FEDERAL COURT OF AUSTRALIA White v Lynn [1999] FCA 1612 IN THE MATTER OF KATHLEEN FAY LYNN, A BANKRUPT; CLYDE PETER WHITE V THOMAS LYNN AND KATHLEEN FAY LYNN V7301 of 1998 FINKELSTEIN J MELBOURNE 24 SEPTEMBER 1999 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 7301 OF 1998 IN THE MATTER OF KATHLEEN FAY LYNN, A BANKRUPT BETWEEN: CLYDE PETER WHITE (as Trustee of the Bankrupt Estate of KATHLEEN FAY LYNN) Applicant AND: THOMAS LYNN and KATHLEEN FAY LYNN Respondents JUDGE: FINKELSTEIN J DATE OF ORDER: 24 SEPTEMBER 1999 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The stay of the order made on 10 September 1999 that the Official Trustee in Bankruptcy obtain possession of the property be lifted. 2. The applicant's costs of the application are to be paid by the respondents. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 7301 OF 1998 IN THE MATTER OF KATHLEEN FAY LYNN, A BANKRUPT BETWEEN: CLYDE PETER WHITE (as Trustee of the Bankrupt Estate of KATHLEEN FAY LYNN) Applicant AND: THOMAS LYNN and KATHLEEN FAY LYNN Respondents JUDGE: FINKELSTEIN J DATE: 24 September 1999 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The Official Trustee in Bankruptcy seeks to lift a stay on the operation of an order for possession on property at 9 Lower Dandenong Road, Mentone, which is presently occupied by Kathleen Fay Lynn, formerly a bankrupt, and her husband Thomas Lynn. 2 The application came about in the following circumstances. On 24 June 1996 a sequestration order was made against the estate of Mrs Lynn upon her own petition. Thereafter her Trustee in Bankruptcy brought proceedings against Mr Lynn to have declared void a transfer to him of Mrs Lynn's undivided joint interest in the property. The application was made under s 120 of the Bankruptcy Act 1966 (Cth), which at the relevant time provided in subsection (1): "A settlement of property, whether made before or after the commencement of this Act, not being: (a) a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or (b) a settlement made on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the spouse of the settlor; is, if the settlor becomes a bankrupt and the settlement came into operation after, or within two years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy." 3 On 28 May 1997, the Trustee obtained his order from Marshall J. The Trustee also obtained a declaration that he is entitled to be registered as the proprietor of the one-half interest in the land as tenants-in-common with Mr Lynn. An appeal from those orders to the Full Court was dismissed. 4 The Trustee then made an application for an order that there be a sale of the property. That application was brought under s 221 of the Property Law Act 1958 (Vic). Mr Lynn avoided service of the process and an order for substituted service was made. 5 On 15 July 1998 the petition proceeding was heard by Heerey J who made the following orders among others: "4. The Court direct that the land contained in the issued Certificate of Title upon the cancellation of the Certificate of Title Volume 8869 Folio 695 and improvements thereon ("the property") be sold pursuant to the provisions of Part IV of the Property Law Act. 5. The Court empower the Official Trustee to be trustee of the sale of the property and, in particular, to authorise the applicant to (a) engage a licensed real estate agent to market the property for sale by auction or private treaty; (b) incur the proper costs including legal costs of marketing and selling the property; (c) execute any sale note, contract of sale and transfer of land or any other document required to give effect to a sale by himself as trustee of the bankrupt estate of Kathleen Fay Lynn and by the Official Trustee as trustee of the sale of the property." I should also mention that Heerey J stayed the operation of his orders, in particular orders 5 and 6, for a period of six months. 6 On 16 March 1999 further orders were made by Heerey J to enable the property to be sold. Those orders included the following: that the Official Trustee could "…apply to the Court for orders and directions with respect to the conduct of the sale of the property including orders and directions with respect to vacant possession of the property or to enforce any order of this Court." 7 On 3 June 1999 I heard an application by the Official Trustee who sought an order that he obtain possession of the property to enable it to be sold pursuant to the orders made by Heerey J. Also returnable that day was an application by Mr Lynn that the sale order made by Heerey J be further stayed until 3 June 2004. I did not grant a stay of the sale order. However, I gave directions for the sale of the property and for possession to be given to the Official Trustee subsequent to the settlement prior to the settlement, the practical effect of which was that Mr Lynn and the bankrupt could remain in the property until February 2000. 8 Among the orders that I made were the following: "That… (e) the Official Trustee, his servants or agents be entitled to inspect the property on 2 August, 1999 between 1.00 pm and 3.00 pm and on 2 September, 1999 between 1.00 pm and 3.00 pm; … (k) the property be available for inspection between 1.00 pm and 3.00 pm on Tuesdays, Thursdays, and Saturdays (except public holidays) commencing 12 October, 1999, until the property is sold." I also ordered that Mrs Lynn "…be restrained from interfering with, disrupting or obstructing – (a) the auction sale of the property by the applicant, or any agent appointed by the applicant;" and "(b) the inspection of the property by the applicant, any agent appointed by the applicant, and any prospective purchaser of the property." I made an order that Mrs Lynn "…be restrained from deliberately damaging the property, including the dwelling, vegetation and fencing on the property, in any way whatsoever." 9 Those orders were made in part upon an undertaking given by Mr Lynn that he would not disrupt or obstruct the auction sale of the property; or the inspection of the property by the applicant or an agent appointed by the applicant; and upon his further undertaking that he would not damage the property. The undertaking was sought and the restraining orders made, because it appeared that Mrs Lynn and her husband would attempt to frustrate a sale of the property: see my reasons for judgment given on 3 June 1999. 10 Thereafter, Mrs Lynn and her husband failed to allow the Official Trustee or his estate agent to inspect the property in conformity with the orders made by me on 3 June 1999. Although a number of efforts were made to gain access to the property, Mrs Lynn and her husband indicated that they would not allow the Official Trustee or his estate agent entry to the property, either for the purposes of an inspection or more importantly for the purposes of preparing the property for sale. 11 Not only did this conduct contravene the orders that I made on 3 June 1999, but it also involved Mr Lynn breaching his undertaking given on that day and Mrs Lynn contravening the restraining order that I made. Be that as it may, the Official Trustee did not bring any application consequent upon the breach of the undertaking and breach of the restraining orders. Instead he sought possession of the property. What was put forward on his behalf was that unless he obtained possession of the property he would not be able to carry out the orders of the court requiring the property to be sold. If prevented from selling the property he would not be able to realise the asset for the purposes of paying out unpaid unsecured creditors of the estate of Mrs Lynn. 12 The application brought by the Official Trustee for possession of property was resolved by the making of consent orders. One order that I made was: "That the Official Trustee in Bankruptcy recover possession of [the property] … and the improvements thereon." 13 I stayed the operation of that order until further order. Another order that I made was to vary the previous orders made by me on 3 June 1999 where I had fixed the dates for the inspection of the property by the Official Trustee or his agent on 2 August 1999 and 2 September 1999. I substituted dates for the inspection as follows: "15 September 1999" was substituted for the inspection to take place on "2 August 1999"; and "24 September 1999" was substituted for the inspection to take place on "2 September 1999". Various other orders were made on that day. 14 The next thing that happened was that the agent appointed by the Official Trustee to market the property attempted an inspection on 15 September 1999 in pursuance of the orders that I had made. He attended the property at approximately 2.00 pm, knocked on the door, no-one answered. He called out for Mr and Mrs Lynn. They did not respond. At approximately 3.30 pm, after having made several unsuccessful attempts to telephone Mr and Mrs Lynn at the property, Mrs Lynn did speak to the agent on the telephone. According to the agent's affidavit, Mrs Lynn made it quite clear that she was not going to co-operate with any sale of the property, nor would she permit any inspection to take place. 15 It is the failure to allow an inspection to occur on 15 September 1999 that has provoked the Official Trustee to ask that the stay on the order that I made on 10 September 1999 be lifted. When Heerey J made his orders under s 223 of the Property Law Act, he expressed regret at having to do so. Mrs Lynn and her husband are elderly people. They are not in good health. They are having their family home sold. Nevertheless, a sequestration order having been made against Mrs Lynn on her own petition and the transfer of the interest in the house having been set aside, a sale order was inevitable. 16 When I made my orders on 2 June 1999 I also said that the case was a very unfortunate one and it was for that reason that I made orders, the practical effect of which was to grant a further stay on the sale for approximately six months. However, the present circumstances cannot be allowed to continue. Whatever lenience has been shown to Mrs Lynn and her husband, it is now apparent that it is to no useful effect. I had anticipated that they would seek to obtain alternative accommodation in the knowledge that it was inevitable that their home would be sold. It is now clear that Mrs Lynn and her husband have no intention whatsoever of leaving the home voluntarily. They seem not to mind whether in undertaking that course they breach orders made by the Court, breach undertakings that have been given, and act in defiance of the restraining orders that were made. 17 In those circumstances, notwithstanding the fact that both Heerey J and myself have attempted to give Mrs Lynn and her husband a considerable period of time within which to order their affairs, it had now reached the stage where the Official Trustee must take possession of the property. This is the only way in which he will be able to carry out his obligation to effect a sale for the benefit of the creditors of Mrs Lynn's estate. Accordingly, I propose that the stay that I granted on 10 September 1999 of the order that the Official Trustee recover possession of the property be lifted. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate: Dated: 18 November 1999 Counsel for Official Trustee: Mr P Munster Solicitor for Official Trustee: Lewis Hutchinson Solicitor for the Trustee in Bankruptcy: Swersky & Velos Counsel for the First and Second Respondent: Appearance in person Date of Hearing: 24 September 1999 Date of Judgment: 24 September 1999