JUDGMENT No. 27,23, seaeaes stosneseases: CATCHWORDS Bankruptcy - joint tenants in land - one joint tenant made bankrupt on creditor's petition - seventeen days later other joint tenant presented own petition and thus became bankrupt - whether upon first bankruptcy joint tenancy severed - property sold by trustee of both estates - how proceeds should be treated. Federal Court of Australia Act 1976, s.25(6) Bankruptcy Act 1966, s.110 Holland & Anor. Ex Parte Official Trustee in Bankruptcy (unreported, 16 February 1985, Fisher J.) Oswald & Anor. Ex Parte Official Trustee ain Bankruptcy (unreported, 14 dune 1985, Beaumont J.) Re Rushton (1972) Ch. 197 Morgan v. Marguis 156 E.R. 62 In re Butler's Trusts (1888) 38 Ch. D. 286 Wright v. Gibbons 949) 78 C.L.R. Re Boots Ex Parte Official Receiver (1976) 26 F.L.R. 320 Nos. 845 and 883 of 1981 Re: RODNEY WAYNE FRANCIS and YVONNE BERYL FRANCIS Ex Parte OFFICIAL TRUSTEE IN BANKRUPTCY FORSTER, WOODWARD & SPENDER JJ. ADELAIDE 16 JUNE, 1988 IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY No. 845 of 1981 No. 883 of 1981 GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE www SS SS SS OF SOUTH AUSTRALIA Re: RODNEY WAYNE FRANCIS and YVONNE BERYL FRANCIS Bankrupts Ex Parte: OFFICIAL TRUSTEE IN BANKRUPTCY Applicant FORSTER, WOODWARD & JUDGES MAKING ORDER SPENDER JJ. ADELAIDE ry WHERE MADE DATE OF ORDER H 16 JUNE 1988 THE COURT ORDERS THAT: The question reserved be answered as follows : "The proceeds of sale of the property should be treated as part of the respective separate estates of the two bankrupts, half the said proceeds being part of each estate." Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY No. 883 of 1981 BANKRUPTCY DISTRICT OF THE STATE ) ) GENERAL DIVISION ) No. 845 of 1981 ) ) ) ) OF SOUTH AUSTRALIA Re: RODNEY WAYNE FRANCIS and YVONNE BERYL FRANCIS Bankrupts Ex Parte: OFFICIAL TRUSTEE IN BANKRUPTCY Applicant CORAM: FORSTER, WOODWARD & SPENDER JJ. REASONS FOR JUDGMENT THE COURT : This is the hearing of a question reserved for the consideration of the Full Court by a single judge of this Court pursuant to s.25(6) of the Federal Court of Australia Act 1976. Patrick Joseph Casey, the Acting Official Receiver for South Australia, swore an affidavit in these proceedings on 30 October 1986. The circumstances set forth in that affidavit are as follows — "1. The estate of RODNEY WAYNE FRANCIS was sequestrated on the 27th day of November 1981 on the petition of a creditor preented (sic) on the 28th day of October 1981. YVONNE BERYL FRANCIS, his wife, became bankrupt upon her own petition on the 14th day of December 2. 1981. The applicant is trustee of both estates, which have not been consolidated. At the time of RODNEY WAYNE FRANCIS? bankruptcy he and YVONNE BERYL FRANCIS were carrying on business in partnership as Motor Body Repairers and refinishers. At the time of both bankruptcies the bankrupts were jointly registered as the proprietors of an estate in fee simple in the whole of the land comprised in Certificate of Title Register Book Volume 4130 Folio 87 and known as 5 Finland Court, Hackham West (hereinafter referred to as "the house property"). A copy of the said Certificate of Title is annexed to the affidavit of Patrick Joseph Casey sworn the 30th day of October 1986 and marked "A". The house property was subject to an encumbrance number 4407936 to the South Australian Housing Trust and a mortgage number 4407937 to State Government Insurance Commission. The house property comprised the former matrimonial home of the bankrupts. Annexed to the affidavit of Patrick Joseph Casey sworn the 30th day of October, 1986 and marked "B" and "Cc" are copies of the Statements of Affairs lodged by RODNEY WAYNE FRANCIS and YVONNE BERYL FRANCIS " respectively In connection with their bankruptcies. In addition to the house property both bankrupts disclosed the following assets:- (a) Stock in trade $ 800.00 (b) Machinery $2,765.00 (c) Work in progress $ 400.00 (d) Household furniture and effects $2,625.00 (e) Interest bearing deposit $ 100.00 $6,690.00 Items (a), (b), and (c) were assets of the bankrupts' partnership business and items (d) and (e) were joint non-partnership assets of the bankrupts. The applicant has received Proofs of Debt in respect of the following joint and separate debts of the bankrupts:- SEPARATE DEBTS OF RODNEY WAYNE FRANCIS Myer S.A. Stores Limited (goods) $ 214.00 Commercial Bank of Australia Limited (Bankcard) $ 942.00 John Martin & Co. Limited (goods) $1,324.00 3. Patersons Pty Limited (furniture) $ 985.00 South Australian Gas Co. (air conditioner) $1,350.00 United Motors - Freeman Motors Group (goods) $3,721.00 National Australia Bank Limited (money lent) $3,345.00 $11,881.00 SEPARATE DEBTS OF YVONNE BERYL FRANCIS Drs Martin, Holmes & Von der Linden (services) $ 294.00 Deputy Commissioner of Taxation (income tax) $ 235.00 $ 529.00 JOINT PERSONAL DEBTS OF RODNEY WAYNE FRANCIS & YVONNE BERYL FRANCIS Citicorp Aust. Limited (loss on motor vehicle) $2,452.00 JOINT PARTNERSHIP DEBTS OF RODNEY WAYNE FRANCIS & YVONNE BERYL FRANCIS Person to Person Financial Services Pty Limited (loan) $2,800.00 Nationwide News Pty Limited (services) $ 130.00 Cobiac & Chapman (services) $3,000.00 Crash Supplies Pty Limited (goods) $7,884.00 Don Johnson Plumbing Pty Limited (goods) $ 50.00 Messenger Newspapers Pty Limited (advertising) $ 109.00 Topline Paint Pty Limited (goods) $ 642.00 Tor Wholesalers (goods) $ 509.00 Deputy Commissioner of Taxation (tax instalment deductions) $2,856.00 $17,980.00 The claim by Deputy Commissioner of Taxation for $2,856.00 is a joint and several liability and the creditor is entitled to elect where his claim will lie so that he receives' the largest amount as a dividend. The estate and interest of RODNEY WAYNE FRANCIS in the house property which vested in the applicant upon his bankruptcy was not transmitted to the applicant prior to the as to whether, 1966, he 4. bankruptcy of YVONNE BERYL FRANCIS. It was transmitted on the 17th day of January, 1985 simultaneously with the transmission of YVONNE BERYL FRANCIS' estate and interest in the house property to the applicant. On the 30th day of April, 1985 the applicant sold the house property and after payment of the secured creditor State Government Insurance Commission and deduction of the expenses associated with the sale the applicant has received the sum of $13,980.04 (hereinafter referred to as "the proceeds of sale"). Realisation of the other assets listed on the Statements of Affairs has been as follows:- SEPARATE ESTATE OF RODNEY WAYNE FRANCIS Nil SEPARATE ESTATE OF YVONNE BERYL FRANCIS Surrender value of insurance policy $ 169.70 JOINT ESTATE OF R.W. & Y.B. FRANCIS Partnership Assets: Proceeds of sale of plant & equipment $1,500.00 Moneys in hands of solicitors $ 177.10 Refund ETSA deposit $ 9.64 Book Debts $ 117.00 Refund of Stamp Duty $ 25.14 $1,828.88 NON PARTNERSHIP ASSETS Balance of interest bearing deposit $ 53.19 Balance savings account $ 6.75 $ 59.94" The Official Trustee sought directions from this Court for the purposes of s.110 of the Bankruptcy Act should treat the proceeds of sale of the f ormer 5. matrimonial home as part of the joint estates of the bankrupts or alternatively treat one half of the proceeds of sale as part of the separate estate of each bankrupt. The matter came before Forster J. for directions. Because there has been an apparent conflict between the views of two judges of this Court in the matters of re Holland and_Anor.: Ex Parte Official Trustee in Bankruptcy (unreported, 16 February 1985, Fisher J.) and re Oswald and Anor.: Ex Parte Official Trustee in Bankruptcy (unreported, 14 June 1985, Beaumont J.), he reserved a question for the consideration of a Full Court pursuant to s.25(6) of the Federal Court of Australia Act. The question reserved is as follows - . ""'Whether in the circumstances set forth in the affidavit of Patrick Joseph Casey sworn herein the 30th day of October, 1986 the proceeds of sale of the property which is the subject of the application should be treated as part of the joint estate of the Bankrupts or as part of their respective separate estates or how otherwise such proceeds should be administered and applied for the purposes of the Bankruptcy Act and in particular Section 110 thereof'." The matter is said to be of importance because the circumstance of joint owners of property, whether partners or not, becoming bankrupt at different times, occurs with some frequency; and trustees in bankruptcy require there to be some certainty as to what they should do. Because of this importance, funds were made available by the Commonwealth so that counsel could be briefed to present arguments in support of each of the opposing views. Section 110 of the Bankruptcy Act is as follows - "(1) In the case of joint debtors, whether partners or not, the joint estate shall be applied in the first instance in payment of their joint debts, and the separate estate of each joint debtor shall be applied in the first instance in payment of his separate debts. (2) If there is a surplus in the case of any of the separate estates, it shall be dealt with as part of the joint estate and 1f there 1s a surplus in the case of the joint estate, it shall be dealt with as part of the respective separate estates in proportion to the right and interest of each joint debtor in the joint estate." In Holland, Fisher J. was plainly of the view that upon the bankruptcy of one of the joint tenants of real property the joint tenancy became severed, at least in equity. When the interest of the bankrupt became vested in the Official Trustee pursuant to s.58 of the Bankruptcy Act the remaining un-bankrupt former joint tenant became a tenant in common with the Official Trustee whether or not transmission of the Official Trustee's interest was registered upon the Register Book at the Lands Titles Office. There is support for the proposition that the joint tenancy is severed on the bankruptcy of one joint tenant in cases, in the writings of text writers and in principle. See re Rushton (1972) Ch. 197 at 203 per Goff, J: "[the joint tenant] has a severable share and the bankruptcy, indeed, works a severance"; Morgan v. Marquis 156 E.R. 62 at 63 per Parke, B.: 7. "Then the effect of the bankruptcy was to render the assignees tenants in common of the goods with Shute" (non-bankrupt and jointly interested with the bankrupt in certain goods). It 1s of course true as Beaumont J. points out that this case concerns joint ownership of personal property, but the principle appears to us to be the same. There is also support by analogy concerning another involuntary alienation - In re Butler's Trusts (1888) 38 Ch. D. 286 at 294 per Bowen, L.J.: "I think on looking at the old authorities, not only that the point is decided, but also that the principle underlying those authorities is that the effect of marriage on particular property, in which a woman has an interest as joint tenant, depends on whether the marriage divests the property from the wife and vests it in the husband. If it does, then the joint tenancy is severed; if it does not there is no severance." So far as text writers are concerned, we mention Megarry and Wade in The Law of Real Property 5th Edition pp.429-430 and Halsbury's Laws of England, 4th Edition volume 39 para. 535, where after dealing with ways in which a joint tenancy may be severed by the destruction of the unity of title, the learned authors say "The effect is the same where one joint tenant becomes bankrupt". A note explains that this is so because' the share of the joint tenant vests in his trustee in bankruptcy. So far as principle is concerned, the starting point is the true nature of a joint tenancy. Its characteristics are "the four unities and the so-called right of survivorship", Sackville and Neave, Property Law (Cases and Materials) 3rd Ed. 8. p.603. "The interests of each joint tenant in the land are always the same in respect of possession, interest, title and time. No distinction can be drawn between the interest of any one tenant and that of any other tenant": Wright v. Gibbons (1949) 78 C.L.R. 313, per Latham C.J. at 323. When the estate of the male bankrupt in the land in question became vested in the Official Trustee, the unity of title was immediately destroyed, in that the respective interests of the Official Trustee and the female co-owner in the land did not derive from the same act or document. Nor is there any unity of time between the two estates. The unity of interest also does not exist because the interest of the Official Trustee is impressed with his responsibilities under the Bankruptcy Act 1966 and may, and very likely will, be of less duration than that of his co-owner. The fact that upon the later bankruptcy of the female bankrupt the Official Trustee succeeded to her interest in the land as well, cannot recreate a joint tenancy out of what has become on severance a tenancy in common, if for no other' reason, because the unities of title and time are not present. Finally on the matter of principle, it could hardly be said that, if the female bankrupt had died after the male bankrupt's bankruptcy but before she herself became bankrupt, the Official Trustee would have succeeded to her estate and interest in the land by survivorship. 9. It seems to us that Fisher J. was correct in finding that upon the bankruptcy of Teunis Holland, the husband, the joint tenancy previously existing between him and his wife was severed when Holland's interest in the land vested forthwith in the Official Trustee. Beaumont J. in Oswald says —- "In my opinion, even 1f it be accepted that, for certain purposes, involuntary alienation on bankruptcy can sever a joint tenancy, it does not follow that property jointly held in cases such as Amor, Boots, Holland and the present case should be treated as a separate asset for the purposes of s.110. It would [be] a strange result if bankruptcy had that operation in this type of case where the property was held jointly at the moment of bankruptcy. I think that 5.110 takes the property of the bankrupts, joint or separate, as it finds it and the bankruptcy does not ipso facto work any instant conversion of that property from something jointly held into the separate estate of the debtor. In short, I find myself in respectful agreement with Riley, J. in Boots (apparently not cited in Holland) and in respectful disagreement with Fisher, J. in Holland." With respect to Beaumont J. we do not understand what is meant by "for certain purposes involuntary alienation on bankruptcy can sever a joint tenancy". It seems to us that either involuntary alienation on bankruptcy does sever the joint tenancy or it does not. As explained above it is our view that it does. Beaumont J. says later that he finds himself in respectful agreement with Riley, J. in re Boots Ex Parte Official Receiver (1976) 26 F.L.R. 320. But that case is different from the case at bar. In Boots a husband and wife with joint 10. non-partnership assets became bankrupt at the same time. In those circumstances no question of severance of joint tenancies arose. In our respectful view Boots is irrelevant to the case in hand. We are of the opinion that the question reserved should be answered as follows - "The proceeds of sale of the property should be treated as part of the respective separate estates of the two bankrupts, half the said proceeds being part of each estate." I certify that this and the G preceding pages are a true copy of the Reasons for Judgment of The Court. Associate: Cu Flop Dated: (6/ESFS8 Counsel for the Official Receiver Mr H.C. Williams Q.C. with Mr S.M. Adams Solicitors for the Official Receiver Adams & Gilbertson Counsel for the separate creditors Mr D.N. Angel Q.C. with Mr A.J. Besanko Solicitors for the separate creditors Adams & Gilbertson Date of hearing 3 May, 1988