Murrell's bankruptcy and until his discharge clause 7 of the document of 22 August 1975 was of no force or effect so far as it granted or disposed of an interest in the land. And it follows that at no time during that period or at the date of the discharge was it possible for Esanda to assert that 1t had currently enforceable security, over the land. And of course Esanda did not so assert. Its proof of debt denied the existence of any security. But I think that for the purposes of s.153(3) this aspect of the matter does not have significance. The statements by Esanda to the Trustee were not acted upon by him or anybody to their prejudice or at all. Neither of the other Claimants herein changed their situation in any way because of such statements. There is no ground for the view that the statements formed the basis for an estoppel. The effect of s.35(1) depends on its proper construction in the context in which it appears. The objective of the provision is perhaps 18. to help the serviceman mortgagor, or to discourage transactions by him which might make him less able to meet his obligations under the Corporation's mortgage. But there is no reason to give to the section a meaning extending beyond the natural meaning of the words used. Accordingly s.35 is to be construed as a provision suspending the force and effect of the transactions to which it applies during the currency of the Corporation's mortgage. When the monies secured by that mortgage are paid to the Corporation, s.35(1) has no operative effect in respect of the transactions with respect to which force and effect was theretofore denied by it. That section does not strike at the existence of the transaction or render it illegal. It deprives it of force and effect for a specified period: cf. Pearce v. Pearce £19771 NSWLR 170, Olsen _v. Olsen £19773 NSWLR 189, Horton v. Public Trustee {19773 NSWLR 182. Similarly in the case of Mrs. Vreeke the force and effect of her lien was but temporarily suspended by s.35(1) of the Defence Service homes Act 1918. She had never proved in the bankruptcy and being a secured creditor the discharge of Murrell did not release the debt due to her: see s.153(3) of the Act. Accordingly, Esanda's charge was a transfer within the meaning of s.35(1). It was made by Murrell without the consent in writing of the Director of Defence Service Homes. So long as the land in question was subject to the Corporation's mortgage it did not have force and effect. But 19. upon the sale by the Corporation and the recovery of the monies due to it by Murrell the disability affecting Esanda under 5.35(1) no longer applied to it. It follows that at the date of discharge Esanda was a secured creditor who had not proved for its debt and,subject to s.35(1), there was at that stage no impediment to the enforcement of its rights as a creditor whose debt was secured by a charge. What those rights were of course was to proceed to obtain an order for a judicial sale or other appropriate equitable relief. That has not been done. But it was the duty of the Corporation, under s.36(2) of the Defence Service Homes Act 1918 to have paid the surplus to the persons appearing to the Minister to be entitled to receive it. To my mind there was a duty on the Corporation to ascertain the opinion of the Minister as to who were entitled to receive it and a duty onthe Minister to form and express an opinion thereon. It is not to be thought that the Minister was entitled to form an opinion by reference to any standard other than that of the application of the law to the facts. Reference to the facts and the law would have indicated to him that arising out of genuine transactions Esanda and Mrs. Vreeke had equitable interests in the fund to the extent of the amounts due to them by Murrell whether for principal or interest. It would have revealed that Esanda and Mrs. Vreeke could not execute in respect of their interests without the intervention of the Court in its Equity jurisdiction. However, it would have also revealed that on a fair and natural reading of s.36(2) Esanda and Mrs. Vreeke were 20. "entitled" to receive payment out of the surplus. Although to actually enforce their claims Esanda and Mrs. Vreeke would have had to seek relief in equity, that relief would have been as of course and not a mere matter of discretion. The Minister could and should have formed the opinion that Esanda and Mrs. Vreeke, according to the extent of monies due to them under their charge and lien respectively, were entitied to receive such sums out of the surplus. The statutory power of the Corporation acting according to the opinion of the Minister would have eliminated the necessity for a proceeding in Equity under the charge and the lien. The statutory power was there and whatever the extent of the discretionary authority in the Minister under s.36(2) it would extend that far. It may be added that even if it were that s.36(2) and s.77(3) of the TLA are relevantly in conflict s.36(2) would, by virtue of s.109 of the Constitution, prevail. When the money came to the Official Trustee under what was an authority or request by the Corporation and the Minister to determine the validity of the claims to the money, it came, in my opinion, within the scope of the function of the Official Trustee to seek directions under s.134(4) of the Act and within the jurisdiction of this Court to give directions for the payment of the money to the persons entitled to receive it. Having regard to the foregoing those persons are Esanda to the extent of the monies the subject of its charge, and Mrs. Vreeke to the extent of $2,000 with interest thereon at a w 21. reasonable rate, which may be regarded as ten per centum per annun. Subject to those claims the fund should be paid to Murrell. As between Esanda and Mrs. Vreeke the claim of Esanda must first be satisfied. Esanda was the first in time whether one considers the creation of the relevant debts or the lodging of a caveat give notice of the interests. But there is an aspect of the matter which requires the further attention of the Corporation and the Minister. The Corporation has proceeded on the basis that half the surplus from the sale of Mr. and Mrs. Murrell's house belonged to Mr. Murrell and the other half to Mrs. Murrell. In fact of course Mr. and Mrs. Murrell were joint tenants and the fund was therefore theirs as joint tenants, per my et per tout. There had been no severance of the joint tenancy as the result of the grant of the charge to Esanda by Murrell or the creation of the lien in favour of the Vreekes: see Lyons v. Lyons £19671 VR 169. And because of s.33 of the Defence Service Homes Act 1918 the bankruptcy of Murrell was irrelevant in this respect. The whole of the surplus was subject to Esanda's charge and the Vreekes' lien. Execution would have gone against the whole: see Halsbury 4th Ed. Vol 17 at p.290. It is apparent certainly in respect of the claim by Mrs. Vreeke, that until her claim is fully satisfied the whole surplus is the fund in respect of which she has an entitlement under her security. As the fund in the hands of the Official Trustee is not likely to provide for Mrs. Vreeke's claim in full it would be appropriate for the Minister to form the 22. opinion that she is entitled to receive such sums remaining due to her out of the surplus the Corporation holds accordingly. The function of forming an opinion on the matter arises once it appears that Esanda and Mrs. Vreeke have outstanding claims as creditors with equitable interests in the whole fund. That now so appears. So far as any unsatisfied claim of Esanda is concerned it is possible that Mrs. Murrell would desire to be heard as Esanda's debt was a debt of Mr. Murrell only. As to costs, there is reason to remark that because of the failure of the Corporation to ascertain the facts and to apprise the Minister thereof, and because the Minister thought fit to transfer his function to the Official Trustee, all the costs that have been incurred by the parties have been incurred because the functions assigned to the Corporation and the Minister just were not performed. I have therefore considered whether the Corporation should not be ordered to pay the costs of all parties. I have decided however, that the proper order is that the Corporation bear its own costs of these proceedings. Otherwise I treat the matter as something in the nature of, and by analogy to, an originating summons where all the parties claiming have acted reasonably. I order, therefore, that the costs of all parties save the Corporation be paid out of the fund and subject thereto it be applied in discharge first, of the claim of Esanda and subject thereto to the claim of Mrs. Vreeke. I assume steps will be taken to pay to the fund interest thereon accrued +a? ¥ 23. since the date when it was passed into the hands of the Official Trustee, and I give liberty to any party to apply in respect thereof. AD 3cfiofeg