FEDERAL COURT OF AUSTRALIA Sheahan (Trustee) in the matter of Frost (Bankrupt) v Frost (No 3) [2012] FCA 588 Citation: Sheahan (Trustee) in the matter of Frost (Bankrupt) v Frost (No 3) [2012] FCA 588 Parties: JOHN SHEAHAN AS TRUSTEE OF THE BANKRUPT ESTATE OF ALLEN GEORGE FROST v ALLEN GORDON FROST and PAUL ANTHONY RICHARDSON File number: SAD 185 of 2009 Judge: MANSFIELD J Date of judgment: 5 June 2012 Date of hearing: 5 June 2012 Date of last submissions: 5 June 2012 Place: Adelaide Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 17 Counsel for the Applicant: S J Doyle Solicitor for the Applicant: Gretsas & Associates Lawyers Counsel for the Respondents: D Riggall Solicitor for the Respondents: Richardson Lawyers IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 185 of 2009 BETWEEN: JOHN SHEAHAN AS TRUSTEE OF THE BANKRUPT ESTATE OF ALLEN GEORGE FROST Applicant AND: ALLEN GORDON FROST First Respondent PAUL ANTHONY RICHARDSON Second Respondent JUDGE: MANSFIELD J DATE OF ORDER: 5 JUNE 2012 WHERE MADE: ADELAIDE THE COURT DECLARES THAT: 1. Ambrose Baker & Partners (Holdings) Pty Ltd holds the property comprised and described in Certificate of Title Register Book Volume 1822 Folio 199 being the land situate at 252 Angas Street, Adelaide, in the State of South Australia, as registered proprietor of the fee simple in its own right and not as a trustee. 2. The one of two issued shares in Ambrose Baker & Partners (Holdings) Pty Ltd held in the name of Allen Gordon Frost at the time of his bankruptcy on 4 September 2000 vested in John Sheahan in his capacity as trustee of the bankrupt estate of Allen Gordon Frost. 3. Mortgage No. 8645792 dated 27 January 1999 registered on Certificate of Title Register Book Volume 5579 Folio 181 and granted to Paul Anthony Richardson in respect of land situate at 29 Mayflower Crescent, Hallett Cove in the State of South Australia (the Mayflower Crescent Property) is void against John Sheahan in his capacity as trustee of the bankrupt estate of Allen Gordon Frost pursuant to the provisions of s 121 of the Bankruptcy Act 1966 (Cth). 4. Mortgage No. 8843522 dated 1 February 2000 registered on Certificate of Title Register Book Volume 5579 Folio 181 and granted to Paul Anthony Richardson in respect of land situate at 29 Mayflower Crescent, Hallett Cove in the State of South Australia is void against John Sheahan in his capacity as trustee of the bankrupt estate of Allen Gordon Frost pursuant to the provisions of s 121 of the Bankruptcy Act 1966 (Cth). AND THE COURT ORDERS THAT: 5. Allen Gordon Frost be at liberty to purchase for the sum of $145,000 (free of encumbrances, to the extent that they are invalid as against John Sheahan) the half interest held by John Sheahan in the Mayflower Crescent property (by reason of John Sheahan being the trustee of the bankrupt estate of Allen Gordon Frost) by indicating in writing to John Sheahan at his address for service in these proceedings within 14 days that he accepts the offer made by John Sheahan in Court on 10 May 2011 to sell to him the said half interest for $145,000, and by paying the said sum of $145,000 (subject to all proper adjustments for payments made in respect of rates, taxes and other routine outgoings) at settlement within 28 days of the written acceptance of that offer in exchange for a duly executed transfer by John Sheahan of the one half interest in the Mayflower Crescent property. 6. If Allen Gordon Frost does not give the written notice referred to in Order 5 hereof within 14 days or, having given such notice, does not pay the purchase price at settlement in accordance with Order 5 hereof, then: (a) the Mayflower Crescent property is to be sold in accordance with the timetable and terms set out in this Order; (b) the sale is to take place through a licensed land agent who shall be appointed by written agreement between John Sheahan and Allen Gordon Frost, or in default of agreement, each of John Sheahan and Allen Gordon Frost shall nominate in writing in a letter to the Registrar of the Court, with a reference to this proceeding, two licensed land agents accompanied by a letter from each nominated licensed land agent setting out the recommendation for the means of selling the said property, and the fees of the licensed land agent and any other anticipated costs for doing so, and indicating whether that licensed land agent has had the opportunity of inspecting the said property and setting out any recommendations of that licensed land agent for any work to be carried out to the said property for the purpose of securing the best price reasonably obtainable for the said property and a rough estimate of the cost of having such work carried out and the time it is anticipated for such work to be carried out; (c) for the purposes of Order 6(b) Allan Gordon Frost shall provide reasonable access to the said property during normal business hours upon two days written notice so that each of the two licensed land agents proposed to be nominated by John Sheahan may inspect the said property and, following such inspection, each of them may revise any letter referred to in Order 6(b) following such inspection; (d) the nominations and letters referred to in Order 6(b) hereof shall be provided to the Registrar of the Court, who shall then make a recommendation (the recommendation) to the Court about the appointment of a licensed land agent to sell the said property and the terms of the sale (including as to any work to be done to the said property before the sale) and shall by letter send the recommendation to John Sheahan and Allen Gordon Frost, and unless either of them indicates within three days of the date of that letter by letter to the Registrar that they do not accept the recommendation, the recommendation shall become a direction of the Court appointing the licensed land agent in terms of the recommendation and if either of them gives such notice the Registrar shall arrange a directions hearing for the purpose of hearing the parties before the appointment of a licensed land agent to sell the Mayflower Crescent property; (e) Allen Gordon Frost shall grant to the licensed land agent so appointed access to the Mayflower Crescent property upon the provision of reasonable notice and during normal working hours for the purpose of inspecting and photographing the Mayflower Crescent property in preparation for its listing, marketing and sale; (f) if the licensed land agent recommends the expending of any monies towards the repair, cleaning, landscaping, painting or general maintenance of the Mayflower Crescent property (the works) in preparation for its listing, marketing and sale, then Allen Gordon Frost and John Sheahan shall provide notice to the other of the details of the works and shall retain and provide to the other party copies of all invoices and receipts in connection with the works (the costs of the works); (g) the Mayflower Crescent property is to be offered for sale by public auction or as the licensed land agent has recommended to be effected no later than four weeks after the appointment of the licensed land agent or, in the event that the works are undertaken, within four weeks from the completion of the works; (h) the advertising budget for the marketing of the Mayflower Crescent property shall be in the sum of $3600 or such lesser sum as the licensed land agent shall have determined; (i) the reserve price shall be the sum of $290,000.00 or such other sum as agreed to in writing by John Sheahan and Allen Gordon Frost; (j) if the Mayflower Crescent property is to be offered for sale by public auction, and in the event that the Mayflower Crescent property is not sold within 60 days of the date the four week period fixed under Order 6(g) hereof, it may be sold for the sum of $270,000.00 or such other sum as agreed to in writing by John Sheahan and Allen Gordon Frost; (k) in the event that the Mayflower Crescent property is not sold within 90 days of the said date then either party may re-list the matter for further directions; (l) in the event that the Mayflower Crescent property is sold, the net proceeds of sale shall be applied as follows: (i) the agreed commission to the licensed land agent; (ii) the reasonable disbursements of the licensed land agent including any advertising and marketing costs and the fees and disbursements of any conveyancer duly appointed, in accordance with the recommendation; (iii) a sum of money to John Sheahan or Allen Gordon Frost by way of a full reimbursement of the cost of the works; (iv) as to 50% of the balance of the sale proceeds, to John Sheahan as trustee of the bankrupt estate of Allen Gordon Frost; and (v) as to 50% of the balance of the sale proceeds to Allen Gordon Frost, subject to him having provided to the licensed land agent the written consent of Paul Anthony Richardson to Allen Gordon Frost authorising the licensed land agent to pay that sum to Allen Gordon Frost or alternatively, to the extent referred to in (m) hereof to Paul Anthony Richardson; and (m) for the purposes of this order, in the event that one half of the Mayflower Crescent property is to be transferred by John Sheahan to Allen Gordon Frost, Paul Anthony Richardson shall at his expense consent to the said transfer and in the event that the Mayflower Crescent property is sold, Paul Anthony Richardson shall at his expense file with the Registrar General of the Lands Titles Office in a form approved by the Registrar General applications to discharge both the mortgages referred to in Order 3 and 4 hereof but so that, to the extent that Paul Anthony Richardson holds security over the said property as against Allen Gordon Frost the discharge of the said mortgages shall be effected contemporaneously with the payment of the sum referred to in Order 6(l)(v) hereof. 7. Allen Gordon Frost be at liberty to purchase for the sum of $157,500 the interest held by John Sheahan in one of the two shares in Ambrose Baker & Partners (Holdings) Pty Ltd as trustee of the bankrupt estate of Allen Gordon Frost by indicating in writing to John Sheahan at his address for service in these proceedings within 14 days that he accepts the offer made by John Sheahan in Court on 10 May 2011 to sell to him the said interest in that share for $157,500 at settlement within 28 days of the written acceptance of that offer in exchange for a duly executed transfer by John Sheahan of that interest. 8. The stamp duty and other costs normally borne by a purchaser or vendor on the transfers referred to in Orders 5, 6 and 7 hereof be borne in accordance with law and with normal conveyancing practice. 9. There be liberty to either Allen Gordon Frost or John Sheahan to apply on short notice in the event that, for any reason, it becomes necessary or desirable for proper reason to vary any of Orders 5, 6 and 7 hereof, including in the event that Allen Gordon Frost does not accept the offer referred to in Order 7 hereof and that either Allen Gordon Frost or John Sheahan seek some further order or orders to realise the value of the share held by John Sheahan in Ambrose Baker & Partners (Holdings) Pty Ltd. THE COURT FURTHER ORDERS THAT: 10. In relation to Order 5 of the Orders made today, or in the event that the Mayflower Crescent property is to be offered for sale in accordance with Order 6, and in the event that Allen Gordon Frost and John Sheahan do not agree about the proper adjustment, for rates, taxes and like expenses, to be brought to account: (i) each of Allen Gordon Frost and John Sheahan within 14 days following settlement do file and serve a brief memorandum setting out: (a) the nature of the dispute, including the amounts in issue; (b) the facts which are relevant to resolution of the dispute; and (c) a brief outline of contentions as to how the dispute should be resolved. (ii) The issue, if enlivened by compliance with Order 10(i), be adjourned for further directions on a date to be fixed. 11. Allen Gordon Frost pay John Sheahan the costs of the proceeding and Paul Anthony Richardson pay John Sheahan 50% of the costs of the proceeding to the intent that Allen Gordon Frost and Paul Anthony Richardson shall be jointly liable for 50 per cent of the costs of the proceeding. 12. If Allen Gordon Frost does not give the written notice referred to in Order 7 hereof within 14 days, or, having given such notice, does not pay the purchase price at settlement, John Sheahan and Ian Lock be appointed as the joint receivers over Ambrose Baker & Partners (Holdings) Pty Ltd for the purpose of arranging for the listing, marketing and sale by public auction of the property at 252 Angas Street SA 5000 ("the Angas Street property"). The reserve price shall be $500,000 and the joint receivers shall distribute the net proceeds of sale after the discharge of the first registered mortgage to Australian Investment Co Pty Ltd and the reasonable selling costs as between Allen Gordon Frost and John Sheahan on a 50-50 basis. 13. The aforesaid joint receivers are not to charge any professional fees in relation to the aforesaid receivership and are to file and serve a Statement of Account verified by affidavit concerning the sale of the property and the application of the net proceeds of sale within 28 days of the sale and settlement of the Angas Street property. 14. The joint receivers have liberty to apply on 48 hours notice in connection with the receivership. 15. There be liberty to either Allen Gordon Frost or John Sheahan to apply on short notice in the event that, for any reason, it becomes necessary or desirable for proper reason to vary any of Orders 6 to 14 hereof. 16. The applicants on the stay application (the respondents on the proceeding) pay to John Sheahan the costs of and ancillary to the application to amend the orders dated 21 June 2011. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 185 of 2009 BETWEEN: JOHN SHEAHAN AS TRUSTEE OF THE BANKRUPT ESTATE OF ALLEN GEORGE FROST Applicant AND: ALLEN GORDON FROST First Respondent PAUL ANTHONY RICHARDSON Second Respondent JUDGE: MANSFIELD J DATE: 5 JUNE 2012 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 There are two applications before the Court today. The first is an application by Allen Gordon Frost and Paul Anthony Richardson to stay the orders made at first instance on 21 June 2011 until further order, but in essence until the hearing and determination of an application by the applicants for special leave to appeal from the decision of the Full Court of this Court, given on 28 March 2012, dismissing an appeal from the decision given at first instance: Frost v Sheahan as Trustee of the Bankrupt Estate of Allen Gordon Frost [2012] FCAFC 46. 2 The principles upon which the Court would grant a stay are uncontentious. They are discussed, for instance, in the decision in Jennings Construction Ltd v Burgundy Royale Investments Proprietary Ltd (No 1) (1986) 161 CLR 681, and in Bryant v Commonwealth Bank of Australia (1996) 134 ALR 460. 3 In my view, the application for a stay as presently expressed should be refused. Having been the primary judge whose decision has been upheld by the Full Court, I am a little cautious about measuring in any real way the prospects of the respondents getting special leave to appeal. However, the concluding paragraphs of the decision of the Full Court, in particular at paragraph [74], indicate the basis upon which the Full Court dismissed the appeal. It was dismissed simply because the applicants on this application (the respondents) were endeavouring to revisit significant findings of fact made adversely to them. If that were the case, it would be fair to say that the prospects of getting special leave to appeal are slight. 4 The application for special leave to appeal and the summary of argument identifies some other questions, in particular the application of s 29 of the Law of Property Act 1936 (SA) (the Law of Property Act), the proper construction of s 121(5) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) and thirdly, an issue as to the provision of procedural fairness to the second respondent on the first instance hearing. As to s 29 of the Law of Property Act, it is correct to say that that matter was a subsidiary issue at trial, and founded only an alternative basis for deciding the matter in the way in which it was decided. It was not a matter addressed by the Full Court. In relation to the proper construction of s 121(5) of the Bankruptcy Act, that too is a subsidiary question which did not become significantly enlivened because of the adverse findings of fact at first instance. In relation to the issue of procedural fairness accorded to the second respondent, that was addressed in the decision of the Full Court, and decided adversely to the second applicant on the particular facts. 5 I am not prepared to say that there are no prospects of the respondents getting special leave to appeal, but I think it is a fair assessment in the circumstances to say that their case is not strong. 6 It is also necessary to consider whether it is appropriate and necessary to preserve the subject matter of the proceedings pending the hearing and determination of the application for special leave to appeal. It has been put that the subject matter of the appeal, in essence, are two properties, in the primary judgment called the Angas Street property, and the Mayflower Crescent property. 7 In relation to the Angas Street property, it is a commercial property. Both the respondents occupy office premises within it. There is no special reason to think that the respondents, if the sale is effected prior to the hearing and determination of the special leave to appeal application, and if ultimately the appeal to the High Court is successful, would be significantly disadvantaged by the sale of that property. There is no reason why the two applicants could not secure a commercial lease of the premises they presently occupy. 8 In relation to the Mayflower Crescent property, which is the home of the first respondent, there is perhaps more reason to be cautious about an order which would lead to the sale of that property prior to the hearing and determination of the application for special leave to appeal. However, I am mindful of the long history of the first respondent's interest in that property, and the extensive opportunity he has had in the past to acquire that property, or the half interest in that property which he presently does not hold. There is no reason why he cannot participate in the sale of that property as an active buyer, he being already a holder of a half interest in that property. 9 In the circumstances, I do not think that preservation of the subject matter of the proceeding in its present form as real estate, in a practical sense, is so significant as to warrant the grant of a stay of the proceeding, in any event. I am also mindful of the fact that following the primary decision, by order of 21 June 2011, both the respondents were given an opportunity to acquire each of those properties or, more accurately, in relation to the Angas Street property, the share in the property-owning company, which the first respondent did not then hold. That opportunity has not been taken up. If either property is sold, the proceeds of sale would be available to them to the extent any decision of the High Court decided they had that entitlement. 10 In any event, I do not have evidence before me to indicate why they have not taken up the opportunity to acquire the outstanding interest on those properties (or the share in the holding company). There is no evidence to indicate that either of the respondents is, or is likely to be, in a position to acquire those properties, either now, or even if their appeal is successful. I do not have any evidence as to their efforts to acquire those properties from the trustee of the bankrupt estate of the first respondent, or that share in the holding company for the Angas Street property, notwithstanding the opportunity which has been available to him to do so. I do not know whether there has been any attempt to secure borrowing to do that and, if so, to what extent there was proposed to be an equity contribution from the first respondent or indeed from the second respondent and how much was required to be borrowed. I also take into account that the trustee is prepared to extend a further opportunity to the respondents to acquire those two properties before the trustee proceeds to give effect to the rights determined by the decision at first instance. 11 There is a further affidavit of Ian Lock sworn on 4 June 2012 which seeks to add to some further insight into the opportunity of the first applicant to have acquired an interest in those properties from the trustee. I have not taken that affidavit into account because counsel for the two respondents on this application has indicated that he had not previously seen that affidavit and had not had the opportunity to take instructions in relation to it. Accordingly, to the extent to which it adds further information I simply have not put that into the balance. 12 Nevertheless on strong balance, applying the principles to which I have referred, the stay application should be refused and I so order. 13 The second application is by the trustee of the bankrupt estate of the first respondent in the primary proceedings, to vary the orders made on 21 June 2011. The proposed variation is to extend for a further 14 days the opportunity for the first respondent to take steps to acquire either the Mayflower Crescent property or to acquire the remaining share in the holding company in relation to the Angas Street property on terms which were previously identified. I see no disadvantage to the first respondent being given that opportunity. I propose to vary orders 5, 6 and 7 of those orders by substituting for the date 19 July 2011 where it appears, the words "within 14 days". I propose also to vary order 10(i) by deleting the date 28 July 2011 and substituting the words "within 14 days following settlement". I also propose to vary order 10(ii) by deleting the date and time to 9 am on 4 August 2011 and substituting "on a date to be fixed". 14 There are some further proposed orders which deal with the manner of dealing with the Angas Street property through the holding company Ambrose Baker & Partners (Holdings) Pty Ltd. It was contemplated at the time of the orders of 21 June 2011 that if the first respondnet did not take up the opportunity to buy the share in the Angas Street property some steps would be necessary to enable the holding company (of which the first respondent holds one share and Mr Sheahan as his trustee the other) to dispose of that property. I will add to the orders made on 21 June 2011, in addition to the variations I have made today, the proposed orders. [They are on the proposed order on the penultimate page of the minutes before me numbered 12, 10, 11, 12 and 13, so that they will become 12, 13, 14, 15 and 16. I will not adopt the alternative which is proposed. 15 It may well be that by the time those steps are taken the application for special leave to appeal will have been heard and determined by the High Court. Of course if special leave to appeal is granted, it would be appropriate for the respondents to the primary proceedings to reconsider whether they then seek a stay of the orders made on 21 June 2011 and as varied today, and the further orders which I have made today. 16 I will make orders therefore reflecting those variations and the additional orders which I referred to in terms of the document which I now initial and date. Rather than simply make orders which make the changes, I will make the orders of 21 June 2011 as revised and supplemented as a fresh set of orders for better comprehensibility. 17 On the stay application, I will order that the respondents (the applicants on the application) pay the costs. So it is clear, Mr Frost and Mr Richardson pay the costs of the respondent to that application, that is, Mr Sheahan as trustee of the bankrupt estate of Mr Frost. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate: Dated: 5 June 2012