O'Brien v Sheahan [2002] FCA 1292

FEDERAL COURT OF AUSTRALIA

O'Brien v Sheahan [2002] FCA 1292

BANKRUPTCY – EQUITABLE ESTOPPEL – immediately before commencement of bankruptcy, bankrupts owned their matrimonial home subject to two registered mortgages – value of property close to total amount secured by the mortgages – trustee directed bankrupts to obtain appraisals of property with a view to deciding whether any realisable "equity" in it – appraisals confirmed sale proceeds unlikely to exceed amount owing under mortgages – second mortgage held by close relative of bankrupts – trustee suspicious about second mortgage – trustee did not pursue inquiries about whether it secured a genuine indebtedness – trustee told bankrupts that they could reside in the property while they discharged obligations under the first mortgage – at time of bankruptcies first mortgagee about to exercise power of sale – bankrupts paid arrears of moneys owing under first mortgage – bankrupts paid all instalments of principal and interest falling due under first mortgage – made further payments in reduction of principal – bankrupt husband carried out substantial refurbishments – bankrupt wife paid all rates and taxes – bankrupts heard nothing further from trustee about his intentions in relation to the property for over four years – property increased in value – trustee then decided to sell the property – applied to the Federal Magistrates Court for vacant possession – bankrupts applied for declaratory and other relief – Magistrate found that trustee had made no "specific representation" that he would allow bankrupts to keep the property if there was no equity in it – Magistrate found that trustee knew that appellants were making payments under the first mortgage – also found that appellants had made lump sum reductions in the principal owing under the first mortgage –Magistrate held that it would be unconscionable for the trustee to retain the benefit of the bankrupts' expenditure on preserving the property – held that some restitutionary order by way of compensation should be made – refused to make any such order at all in relation to bankrupt husband on basis that his "equity" constituted after-acquired property – made small compensatory order in respect of bankrupt wife for similar reasons and confined her entitlement to payments made since her discharge from bankruptcy – whether Magistrate erred in law – whether trustee had induced appellants into an assumption that he had abandoned any interest in the property – whether facts gave rise to equitable estoppel – nature of appropriate relief.